Arab Bank Group Annual Report 2012 T AB

CHAIRMAN’S MESSAGE 4 L

E O E CEO’s Message 6 Board of Directors’ Report F

CON - MAIN BUSINESS ACTIVITIES OF ARAB BANK 10 - Geographical Coverage 14 - Branches & Staff Distribution According to Governorates 15 T

EN - Addresses of Arab Bank Branches and Offices Abroad 16

T - tOtal Employees of Arab Bank Group 20 S - Capital Investment of Arab Bank 21 - Subsidiaries & Sister Company 22 - dEtailed Information on the Bank’s Subsidiaries & Sister Company 34 - MEMBERS OF THE BOARD OF DIRECTORS 39 - SENIOR EXECUTIVES 49 - NUMBER OF SHARES OWNED BY MAJOR SHAREHOLDERS AS AT 31 DECEMBER 2012 & 2011 65 - Competitiveness and Market Share 66 - pAtents & Government Protection 68 - Major Suppliers and Clients 69 - Government or International Organizations Regulations 70 - Arab Bank Organization Chart / Head Office 71 - NUMBER OF STAFF AND ACADEMIC QUALIFCATIONS 72 - tRAINING Courses vs. Trainees in Jordan & Arab Areas in 2012 Matrix 74 - RISK MANAGEMENT 76 - Accomplishments 2012 87 - fINANCIAl Impact of Non-Recurring Operations 91

2 T AB

- tIME Series Data for Major Financial Indicators (2008 – 2012) 92 L

- fINANCIAl Performance 93 O E - fUTURE OUTLOOK AND PLANS FOR 2013 102 F

- External Auditors’ Compensation in jordan and abroad 105 CON - Number of Arab Bank Shares Owned by Members of the Board 106 - Number of Arab Bank Shares Owned by Senior Executives 108 T

- Number of Arab Bank Shares Owned by the Relatives of the Board Members 110 EN

- Number of Arab Bank Shares Owned by the Relatives of the Senior Executives 114 T S - Board Compensation and Benefits in 2012 118 - Executive Management compensation and benefits in 2012 120 - Arab Bank’s Donations during Year 2012 122 - tRANSACtions with Related Parties 123 - ENVIRONMENTAL PROTECTION 125 - CORPORATE SOCIAL RESPONSIBILITY 128 ARAB BANK GROUP 137 - Consolidated Financial StatementS FOR THE YEAR 2012 - INdependent auditor’s Report 210 ARAB BANK PLC 213 - fINANCIAl StatementS FOR THE YEAR 2012 - INdependent auditor’s Report 284 ATTESTATION STATEMENTS 286 CORPORATE GOVERNANCE GUIDE 289 the agendas of the 83rd annual ordinary general assembly meeting and the 304 Extraordinary General Assembly addresses of arab bank major branches, subsidiaries, affiliates and sister company 305

3 CHAIRMAN ,

S MESSAGE S Distinguished Shareholders,

The financial crisis, which started approximately five years ago, has affected the global economy greatly creating unprecedented challenges for most economies across the world. Despite the fact that many of these challenges still persist with high levels of uncertainty, there are some signs of recovery globally, including some positive indicators of certain economic data in the United States as well as avoiding worst case scenarios in other markets. In addition, the increased likelihood of resolving the debt crisis in Europe has created a more optimistic outlook on the overall global economic situation. The slowdown of the global economy and its inconsistent performance, along with shrinking investment flows, rising unemployment rates in addition to difficulties in coordinating decision making within countries and between influential countries indicate that the path ahead remains difficult for the foreseeable future.

As for the region, the transformations that the Arab world has witnessed and is still witnessing, have created a whole new set of circumstances which has affected the economic situation in most of the Arab world in terms of opportunities and challenges. While some of the countries in the region have moved forward in implementing economic and financial reforms, and the first signs of recovery started to appear in some of the Arab financial markets, there is still a prevailing state of caution across the business and investment environment in the region. This cautious state is driven primarily by the low growth rates in several Arab countries as well as growing public budget deficits, increased public debt levels and unemployment rates.

The banking industry is at the heart of these economic developments, as it is considered one of the most affected and, to a greater extent, also the most pivotal in these financial and economic situations. It is at this point that the banking industry, regionally and globally, continues to deal with a number of challenges imposed by the economic crisis. Accordingly banks continue to develop their strategies and policies, prioritizing risk management and strong corporate governance practices to optimize and improve the overall banking industry over the long term in order to better cope with such crises.

Despite these difficult conditions and constantly changing environment ona global and regional level, we at Arab Bank stayed true to our banking principles relying on our extensive experience in dealing with the region’s challenges.

4 CHAIRMAN

The Bank’s sound strategy in combination with its accumulated experience and prudent banking approach played a great role in the Bank’s ability to deal with the current challenges in the region. Accordingly the Bank was able, given its exemplary reputation and the high level of trust it enjoys, to continue being a safe haven for deposits and investments of a wide spectrum of individual and corporate customers across the Arab world. This is reflected in the positive results , achieved by Arab Bank during the year, whereby our profits grew 15% compared MESSAGE S to the previous year.

We stand today at the beginning of a new era for Arab Bank’s journey of success; a journey which was founded by the Shoman family over eight decades ago. I take this opportunity to affirm the Bank’s commitment to continue its successful journey locally, regionally and globally based on our long-standing values and sound strategic direction built on the foundations of institutionalized work ethics and prudent financial policies.

Today we look to the next phase of Arab Bank’s journey with optimism, standing fully-confident that we are at a forefront of a new era of leadership and outstanding performance which will benefit our shareholders, customers, employees and the communities where we operate.

In conclusion, I would like to thank the Central Bank of Jordan for the effective and vital role that it plays in maintaining the safety and stability of the Jordanian banking sector.

My sincere thanks and appreciation also go to our customers for their continued trust and patronage. I would also like to thank our employees in the different areas for their outstanding performance, professionalism, loyalty and dedication to their institution, assuring you of our ongoing commitment to continue our journey of success and accomplishments.

Sabih Taher Masri Chairman of the Board of Directors

5 Board of of Board Report D irectors ,

M essage f

rom Distinguished Shareholders,

Arab Bank Group has continued to achieve outstanding results despite the eco-

t nomic challenges globally and regionally. During the 2012 financial year, the

he Group has managed to achieve a growth in net profit after provisions and taxes of 15% to reach USD 352.1 million compared to USD 305.9 million in 2011. Profits

C before taxes equaled to USD 562.9 million dollars. The growth in profits comes as results of an increase in operating revenue. hie This outstanding performance reflects Arab Bank Group’s ability to handle and cope with any evolving circumstances and still achieve the best possible results f E f relying on a strong and solid banking foundation, prudent credit policies, diligent monitoring by the Bank’s management and strategies and policies development, xecu ensuring the necessary steps are implemented to maintain and enhance the Bank’s position building on its capabilities. In parallel to profit growth, the Group’s deposits increased by USD 1.2 billion to reach USD 32.9 billion in 2012 compared to USD 31.7 billion at the end of 2011. This increase in the volume of deposits t indicates the great trust instilled by Arab Bank customers which continues to be ive reinforced year after year. Net operating income during the year grew by 8% as a result of a healthy increase Off in net interest income and maintaining operating expenses under control, taking into consideration the provisions that have been accounted for as income. Arab Bank has continued its prudent policies with regards to its asset quality and credit icer portfolio, and has in that respect, fully provided for the exposures of Saad and Al Gosaibi, and has increased the provisioning coverage on all non performing loans to reach in excess of 100%, excluding the value of held collaterals . , The capital adequacy ratio at the end of 2012 equaled to 15.1% almost double the 8% minimum required by the Basel Committee and higher than the minimum required by the Central Bank of Jordan of 12% which reflects the strong capital base of the Bank. In 2012 Arab Bank has received numerous international awards and recognitions in various fields, earning BestT rade Finance Provider in the Middle East and North Africa, Best Project and Infrastructure Finance Provider in the Middle East and Best Consumer Internet Bank in Jordan for the fourth consecutive year from Global Finance magazine. In addition Arab Bank was also named Best Bank and Best In- vestment Bank in Jordan for four years in a row and Best FX and Cash Manage-

6 Message from the Chief Executive Officer, Executive Chief the from Message ment service provider in the Middle East from the global financial magazine EMEA Finance. The Banker magazine also named Arab Bank as Bank of the Year in addition to being recognized as Best Bank in Jordan for the fifth consecutive year by Euromoney magazine. Since its establishment, Arab Bank maintains its contributions to the development of Arab economies by playing an effective and critical role in funding vital projects in addition to promoting intra-regional and global trade. The Bank has also focused on supporting small and medium enterprises (SMEs) through the establishment of a specialized unit to serve this sector. This new unit will provide banking solutions that will allow SMEs to obtain the necessary funding for the expansion and revitalization of their business, supporting efforts for a creation of tangible added value to the economies of the countries where the Bank is present. This should achieve a marked increase in the rate of economic growth and contribute to decreasing unemployment rates which accompanied the symptoms of the global economic crisis in those countries. During the coming period, the Bank is looking to achieve a set of key objectives, particularly strengthening the competitive position of the Bank to remain at the forefront of regional banks. The Bank will continue to build on its most important strategic priority and that is to focus on the basics of sound banking including prudent policies when it comes to credit, investments, capital deployment and maintain high levels of liquidity supported by solid deposits from diverse sources. In addition to this, the focus on effective risk management in a carefully studied manner is core to our strategic approach. Topping the list of strategic priorities is the focus on customer service by utilizing the Bank’s resources and its branch network to provide the highest levels of service to our customers across various segments to meet their needs and fulfill their aspirations. Our approach coupled with an integrated risk management policy, based on the application of the Basel Committee requirements and that of regulatory authorities in the different countries, and enhancing the efficiency and effectiveness of internal compliance measures, reinforces the Bank’s active contribution to the economies of the countries that it serves. In conclusion, I would like to thank our customers for their continued trust in us and I would also like to thank all our employees for their loyalty, dedication and their professionalism in their job duties and responsibilities.

Nemeh Sabbagh Chief Executive Officer

CHAIRMAN , S MESSAGE S

9 Board of of Board Report D irectors , تقرير مجلس اإلدارة تقرير مجلس اإلدارة

M ain

B Corporate and Institutional Banking Group:

usiness The year 2012 was a challenging time for the Corporate and Institutional Banking Group (CIB) as it had to cope with numerous difficult circumstances taking place in the Arab world, steer clear of the ongoing European debt crisis, deal with economies under pressure, face higher liquidity costs and contend with tougher capital requirements. Nonetheless, CIB was able to navigate through these murky waters driven by its prudent approach, its circumspect handling

A of client requirements, its balanced approach to risk taking and its tight control over a growing credit portfolio. Despite the turbulent year, CIB’s relentless pursuit c to overcome these challenges led to favorable results as shown by a continued t upward trend in its revenues and net earnings for 2012. This positive trend is ivi expected to continue into 2013 based on the solid platform CIB has in position

t and the dedicated teams employed.

ies This platform is structured such that CIB is able to quickly respond to the financing needs of a diverse group of corporate customers located throughout the regions

it serves. CIB’s wide range of products, competitive pricing, precise execution and o its long standing commitment to helping clients meet their financial objectives f f are the primary ingredients of this platform. arab Arab Bank’s vast experience in the corporate field and its constant investment in technology and innovation of its products and services have made it one of the leading banks when it comes to dealing with corporate clients.

It is also worth mentioning that CIB is focused on conducting corporate bank transactions with efficiency, speed and at a high level of service to ensure efficient business operations in a cost effective manner that is sustainable and ultimately benefits the customer, which is the foundation of our business development. Corporate commercial transactions including the management of liquidity and cash payments in addition to the efficient handling of trade finance transactions are a priority at Arab Bank. The Bank takes the lead in developing top-of-the-line products and services to cater for corporate customers’ banking needs, providing companies with a multitude of channels to perform transactions efficiently which include cross-border account management to domestic account and balance reporting tools, liquidity and investment management, payment and collection management solutions as well as the critical trade finance solutions. Arab Bank’s corporate clients can use the Corporate@Arabi platform to manage their accounts, cash balances instantly and choose from a variety of services to meet their needs. CIB leverages its global network to best service its institutional and corporate clients thus ensuring the seamless delivery of products and services swiftly, efficiently and with the highest standards of service excellence.

10 M ain

Arab Bank’s strong loan structuring, underwriting and distribution capabilities coupled with its wide range of products, industry expertise and unparalleled B

MENA coverage ensures we are one of the leading providers of financing usiness solutions in the Middle East. In-depth knowledge of Arab world markets, sound capitalization, solid reputation and long standing history make us the preferred choice of companies located in the region. For example, Arab Bank worked with one of our largest fertilizer clients to restructure their overall finances in order for them to quickly grow their international operations by repositioning their debt load in the optimal location. A

The withdrawal of numerous banks from MENA project financing has allowed CIB c to step up its game in terms of providing advisory services, underwriting, and t funding and guarantee issuance for numerous noteworthy projects in the MENA ivi region. t

There are many other examples of Arab Bank’s participation in financing ies important projects in Jordan and many countries across the Middle East such

as core infrastructure projects in UAE and the petrochemical field in Saudi Arabia. In addition the Bank was involved in other projects such as real estate o development in Qatar. The Bank witnessed a rise in issued guarantees in the Arab f

Gulf and the Middle East and North Africa. More information can be found in the arab Accomplishments section of this report. Despite the economic challenges, CIB maintained its commitment to provide clients with high levels of banking services and products. In fact CIB stepped

up its efforts during these difficult times to ensure our customers’ needs are still bank being met and building on these corporate relationships. CIB strictly focuses on products and relationships that bode well for the long term health of our credit portfolio, fall in line with Arab Bank’s overall strategy and provide an acceptable return to our shareholders. Arab Bank has recently expanded its small and medium enterprise (SME) financing unit as part of its leading role in developing this important sector which will in turn reflect on Arab Bank’s role to support economic growth in the Kingdom. This direction also comes as part of the Bank’s belief that this sector will have a critical role in the local economy by providing employment opportunities and sustainable development. Within this direction, Arab Bank launched a specialized SME unit to provide comprehensive solutions with added benefits to meet the needs of this sector. This specialized unit is focused on products and services and financing built around the demands of small and medium companies in order to build their capacities and potential for growth. In addition, this unit will support the

11 companies to meet their business goals to ultimately positively impact the local community across many dynamic sectors such as manufacturing, services, education and health. Providing SMEs with the needed financing and service to meet their demands is an integral part of CIB’s operations which witnessed in 2012 a renewed focus within the framework of the Bank’s overall strategy in light of the economic developments in the region.

Consumer Banking Group M As part of the Consumer Banking Group’s continuous efforts to cater to its diverse ain and international customers, the Bank has launched a range of various products, programs and campaigns during 2012, designed to meet the banking and non-

B banking needs of its customers and enhance their satisfaction levels across all the

usiness countries where Arab Bank has a presence. The Group’s activities were specifically programmed and designed for each country, taking into account customers’ exact needs in addition to the specific economic environments. In order to cater to the markets’ requirements, a substantial number of Consumer Banking activities took place throughout the year, where three major programs in

A addition to various product-specific campaigns were introduced in the seven key

c countries.

t Given the Bank’s regional presence; Consumer Banking has continued its ivi commitment to offer non-resident Arab customers living in UAE, Qatar and Bahrain, easy and practical services to cater to their specific financial needs. t Consumer Banking is working hard to complete and launch mobile phone and ies smart device banking service that aims to provide customers with an effective channel for conducting their transactions. The new mobile service includes

o features to locate ATMs and branches. The service will also enable customers to

f f inquire about products and to request them easily. This is in addition to a variety

arab of services including account inquiries, transfers, bill payments and credit card functions as well. Work is also underway on the development of systems designed to create effective means and direct communication with customers and address them in various fields over the Internet with the “Arabi Online” service. When

customers use this service, whether to ask about promotions or offers, there will bank be an enhancement in the delivery of important information related to customers to encourage the use of electronic channels as a convenient alternative to conducting business at the branches.

It is important to mention here that Arabi Online, Arab Bank’s Internet banking service, has received for the fourth consecutive year, the award for Best Consumer Internet Banking Service from Global Finance magazine. “Know your customer” is an important concept to keep up-to-date customer information and to stay in touch with them, which increases the effectiveness of providing banking services to them. To this end, the Bank is working on the establishment of an integrated system including promoting this concept across all communication channels such as Arab Online, ATMs , the telephone service Hala Arabi, and SMS in addition to the branches. Consumer Banking is also working on creating an integrated system for the immediate release of smart-chip Visa Electron ATM cards and to keep up with the latest technology and minimize the risks associated with magnetic cards. Work is also underway on a variety of projects such as launching ATMs and their 12 cards in Algeria and direct foreign remittances transactions just to name a few. Treasury: Arab Bank’s Treasury manages the Bank’s liquidity and actively manages the Bank’s exposure to movements in foreign exchange rates and interest rates. Furthermore, Arab Bank’s Treasury provides advisory and dealing services to Arab Bank’s customers globally.

Arab Bank has always been proud of its record in maintaining a highly liquid balance sheet, and never more so than in 2012. Despite persistent volatility in the financial markets, Arab Bank’sT reasury maintained the Bank’s strong liquidity position, in a way which is fully consistent with the Bank’s policies. It should be M particularly noted that: ain • the Bank’s investment in liquidity governance processes means that Arab

Bank has even better control over its liquidity than ever before, and is B extremely well positioned to deal with the market environment in 2013 and beyond. usiness • the Bank’s securities portfolios are very high quality, primarily sovereign debt, and extremely well diversified. Despite rising and volatile interest rates in 2012, the portfolios performed very well and delivered very good returns.

• the Bank’s conservative appetite for foreign exchange risk ensured that A despite operating in over 40 currencies, the Bank was well protected against the very high volatility in the world’s financial markets, and able to deliver c extremely stable earnings from foreign exchange activity. t ivi

Arab Bank Treasury also had a very successful year in directly and indirectly t supporting Arab Bank’s customers’ needs for foreign exchange and derivatives. ies

A strong focus on Treasury Sales services resulted in increased volumes of foreign o exchange transactions with our customers in 2012. With Treasury Sales services f

available in every country in which Arab Bank operates, whether our customers are arab exporters, importers or savers, Arab Bank’s leading position in the MENA markets have meant that more customers than ever benefitted from our unrivalled access to the region’s foreign exchange markets.

bank For our customers, just as for ourselves, Arab Bank believes that derivatives can be of great value in protecting income and value for businesses. In 2012 the Bank’s Treasury Structured Solutions Group maintained its position as a leading source of foreign exchange and interest rate risk hedging expertise in the region. The team, which specializes in helping Arab Bank’s customers to protect their balance sheets and income from market volatility, advised on or executed deals throughout the region in 2012. Examples include: • foreign exchange options for customers importing goods and raw materials from Europe and Japan • Interest rate swaps through which customers matched or linked the cost of USD and EUR borrowing to the corresponding income, eliminating interest rate risk • foreign exchange derivatives through which customers managed the potentially volatile cost of foreign currency payables

13 Board of of Board Report D irectors ,

G eogra

The following list contains basic information of Arab Bank plc’s branch network and geographical coverage as of the end of 2012. p

hica Country Number of Branches Operating Since No. of Employees

Jordan 78 1934 2754 l C l Algeria 5 2001 192 overage Bahrain 5 1960 173

China (Representative Office) 1 1985 4

Egypt 27 1947 973

Lebanon 12 1944 302

Morocco 7 1962 178

Palestine 26 1930 837

Qatar 4 1957 118

South Korea (Representative Office) 1 1989 3

Singapore 1 1984 44

UAE 7 1963 286

USA (New York Agency) 1 1982 6

Yemen 9 1972 265

Kazakhstan (Representative Office) - 2004 -

Total 184 6135

14 Board of of Board Report D irectors , تقرير مجلس اإلدارة

B ranches

Branches & Staff Distribution According to Governorates

Governorate Number of Branches No. of Employees St &

Amman 52 (Including Head Office) 2550 a ff ff Irbid 4 34 Dis

Zarqa 7 65 t ribu Aqaba 2 25

Balqa’a 5 28 t ion

Karak 1 10 A ccor Mafraq 1 8

Ma’adaba 1 9 d ing Jarash 1 5 t

Ma’an 2 10 o G

Tafeila 1 5 overnora

Ajloun 1 5

Total 78 2754 t es

15 Board of of Board Report D irectors ,

Add Country Operating Since No. of Branches Address No. of Employees Algeria resses 15 Al-Sa’ada Street, Shabani Haidara Valley, 2001 5 Algeria 192 Tel. 00213 (21) 608714 Fax. 00213 (21) 608708

o Bahrain

f A f P.O Box 813 Building No. 540 Road 1706 - Block 317 Diplomatic Area , Bahrain 1960 5 173 Tel. 00973 17549000 rab Fax. 00973 17541116 China (Representative Office)

B Shanghai Representative Office Unit 1803, Shanghai Trade Square, 188 Si Ping Road, ank Shanghai 200086 China 1985 1 4 Tel. 0086 (21) 65077737/38 Fax. 0086 (21) 65072776

ranches Egypt 46 Gamet El Dowl El Arabia St. Al-Mohandesseen - Al Giza 1947 27 Cairo, Egypt 973 Tel. 0020 (2) 33328500 Fax. 0020 (2) 33328618 Lebanon

an P.O Box 11-1015 Riad El Solh Sq. Banks Street 1944 12 Commercial Buildings Co. Bldg. 302 d Off d Tel. 00961 (1) 980246/9 Fax. 00961 (1) 980803/299 Morocco P.O Box 13810

ices 174 Mohamed V Street, Casablanca 1962 7 Tel. 00212 (5) 2222 3152 178 Fax. 00212 (5) 2220 0233 A Palestine broa P.O Box 1476 - Grand Park Hotel Street Al Masyoon – Ramallah - Palestine 1930 26 Tel. 00970 (2) 2978100 837 Fax. 00970 (2) 2982444 d

16 Add Country Operating Since No. of Branches Address No. of Employees Algeria resses 15 Al-Sa’ada Street, Shabani Haidara Valley, 2001 5 Algeria 192 Tel. 00213 (21) 608714 Fax. 00213 (21) 608708

Bahrain o

P.O Box 813 Building No. 540 A f Road 1706 - Block 317 Diplomatic Area , Bahrain 1960 5 173 Tel. 00973 17549000 Fax. 00973 17541116 rab China (Representative Office)

Shanghai Representative Office B Unit 1803, Shanghai Trade Square, 188 Si Ping Road, Shanghai 200086 China ank 1985 1 4 Tel. 0086 (21) 65077737/38 Fax. 0086 (21) 65072776

Egypt ranches 46 Gamet El Dowl El Arabia St. Al-Mohandesseen - Al Giza 1947 27 Cairo, Egypt 973 Tel. 0020 (2) 33328500 Fax. 0020 (2) 33328618 Lebanon

P.O Box 11-1015 Riad El Solh Sq. an Banks Street 1944 12 Commercial Buildings Co. Bldg. 302 Tel. 00961 (1) 980246/9 Off d Fax. 00961 (1) 980803/299 Morocco P.O Box 13810

174 Mohamed V Street, Casablanca ices 1962 7 Tel. 00212 (5) 2222 3152 178 Fax. 00212 (5) 2220 0233 A Palestine broa P.O Box 1476 - Grand Park Hotel Street Al Masyoon – Ramallah - Palestine 1930 26 Tel. 00970 (2) 2978100 837 Fax. 00970 (2) 2982444 d

17 Add

Country Operating Since No. of Branches Address No. of Employees Qatar resses P.O Box 172 Grand Hammed Area 119 Avenue 1957 4 118 Doha – Qatar Tel. 00974 44387777

Fax. 00974 44387677 o South Korea (Representative Office) f A f Samwha Building, 4th Floor, 21 Sogong-Dong Chung-ku, rab 1989 1 Seoul 100-070 Korea 3 Tel. 0082 (2) 775 4290 Fax. 0082 (2) 775 4294 B Singapore ank 80 Raffles Place –UOB Plaza 2 # 32-20 Singapore 048624 1984 1 44 Tel. 0065 65330055

B Fax. 0065 65322150

ranches United Arab Emirates Abu Dhabi: P.O Box 875 Al-Naser St. Abu Dhabi Branch Sh. Tahnoun Bin Mohammad Building, Tel. 00971 (2) 6392225 Fax. 00971 (2) 6212370 1963 7 286

Dubai: an P.O Box 11364 – Al-Ittihad St., Dubai Branch Sa’id Port Area

d Off d Tel. 00971 (4) 2950845 Fax. 00971 (4) 2955974 United States of America (New York Agency) Federal Agency - New York

ices 150 East 52nd Street 1982 1 New York, NY 10022-4213 6 Tel. 001 (212) 715 9700 Fax. 001 (212) 593 4632 A Yemen broa P.O Box 475 & 1301 Zubairi Str. – Sana’a 1972 9 265 Tel. 00967 (1) 276585/93 Fax. 00967 (1) 276583 d Total 106 3381

18 Board of of Board Report D irectors ,

Add

Country Operating Since No. of Branches Address No. of Employees Qatar resses P.O Box 172 Grand Hammed Area 119 Avenue 1957 4 118 Doha – Qatar Tel. 00974 44387777

Fax. 00974 44387677 o South Korea (Representative Office) f A f Samwha Building, 4th Floor, 21 Sogong-Dong Chung-ku, 1989 1 Seoul 100-070 Korea 3 rab Tel. 0082 (2) 775 4290 Fax. 0082 (2) 775 4294 B Singapore 80 Raffles Place –UOB Plaza 2 # 32-20 ank Singapore 048624 1984 1 44 Tel. 0065 65330055

Fax. 0065 65322150 B

United Arab Emirates ranches Abu Dhabi: P.O Box 875 Al-Naser St. Abu Dhabi Branch Sh. Tahnoun Bin Mohammad Building, Tel. 00971 (2) 6392225 Fax. 00971 (2) 6212370 1963 7 286

Dubai: P.O Box 11364 – Al-Ittihad St., an Dubai Branch Sa’id Port Area

Tel. 00971 (4) 2950845 Off d Fax. 00971 (4) 2955974 United States of America (New York Agency) Federal Agency - New York

150 East 52nd Street ices 1982 1 New York, NY 10022-4213 6 Tel. 001 (212) 715 9700 Fax. 001 (212) 593 4632 A Yemen P.O Box 475 & 1301 broa Zubairi Str. – Sana’a 1972 9 265 Tel. 00967 (1) 276585/93 Fax. 00967 (1) 276583

Total 106 3381 d

19 Board of of Board Report D irectors تقرير مجلس اإلدارة ,

To t a l E l Entity No. of Employees m Arab Bank plc 6 135 pl Europe Arab Bank plc 145 o

y Arab Bank (Switzerland) Limited 96 ees Arab Bank Australia Limited 127

o Islamic International Arab Bank 712 f A f Arab Sudanese Bank 64

rab Arab Investment Bank 6

Arab Tunisian Bank 866 B Arab Bank – Syria 335 ank

Al Arabi Investment Group (AB Invest) 36

G Al Arabi Investment Group / Palestine 10 rou Al Nisr Al Arabi Insurance Company 271

Arab Company for Shared Services 140 p Arab Gulf Tech for IT Services 40

Arab National Leasing Company 29

Total 9 012

20 Board of of Board Board of of Board Board of of Board Report Report Report D D D irectors irectors irectors , تقرير مجلس اإلدارة ,

C a p i t

The capital investment of Arab Bank plc amounted to JOD 206.9 million, a representing net fixed assets of the Bank as of the end of year 2012 in comparison l I l to JOD 210.6 million as of the end of year 2011. nves t men t t o f A f rab B ank

21 Board of of Board Report D irectors , تقرير مجلس اإلدارة

S ubsi

The following is a brief description of Arab Bank subsidiaries and sister company and their results for 2012: d iaries Arab Bank (Switzerland) Limited: Founded in 1962 in accordance with Swiss law, Arab Bank (Switzerland) is an independent bank that is owned by the very same shareholders of Arab Bank plc. It has two main areas of activity through a network of two branches: private & S & banking, which covers asset and investment management for both private and institutional clients in addition to trade financing. is

t The following table lists the main financial highlights of 2012 compared to 2011: er C om In CHF (thousands) 2012 2011

p Capital 26 700 26 700 an

Total shareholders’ equity 502 338 492 941 y

Total assets 2 739 614 2 448 383

Cash and quasi cash 2 075 079 1 762 400

Direct credit facilities 604 905 616 446 Total external sources of funds 2 213 281 1 912 998 (customers’ & banks’ deposits) Total revenues 44 466 42 954

Net profit / (loss) before tax 9 000 5 023

Net profit / (loss) after tax 6 025 2 023

22 S ubsi

Arab Bank Australia Limited: d

Arab Bank Australia Limited was founded in Australia in 1994. The current paid iaries capital of the Bank is AUD 62.5 million. The Bank is a wholly owned subsidiary of Arab Bank plc. Through a network of 10 branches, the Bank provides all commercial and retail banking products and services to its customers. & S & is The following table lists the main financial highlights of 2012 compared to 2011: t er C om In AUD (thousands) 2012 2011

Capital 62 500 62 500 p an Total shareholders’ equity 121 776 125 718

Percentage ownership %100 %100 y Bank share of net income / (loss) (3 409) 5 123 Total assets 1 168 135 1 326 032 Cash and quasi cash 405 098 421 815 Direct credit facilities 741 098 883 476 Total external sources of funds 971 099 981 729 (customers’ & banks’ deposits) Total revenues 34 255 41 705 Net profit /(loss) before tax (4 875) 7 260 Net profit / (loss) after tax (3 409) 5 123

23 S ubsi

Europe Arab Bank plc:

d Europe Arab Bank plc is a limited liability company established in 2006. The

iaries current paid capital of the bank is EUR 610 million. The Banks is a wholly owned subsidiary of Arab Bank plc, with its headquarters in London. EAB has a European passport that enables it to open branches anywhere in the European Union. Through a network of seven branches operating in UK, Austria, France, Germany, Italy and Spain, EAB provides all types of banking products and services, including & S & private banking and treasury services, to its customers. The following table lists the main financial highlights of 2012 compared to 2011: is t er In EUR (thousands) 2012 2011 C Capital 609 987 549 985 om

Total shareholders’ equity 273 897 270 081 p an Percentage ownership %100 %100 y Bank share of net income / (loss) (54 630) (44 819)

Total assets 4 268 800 4 281 788

Cash and quasi cash 2 594 664 2 516 274

Direct credit facilities 1 614 615 1 706 229 Total external sources of funds 3 930 296 3 943 193 (customers’ & banks’ deposits) Total revenues 7 525 44 485

Net profit / (loss) before tax (54 204) (44 849)

Net profit / (loss) after tax (54 630) (44 819)

24 S ubsi

Islamic International Arab Bank plc:

A wholly owned subsidiary of Arab Bank plc, IIAB was established in Jordan in d

1997 and started its operations in the year 1998. The current paid capital of the iaries bank is JOD 100 Million. The bank offers a full range of banking products and services, which are in accordance with Islamic Sharia rules through a network of 36 branches spread in Jordan. & S &

The following table lists the main financial highlights of 2012 compared to 2011: is t er In JOD (thousands) 2012 2011 C

Capital 100 000 100 000 om

Total shareholders’ equity 103 132 90 135 p an Percentage ownership %100 %100

Bank share of net income / (loss) 12 801 10 641 y

Total assets 1 167 374 1 124 066

Cash and quasi cash 123 773 106 086

Direct credit facilities * 997 202 967 691 Total external sources of funds 1 043 779 1 011 285 (customers’ & banks’ deposits)

Total revenues 37 237 30 131

Net profit / (loss) before tax 18 286 15 202

Net profit / (loss) after tax 12 801 10 641

* This includes futures sales receivables, other accounts receivables, financings, assets leasing finished with ownership, and interest free loans.T he net figure was taken for each item.

25 S ubsi

Arab Sudanese Bank:

d Arab Bank plc obtained the license to establish and operate a fully owned

iaries subsidiary in Khartoum – Sudan, under the name “Arab Sudanese Bank”, which offers a full range of banking products and services that are Islamic Sharia– compliant through a network of two branches. The Bank’s paid up capital is USD 50 Million and started its operational activities

& S & in 11/6/2009. The following table lists the main financial highlights of 2012 compared to 2011: is t er

C In SDG (thousands) 2012 2011 om Capital 117 515 117 515

Total shareholders’ equity 171 182 132 502 p an Percentage ownership %100 %100 y Bank share of net income / (loss) 47 637 12 961

Total assets 725 457 464 415

Cash and quasi cash 497 329 299 042

Direct credit facilities 181 596 120 510 Total external sources of funds 540 161 322 331 (customers’ & banks’ deposits) Total revenues 69 967 29 842

Net profit / (loss) before tax 52 932 15 888

Net profit / (loss) after tax 47 637 12 961

26 S ubsi

Arab Investment Bank S.A.L.:

Arab Investment Bank S.A.L was founded in 1998 and is a majority-owned d

subsidiary of Arab Bank plc with a paid-up capital of LBP 15 billion. Arab iaries Investment Bank S.A.L. started its operations in 1999 in Beirut, Lebanon as an investment bank, it specializes in medium and long-term lending to its customers through one branch only. & S &

The following table lists the main financial highlights of 2012 compared to 2011: is t er

In LBP (millions) 2012 2011 C

Capital 15 000 15 000 om

Total shareholders’ equity 20 265 20 511 p Percentage ownership 66.68% 66.68% an

Bank share of net income / (loss) 200 461 y

Total assets 30 231 51 089

Cash and quasi cash 25 540 46 599

Direct credit facilities 2 038 1 746 Total external sources of funds 9 672 29 990 (customers’ & banks’ deposits) Total revenues 1 226 1 366

Net profit / (loss) before tax 311 736

Net profit / (loss) after tax 300 691

27 S ubsi

Arab Tunisian Bank:

d Arab Tunisian Bank (ATB) was incorporated in Tunisia in 1982. The bank’s current

iaries paid capital is TND 100 Million. The Bank is a majority-owned subsidiary of Arab Bank plc with a 64.24% share of its capital. Arab Tunisian Bank provides all banking products and services to its customers through a network of 118 branches, spread in Tunisia. & S & The following table lists the main financial highlights of 2012 compared to 2011: is t er C om In TND (thousands) 2012 2011

p Capital 100 000 100 000 an Total shareholders’ equity 468 035 453 560 y Percentage ownership 64.24% 64.24% Bank share of net income / (loss) 36 264 34 007 Total assets 4 576 708 4 328 629 Cash and quasi cash 1 883 146 1 799 540 Direct credit facilities 2 539 451 2 376 019 Total external sources of funds 3 897 818 3 654 223 (customers’ & banks’ deposits) Total revenues 156 812 155 763 Net profit / (loss) before tax 62 287 58 820 Net profit / (loss) after tax 56 451 52 938

28 S ubsi

Arab Bank – Syria:

Arab Bank – Syria was established in 2005, and it is licensed to carry out all d

commercial banking activities through a network of 19 branches spread in Syria. iaries The current paid capital of the bank SYP 5.05 Billion. Arab Bank plc owns 51.29% of its capital and controls technical management of the Bank. & S & The following table lists the main financial highlights of 2012 compared to 2011: is t er C om In SYP (millions) 2012 2011

Capital 5 050 5 050 p an Total shareholders’ equity 6 198 6 034 y Percentage ownership 51.43% 51.29% Bank share of net income / (loss) (475) 33 Total assets 37 674 37 596 Cash and quasi cash 17 661 12 891 Direct credit facilities 17 735 22 706 Total external sources of funds 30 915 30 839 (customers’ & banks’ deposits) Total revenues 1 026 1 489 Net profit / (loss) before tax (1 184) 98 Net profit / (loss) after tax (924) 64

29 S ubsi

Al Arabi Investment Group (AB Invest): d

iaries AB Invest is a financial services company, focusing mainly on investment banking activities. It has developed into one of the leading investment entities in the Arab world. It was established in Jordan in 1996 providing a wide range of services, including brokerage, asset management, corporate finance and research. The Company has one branche operating in Jordan. & S & The Company’s paid up capital is JOD 14 million and is wholly owned by Arab Bank plc. is t er The following table lists the main financial highlights of 2012 compared to 2011: C om

p In JOD (thousands) 2012 2011 an Capital 14 000 14 000 y Total shareholders’ equity 18 913 19 095

Percentage ownership 100% 100%

Bank share of net income / (loss) 486 928

Total assets 22 810 23 981

Cash and quasi cash 19 882 19 819

Direct credit facilities - - Total external sources of funds - - (customers’ & banks’ deposits) Total revenues 2 154 2 908

Net profit / (loss) before tax 640 1 198

Net profit / (loss) after tax 486 928

30 S ubsi

Arab National Leasing Company:

Arab National Leasing Co. was established in 1996 as a limited liability company d

and wholly-owned non-banking subsidiary of Arab Bank plc. The company current iaries capital is JOD 25 Million, and it offers financial leasing services that cover a wide range of assets and products through one branch in Amman- Jordan. & S & is t

The following table lists the main financial highlights of 2012 compared to 2011: er C om

In JOD (thousands) 2012 2011 p an Capital 25 000 15 000 y Total shareholders’ equity / (loss) 67 781 63 485

Percentage ownership 100% 100%

Bank share of net income 4 902 6 099

Total assets 93 059 91 826

Cash and quasi cash 9 422 1 799

Investment in leasing contracts 78 918 73 676 Total external sources of funds - - (customers’ & banks’ deposits) Total revenues 8 559 10 038

Net profit / (loss) before tax 6 737 8 323

Net profit / (loss) after tax 4 902 6 099

31 S ubsi

Al Nisr Al Arabi Insurance Company:

d Al Nisr Al Arabi Insurance Co. is part of Arab Bank Group. It is a majority-owned

iaries subsidiary of the Bank that offers a full range of insurance products.T he company was founded in 1976 with a current paid capital of JOD 10 Million. The Company has developed into one of the leading insurance companies in Jordan. The company has two branches operating in Jordan. In May 2006, Arab Bank acquired 50% in addition to two shares of the total shares & S & representing the company’s capital. The following table lists the main financial highlights of 2012 compared to 2011: is t er C

om In JOD (thousands) 2012 2011 Capital 10 000 10 000 p an Total shareholders’ equity 19 930 18 385 50%+2 50%+2 y Percentage ownership Shares Shares Bank share of net income / (loss) 596 382

Total assets 44 646 40 792

Cash and quasi cash 5 645 7 135

Total Investments 29 663 26 678 Total external sources of funds - - (customers’ & banks’ deposits)

Total Revenue 14 553 14 099

Net profit / (loss) before tax 1 678 1 050

Net profit / (loss) after tax 1 192 763

32 S ubsi

Al Arabi Investment Group Company:

Al Arabi Investment Group Company is a financial company, established in d

Palestine in 19/8/2009 and launched its operational activities by the start of year iaries 2010. The company’s paid up capital is JOD 1.7 million, and Arab Bank plc. owns 99% of its capital. & S &

The following table lists the main financial highlights of 2012 compared to 2011: is t er C

In JOD (thousands) 2012 2011 om

Capital 1 700 1 700 p an Total shareholders’ equity 1 650 1 766

Percentage ownership 100% 100% y

Bank share of net income / (loss) (116) 10

Total assets 4 877 1 922

Cash and quasi cash 979 1 251

Total Investments - - Total external sources of funds - - (customers’ & banks’ deposits) Total revenues 244 437

Net profit / (loss) before tax (116) 14

Net profit / (loss) after tax (116) 10

33 Board of of Board Report D irectors ,

First : Jordanian Companies:

Major Shareholders (5% or more of capital)

De Type No. of No. of Entity Type Address Capital No. of Shares No. of Shares as of of Activity Employees Branches Name % % as of 31/12/2011 31/12/2012 t

ai Amman, Madina Monawwara St.,

l Arab Bank Bldg. no. 255,

e Arab National PO Box 940638 Amman 11194 15 000 000 25 000 000

d I d Limited Financial JOD Leasing Co. Jordan 29 1 Arab Bank Plc. JD/Share 100% JD/Share 100% Liability leasing 25 Million Tel. 00962 6 5531640/49/50 n Fax. 00962 6 5529891 f

orma E-Mail : [email protected] Rabia, Sharif Naser Ben Jamil St., Al Arabi Bldg. no. 1, PO Box 143156 14 000 000 14 000 000 Investment & Investment Limited Amman 11814 Jordan JOD JD/Share JD/Share Financial 36 1 Arab Bank Plc. 100% 100% t Group Liability Tel. 00962 6 5522239 14 Million

ion services (AB Invest) Fax. 00962 6 5519064 E-Mail : [email protected]

on Abdali, Amman Commercial Arab Bank Plc. 5 000 002 50% 5 000 002 50% Center, PO Box 9194 Amman Allianz Mena Holding 1 801 264 18.01% 1 801 264 18.01%

t Al Nisr Al Arabi Public 11191 Jordan Insurance JOD Yacoub Sabella 680 692 6.81% 689 664 6.90% 271 2 he Insurance Co. Shareholding Tel. 00962 6 5685171 services 10 Million Zaid Sabella 643 694 6.43% 644 794 6.45% Fax. 00962 6 5685890

B Jordan Investment & 556 750 5.57% 556 750 5.57% E-Mail : al-nisr@ al-nisr.com Finance Bank ank Wasfi AlT al St., Building no. 20 Islamic PO Box 925802 Public Islamic JOD ’ International Amman 11190 Jordan 712 36 Arab Bank Plc. 100 000 000 100% 100 000 000 100% s Shareholding banking 100 Million

S Arab Bank Tel. 00962 6 5694901

ubsi Fax. 00962 6 5694914

Second : Arab & Foreign Companies: d

iaries Rammallah, Palestine, Al Arabi PO Box 1476 Investment Investment Private JOD 1.7 Tel. 00970 2 2980240 & Financial 10 1 Arab Bank Plc. 1 700 000 100% 1 700 000 100% Group / Shareholding Million Fax. 00970 2 2980249 services Palestine & S & www.abinvest.ps Bldg., Riad Al Solh Sq., Investment Arab Arab Bank Plc. 49 995 66.66% 50 005 66.67% is Commercial Buildings Co. Banking Investment Public LBP 15

t PO Box 11-7000, specialized in 6 1 Bank Shareholding Billion er Riad Al Solh, 1107-2230, medium and Al Arabi Finance Co. 24 990 33.32% 24 990 33.32% Beirut, Lebanon long term C 9 Rue Hadi Nouira, om P.O.Box (520) 1001 Tunis Arab Bank Plc. 64 237 531 64.24% 64 237 531 64.24% Arab Tunisian Public Tel. 00216 71 351 155 Commercial TND 100

p 866 118 Bank Shareholding Fax. 00216 71 347 270 banking Million an Zarzari Complex 5 570 321 5.57% 5 575 056 5.58% E-Mail : [email protected] Website: www.atb.com.tn y

34 First : Jordanian Companies:

Major Shareholders (5% or more of capital)

Type No. of No. of De Entity Type Address Capital No. of Shares No. of Shares as of of Activity Employees Branches Name % % as of 31/12/2011 31/12/2012 t

Amman, Madina Monawwara St., ai

Arab Bank Bldg. no. 255, l

Arab National PO Box 940638 Amman 11194 15 000 000 25 000 000 e

Limited Financial JOD I d Leasing Co. Jordan 29 1 Arab Bank Plc. JD/Share 100% JD/Share 100% Liability leasing 25 Million Tel. 00962 6 5531640/49/50 n Fax. 00962 6 5529891 f

E-Mail : [email protected] orma Rabia, Sharif Naser Ben Jamil St., Al Arabi Bldg. no. 1, PO Box 143156 14 000 000 14 000 000 Investment & Investment Limited Amman 11814 Jordan JOD JD/Share JD/Share Financial 36 1 Arab Bank Plc. 100% 100% Group Liability Tel. 00962 6 5522239 14 Million t services ion (AB Invest) Fax. 00962 6 5519064 E-Mail : [email protected]

Abdali, Amman Commercial Arab Bank Plc. 5 000 002 50% 5 000 002 50% on Center, PO Box 9194 Amman Allianz Mena Holding 1 801 264 18.01% 1 801 264 18.01%

Al Nisr Al Arabi Public 11191 Jordan Insurance JOD Yacoub Sabella 680 692 6.81% 689 664 6.90% t 271 2 Insurance Co. Shareholding Tel. 00962 6 5685171 services 10 Million Zaid Sabella 643 694 6.43% 644 794 6.45% he Fax. 00962 6 5685890

Jordan Investment & B 556 750 5.57% 556 750 5.57% E-Mail : al-nisr@ al-nisr.com Finance Bank ank Wasfi AlT al St., Building no. 20 Islamic PO Box 925802 Public Islamic JOD International Amman 11190 Jordan 712 36 Arab Bank Plc. 100 000 000 100% 100 000 000 100% ’ Shareholding banking 100 Million s

Arab Bank Tel. 00962 6 5694901 S

Fax. 00962 6 5694914 ubsi

Second : Arab & Foreign Companies: d

Rammallah, Palestine, iaries Al Arabi PO Box 1476 Investment Investment Private JOD 1.7 Tel. 00970 2 2980240 & Financial 10 1 Arab Bank Plc. 1 700 000 100% 1 700 000 100% Group / Shareholding Million Fax. 00970 2 2980249 services Palestine www.abinvest.ps S & Bldg., Riad Al Solh Sq., Investment Arab Arab Bank Plc. 49 995 66.66% 50 005 66.67% Commercial Buildings Co. Banking is Investment Public LBP 15

PO Box 11-7000, specialized in 6 1 t Bank Shareholding Billion Riad Al Solh, 1107-2230, medium and Al Arabi Finance Co. 24 990 33.32% 24 990 33.32% er Beirut, Lebanon long term C 9 Rue Hadi Nouira, P.O.Box (520) 1001 Tunis Arab Bank Plc. 64 237 531 64.24% 64 237 531 64.24% om Arab Tunisian Public Tel. 00216 71 351 155 Commercial TND 100

866 118 p Bank Shareholding Fax. 00216 71 347 270 banking Million Zarzari Complex 5 570 321 5.57% 5 575 056 5.58% an E-Mail : [email protected] Website: www.atb.com.tn y

35 Major Shareholders (5% or more of capital) Type No. of No. of De Entity Type Address Capital No. of Shares No. of Shares as of of Activity Employees Branches Name % % as of 31/12/2011 31/12/2012 t

ai Damascus, Abu Rummana, Arab Bank Plc. 5 179 877 51.286% 25 899 385 51.286% Mahdi Bin Baraka St., Alia Talal Zain 505 000 5% 2 525 000 5% l

e Arab Bank – Public PO Box 38 Damascus, Syria Commercial SYP 5.05 335 19 Samer Salah Danial 505 000 5% 2 525 000 5% d I d Syria Shareholding Tel. 00963 11 9421 banking Billion Fax. 00963 11 49844 Moh’d S. Sharabati 505 000 5% 2 525 000 5% n www.arabbank.syria.com f

orma Sudan, Khartoum, Al-Baladieh Arab Sudanese Str., PO Box 955, Islamic USD 50 Private 64 2 Arab Bank Plc. 4 999 999 100% 4 999 999 100% Bank Tel. 002491 1 56550001 banking Million Shareholding Fax. 002491 1 56550003 t Dubai Out Source Zone (DOZ) - ion 031, ACSS building, 2nd floor IT services Arab Gulf Tech Limited Dubai, UAE for USD 1.5 5 509 5 509 40 1 Arab Bank Plc. 100% 100%

for IT Services Liability Phone : 00971 4 3621288 Arab Bank Million Shares Shares on Fax : 00971 4 3621299 branches www.agt-it.com t P O Box 11364, Dubai Outsource he Financial Arab Company Zone (DOZ), Manama Street, AED Limited services for 40 370 000 40 370 000

B for Shared Dubai, UAE 40.37 140 1 Arab Bank Plc. 100% 100% Liability Arab Bank Shares Shares Services Phone : 0097144450500 Million ank branches Fax : 0097144495463 Level 7, 20 Bridge Street, Sydney Arab Bank Public Commercial AUD 62.5 ’

s NSW 2000 Australia 127 10 Arab Bank Plc. 62 500 000 100% 62 500 000 100% Australia Ltd. Shareholding banking Million S Tel. +61 2 9377 8900 ubsi 13-15 Moorgate 549 925 539 609 925 540 London EC2R 6AD EUR ordinary shares ordinary shares Europe Arab Public Commercial United Kingdom 609.99 145 7 Arab Bank Plc. of €1 and 100% of €1and 100%

d Bank plc Shareholding banking Tel. 44 20 7315 8500 Million 49 999 deferred 49 999 deferred iaries www.eabplc.com shares of £1 shares of £1

Third : Sister Company:

& S & Place Longemalle 10-12 Arab Bank P.O Box 3575, CH-1211 Geneva 3 Public Commercial CHF 26.7 Shareholders of Arab Bank (Switzerland) Ltd. are the same shareholders of Arab Bank plc, with is (Switzerland) Switzerland 96 2 shareholding banking Million an identical ownership structure.

t Ltd. Tel. 41 22 715 1211 er Fax. 41 22 715 1311 C om p an y

36 Major Shareholders (5% or more of capital) Type No. of No. of Entity Type Address Capital No. of Shares No. of Shares as of De of Activity Employees Branches Name % % as of 31/12/2011 31/12/2012 t

Damascus, Abu Rummana, Arab Bank Plc. 5 179 877 51.286% 25 899 385 51.286% ai Mahdi Bin Baraka St., Alia Talal Zain 505 000 5% 2 525 000 5% l

Arab Bank – Public PO Box 38 Damascus, Syria Commercial SYP 5.05 e 335 19 Samer Salah Danial 505 000 5% 2 525 000 5% Syria Shareholding Tel. 00963 11 9421 banking Billion I d Fax. 00963 11 49844 Moh’d S. Sharabati 505 000 5% 2 525 000 5% www.arabbank.syria.com n f

Sudan, Khartoum, Al-Baladieh orma Arab Sudanese Str., PO Box 955, Islamic USD 50 Private 64 2 Arab Bank Plc. 4 999 999 100% 4 999 999 100% Bank Tel. 002491 1 56550001 banking Million Shareholding Fax. 002491 1 56550003

Dubai Out Source Zone (DOZ) - t 031, ACSS building, 2nd floor IT services ion Arab Gulf Tech Limited Dubai, UAE for USD 1.5 5 509 5 509 40 1 Arab Bank Plc. 100% 100% for IT Services Liability Phone : 00971 4 3621288 Arab Bank Million Shares Shares Fax : 00971 4 3621299 branches on www.agt-it.com t P O Box 11364, Dubai Outsource Financial he Arab Company Zone (DOZ), Manama Street, AED Limited services for 40 370 000 40 370 000

for Shared Dubai, UAE 40.37 140 1 Arab Bank Plc. 100% 100% B Liability Arab Bank Shares Shares Services Phone : 0097144450500 Million branches ank Fax : 0097144495463 Level 7, 20 Bridge Street, Sydney Arab Bank Public Commercial AUD 62.5 ’

NSW 2000 Australia 127 10 Arab Bank Plc. 62 500 000 100% 62 500 000 100% s Australia Ltd. Shareholding banking Million Tel. +61 2 9377 8900 S

13-15 Moorgate 549 925 539 609 925 540 ubsi London EC2R 6AD EUR ordinary shares ordinary shares Europe Arab Public Commercial United Kingdom 609.99 145 7 Arab Bank Plc. of €1 and 100% of €1and 100%

Bank plc Shareholding banking d Tel. 44 20 7315 8500 Million 49 999 deferred 49 999 deferred www.eabplc.com shares of £1 shares of £1 iaries

Third : Sister Company:

Place Longemalle 10-12 S & Arab Bank P.O Box 3575, CH-1211 Geneva 3 Public Commercial CHF 26.7 Shareholders of Arab Bank (Switzerland) Ltd. are the same shareholders of Arab Bank plc, with

(Switzerland) Switzerland 96 2 is shareholding banking Million an identical ownership structure.

Ltd. Tel. 41 22 715 1211 t

Fax. 41 22 715 1311 er C om p an y

37 De Arab Bank Plc Investments in the Subsidiaries Companies as at 31/12/2012: t ai

l Ownership Name of Company Nature of Business Ownership % Country e Type d I d Europe Arab Bank Plc. Commercial Banking 100% Subsidiary UK n f

orma Arab Bank Australia Limited Commercial Banking 100% Subsidiary Australia

Islamic International Arab Bank Plc. Islamic Banking 100% Subsidiary Jordan t Arab National Leasing Company Financial Leasing 100% Subsidiary Jordan ion

Al- Arabi Investment Group Co. Investment & Financia 100% Subsidiary Jordan (AB Invest) Services on Arab Sudanese Bank Limited Islamic Banking 100% Subsidiary Sudan t

he Al – Arabi Investment Group / Investment & Financial 100% Subsidiary Palestine Palestine Services B Investment Banking ank Arab Investment Bank S.A.L Specializes in Medium and 66.68% Subsidiary Lebanon Long Term Lending & Deposits ’ s Arab Tunisian Bank Commercial Banking 64.24% Subsidiary Tunisia S

ubsi 50% + 2 Al – Nisr Al – Arabi Co . LTD Insurance Services Subsidiary Jordan Shares

Arab Bank - Syria Commercial Banking 51.29% Subsidiary Syria d iaries Arab Bank Plc Investments in Affiliated Companies as at 31/12/2012:

Ownership

& S & Name of Company Nature of Business Ownership % Country Type

Turkland Bank Commercial Banking 28%* Affiliated Turkey is t Oman Arab Bank Commercial Banking 49% Affiliated Oman er Saudi C Arab National Bank Commercial Banking 40% Affiliated Arabia om Arabian Insurance Co. LTD. Insurance Services 36.79% Affiliated Lebanon p an Commercial Building Co. S.A.L Real Estate / Leasing 35.24% Affiliated Lebanon y * Arab Bank Group retained 50% of the capital of Turkland Bank as of 31/12/2012.

38 Board of of Board Board of of Board Report Report D D irectors irectors , ,

MEMBERS O MEMBERS

Name Mr. Sabih Taher Masri Title Chairman Since 26/8/2012

Date of membership 27/3/1998 F

Date of birth 2/12/1937 BOAR HE

Academic BSc in Chemical Engineering, University of Texas , Austin , qualifications USA 1963 D

Experiences - More than 40 years experience in managing private O businesses in various areas of investment, finance, industry and commerce F

D - Founder of Astra Group since 1966 IREC - Chairman of the Board of Directors of ASTRA Industrial Group , KSA (since 2007)

- Chairman of the Board of Directors of ZARA Holding Co., T ORS ORS Jordan (since 5/1999) - Chairman of the Board of Directors of Palestine Telecom- munication Corp., Palestine (since 1998) - Member of the Board of Directors of Palestine Develop- ment & Investment Co. (Padico), Palestine (since 1994) - Chairman of the Board of Directors of Arab Supply & Trading Co. KSA (since 1979) - Chairman of the Board of Directors of CICON for Building Materials Co. UAE (since 1968) - Member of the Board of Director of Arab Bank (Switzerland) (Since 9/7/2005) - Member of the Board of Directors of Abdul Hameed Shoman Foundation

39 MEMBERS O MEMBERS

Name Mr. Samir Farhan Khalil Kawar

Title Deputy Chairman

F Since 26/8/2012

T HE BOAR HE Date of membership 29/3/2002

Date of birth 29/10/1934

Academic - M.Sc. in Agricultural Mechanical Engineering, Kansas D qualifications State University, USA 1961 O - B.Sc. in Agricultural Engineering, University of Arizona,

F USA 1959

IREC Experiences - Managing private businesses (since 1965) - Head of the Natural, Mineral and Industrial Resources Section, Jordanian National Construction Council

T (1962 – 1965) ORS ORS - Formerly, Minister of Water and Irrigation and Minister of Transportations, formerly member of the Senate, House of Representatives, the National Consultative Council and many of its committees. - Member of Supreme Council / the Hashemite Associa- tion for Education - Chairman of the Board of Directors of Arab Bank Australia Ltd., Australia. (until 6/2011) - Chairman of the Board of Directors of the Middle East Insurance Company, Jordan - Member of the Board of Directors of Balamand Univer- sity, Lebanon (formerly) - Deputy Chairman of the Board of Trustees of the University of Jordan. (formerly) - Member of the Board of Trustees of Balqa Applied University , Jordan. - Founding Member of the Jordanian Businessmen Association, Jordan. - Founding Member of the Salt Development Establishment, Jordan - Member of Amman Chamber of Commerce, Jordan - Member of Amman Chamber of Industry, Jordan - Chairman and Board member in several private 40 companies in Jordan MEMBERS O MEMBERS

Name Ministry of Finance, Saudi Arabia Represented by Mr. Saleh Saad A. Al-Muhanna

Title Member of the Board of Directors F

Date of - Legal Entity : 29/4/1966 BOAR HE membership - Legal Entity’s Representative : 31/3/2006

Date of birth 11/1/1959

Academic - M.S.c in Economics, Ohio State University , USA 1993 D qualifications - B.S.c in Industrial Management, King Fahd University of O Petroleum and Minerals, Saudi Arabia 1982 F

Experiences - Currently holds the position of Financial Advisor and D acting Assistant Deputy Minister for Budget Affairs, IREC Ministry of Finance, Saudi Arabia - Member of the negotiating team with International Pe-

troleum Companies in relation to natural Gas Iinitiative T ( 2000-2004) ORS - Allowances Committee at Ministry of Civil Services (since 2004 ) - Sovereign Rating of Saudi Arabia ( since 2001) - training and Scholarship Committee at the Ministry of Finance (since 2000) - Member of the Board of Directors of the Saudi Moroccan Investment Company (2000-2006) - Member of the Board of Directors of the Saline Water Conversion Corporation (2005-2011) - Member of the Board of Directors of the Technical & Vocational Training corporation ( since 2008) - Member of the Board of Directors of Saudi Electricity Company ( since 2009) - Member of the Audit committee of Saudi Electricity Company (since 2012 ) - Member of the Executive committee of Saudi Electricity Company (since 2009 ) - Member of the Board of Directors of the Saudi Global port company (since 2011 ) - Member of the Board of Directors of the General Author- ity of Civil Aviation (since 2012)

41 MEMBERS O MEMBERS

Name Mrs. Nazik Odah Al-Hariri

Title Member of the Board of Directors F

T HE BOAR HE Date of membership 29/8/1996

Date of birth 12/9/1957 D O Academic University Degree

F qualifications

D IREC - president of Rafik Al Hariri Foundation Experiences - President of Nazek Hariri Welfare Center for Special T Education - Jordan ORS ORS - President of the Beirut Festivals Association - Member of the BankMed’s Board of Directors - first Ambassador of the International Osteoporosis Foundation (IOF) and President of IOF’s 206-A Bone Fund - Vice President of the Chronic Care Center, Lebanon - Member of the Board of Trustees of the Children’s Cancer Center, Lebanon - Member of Al-Nahda Philanthropic Society for Women, Saudi Arabia - Member of the Board of Trustees of the Welfare Association - Member of the Board of Trustees of Jordan Education Association - Co-Chairperson of the Rafik Hariri UN-Habitat Memorial Award

42 MEMBERS O MEMBERS

Name Social Security Corporation , Amman , Jordan Represented by Mr. Ibrahim Yusuf Ibrahim Izziddin

Title Member of the Board of Directors F

Date of membership - Legal Entity : 20/9/2001 T

- Legal Entity’s Representative : 31/3/2006 BOAR HE

Date of birth 3/12/1934

Academic BA in Political Science, American University of Beirut, 1955 qualifications D Experiences - President of the Higher Media Council, Jordan (2002- 2006). O - Director General of the A. H. Shoman Foundation, F

Jordan (1997 – 2002). - Minister of State for Prime Ministry’s Affairs and minister of D

information ( 1989 - 1995). IREC - Member of the upper house of the Parliament (1989-1993)

- President of the Bureau of Civil Service, (1986 – 1989). T

- Ambassador of H.K. of Jordan to Switzerland, Germany, UK ORS and USA, in addition to serving as a non-resident Ambas- sador to Austria, Sweden, Norway, Denmark, Luxembourg, and Holland (1975 – 1985). - Under Secretary General, Ministry of Information, Jordan (1971 – 1975). - Press Secretary, The Royal Hashemite Court (1968 – 1971). - Head of the foreign media Department, Ministry of Infor- mation, Jordan (1965 – 1968). - Held different positions in the field of publishing / Beirut - Lebanon (1958 – 1965). - Officer in the Foreign Affairs Department, Ministry of communication. Officer in the Prime Ministry , press. Officer in the Press and Publication Department/Ministry of Foreign Affairs, Jordan (1955 – 1958) . - Member of the Board of Directors of the Central Bank of Jordan (since 3/2007) - Member of the Board of Trustees of King Abdullah ll Ibn AL Hussein Creativity Award, Jordan. - Deputy Chairman of the Board of Trustees of the National Centre for Human Rights, Jordan. - Member of the Board of Directors of the Centre for Strate- gic Studies at the University of Jordan.

43 MEMBERS O MEMBERS

Name Mr. Riad Burhan Taher Kamal

Title Member of the Board of Directors

F Date of membership 9/7/2005

T HE BOAR HE Date of birth 6/12/1943

Academic - M.S.c in Construction Engineering, University of London, qualifications 1966 - B.S.c in Civil Engineering, University of London, 1965 D

O Experiences - CEO of Arabtec Holding, Dubai (since 2005) F

D - Founder of Arabtec Construction Co., Dubai (since 1974)

IREC - Worked for Sir Robert McAlpine Engineering Co., London (1970-1974) - Civil Engineer at Shaheen Engineering & Contracting Co. T (1966-1970) ORS ORS - Founder and Member of the Board of Directors of Arabtec Holding, Dubai - Co-Founder and Member of the Board of Directors of Depa United Co. Dubai - Co-Founder and Member of the Board of Directors of Gulf Capital Co., Abu Dhabi - Deputy Chairman and Member of the Board of Directors of Oman Arab Bank - Member of the Board of Directors of Turkland Bank, Istan- bul, Turkey - Member of the Board of Directors of Arabia Insurance Co., Beirut, Lebanon - Member of the Board of Directors of Rotana Hotels Co., Abu Dhabi - Member of the Advisory Board for Deutsche Bank (Swiss) for MENA Region. - Member of the Board of Trustees of the American University of Beirut, Lebanon. - Deputy Chairman, Welfare Association, Geneva.

44 MEMBERS O MEMBERS

Name Mr. Mohammed Ahmad Mokhtar Hariri

Title Member of the Board of Directors

Date of 6/11/2005 F

membership T Date of birth 9/11/1958 BOAR HE

Academic B.Sc. in Business Administration, University of Ottawa, Canada, qualifications 1979.

Experience - Over 30 years experience in the management of Saudi Oger

Ltd., Saudi Arabia D

- Chairman of the Board of Directors of Saudi Med Investment O Co. (2007) F

- Chairman of the Board of Directors of AVEA Illetisim Hizmelteri A.S., Turkey (since 9/2006) D - Chairman of the Board of Directors of Oger Telecom Ltd., Dubai IREC (since 8/2005) - Member of the Board of Directors of Ojer Telekomunikasyon A.S., Turkey (since 8/2005). T - Chairman of the Board of Directors of Group Med (Holding), ORS Lebanon (since 7/2005) - Chairman of the Board of Directors and General Manager of Bankmed sal and all of its subsidiaries (since 7/2005). - Chairman of the Board of Directors of Turk Telekom A.S., Turkey (2005) - Member of the Board of Directors of Entreprise des Travaux Internationaux (ETI), France (since 6/2003) - Member of the Board of Directors of Oger Interational France (since 5/2003) - Vice Chairman and Member of the Board of Directors of Saudi Oger Ltd., Saudi Arabia - Member of the Board of Directors of 3C Telecommunications (PTY), South Africa (since 6/1999) - Chairman of the Board of Directors of Al Mal Investment (Holding), Lebanon - Member of the Board of Directors of Association des Banques du Liban - Member of the Board of Directors of Commercial Building Co.

45 MEMBERS O MEMBERS

Name Mr. Wahbe Abdallah Wahbe Tamari

Title Member of the Board of Directors F

HE BOAR HE Date of 31/3/2006 membership

Date of birth 14/5/1963

D Academic BA in Management, Webster University, Geneva , Switzerland

O qualifications 1984 F

D Experiences - Member of the Board of Directors Consolidated Contractor

IREC Co. , Athens (since 9/2010) - Member of the Board of Directors of the National Company for Real Estate Projects S.A.L (since 28/4/2010)

T - Chairman of the Board of Directors / General Manager of

ORS ORS Commercial Building Co. SAL, Lebanon (since 25/5/2009) - Member of the Board of Directors of Arab Bank (Switzerland) Ltd., Zurich (since 20/4/2007) - Chairman of the Board of Directors/ General Manager of Arabia insurance Co. SAL,, Lebanon (since 26/6/2006) - Chairman of the Board of Directors of Immofina holding SAL, Lebanon (since 5/7/2006) - Member, Welfare Association, (since 2006) - Founder & Chairman of the Board of Directors of Watamar & Partners S.A., Geneva (since 15/1/2003) - Chairman of the Board of Immofina S.A. Co.- Geneva (since 20/3/2001) - Member of the Board of directors of Sucafina S.A. Co. - Ge- neva (since 25/8/1998) - Executive Director Sucafina S.A., Geneva (1999-2002)

46 MEMBERS O MEMBERS

Name Abdul Hameed Shoman Foundation Represented by Mr. Khaled Anis Moh’d (Zand Irani) F

Title Member of the Board of Directors T HE BOAR HE

Date of - Legal Entity : 31/3/2006 membership - Legal Entity’s Representative : 27/12/2010

Date of birth 21/8/1964 D O

Academic - M.S.c. Degree in national parks management and F

qualifications tourism, New Mexico University D

- Jordan University 1989, M.S.c. Degree in Arid Land Use IREC - Jordan University 1986, B.Sc. Degree in Soils T ORS ORS

Experiences - Minister of Energy and Mineral Resources (14/12/2009 - 23/11/2010) - Minister of Environment (7/4/2005 - 09/12/2009) - Director General for the Royal Society for the Conservation of Nature.(RSCN) (Oct 1996 - 4/6/2005) - Manager of the Protected Areas Dept. (Jan. 1986 - Jan. 1989) - Research Assistant / Jordan University (Oct.1986- Jan 1989) - Member of International Environmental Committees - Member of Royal Energy Committee - Member of Royal Water committee - Former Member of the Nuclear Energy Committee - Chairman of the Royal Society for the Conservation of Nature - Member of the Board of Abdul Hameed Shoman Founda- tion

47 MEMBERS O MEMBERS

Name Dr. Omar Razzaz

Title Member of the Board of Directors F

HE BOAR HE Date of 11/11/2012 membership

Date of birth 17/5/1961

D Academic - Ph.D. in Urban Planning with Economics Concentration,

O qualifications Harvard University 1991

F - Masters, International Development and Regional Planning,

D MIT, 1987 IREC - B.S., magna cum laude, Civil Engineering with concentration in Transportation Planning & Environmental Design, Louisiana Tech University, 1985 T ORS ORS

Experiences - Chair of Board of Trustees , King Abdullah II Development Fund (KAFD) since Oct, 2012. - Director General , Social Security Corporation 2006-2010 - Head of the Jordan National Employment Strategy Team 2010- 2012. - Advisor, The World Bank ,Middle East and North Africa Region, Jordan 2010-2012 - The World Bank Middle East and North Africa Region, Leba- non Country Manager 2003-2006. - Abdul Hameed Shoman Foundation , Member of Board of Directors 2007-2010 - Assistant Professor, MIT University , 1991-1993 & 1995-1997

48 Board of of Board Report D irectors ,

SENIOR EXECU SENIOR

Mr. Nemeh Elias Sabbagh Chief Executive Officer

Date of appointment : 31/1/2010 Date of birth : 15/3/1951 T IVES Academic Qualifications: - B.A. in Economics and French at Austin College in Texas, 1972 with studies at L’Institut d’Etudes Politiques in Paris. - MA in International Economics - Johns Hopkins University, 1974 - MBA in Finance - University of Chicago, 1976 - Completed the Senior Executive Program at the Graduate School of Business - Stanford University, 1990

Experience: - Chief Executive Officer - Arab Bank (since February, 2010) - Executive General Manager - Bank Med in Lebanon( 2006-2009) - Managing Director and Chief Executive Officer - Arab National Bank in Riyadh, Saudi Arabia (1998-2005) - General Manager of the International Banking Group- National Bank of Kuwait (1979-1998) - Worked with the Industrial Bank of Kuwait (1976-1979), First Chicago in Chicago (1974-1975) and the World Bank in Washington, D.C., 1973

- Board Member of Turkland Bank (T-bank) – Istanbul (Chairman) - Board Member of Europe Arab Bank plc –London (Chairman) - Board Member of Association of Banks in Jordan since 15/12/2010 - Board Member of Jordan loan Guarantee Corp. - Member of the Board of Directors of Arab National Bank - Member of the Board of Directors of Al – Hussein Fund for Excellence

49 تقرير مجلس اإلدارة MEMBERS O MEMBERS

Ms. Randa Muhammad Sadik Deputy Chief Executive Officer

Date of appointment : 1/ 7/2010 F

Date of birth : 14/11/1962 T HE BOAR HE Academic Qualifications: - B.A. in Business Administration - American University of Beirut, 1984 - M.B.A in Finance - American University of Beirut, 1986 D O

F Experience:

D - deputy Chief Executive Officer - Arab Bank (since July 1, 2010) IREC - Group General Manager for International Banking Group - National Bank of Kuwait (2006-2010) T

ORS ORS - Managing Director - National Bank of Kuwait (International) plc, London (2005-2006) - Assistant General Manager - National Bank of Kuwait (International) plc, London (1998-2005) - Executive Manager & Treasurer - National Bank of Kuwait (International) plc, London (1993-1998) - Head of Asset Liquidity Management - National Bank of Kuwait (International) plc, London (1991-1993) - financial Analyst - National Bank of Kuwait (1986-1990) - Graduate Assistant - American University of Beirut (1985-1986)

- Board Member of Arab Tunisian Bank-Tunisia - Board Member of Oman Arab Bank- Oman - Board member of Arab Investment Bank S.A.L – Lebanon - Chairman of Al -Arabi for finance (Holding co.) S.A.L – Lebanon - Vice Chairman of Arab Bank Australia ltd. - Chairman of the Supervisory Board of Al-Arabi investment group

50 SENIOR EXECU SENIOR

Mr. Mohamed A. Hamad Ghanameh EVP - Head of Credit

Date of appointment : 1/2/2007 Date of birth : 6/1/1953 T IVES Academic Qualifications: - B.Sc. in Mathematics, Riyadh University – Saudi Arabia, 1975 - diploma in Computer Programming, London, 1976

Experience: - EVP - Head of Credit, Arab Bank plc – Head Office, Jordan (since 4/2010) - Executive Vice President / Global Head of Corporate & Investment Banking, Arab Bank plc – Head Office, Jordan (2007 –2010) - Head of Corporate & Investment Banking Banque Saudi Fransi - Riyadh / Saudi Arabia (1999 – 2007) - Head of Corporate & Investment Banking United Saudi Bank / USCB - Riyadh / Saudi Arabia (1995 – 1999) - Assistant General Manager / Head of Corporate - Retail Banking Groups Cairo Amman Bank – Jordan (1990 –1995) - Vice President / Head of Saudi Corporate Marketing Unit Gulf International Bank – Bahrain (1989 –1990) - Manager International Corporate - Credit Division Arab Bank plc – General Management Jordan (1987–1989) - Head of Corporate Banking / Central Region Saudi American Bank / Citibank - Riyadh / Saudi Arabia (1976 –1987)

- Chairman of the Supervisory Board of Arab National Leasing Company, Amman - Jordan - deputy of the Supervisory Board of AB Invest , Amman – Jordan - Member of the Board of Directors of Arab National Bank - Riyadh / Saudi Arabia

51 SENIOR EXECU SENIOR

Mr. Samer S. Tamimi EVP - Head of Corporate & Institutional Banking

Date of appointment : 18/4/2005 Date of birth : 30/10/1966 T IVES Academic Qualifications: - University of Jordan - Bachelor of Science and Business Administration with focus on Finance and Accounting, 1988 - Walsh College of Accountancy and Business Administration - Master of Science in Professional Accountancy, 1991 - Certified Public Accountant, University of Illinois, Chicago, 1990

Experience: - Executive Vice President /Head of Corporate & Investment Banking, Arab Bank plc – Amman (since 1/9/2010) - Senior Vice President – (Credit - GIS) Arab Bank – General Management (8/2005-31/8/2010) - Credit and Portfolio Manager, Arab Bank Plc – New York (1998 – 8/2005) - Vice President, Credit and Portfolio Manager – Arab Bank New York (1998–8/2005) - Assistant Vice President and Credit Risk Manager – Arab Bank New York (1993 – 1998) - Senior Auditor, Global Audit Group (1991 – 1993) - Auditer, Deloitte & Touche, Amman – Jordan (1990 -1991)

- Member of the Board of Directors of Europe Arab Bank -UK - Member of the Board of Directors of Arab Bank Australia Ltd. – Australia - Member of the Supervisory Board of AB Invest

52 SENIOR EXECU SENIOR

Mr. Antonio Mancuso-Marcello EVP - Head of Treasury

Date of appointment : 1/6/2008. Date of birth : 2/5/1966. T IVES Academic Qualifications: - BA (Honours), Business Studies and German, Nottingham – UK, 1989 - Certificate in Business Sciences, Universitaet-GHS Paderborn – Germany, 1987

Experience: - Executive Vice President / Treasury, Arab Bank (6/2008 - present) - Group Treasurer, UniCredit – Italy (2007-2008) - Global Treasurer, GE Insurance Solutions – UK and US (2002-2006) - Assistant Treasurer / Head of European Funding, GE Capital – France (1999-2002) - Associate Director / Fixed Income, UBS – UK (1997-1999) - Associate Director / Fixed Income, NatWest Markets – UK (1992-1997) - Assistant Director / Money Markets, Yamaichi International – UK (1990-1992)

53 SENIOR EXECU SENIOR

Mr. Naim Rassem Kamel Al-Hussaini EVP - Head of Consumer Banking

Date of appointment : 20/11/2011 Date of birth : 28/11/1962 T IVES Academic Qualifications: - B.Sc. of Science, Industrial Management, University of Petroleum & Minerals – Saudi Arabia, 1985

Experience: - Head of Retail Banking Group, Banque Saudi Fransi, Saudi Arabia (2008 – 2011). - Acting Head, Retail Banking Group, Banque Saudi Fransi, Saudi Arabia (2006 – 2007). - division Manager, Consumer Assets Sales Division, Retail Banking Group, Banque Saudi Fransi, Saudi Arabia (2005). - Regional Manager, Retail Banking Division, Eastern Region, Banque Saudi Fransi, Saudi Arabia (2000 – 2005). - Manager, Network & Financial Planning Department, Retail Banking Group, Head Office, Banque Saudi Fransi, Saudi Arabia (1995 – 2000). - personnel Manager, Corporate Human Resources Division, Head Office, Banque Saudi Fransi, Saudi Arabia (1993 – 1995). - Manager, Recruitment & Government Relations, Corporate Human Resources Division, Head Office, Banque Saudi Fransi, Saudi Arabia (1990 – 1993). - Manager, Budget & Financial Planning, ITISALAT ALSAUDIA (1988 – 1990). - Head, Tender & Contracting, ITISALAT AlSAUDIA (1986 – 1988).

54 SENIOR EXECU SENIOR

Mrs. Kholoud Mohammad Saqqaf EVP – Country Manager of Jordan & Palestine

Date of appointment : 22/4/2012 Date of birth : 11/5/1968 T IVES Academic Qualifications: - BA in Economics and Accounting/ University of Jordan. - MA in Economics and Statistics/ University of Jordan.

Experience: - Executive Vice President – Country Manager of Jordan & Palestine, Arab Bank (4/2012 - till now). - deputy Governor, Central Bank of Jordan (4/2008 – 4/2012). - Executive Manager, Banking Supervision Department, Central Bank of Jordan (10/2007 – 4/2008). - Banking Supervision Expert, Head of Banking System Development Unit, Governor’s Office, Central Bank of Jordan (2/2006 – 10/2007). - director of Research Dept., Insurance Commission of Jordan (10/2004 – 2/2006). - Inspector, Inspection Units/ Banks Supervision Dept., Central Bank of Jordan (1998-10/ 2004).

- Researcher, Jordan Phosphate Mines Co (1988 -1991). - Vice Chairman of the Board of Jordan Mortgage Refinance Company - deputy of Supervisory Board of Arab National Leasing Company

55 SENIOR EXECU SENIOR

Mr. Mohammad Musa Dawood “Moh’d Issa” EVP – Country Manager of Jordan

Date of appointment : 9/9/2012 Date of birth : 1/2/1956 T IVES Academic Qualifications: - B.Sc, Math with minor in Business Administration, University of Jordan, 1978

Date of birth : Experience: Certificates held : - Executive Vice President – Country Manager of Jordan (since 16/12/2012) - Executive Vice President – Head of Libya project (9/2012 – 11/2012) - Executive Vice President – Head of Corporate and Investment Banking/ Jordan Professional experience: & Palestine (4/2009 – 7/2012) - Senior Vice President – Head of Credit/ Jordan & Palestine (10/2006– 3/2009) - Head of Corporate Finance/ Jordan & Palestine (08/2004 – 09/2006) - Other senior posts within Arab Bank plc, Jordan including: Head of Commercial Lending, Head of Syndicated Loans Unit (10/1983 – 07/2004)

- Board Member of Arab Bank – Syria (5/2008 – 8/9/2012) - deputy of the Supervisory Board of Arab National Leasing Company (till 8/7/2012) - deputy Chairman of International Islamic Arab Bank - Board member of Jordan Hotels and Tourism Company

56 SENIOR EXECU SENIOR

Mr. Ghassan Hanna Suleiman Tarazi EVP - Chief Financial Officer / Secretary of the Board

Date of appointment : 1/8/2003 Date of birth : 8/1/1964 T IVES Academic Qualifications: - B.Sc. in Economics, Acadia University – Canada, 1984 - M.Sc. in Business Management, Leuven University, Belgium, 1986 - Obtained professional certificates (CBA & CPA) from the USA and FAIBF from Australia

Experience: - Chief Financial Officer, Arab Bank, (July 2008) - Head of Group Internal Audit, Arab Bank (1/8/2003 - 30/6/2008) - Head of Financial Control and Risk Management, Gulf Investment Corporation, Kuwait, (2/2003 – 7/2003) - partner, KPMG Certified Accountants & Auditors, Amman, Jordan (1994 – 2003) - Assistant Manager, Jordan National Bank, Amman, (1992 – 1993) - Senior Audit, Arthur Andersen & Co. (1989 – 1992)

- Member of the Board of Directors of Arab Tunisian Bank - Tunisia - Member of the Board of Directors of Europe Arab Bank plc- London

57 SENIOR EXECU SENIOR

Mr. Dawod Mohammad Dawod Al-Ghoul EVP - Head of Financial Planning & Management Accounting

Date of appointment : 2/11/2008

T Date of birth : 25/5/1971 IVES Academic Qualifications: - BA in Accounting – University of Jordan – 1992 - M.SC in Accounting and Finance – University of Colorado – United States of America – 1994 - Certified Public Accountant ( CPA ) from the United States of America – 1993

Experience: - Executive Vice President – Financial Planning and Investments – Arab Bank (2008 – 2012) - director of Finance – Saraya Holdings ( 2007 – 2008 ) - Head of taxation – Arab Bank ( 2003 – 2007 ) - Consultant in international accounting and taxation – KPMG – United States of America (2000 – 2003 ) - finance Manager – Schlumberger – Dubai ( 1997 – 2000 ) - Senior Auditor – Arthur Andersen – Dubai ( 1995 – 1997 )

- Board member - International Islamic Arab Bank

58 Board of of Board Report D irectors ,

SENIOR EXECU SENIOR

Mr. Basem Ali Al-Imam, Lawyer Head of Legal Affairs Division

Date of appointment : 15/4/2003 Date of Birth : 19/4/1968 T IVES Academic Qualifications: - B.A. in Law, Faculty of Law, University of Jordan, 1988 - Masters in Law, Faculty of Higher Studies, University of Jordan, 1994

Experience: - Head of Legal Affairs Division, starting September 5, 2012. - Head of Legal Department – Arab Countries, (7/2007 – 9/2012). - legal Counsel (4/2003 – 7/2007). - Advocate and Legal Consultant, The Housing Bank for Trade and Commerce, (6/1993 – 4/2003). - Advocate, private law office (7/1991 - 6/1993). - legal Trainee (4/1989 – 6/1991).

59 SENIOR EXECU SENIOR

Mr. Marwan Nasha’at R. Riyal EVP - Head of Human Resources Division

Date of appointment : 13/6/2004 Date of birth : 15/10/1962 T IVES Academic Qualifications: - B.A. in Economics and Politics, University of Jordan, 1983 - M.A. in International Economic Relations, University of Jordan, 1993

Experience: - Executive Vice President / Global Head of Human Resources, Arab Bank plc – Amman (since 11/2005 - present) - Assumed senior positions within the Human Resources Division, Arab Bank plc – Amman (since 2004) - Head of Recruitment and Training - Head of Performance Management) - Head of Human Resources, (ABC Bank) – Jordan, (10/2003 – 6/2004) - Human Resources & Administrative Director, Aqaba Special Economic Zone Authority (ASEZA) – Jordan, (6/2003 – 10/2003) - Head of Human Resources, Nestle Group – Jordan, (3/2003 – 6/2003) - Head of Human Resources, Cairo Amman Bank – Jordan, (11/1995 – 1/2002) - purchasing Manager, Ministry of Finance – Jordan, (1986 – 1995)

60 SENIOR EXECU SENIOR

Mr. George Fouad El-Hage EVP - Chief Risk Officer

Date of appointment : 1/2/2002 Date of birth : 21/7/1958 T IVES Academic Qualifications: - B.Sc. (Honours) in Mechanical Engineering, King’s College, University of London, UK, 1980 - M.Sc. in Engineering- Industrial Construction, Stanford University, CA – USA, 1981 - M.Sc. Finance, University of Toronto, Ontario – Canada, 1987 - Chartered Financial Analyst, 1993

Experience: - Executive Vice President, Group Risk Management- Arab Bank plc – Amman, (since 2002) - Manager, Group Risk Management- TD Bank Financial Group- Toronto – Canada, (1996-2002) - Senior Analyst, Finance, TD Bank Financial Group- Toronto – Canada, (1993-1996) - Senior Relationship Manager, Commercial Banking, TD Bank Financial Group- Toronto – Canada, (1987-1993) - project Engineer, National Petroleum Construction Company, Abu Dhabi – UAE, (1982-1985)

61 SENIOR EXECU SENIOR

Mr. Michael Matossian EVP - Group Regulatory Compliance

Date of appointment : 28/11/2005 Date of birth : 23/2/1956 T IVES Academic Qualifications: - B.Sc. Accounting, Montclair State University – USA, 1978 - professional certificates: Certified Public Accountant, Certified Management - Accountant, Certified Fraud Examiner, Certified Risk Professional, Certified Anti-Money Laundering Specialist - USA

Experience: - Executive Vice President/Group Regulatory Compliance, Arab Bank plc – (since 11/2005) - Chief Compliance Officer, Fifth Third Bank – USA (2003 - 2005) - Senior Vice President and Director of Regulatory Risk Management, Director Anti-Money Laundering, Director Operational Risk Governance – Wachovia Corporation (formerly First Union) – USA, (1995 – 2003) - Vice President and Director of Management Internal Control, First Fidelity Bancorporation (acquired by First Union) - USA, (1993 - 1995) - Senior Vice President and Internal Chief Auditor, National Community Banks, Inc. – USA, (1989 – 1993) - Senior Audit Manager, Arthur Andersen, LLP – USA, (1979 - 1989) - Regulatory inspector, U.S. Treasury Department, Office of the Comptroller of the Currency Examiner – USA (1976 – 1979)

- Member of the MENA-Organization for Economic Co-Operation and Development (OECD) Working Group in Improving Corporate Governance in the Middle East and North Africa - Active involvement with the Union of Arab Banks, and a speaker on compliance and risk across the MENA region

62 SENIOR EXECU SENIOR

Mr. Fadi J. Zouein EVP - Head of Internal Audit

Date of appointment : 1/11/2009 Date of birth : 14/04/1965 T IVES Academic Qualifications: - BA, Business Administration, Saint Joseph University – Beirut, 1987 - High Diploma in Commercial Studies, Banking and Finance , Saint Joseph University – Beirut, 1992 - professional Certifications (CIA, CISA,CFE)

Experience: - Executive Vice President/ Head of Internal Audit , Arab Bank plc – (since 2009) - General Manager Internal Audit, Gulf Bank – Kuwait, (2008 – 2009) - Head of Internal Audit, Bank of Beirut – Lebanon, (1993- 2008) - Senior Auditor Wedge Bank Middle East – Lebanon, (1992-1993) - Credit Analyst, Bank Tohme - Lebanon, (1989 - 1992)

- Member of the Institute of Internal Auditors

63 SENIOR EXECU SENIOR

Mrs. Eman Al- Sahhar VP - Head of Secretariat Department - Shareholders Unit

Date of Appointment : 18/7/2010

T Date of birth : 30/6/1955 IVES Academic Qualifications: - High School, 1972

Experience: - Manager, Secretariat Department (since 1995) - Assistant Manager, Secretariat Department (since 1990) - following Secretariat work and Board Meeting preparations and General Assembly since 1990 - Worked in Secretariat Department since 6/12/1972

64 Board of of Board Report D irectors ,

NUMBER O NUMBER

Number of Number of No. Shareholder’s Name shares as of Ownership % shares as of Ownership %

31.12.2012 31.12.2011 F SHARES OWNE SHARES

Social Security 1. 82770000 15.500 82768380 15.500 Corporation

2. Saudi Oger Ltd. 51686340 9.679 51686340 9.679

Oger Middle 3. 37982055 7.113 37982055 7.113

East Holding D B Y MAJOR SHAREHO MAJOR LD ERS A ERS T 31 31 D ECEMBER 2011 AN 2011 ECEMBER D 2012

65 Board of of Board Report D irectors ,

C om p e t i t

iveness Arab Bank continues on its path of achievements, which began over 80 years ago, underlining a success story unfolding year after year. Arab Bank holds a leading position as one of the most important banks in the Middle East and North Africa in addition to being one of the most competitive and diverse. Arab Bank enjoys a strong reputation and credibility, making it a pillar of trust for its customers and shareholders

under all circumstances. Reinforcing this unique position Arab Bank Group boasts the an widest Arab banking branch network in the world with over 600 branches. d M d Despite the challenges arising from the current situation in the Middle East and the global economic challenges, Arab Bank has continued to enhance the level of arke competitiveness based on its values of protection for its customers, shareholders, employees and capital. The Bank continues to implement a balanced strategy based on abundant liquidity and high capital adequacy ratios that allowed it

t S t to work effectively and efficiently under difficult and volatile conditions, while continuing to make profits and enhance its strong financial performance. hare

It should be noted here that the Bank’s policies toward risk management, diverse credit facilities distribution and effective budget management maintained its excellent credit ratings in 2012 as opposed to many other global banks, despite the negative repercussions of the global financial crisis.T he credit rating agency, Fitch, in August 2012 reaffirmed the (A-) long term rating and stable outlook.

The Bank received a rating of (BBB) and a negative outlook by the credit rating agency Standard & Poor’s. The Bank also received a rating of (Baa2) from the credit rating agency Moody’s with a negative outlook.

In 2012 Arab Bank has received numerous international awards and recognitions in various fields, earning BestT rade Finance Provider in the Middle East and North Africa, Best Project and Infrastructure Finance Provider in the Middle East and Best Consumer Internet Bank in Jordan for the fourth consecutive year from Global Finance magazine. In addition Arab Bank was also named Best Bank and Best Investment Bank in Jordan for four years in a row and the title of Best FX and Cash Management service provider in the Middle East r from the global financial magazine EMEA Finance. Arab Bank also received Bank of the Year from the Banker Magazine and recognized as Best Bank in Jordan for the fifth consecutive year by Euromoney magazine.

66 C om p e t i t

Market shares in specific Locations: iveness Arab Bank operates in 30 countries in five continents. Its market share varies by country, according to the nature of business it conducts. The following table presents the Bank’s market shares in a selected set of countries where the Bank operates:

an d M d Country Total Assets % Deposits % Direct Credit Facilities %

Bahrain 2.62% 2.98% 2.76% arke

Egypt 2.2% 2.3% 2.5% t S t Jordan 21.13% 22.10% 15.4% hare

Lebanon 0.99% 1.02% 1.45%

Palestine 31.24% 34.76% 31.55%

Qatar 0.47% 0.68% 0.34%

UAE 0.68% 0.93% 0.72%

Yemen 11.98% 13.67% 6.48%

Note: Market Shares were calculated based on the most recent data released by the central banks in the respective countries.

It is worth mentioning that Arab Bank ranks first among banks operating in Jordan and Palestine in terms of total assets, deposits and credit facilities.

67 Board of of Board Report D irectors ,

Pa t

en Arab Bank competes in free and open economies on the basis of fair competition. It does not enjoy any government or preferential protection. It has obtained t

s neither preferential advantages nor specific patents. & G & overnmen t t Pro t ec t ion

68 Board of of Board Board of of Board Board of of Board Report Report Report D D D irectors irectors irectors , ,

M ajor

No specific individual supplier or client accounts for 10% or more of the Bank’s activities, purchases and / or sales. S u ppl iers

an d Cl d ien t s

69 Board of of Board Report D irectors ,

G overnmen

No decrees, laws or regulations were issued by any governmental bodies or international organizations or others that would have material impact on the Bank, any of its products or competitive capabilities. In addition, the international quality standards are not applicable as far as the Bank is concerned.

It should be noted here that the Bank’s policies toward risk management, diverse

t t credit facilities distribution and effective budget management maintained its

or excellent credit ratings in 2012 as opposed to many other global banks, despite the negative repercussions of the global financial crisis.T he credit rating agency, I Fitch, in July 2012 reaffirmed the (A-) long term rating and stable outlook. n

t The Bank received a rating of (BBB) and negative outlook by the credit rating erna agency, Standard & Poor’s. The Bank also received a rating of (Baa2) from the credit rating agency Moody’s, with a negative outlook as well. t iona l O l rgani z a t ions R egu l a t ions

70 Board of of Board Report D irectors ,

Board of Directors

Corporate Strategy Committee

Nomination & Remuneration Committee A rab Corporate Governance Committee B Audit Committee ank

Risk Management Committee O Credit Committee formed by the Board Chairman rgani

Secretary General

Chief Executive z Deputy Chief Executive Officer a

Officer t ion C har

egal L Credit inance t / H / t reasury F T Branding Secretariat Banking (CIB) Chief Operations Officer (COO) Internal Audit ea Corporate & Institutional Corporate Risk Management Human Resources Human Resources Consumer BankingConsumer Regulatory Compliance d Off d I T MO ice E P

Operations rocurement P ransformation T Economic Research Economic Real Estate & Construction Mgt. Real Estate

Business Support Control egal L Secretariat

71 Board of of Board Report D irectors ,

N umber

o f St f Arab Islamic Arab Al-Arabi Al Nisr Arab Arab Gulf Arab Al-Arabi Arab Europe Arab Bank Arab Su- Academic Bank Interna- Invest- Investment Arab Tuni- Arab Bank - Al Arabi Company Tech for National Investment Bank Arab (Switzer- danese Total a Qualifications Australia tional ment Group (AB sian Bank Syria Insurance for Shared IT Leasing Group / plc Bank land) Ltd. Bank ff A ff Ltd. Arab Bank Bank Invest) Company Services Services Company Palestine n PhD 8 0 4 1 4 3 1 0 3 0 0 0 0 0 0 24 d A d ca Master’s degree 493 23 18 17 49 24 3 6 155 25 14 9 4 3 2 845 d emic Advanced 32 8 17 2 5 6 0 1 171 6 0 2 0 0 1 251 diplomas Q

ua Bachelor’s degree 3742 50 15 63 450 26 1 24 9 213 212 92 31 18 6 4952 l i f

ica Junior college 634 19 9 31 89 1 0 1 44 47 33 21 4 5 0 938 t

ions High school 845 45 30 13 33 2 1 1 159 30 5 15 1 1 1 1182

Sub High school 381 0 3 0 82 2 0 3 325 14 7 1 0 2 0 820

Total Employees 6135 145 96 127 712 64 6 36 866 335 271 140 40 29 10 9012

72 NUMBER O NUMBER F

Arab Islamic Arab Al-Arabi Al Nisr Arab Arab Gulf Arab Al-Arabi S Arab Europe Arab Bank Arab Su-

Academic Bank Interna- Invest- Investment Arab Tuni- Arab Bank - Al Arabi Company Tech for National Investment T Bank Arab (Switzer- danese Total Qualifications Australia tional ment Group (AB sian Bank Syria Insurance for Shared IT Leasing Group / A plc Bank land) Ltd. Bank Ltd. Arab Bank Bank Invest) Company Services Services Company Palestine FF AN

PhD 8 0 4 1 4 3 1 0 3 0 0 0 0 0 0 24 D ACA

Master’s degree 493 23 18 17 49 24 3 6 155 25 14 9 4 3 2 845 D EMIC QUA EMIC Advanced 32 8 17 2 5 6 0 1 171 6 0 2 0 0 1 251 diplomas

Bachelor’s degree 3742 50 15 63 450 26 1 24 9 213 212 92 31 18 6 4952 L I F

Junior college 634 19 9 31 89 1 0 1 44 47 33 21 4 5 0 938 CA T IONS High school 845 45 30 13 33 2 1 1 159 30 5 15 1 1 1 1182

Sub High school 381 0 3 0 82 2 0 3 325 14 7 1 0 2 0 820

Total Employees 6135 145 96 127 712 64 6 36 866 335 271 140 40 29 10 9012

73 Board of of Board Report D irectors ,

Training

Middle Manage- Unscheduled ment Programs Courses English & Computer Certification Grand Total Training Agenda External Courses Internet Courses Programs and Ruwad Attended at H.O. Courses Programs Per Area

C Area Programs ourses Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees

Jordan 236 4011 55 1013 95 1484 73 209 5 779 29 724 27 93 13 30 533 8343 VS. VS.

Palestine 87 1110 14 39 63 1006 0 0 1 299 2 4 3 43 1 2 171 2503 Trainees

Egypt 78 1304 31 233 25 625 0 0 1 319 2 6 27 30 5 13 169 2530

Morocco 1 70 1 4 0 0 0 0 0 0 1 1 0 0 0 0 3 75

in Algeria 1 14 15 26 0 0 0 0 1 88 2 2 0 0 0 0 19 130 J or

Lebanon 9 140 53 370 30 637 1 1 3 454 5 5 4 43 15 45 120 1695 d an

Yemen 22 36 6 42 0 0 0 0 1 121 2 2 9 22 0 0 40 223 & A &

rab Bahrain 69 137 4 72 0 0 3 12 1 81 2 2 2 2 1 1 82 307

A UAE 42 347 11 148 20 242 1 1 1 246 2 5 0 0 2 2 79 991 reas

Qatar 0 0 0 0 0 0 1 1 1 42 3 3 0 0 0 0 5 46

in Total 545 7169 190 1947 233 3994 79 224 15 2429 50 754 72 233 37 93 1221 16843 2012 MA 2012 T RIX

74 Training

Area Programs C ourses Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees Courses Trainees

Jordan 236 4011 55 1013 95 1484 73 209 5 779 29 724 27 93 13 30 533 8343

vs Palestine 87 1110 14 39 63 1006 0 0 1 299 2 4 3 43 1 2 171 2503 . . Trainees

Egypt 78 1304 31 233 25 625 0 0 1 319 2 6 27 30 5 13 169 2530

Morocco 1 70 1 4 0 0 0 0 0 0 1 1 0 0 0 0 3 75

in Algeria 1 14 15 26 0 0 0 0 1 88 2 2 0 0 0 0 19 130 J or

Lebanon 9 140 53 370 30 637 1 1 3 454 5 5 4 43 15 45 120 1695 d an

Yemen 22 36 6 42 0 0 0 0 1 121 2 2 9 22 0 0 40 223 & A &

Bahrain 69 137 4 72 0 0 3 12 1 81 2 2 2 2 1 1 82 307 rab

UAE 42 347 11 148 20 242 1 1 1 246 2 5 0 0 2 2 79 991 A reas

Qatar 0 0 0 0 0 0 1 1 1 42 3 3 0 0 0 0 5 46

in Total 545 7169 190 1947 233 3994 79 224 15 2429 50 754 72 233 37 93 1221 16843 2012 M 2012 a t rix

75 Board of of Board Report D irectors ,

RISK MANAGEMEN RISK

OVERVIEW Arab Bank Group addresses the challenges of banking risks comprehensively through an Enterprise-Wide Risk Management Framework. This framework is built inline with leading practices, and is supported by a risk governance structure consisting of Board Committees, Executive Management Committees, in addition to three levels of control as follows:

Risk Oversight Committees: T • Board Audit Committee • Board Risk Management Committee • Board Credit Committee • High Asset and Liability Management Committee (High ALCO) • Senior Credit Committee • Various Operational Risk-related Committees (eg Investigation Committee, In- formation Security and Business Continuity Steering Committee, Crisis Man- agement Committee)

The Additional Three Levels of Control are: • First Level: Business Line and Country Control Units • Second Level: Group Risk Management (GRM) and Group Regulatory Compli- ance (GRC) • Third Level: Group Internal Audit (GIA)

• The Board of Directors reviews and approves the Bank’s overall risk management strategy, and ensures through its vanious Committees, that comprehensive risk management policies and procedures are established in all business areas.

• The Heads of Strategic Business Units manage risks within their specific business lines whether credit or operational. In addition the Global Treasurer is responsible for the management of liquidity and market risks. They operate within formally delegated risk limits and are responsible and accountable for identifying, assessing, controlling, mitigating and reporting on risks in the course of their business activities.

• The Chief Risk Officer (CRO) is responsible for ensuring that the Bank has a robust system for the identification and management of risk and for establishing appropriate risk frameworks consistent with the Bank’s overall business strategy and risk appetite. 76 RISK MANAGEMEN RISK

• The Chief Compliance Officer (CCO) is responsible for ensuring that the Bank is in compliance with applicable related laws, rules and regulations, especially those issued by regulatory authorities.

• The Chief Financial Officer (CFO) is is responsible for defining financial risks, middle office controls, safeguarding the quality of financial data, and for ensuring the accuracy and reliability of the Bank’s Financial Statements. T • Group Internal Audit which has full independence from executive manag- ment and reporting to the Audit Committee of the Board, provides objective assurance that all Bank functions work in compliance with the policies and procedures, in addition to assuring the effectiveness and adequacy of the risk management, control, and governance processes. Group Internal Audit provides the Board Audit Committee, the Chief Executive Officer and the respective business units with the audit results and monitors implementation of the management corrective actions.

GROUP RISK MANAGEMENT (GRM):

As part of the risk governance structure of the Bank, and as one of the main levels of control, Group Risk Management is responsible for ensuring that the Bank has a robust system for the identification and management of risk. Its mandate is to:

- Establish risk management frameworks, policies and procedures for all types of risks and monitor their implementation - develop appropriate risk measurement tools and models - Assess risk positions against established limits - timely monitoring and reporting to Executive Management and the Board - Advise and promote risk awareness based on leading practices in the banking sector

Each of the following departments within Group Risk Management structure has specific roles and responsibilities aimed at advancing the Bank’s risk management capabilities based on best practices, international guidelines and requirements of regulatory bodies and related authorities.

77 RISK MANAGEMEN RISK • The Credit Risk Management Department is responsible for developing the centralized reporting of credit risk, policy review, and the internal risk rating systems. These rating systems are designed to improve “probability of default” measurements and to lead to the implementation of the Bank’s risk-adjusted return-on-capital model. The department is also responsible for the implementation of the Basel requirements and any amendments thereof.

• The Business Risk Review Department conducts comprehensive individual, portfolio and business risk reviews. It ensures that the Bank’s various portfolios

T are aligned to their economic perspective, business strategy and target market and recommends corrective action if necessary. The department also assesses the quality of the loan portfolio, lending policies and processes and the capabilities of the credit staff. Supplemental targeted reviews are undertaken based on market conditions and the size and sectoral nature of portfolios. In specific instances such reviews are supported by tailored stress testing scenarios.

• The Market and Liquidity Risk Management Department is responsible for setting comprehensive market and liquidity risk policy frameworks. The policy framework ensures measurement, monitoring and control of the Bank’s market and liquidity risk. The department is also responsible for setting and monitoring risk limits, the calculation of Value-at-Risk, stress testing and other quantitative risk assessments (such as those related to Basel II or III) which are performed in coordination with Treasury.

• The Operational Risk Management Department, which also covers strategic and reputation risks, leads the implementation of a Bank-wide risk management framework, as part of the overall strengthening and continuous improvement of the controls within the Bank. The framework consists of policies and procedures supported by a formal methodology of risk-control and self- assessment for the identification, assessment, mitigation, control, and reporting of operational risk in all business activities.

• The Information Security Department leads a Bank-wide framework aimed at minimizing information and technology risks, maximizing compliance and enabling the safe use of technology in all lines of business. The goal is to ensure that information assets, people, processes and technologies are adequately protected from threats, whether internal or external, deliberate or accidental. The strategy recognizes the importance of Information Security in establishing trust between our customers, business partners, employees and the Bank and includes activities to promote good security practices, raise information risk awareness, strengthen controls, and enhance the effectiveness of monitoring and incident response. 78 RISK MANAGEMEN RISK • The Business Continuity Department aims to counteract interruptions to business activities, to protect critical processes from the effects of major information systems failures or disasters, whether natural or otherwise, and to ensure their timely resumption. The framework is based on identifying major risks and analyzing their impact on business. The teams conduct risk assessments and use a centralized database to build the bank’s comprehensive continuity plans. These plans are kept up-to-date by each country through the use of a web- based application, and are tested on a regular basis to ensure timely resumption of essential operations and services.

T • The Insurance Department oversees all insurance policies through a centralized database whether these are global or local. It ensures that insurable risks are appropriately mitigated and establishes minimum insurance criteria at the Group and country level. The department also supports the Business Units in reviewing and delivering customized insurance coverage for products, portfolios, or individual transactions.

• The Policy Center Department is responsible for centrally managing all Bank policies from the development phase until final approval, according to a standard framework specifically customized for the Bank.T hese high level policies are then embedded in more details into the bank’s various operational processes and its policies and procedures.

• The various Risk departments work together and with Finance on Capital Man- agement related assignments to assess the impact on capital of new regulations (eg Basle III etc) and to deliver a comprehensive Internal Capital Adequacy Assessment (ICAAP) supported by a stress test framework which includes mul- tiple scenarios covering credit, market, liquidity and operational risk events. Periodic reporting to Senior Management and to banking regulators further ensures that our capital is managed properly.

CREDIT RISK: Arab Bank maintains a conservatine risk strategy towards the activities it takes on. This combined with its dynamic and proactive approach in managing credit risk are key elements in achieving its strategic objective of maintaining and further enhancing its asset quality and credit portfolio risk profile taking into account all changes in the banking and legislation environment. The conservative, prudent and well-established credit standards, policies and procedures, risk methodologies and frameworks, solid structure and infrastructure, risk monitoring and control enable the Bank to deal with the emerging risks and challenges with a high level of confidence and determination.

79 Portfolio management decisions are based on the Bank’s business strategy and RISK MANAGEMEN RISK risk appetite as reflected in the tolerance limits.T he quality of the portfolio is ex- amined on regular basis in relation to key performance indicators. Diversification is the cornerstone for mitigating portfolio risks which is achieved through industry, geographical and customer tolerance limits. Periodic stress testing based on continuously revised and conservative scenarios and capital planning are key tools in managing the credit portfolio.

The credit process at Arab Bank is well defined and institutionally predicated on: • Clear tolerance limits and risk appetite set at the highet level, well communi- cated to the business units and periodically reviewed and monitored to adjust T as appropriate. • Credit Committee structure that ensures credit approvals are made with con- sensus by a committee and not individuals with high level of independency. • Authorities are delegated based on risk-differentiated grids for each committee at Country and Head Office levels. • Well-defined target market and risk asset acceptance criteria. • Rigorous financial, credit and overall risk analysis for each customer/transaction. • Concentrations together with mitigation strategies are continuously assessed. • Ensuring that the early warning system is continually validated and modified to ensure proper functioning for risk identification. • Systematic and objective credit risk rating methodologies that are based on quantitative, qualitative and expert judgment. • Systematic credit limits management enabling the Bank to monitor its credit exposure on. a daily basis at country, borrower, industry, credit risk rating and credit facility type levels. • Solid documentation and collateral management processes where collateral is continuously monitored and assessed to ensure proper coverage and top-up triggers. • Annual and periodic individual credit reviews to ensure detecting any weakness signs or warning signals and considering proper remedies in case of need. • Strict control and monitoring systems which are based on disciplined follow up and monitoring. • Conservative approach to provisioning and managing bad-debt collection through roll rate, vintage analysis and delinquency trends analysis to enable the early identification of problem areas. • Periodic credit reviews are conducted and account strategies are set to minimize NPLs and maximize recoveries and collections. • The Bank continues to upgrade its systems and technological infrastructure to further enhance performance of the above and to be aligned with the changing environment of the financial services. 80 Our rigorous credit processes as noted above are supplemented by sectoral portfolio reviews focused on countries, regions or specific industries which are intend- MANAGEMEN RISK ed to identify any inherent risks in the portfolios resulting from changes in market conditions and are supplemented by independent reviews by the Business Risk Review team in Group Risk Management and our credit review team in Group Internal Audit.

The Bank continuously works to build a highly motivated team, working in a culture where learning and expertise are maximized through enrolling its credit staff at various levels into well selected and designed credit training programs and courses to be well equipped to efficiently conduct their roles and responsibilities. T

LIQUIDITY RISK:

Liquidity is defined by the Bank for International Settlements as the ability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. Arab Bank has built a robust infrastructure of policies, processes and people, in order to ensure that all obligations are met in a timely manner, under all circumstances and without undue cost.

Liquidity continues to be an area of great focus for Arab Bank. The Bank has a highly diversified and stable funding footprint. In addition, it maintains a large portfolio of highly liquid assets, which acts as a contingent funding source which further boosts liquidity. Arab Bank’s long-standing emphasis on maintaining a broad and stable liquidity base has largely protected the Bank from the effects of the market volatility and funding stress experienced by many other financial institutions in recent years.

Arab Bank’s liquidity management strategy is determined by the High Asset and Liability Management Committee (High ALCO). The operations of the country level Treasury teams are centrally controlled, monitored and coordinated. In coordination with local Asset and Liability Management Committees, the various countries’ Treasury teams across Arab Bank act as a community, mandated to work together to meet local and Group needs. The Asset and Liability Manage- ment Committees analyze cash flows and market risk exposures and take action where appropriate to adjust the pricing and product mix, in order to ensure an optimal balance sheet structure and risk profile.

The Global Treasurer receives daily information on actual, forecast and modeled liquidity. Such information is received at country level, legal entity level and at Group level. This enables the Treasurer to provide the High ALCO with comprehensive management information on liquidity across the Group. This reporting is supported by stress testing, which applies various stress scenarios to existing 81 RISK MANAGEMEN RISK forecast results. The stress testing process is owned and managed by the Chief Risk Officer.T he establishment of limits for Arab Bank’s tolerance for liquidity risk, (as with other types of risk), is managed by the Chief Risk Officer and the High ALCO.

The Bank uses a variety of tools to measure liquidity risk in the balance sheet. These metrics help the Bank to plan and manage its funding and help to identify any mismatches in assets and liabilities which may expose the Bank to roll risk. These metrics include one day and one month liquidity ratios, cumulative liquid-

T ity modeling, liquidity risk factors, inter-group borrowing and lending analysis, loan to deposit ratios, large depositor concentration monitoring, Basel III liquidity ratios, and stress testing.

Arab Bank’s comprehensive approach to measuring and managing liquidity gives the Group a great deal of confidence in its ability to endure all unforeseen market events, while still being able to meet all of its obligations to its customers and regulators.

Liquidity risk will continue to have a major influence on how the world’s banks operate and interact, and regulators will continue to require increasingly high standards of liquidity governance. Arab Bank’s approach to liquidity management, along with its current and contingent funding structures, leaves it extremely well placed to face the future with great confidence. Arab Bank’s funding model has shown itself to be extremely resilient for many years and hence remains funda- mentally unchanged.

MARKET RISK: Market risk is defined as the potential for loss from changes in the value of the Bank’s portfolios due to movements in interest rates, foreign exchange rates, equity or commodity prices. The three main activities that expose the bank to market risk are: Money Markets Trading, Foreign Exchange Trading and Capital Markets Trading, across the Trading and Banking books.

The Bank has managed its market risk across its Trading and Banking Books on a consolidated basis as this is a more conservative approach to the management of this risk. In addition, the Bank has implemented and refined its Transfer Pric- ing policy in order to ensure that market risk is transferred from Corporate and Investment Banking and Consumer Banking to Treasury, where it can be centrally managed.

82 RISK MANAGEMEN RISK Market risk is governed by the Global Treasurer, the Chief Risk Officer and the Chief Financial Officer. The High ALCO provides market risk oversight and guidance on risk appetite and policy settings and establishes the global limits which are then allocated to the various entities by the Global Treasurer. The Global Treas- ury’s Policies and Procedures clearly define the rules that exist for the active management of all the Group’s portfolios which are subject to market risk. Group Risk Management, in coordination with Global Treasury ensures that the policies and procedures are updated on a regular basis, or when the need arises. The market risk limits are established based on the Bank’s strategy and risk appetite, and risks are monitored by an independent Middle Office and are reviewed on a regular basis by Global Treasury and Group Risk Management. T

Interest Rate Risk: Interest rate risk in the Group is limited, well managed, and continuously supervised. A large proportion of the interest rate exposure is concentrated in the short end of the yield curve, with durations of up to one year. Exposures of more than one year are particularly limited.

Interest rate risk is managed in accordance with the policies and limits established by the High ALCO. The Asset and Liability Management Committees in the various countries, as well as the respective treasurers, handle the day-to-day management of interest rate risks.

Capital Markets Exposures: Investments in capital market instruments are subject to market risk stemming from changes in their prices. Arab Bank Group’s exposure to this kind of risk is limited due to its strong control over credit and interest rate risk.

The equities investment portfolio represents a very small percent of the Bank’s overall investments and generally consists of direct investments in strategic al- liances as well as seed investment in mutual funds that we originate within the Group.

Foreign Exchange Risk: Foreign exchange activity arises principally from customers’ transactions. Strict foreign exchange risk limits are set which define exposure and sensitivity limits for trading in foreign exchange. The Bank hedges itself appropriately against potential currency fluctuations in order to minimize foreign exchange exposure.

83 RISK MANAGEMEN RISK

In Treasury, positions are usually held open only for small risk equivalents. The majority of positions arising from customers are covered on a daily basis. Positions are measured and supervised by local management daily and by global management weekly. Foreign exchange exposure resulting from participations is strictly managed.

Market Risk Management metrics:

T Managing market risk is a key part of the Bank’s business planning process, and in line with the Bank’s risk appetite, is kept at a minimal level. Our main tools used for measuring and managing market risk are the following:

• pV01: PV01 measures the risk to economic value arising from changes in interest rates by multiplying the net balance in each time bucket by its weighted average price sensitivity to changes in interest rates. This is measured at country, legal entity and Group level. All interest rate positions are included in the PV01 calculation, including both on-balance sheet and off-balance sheet products in the Trading and Banking Books.

• NII 100: NII100 measures the effect of a 1% Increase in Interest rates on first and second year pretax earnings. This is measured at country, legal entity and Group level.

• Overall Net Open FX Position: The Overall Net Open FX Position measures the open position for each currency, including precious metals, at country, legal entity and Group level.

• Value at Risk (VaR): VaR is currently used as an internal measure of market risk to estimate the maximum loss that may be experienced by the Group over a one day holding period with 99% confidence level using the Historical Simu- lation approach supported by 500 days of data. The Group’s VaR calculation is run at the consolidated and unit levels and covers both interest rate and foreign exchange risk.

• Stress Testing: The Stress Testing model aims to complement the Group’s Val- ue at Risk calculations by identifying and quantifying the effects of extreme, but plausible events on the Group’s portfolio. The methodologies used range from single factor to multi-factor stress tests. The single factor stress tests incorporate a number of standard shocks in addition to worst historical movements for each risk factor. The multi-factor tests consist of hypothetical and

84 RISK MANAGEMEN RISK

historical tests as well as a hybrid of the two. All scenarios are tailored to account for the special characteristics of the Group’s portfolio.

Other Risks:

Arab Bank faces a number of other banking risks, which include compliance risk and strategic risk. T

Compliance Risk: Arab Bank continues to maintain an unwavering commitment to integrity and ex- ercises the highest ethical standards across its operation, applying both the letter and spirit of regulations to ensure compliance with statutory, regulatory, and supervisory requirements. Evolving to meet the needs of rapidly changing business environments, Arab Bank ensures that its internal processes are consistent with applicable regulatory requirements, are risk-based, promote efficiency, foster effectiveness and meet or exceed customer expectations. This requires Arab Bank to balance risk and reward, anticipate new dimensions of risk, and to ensure that its activities are aligned with the institution’s risk appetite and risk tolerance. Group Regulatory Compliance, reporting directly to the Chief Executive Officer and has direct access to the Board of Directors, is responsible for the oversight of compliance with requirements impacting the business lines including, but not limited to, Know Your Customer, Anti-Money Laundering, and Combating Terror- ist Financing Compliance. With the steadfast support and commitment of the Arab Bank Board of Directors and Senior Management, coupled with the dedication of Bank staff, Arab Bank is resolved to sustain and further strengthen its sound compliance program and to continue to meet and/or exceed the regulatory expectations. No known compliance matters exist that expose the Bank to significant financial liability, material loss, or associated adverse publicity.

85 RISK MANAGEMEN RISK

Strategic Risk :

The Bank maintains clearly defined work standards and comprehensive strategic planning procedures. The Board of Directors, together with the Bank’s executive management, periodically analyses the impact of the Bank’s major operations on its strategy, including the internal and external working conditions, the implica- tions of competition, customer requirements, changes in laws and information technology as well as the Bank’s existing systems. T

Achievement of the Bank’s clearly-defined objectives depends on a basic principle; its ability to fully leverage its widespread network of branches, maintain and develop its strong customer base, continuously expand and improve its products and services and maintain its sound financial position.

Management assesses the Group’s financial performance in light of the current strategy and the need to revise its objectives, if necessary, in the context of a continuously changing work and market environment. As such, profitability and commitments of projects to be undertaken are assessed in the context of “Business As Usual” as well as “Stressed Conditions” scenarios. This ensures the Bank is able to quickly react to developing situations in managing its longer term strategy.

86 Board of Directors of Board Report ,

A cc

Arab Bank was able to accomplish much in various fields despite the prevailing o conditions in the region and the relatively unstable global economy in 2012. mp

Arab Bank Group achieved good financial results in 2012 despite the economic l challenges faced by Arab countries and the world as a whole. Arab Bank Group’s is net after tax and provisions profit increased by 15% to reach USD 352.1 million in h 2012 compared to USD 305.9 million during 2011. m According to the financial statements of the Arab Bank Group for the year ended e nts December 31, 2012, the Arab Bank Group’s net profits before taxes and after provisions amounted to 562.9 million dollars during the year 2012, while operating revenues equaled to USD 1664.9 million compared to USD 1625.3 million for the 2012 year ended December 31, 2011. Net interest income made up USD 1011.5 million, or 61% of total revenue, while commission income amounted to USD 301.8 million for the year ended Decem- ber 31, 2012 compared with 303.4 million dollars at the end of 2011, representing 18% of total revenue. The increase in income from associated companies amounted to USD 28.6 million to reach 294.5 million compared with USD 265.9 million in 2011. Provisions for doubtful loans equaled to USD 347.5 million in 2012 compared to USD 434.9 million in 2011. Arab Bank Group’s total assets stood at USD 45.6 billion for the years 2012 and 2011, meanwhile, customer deposits accounted for 72% of the Bank’s total sources of funds to reach USD 32.9 billion compared with USD 31.7 billion by the end of 2011. In addition, total banks deposits stood at USD 3.9 billion compared with USD 5.1 billion at the end of 2011. Credit facilities decreased by USD 474 million to USD 20.5 billion compared to USD 20.9 billion at the end of 2011 accounting for 45% of total assets, while the investment portfolio amounted to USD 8.8 billion by the end of 2012 accounting for 19% of total assets. Shareholders’ equity stood at USD 7.7 billion, whilst total capital adequacy ratio is at 15.1% exceeding the requirements of both Basel II of 8% and the Central Bank of Jordan of 12%. Further, liquidity ratio as represented by cash and quasi cash reached 47%, whilst loans to deposits ratio stood at 62%. It should be noted here that the Bank’s policies toward risk management, diverse credit facilities distribution and effective budget management maintained its excellent credit ratings in 2012 as opposed to many other global banks, despite the negative repercussions of the global financial crisis. The credit rating agency, Fitch, in July 2012 reaffirmed the (A-) long term rating and stable outlook. The Bank received a rating of (BBB) and negative outlook by the credit rating agency, Standard & Poor’s. The Bank also received a rating (Baa2) from the credit rating agency Moody’s with a negative outlook as well.

87 A cc As for project financing, Arab Bank worked with one of the largest fertilizer clients o

mp to restructure their overall finances in order for them to quickly grow their international operations by repositioning their debt load in the optimal location. l The withdrawal of numerous banks from MENA project financing has allowed is Corporate and Institutional Banking (CIB) to set up its game in terms of providing h advisory services, underwriting, funding and guarantee issuance for numerous m noteworthy projects in the MENA region. e

nts There are many other examples of Arab Bank’s participation in financing important projects in Jordan and many countries across the Middle East such as core infrastructure projects in UAE and the petrochemical field in Saudi Arabia. In ad- 2012 dition, the Bank was involved in other projects such as real estate development in Qatar. The Bank witnessed a rise in issued guarantees in the Arab Gulf and the Middle East and North Africa. Arab Bank has been selected to act as an Onshore Security Agent and an Onshore Account Bank related to the Fourth Independent Power Plant Project (IPP4) in the second cooperation between Arab Bank and AES Corporation following Amman East Power Plant (IPP1) in Al Manakher Area, Amman. Financing agreements and related agency arrangements were signed with the Overseas Private Investment Corporation (OPIC) and European Bank for Reconstruction and Development (EBRD). Furthermore, Arab Bank successfully arranged a JOD 105 million debt financing for expansion of Samra Wastewater Treatment Plant. This expansion will increase existing plant capacity by 40%. This arrangement also included an additional co-financing of a USD 93 million grant from the Millennium Challenge Corpora- tion (MCC)- United States of America- as part of its Compact Agreement for water projects in Amman and Zarqa. As part of the Bank’s belief that the small and medium enterprise (SME) sector will have a critical role in the local economy by providing employment opportunities and sustainable development, the Bank has recently expanded its SME financing operations as part and launched a specialized unit to provide comprehensive financing and services to best meet the needs of this sector. It is worth mentioning here that Arab Bank was also one of the leading banks in 2012 that signed an agreement with OPIC to implement programs for funding SMEs in Jordan. This program provides funding which exceeds JOD 200 million for Jordanian banks as loan guarantees for small and medium-sized companies at preferred rates in addition to technical support. The Bank, in coordination with the Jordan Deposit Corporation, recently worked together to oversee the development of two new loan programs under the ti- tles of ‘Quick Loan’ and ‘Small Business Loan’. These new loan programs aim to provide small and medium enterprises in Jordan with the financing they require to expand their business in addition to providing the necessary guarantees. The Bank signed the agreement with the Jordan Deposit Corporation to secure loans 88 A cc for the launch of the two programs whereby the Jordan Loan Guarantee provides o

guarantees for the Bank in order for SMEs to secure financing from the Bank in a mp manner that’s aligned with the Bank’s requirements.

Consumer Banking Group started 2012 with the launch of the payroll programs l (Extra and Extra Plus), which are designed to cater to the banking and non-bank- is ing needs of salaried customers. The programs were successfully launched in both h Lebanon and the UAE during early 2012, were it received a good deal of accept- m ance. e nts In order to cater to the dynamic youth sector in Egypt, the Shabab program was rolled out to the Egyptian market, offering the youth segment a range of various 2012 services and benefits that tailor to their unique lifestyle needs and expectations, including free Internet shopping cards, current and saving accounts with no minimum balance fees, in addition to exciting periodic draws. Moreover, the Bank’s Elite program, which tailors to high net worth customers, has been launched in Palestine. In terms of rewards programs activities, a new credit card rewards program “Arabi Travel Rewards,” has been introduced in UAE, Qatar and Bahrain. The program entitles cardholders to fly to their home country for free using the points earned on local and international transactions. Visa Platinum and MasterCard Titanium credit cards were also introduced in the Gulf markets. Moreover, various promotions were initiated throughout the year including a number of credit card campaigns in Jordan and Palestine. These include the Nashama Visa Credit Card and the high-end World MasterCard were launched in Jordan, while “Win Back the Value of Your Spend “Visa summer campaign was launched in Palestine and Jor- dan for credit and debit cardholders. Pre-approved cross selling campaigns were also promoted across different markets There was also the Arab Bank - Royal Jor- danian Visa credit card campaign,” Your spend qualifies you to win tens of thousands of Royal Plus miles or more”, in addition to receiving bonus miles when acquiring a new card. This is in addition to the launch of special campaigns for auto loans including an exclusive agreement which has been signed with one of the most prominent car dealers in Jordan, allowing customers to take advantage of Arab Bank preferential interest rates. In Egypt, the campaign was launched “Win the value of your car’s downpayment” which provides the opportunity for six customers to win their car’s downpayment. As for housing loans, an extensive three month housing loan campaign under the title “Win Your First Twelve Installments” was launched in both Jordan and Pales- tine to boost sales and increase the Bank’s market share in both markets. Consumer Banking continued to develop its electronic banking channels in 2102 with the goal of providing better service and more convenience to customers and to better meet their needs. As part of this direction, the Bank has finished developing the Cash Access service at ATMs to make funds readily available to customers, noting that this service will be introduced to other areas. 89 Work was also completed on ATM systems in line with the latest standards of serv-

A ice availability, security, and international commitment in Jordan, Egypt, United cc Arab Emirates, Qatar and Bahrain. This is also currently being developed in Pales-

o tine. mp As for online banking, a range of services have been added to Arabi Online including the ability to inquire about reward points gained from credit card purchases. l Also transfer services that allow customers to transfer cash from credit cards to is personal accounts were implemented. In addition cash withdrawal services from h the Bank’s branches in UAE, Palestine, Bahrain and Lebanon were made available m to customers in Jordan when they are in any of those countries. This service has e

nts had a positive impact on the promotion of the concept that Arab Bank is available for its customers wherever they may be. It is important to mention that Arabi Online, the Bank’s Internet banking service, 2012 has received for the fourth consecutive year the title of Best Consumer Internet Bank in Jordan from Global Finance magazine. As part of the Bank’s continuous commitment toward environmental sustainability and efforts to reduce natural resources and paper consumption, Arab Bank in 2012 launched the eStatement service in the UAE. It is noteworthy that Arab Bank launched the eStatement service in 2011 and this work continued in 2012. Cus- tomers can now get their statements electronically for their accounts and credit cards rather than traditional paper statements in Jordan, Palestine, Egypt and UAE. In addition, a new salary card product was launched that allows cardholders to withdraw money, inquire about balances and check account statements through the Bank’s ATMs. This new service benefits companies by reducing their dependence on cash salaries and facilitates the payment of salaries to employees who do not have bank accounts. Arab Bank issued its second sustainability report for the year 2011 in line with the Global Reporting Initiative’s principles (GRI), being the first bank in Jordan to issue such a report. This report includes the performance and impact of the Bank in the social, environmental and economic fields with its contributions to the community. In 2012 Arab Bank has received numerous international awards and recognitions in various fields, earning Best Trade Finance Provider in the Middle East and North Africa, Best Project and Infrastructure Finance Provider in the Middle East and Best Consumer Internet Bank in Jordan for the fourth consecutive year from Global Finance magazine. In addition Arab Bank was also named Best Bank and Best Investment Bank in Jordan for four years in a row and the title of Best FX and Cash Management service provider in the Middle East r from the global financial magazine EMEA Finance. The Bank recevied Bank of the year in Jordan and from the Banker magazine and was also recognized as Best Bank in Jordan for the fifth consecutive year by Euromoney magazine.

90 Board of Directors of Board Report ,

F inancia

There have been no non-recurring operation that had a material effect on the bank’s finanxial position in 2012. l I l mpact o f No n -Re curring

Op e rati o ns

91 Board of Directors of Board Report ,

تقرير مجلس اإلدارة T im e Se e Time Series Data for Major Financial Indicators (2008 – 2012) ri e

s Value in JOD Millions for the Bank & in USD Millions for the Group D

ata 2012 2011 2010 2009 2008

f Arab Bank PLC : Net Profit after Tax 261.3 263.0 145.1 250.0 360.2 o

r Arab Bank Group : Net Profit after Tax 352.1 305.9 270.8 575.5 839.8 M

aj Arab Bank PLC : Shareholder's Equity 3 875.5 3 813.5 3 786.6 3 801.2 3 580.0 o Arab Bank Group : Owner's Equity 7 699.2 7 656.7 7 809.1 8 096.8 7 508.4 r F inancia

Distributed Dividends

Total Dividends (JOD in millions) 160.2 133.5 106.8 106.8 133.5 l I l Dividends (%) 30% 25% 20% 20% 25% ndicat

Number of Issued Shares ( in thousands) 534 000 534 000 534 000 534 000 534 000

Share Price on Last Working Day (JOD) 7.25 7.85 9.98 12.15 15.16 o rs (2008 – 2012) – (2008

92 Board of Directors of Board Report تقرير مجلس اإلدارة ,

FINANCIA

This section of the Board of Directors report highlights relevant financial data which is included in the financial statements of Arab Bank Plc and Arab Bank Group for the year 2012. The financial statements were prepared in accordance

with the International Financial Reporting Standards (IFRS), the interpretations is- L sued by the Committee of the IFRS Board and the prevailing rules of the countries P where the Group operates and the Central Bank of Jordan requirements. The ac- E RF companying notes are an integral part of the financial statements. O The financial statements of Arab Bank Group consolidate the statements of Arab RMANC Bank Plc, Arab Bank (Switzerland) and the following subsidiaries:

Percentage of ownership as of 31 December 2011 E

Arab Bank Australia Limited 100.00%

Europe Arab Bank plc 100.00%

Islamic International Arab Bank plc 100.00%

Arab National Leasing Company 100.00%

Al-Arabi Investment Group Limited 100.00%

Arab Sudanese Bank Limited 100.00%

Arab Investment Bank S.A.L 100.00%

Al-Arabi Group for Investment Co. 100.00%

Arab Tunisian Bank 64.24%

Arab Bank - Syria 51.43%

Al Nisr Al Arabi Insurance Company 50.00%

Subsidiaries are the companies under the effective control of Arab Bank plc. Con- trol becomes effective when the Bank has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. Transactions are eliminated between Arab Bank plc, the subsidiaries and it’s sister company Arab Bank (Switzerland) upon the consolidation of the financial statements.

93 Arab Bank Group تقرير مجلس اإلدارة

Statement of Income Arab Bank Group’s net income for the year ended 31 December 2012 amounts to USD 352.1 million compared to USD 305.9 million in 2011. Total revenues of the

F Group stood at USD 1664.9 million comapred to USD 1625.3 million in 2011, re- inancia cording an increase of 2%. Meanwhile employees expenses and other operating expenses recorded an increase. Net provision for doutful debts amounts to USD 347.5 miiliom represents the provisions booked during the year against ‘watchlist’ and ‘non-performing’ loans.

l Pe l The following sechdule compares the principal components of the Group’s statement of income rf In USD (thousands) 2012 2011 Variance % o

rmanc Revenue Net interest income 1 011 479 956 717 54 762 6% Net commission income 301 778 303 422 ( 1 644) -1% Other 351 719 365 147 ( 13 428) -4% e Total Income 1 664 976 1 625 286 39 690 2% Expenses Employees Expenses 401 633 393 566 8 067 2% Other Expenses 345 682 325 723 19 959 6% Provision for impairment - direct credit 347 500 434 941 ( 87 441) -20% facilities at amortized cost Provision for impairment - other financail 7 256 3 231 4 025 125% assets at amortized cost Total Expenses 1 102 071 1 157 461 ( 55 390) -5%

Profit for the year before tax 562 905 467 825 95 080 20% Income tax 210 855 161 881 48 974 30% Profit for the year 352 050 305 944 46 106 15%

Statement of Comrehensive Income Arab Bank Group’s comprehensive income for the year ended 31 December 2012 amounts to USD 255.8 million compared to USD 132.5 million in 2011. The following schedule shows the principal components of the Group’s comprehensive income statement: In USD (thousands) 2012 2011 Profit for the year 352 050 305 944 Add: Net exchange differences arising on the translation of foreign operations ( 12 284) ( 83 191) Net change in fair value of financial assets at fair value through other com- ( 83 956) ( 90 208) rehensive income Total comprehensive income for the year 255 810 132 545

94 F inancia

Financial Position

Arab Bank Group assets reached USD 45.6 billion as at 31 December 2012 . Cus- tomer deposits over the year increased by over USD 1166 million to reach almost Pe l USD 32.9 billion . Investment portfolio has reached USD 8.8 billion . Credit facili-

ties amount to USD 20.5 billion forming 45% of total assets while owners’ equity rf reached USD 7.7 billion o

rmanc The following schedule compares the principal components of the Group’s financial position :

In USD (thousands) 2012 2011 Variance % e Asets

Cash and due from banks 12 692 484 12 048 353 644 131 5%

Investment portfolio 8 798 770 9 129 494 ( 330 724) -4%

Direct credit facilties at amortized cost 20 480 414 20 954 633 ( 474 219) -2%

Other 3 674 856 3 480 731 194 125 6%

Total Assets 45 646 524 45 613 211 33 313 0.0%

Liabilities

Due to banks 3 992 900 5 133 722 (1 140 822) -22%

Due to customers 32 886 105 31 720 001 1 166 104 4%

Other 1 068 353 1 102 740 ( 34 387) -3%

Owners' equity 7 699 166 7 656 748 42 418 1%

Total liabilties and owners'equity 45 646 524 45 613 211 33 313 0.0%

95 Arab Bank plc

Statement of Income Arab Bank plc’s net income for the year ended 31 December 2012 amounts to

F JOD 261.3 million compared to JOD 263 million in 2011. Total revenues of the plc inancia stood at JOD 848.1 million compared to JOD 792.2 million in 2011, recording an increase of 7%.Expenses were well managed with employees expenses and other expenses recording a drop.Net provision for doubtful debts amounts to JOD 126.7 million represents the provisions booked during the year against ‘watchlist’ and ‘non performing’ loans. l Pe l The following schedule compares the principalcomponents of the plc’s income statement “ rf In JOD (thousands) 2012 2011 Variance % o Revenue rmanc Net interest income 545 931 505 903 40 028 8% Net commission income 151 231 153 941 ( 2 710) -2% Other 150 964 132 359 18 605 14% Total Income 848 126 792 203 55 923 7% e

Expenses Employees expenses 184 624 183 484 1 140 1%

Other expenses 185 421 191 283 ( 5 862) -3%

Provision for impairment - direct credit 126 668 83 352 43 316 52% facilities at amortized cost Total Expenses 496 713 458 119 38 594 8%

Profit for the year before tax 351 413 334 084 17 329 5% Income tax 90 072 71 083 18 989 27% Profit for the year 261 341 263 001 ( 1 660) -1%

Statement of Comprehensive Income

Arab Bank plc’s comprehensive income for the year ended 31 December 2012 amounts to JOD 195.5 million compared to JOD 153.1 million in 2011. The following schedule shows the principal components of the Bank’s comprehensive income statement: In JOD (thousands) 2012 2010 Profit for the year 261 341 263 001 Add: Net exchange differences arising on the translation of foreign operations ( 6 083) ( 37 073) Net change in fair value of financial assets at fair value through other ( 59 771) ( 72 801) comrehensive income Total comprehensive income for the year 195 487 153 127

96 F inancia

Financial Position

Arab Bank plc assets reached JOD 23.9 billion as at 31 December 2012 . Customer deposits over the year increased by over JOD 659 million to reach almost JOD 17.4 Pe l billion . Investment portfolio has reached JOD 4.7 billion . Credit facilities amount to JOD 9.9 billion forming 42% of total assets while shareholders’ equity reached rf JOD 3.9 billion o

rmanc The following schedule compares the principal components of the plc’s financial position :

e In JOD (thousands) 2012 2011 Variance % Asets

Cash and due from banks 7 631 126 7 741 917 ( 110 791) -1%

Investment portfolio 4 668 164 4 614 213 53 951 1%

Direct credit facilties at amortized cost 9 937 597 10 003 554 ( 65 957) -1%

Other 1 675 529 1 561 801 113 728 7%

Total Assets 23 912 416 23 921 485 ( 9 069) 0%

Liabilities

Due to banks 2 172 535 2 870 365 ( 697 830) -24%

Due to customers 17 362 863 16 703 718 659 145 4%

Other 501 507 533 878 ( 32 371) -6%

Shareholders' equity 3 875 511 3 813 524 61 987 2%

Total liabilties and shareholders' equity 23 912 416 23 921 485 ( 9 069) 0%

97 F inancia CAPITAL ADEQUACY Arab Bank maintains capital adeqaucy ratios that exceed the required levels as per Basel Committee , which is 8% , and Central Bank of Jordan requirements of 12%. l Pe l The following table presents a summary of the capital adequacy calculations in rf accordance with Basel II requirements for 2012 and 2011 : o rmanc Arab Bank Group

In USD (thousands) 2012 2011

e Risk weighted assets 30 599 266 31 412 688

Core capital 5 344 567 5 249 351

Supplemtary capital 366 539 466 887

Regulatory capital 4 616 440 4 753 939

Core capital / risk weighted assets 15.1% 15.1%

Regulatory capital / risk weighted assets 15.1% 15.1%

Arab Bank plc

In JOD (thousands) 2011 2010

Risk weighted assets 15 906 783 15 107 029

Core capital 3 549 505 3 449 122

Supplemtary capital 115 185 170 624

Regulatory capital 2 299 151 2 279 658

Core capital / risk weighted assets 14.45% 15.09%

Regulatory capital / risk weighted assets 14.45% 15.09%

98 F inancia

INCOME APPRORIATION Arab Bank follows a well established policy with regards to cash dividends , which aims at achieving the enhancement of its revenues and financial position , and the distribution of a reasonable dividend to the shareholders. Pe l

The Board of Directors recommends the distribution of cash dividends of 30% of rf the share’s par value , or JOD 160.2 million for the year 2012 compared to 25% or o

JOD 133.5 million for the year 2011. rmanc

In JOD (thousands) 2012 2011 Income available for approriation 261.3 263 e evreser yrotutatS 35.1 33.4 Vlountary reserve - - General reserve - - General banking risk reserve - - Proposed cash dividends 160.2 133.5 Retained earnings 66 96.1 Total Appropriation 261.3 263

99 F inancia

Financial ratios related to Arab Bank Group:

2012 2011 l Pe l Owners' equity / Total assets 16.9% 16.8%

rf Loans / Deposits 62.3% 66.1% o Liquidity ratio ( cash and quasi cash ) 47.2% 46.4% rmanc Cost / Income 66.2% 71.2%

Cost / Income ( excluding provision for doubtful debt ) 45.3% 44.5%

e Core Capital 15.1% 15.1%

Regulatory Capital 15.1% 15.1%

Return on Equity 4.6% 4.0%

Return on Assets 0.8% 0.7%

Net interset and commission income / total assets 2.9% 2.8%

EPS ( USD ) 0.64 0.55

100 F inancia

Financial ratios related to Arab Bank plc:

2012 2011 l Pe l Shareholders' equity / Total assets 16.2% 15.9%

Loans / Deposits 57.2% 59.9% rf o

Liquidity ratio ( cash and quasi cash ) 51.4% 51.7% rmanc

Cost / Income 58.6% 57.8%

Cost / Income (excluding provision for doubtful debt) 43.6% 47.3% e Core Capital 14.5% 15.1%

Regulatory Capital 14.5% 15.1%

Return on Equity 6.7% 6.9%

Return on Assets 1.1% 1.1%

Net interset and commission income / total assets 2.9% 2.8%

101 Board of Directors of Board Report ,

تقرير مجلس اإلدارة FUTUR E

O our plans for 2013 and beyond have been developed whilst taking into UT consideration the prevailing and expected market conditions locally and

LOO internationally. Though we expect the global economy to recover slowly, we expect to still be indirectly affected along with the world’s markets at large.

K AND P AND K We have been closely monitoring the evolving global and regional situation, regularly simulating their impact and taking the necessary measures to preserve our historical values and principles relating to:

L • Liquidity: ANS F ANS We strongly believe in maintaining an ample amount of liquidity to support our operations and protect our shareholders and customers in the regions in which we operate. This has always been and will continue to be one of the O pillars on which Arab Bank is built. R 2013 R

• Capital Adequacy: We are committed to maintaining a high capital adequacy ratio that exceeds limits set by Basel, the Central Bank of Jordan and other regulatory bodies in the countries where we operate at all times.

• Risk Management: We believe in taking calculated risk. We have not and will not enter into any business which we do not understand, cannot calculate and whose risks we cannot mitigate.

• Excellence: We have been and will continue to build upon and enhance our customers’ satisfaction, our shareholders’ return and operational efficiency.

our corporate objectives for 2013 focus on further strengthening our financial position in terms of capitalization and liquidity, improving our customer service and business processes in addition to further strengthening our credit policies and enhancing our risk management platform.

102 FUTUR E

Arab Bank will continue to take a cautious approach to protect shareholders’ O UT equity and to be able to face any instability globally and more specifically in

the Middle East and North Africa. Corporate and Institutional Banking (CIB) LOO in 2013 will continue targeting top-quality corporate customers. CIB will also focus on financing projects in infrastructure and economic sectors that show high rates of growth in addition to special attention to environmentally P AND K friendly and green projects. CIB will continue to target top-quality corporate clients, offering premium service to its institutional customers globally and seek viable project financing

opportunities in the region with a focus on maintaining the repeat business L emanating from its blue chip customer base. F ANS CIB will also offer new products and services that will allow for large corporations across the Middle East and North Africa to have more efficient operations O and at lower cost. These new products will enhance Arab Bank’s reputation R 2013 R regionally and internationally and will assist in attracting new customers to the Bank. example of one of these products is a specialized service that will be provided to our corporate customers to help them increase their ability to efficiently manage deposits and cash payments on an electronic platform; with the launch of Arab Bank’s Corporate@Arabi service. on the trade finance front, CIB will introduce several new products that will serve the field of international banking and trade finance while integrating the cash management system platform. CIB is planning to activate its trade finance and LC platform in the second quarter of 2013. These new systems will enhance the overall productivity and allow better management of the relationship with customers from various perspectives including efficiency, cost and revenue. As for the Consumer Banking division, in 2013 it will continue its focus to further enhance existing programs and introduce new ones across the different markets. Examples include introducing the new and enhanced Elite priority smart program across key markets which was successfully implemented in Jordan during 2012, re-launching the Shabab program in Palestine and Jordan and introducing the Payroll program in both Qatar and Bahrain. In addition, Consumer Banking is finalizing the development of a new program that caters to the banking and non-banking services of the middle class segment.

103 FUTUR E

O UT The Bank is also committed to enhancing its customers experience through the

LOO continuous development and improvement of its communication channels. As for the Bank’s service channels, there are many initiatives that will be

K AND P AND K implemented in the coming year to strengthen the concept of integrated banking, customer relationship management and customer service to support the Bank’s goals in these fields. In addition to this, the Bank will start to provide services that can be done

L at the branch and call center over the Internet through Arabi Online such as

ANS F ANS activating or cancelling Visa Electron and credit cards, easy payment plans on credit cards and redeeming points through the Bank’s reward program. As part of the Bank’s continuous goal to improve customer satisfaction, work

O will begin on a cash management system at ATMs to build their capacities

R 2013 R and reduce repeat visits to decrease operational costs of the ATM networks. In addition, a review will be done of the Bank’s ATM network in order to be more conveniently geographically located for our customers, which includes changing less frequented locations and replacing ATMs to maintain their service and quality. In line with the Bank’s commitment to environmentally sustainable issues, and its continuous efforts to protect the environment, its resources and reducing paper consumption, the Bank will continue launching the eStatement service in Yemen, Bahrain, Lebanon and Qatar in 2013. This service allows customers in these areas to receive their account and credit card statements electronically as opposed to traditional paper statements. There are many other initiatives being implemented that include a system for tuition payments for university students in Egypt and developing new loans and services to provide innovative solutions to our customers. Arab Bank’s Treasury exists to serve the Bank’s customers, and to protect the Bank. Protecting the Bank in turn protects our customers’ businesses and wealth. This is a role which we take extremely seriously, through our dedicated team of Treasury professionals in 17 countries. 2013 will be a year to further develop our products and services, while ensuring that the Bank remains well positioned to continue to thrive in the changing market place.

104 Board of Directors of Board Report ,

Ext e rna In JOD Thousands 2012 2011

Fees for quarterly audits and reviews 1 160 1 144 A l udit o rs ’Co mp e nsati o n

in Jo rdan

and A br o ad

105 Board of Directors of Board Report ,

N Number of Arab Bank Shares Owned by Members of the Board: umb

Number of Shares Holdings of Controlled Companies

e Name Position Nationality

r 31.12.2012 31.12.2011 31.12.2012 31.12.2011 o f

A 1. Mr. Sabih Taher D. Masri Chairman Jordanian 7017120 7017120 ------rab Middle East Middle East 2. H. E. Mr. Samir Farhan Kawar Deputy Chairman Jordanian 183300 183300 Insurance Co. Insurance Co. B 522975 513975 ank Ministry of Finance and Economy, Saudi Arabia 3. Member of the Board Saudi 24000000 24000000 ------Represented by H. E. Mr. Saleh Saad Al-Muhanna Sh

ar 4. Mrs. Nazek Odah/ Al Hariri Member of the Board Saudi 60120 60120 ------e s

Social Security Corporation Own 5. Member of the Board Jordanian 82770000 82768380 ------Represented by H. E. Mr. Ibrahim Yusuf Izziddin

e Al Gazal Al Gazal d 6. Mr. Riad Burhan Taher Kamal Member of the Board Jordanian 15000 15000 Foundation Foundation

by 2041350 2013150 Me Lebanese /

mb 7. Mr. Mohammed Hariri Member of the Board Canadian 68700 68700 ------e rs o 8. Mr. Wahbe Abdallah Tamari Member of the Board Lebanese 15000 15000 ------f

t he Bo he Abdul Hameed Shoman Foundation 9. Member of the Board Jordanian 13352415 13352415 ------Represented by H. E. Mr. Khaled Anis Mohammad “Zand Al-Erani”

ard 10. Dr. Omar “Ahmad Munif” AL Razzaz Member of the Board Jordanian 10005 ------

106 Number of Arab Bank Shares Owned by Members of the Board: N umb

Number of Shares Holdings of Controlled Companies

Name Position Nationality e

31.12.2012 31.12.2011 31.12.2012 31.12.2011 r o f

1. Mr. Sabih Taher D. Masri Chairman Jordanian 7017120 7017120 ------A rab Middle East Middle East 2. H. E. Mr. Samir Farhan Kawar Deputy Chairman Jordanian 183300 183300 Insurance Co. Insurance Co. 522975 513975 B ank Ministry of Finance and Economy, Saudi Arabia 3. Member of the Board Saudi 24000000 24000000 ------Represented by H. E. Mr. Saleh Saad Al-Muhanna Sh

4. Mrs. Nazek Odah/ Al Hariri Member of the Board Saudi 60120 60120 ------ar e s

Social Security Corporation 5. Member of the Board Jordanian 82770000 82768380 ------Own Represented by H. E. Mr. Ibrahim Yusuf Izziddin

Al Gazal Al Gazal e 6. Mr. Riad Burhan Taher Kamal Member of the Board Jordanian 15000 15000 Foundation Foundation d

2041350 2013150 by Me Lebanese /

7. Mr. Mohammed Hariri Member of the Board Canadian 68700 68700 ------mb e rs o 8. Mr. Wahbe Abdallah Tamari Member of the Board Lebanese 15000 15000 ------f

t he Bo he Abdul Hameed Shoman Foundation 9. Member of the Board Jordanian 13352415 13352415 ------Represented by H. E. Mr. Khaled Anis Mohammad “Zand Al-Erani”

10. Dr. Omar “Ahmad Munif” AL Razzaz Member of the Board Jordanian 10005 ------ard

107 Board of Directors of Board Report ,

umb Number of Arab Bank Shares Owned by Senior Executives :

Holdings of Controlled e Number of Shares

r Name Position Nationality Companies o 31.12.2012 31.12.2011 31.12.2012 31.12.2011 f A 1. Mr Nemeh Elyas Sabbagh Chief Executive Officer Lebanese 10005 2850 ------rab

2. Ms. Randa El Sadek Deputy Chief Executive Officer British ------B

ank 3. Mr. Mohamed Abdul Fattah Hamad Ghanameh Chief Credit Officer Jordanian 15000 ------

Sh EVP - Head of Corporate and Institutional 4. Mr. Samer Saadi Hassan Al Saheb Al Tamimi Jordanian 8715 8715 ------Banking ar 5. Mr. Antonio Mancuso Marcello EVP - Head of Treasury British ------e s

Own 6. Mr. Naim Rasem Kamel Al Hussaini EVP - Head of Consumer Banking Saudi ------

EVP - Country Manager of Jordan & 7. Mrs. Kholoud Mohammad Hashem Al Saqqaf Jordanian ------Palestine e d

8. Mr. Mohamad Mousa Dawoud Mohamad Issa EVP - Country Manager of Jordan Jordanian 10005 7005 by

Se EVP – Finance Secretary General of the 9. Mr. Ghassan Hanna Suleiman Tarazi Jordanian 10005 10020 ------Board of Directors ni 10. Mr. Dawod Mohammad Dawod Al Ghoul EVP - Head of Finance Jordanian ------o r

Ex 11. Mr. Basem Ali Abdullah Al Emam Head of Legal Department Jordanian 900 900 ------e

cutiv 12. Mr. Marwan Nashat Ragheb Riyal EVP Human Resources Jordanian 195 195 ------

13. Mr. George Fouad Georgy El Hage EVP - Head of Risk Management Canadian ------e s 14. Mr. Michael Matossian EVP - Head of Compliance American 1200 1200 ------

15. Mr. Fadi Zouein EVP – Head of Internal Audit Lebanese ------

16. Mrs. Eman Jamal Omar Al-Sahhar Head of Secretariat Department Jordanian 5250 5250 ------

108 N

Number of Arab Bank Shares Owned by Senior Executives : umb

Holdings of Controlled Number of Shares e

Name Position Nationality Companies r 31.12.2012 31.12.2011 31.12.2012 31.12.2011 o f 1. Mr Nemeh Elyas Sabbagh Chief Executive Officer Lebanese 10005 2850 ------A rab

2. Ms. Randa El Sadek Deputy Chief Executive Officer British ------B

3. Mr. Mohamed Abdul Fattah Hamad Ghanameh Chief Credit Officer Jordanian 15000 ------ank

EVP - Head of Corporate and Institutional Sh 4. Mr. Samer Saadi Hassan Al Saheb Al Tamimi Jordanian 8715 8715 ------Banking ar 5. Mr. Antonio Mancuso Marcello EVP - Head of Treasury British ------e s

6. Mr. Naim Rasem Kamel Al Hussaini EVP - Head of Consumer Banking Saudi ------Own

EVP - Country Manager of Jordan & 7. Mrs. Kholoud Mohammad Hashem Al Saqqaf Jordanian ------Palestine e d

8. Mr. Mohamad Mousa Dawoud Mohamad Issa EVP - Country Manager of Jordan Jordanian 10005 7005 by

EVP – Finance Secretary General of the Se 9. Mr. Ghassan Hanna Suleiman Tarazi Jordanian 10005 10020 ------Board of Directors ni 10. Mr. Dawod Mohammad Dawod Al Ghoul EVP - Head of Finance Jordanian ------o r

11. Mr. Basem Ali Abdullah Al Emam Head of Legal Department Jordanian 900 900 ------Ex e

12. Mr. Marwan Nashat Ragheb Riyal EVP Human Resources Jordanian 195 195 ------cutiv

13. Mr. George Fouad Georgy El Hage EVP - Head of Risk Management Canadian ------e s 14. Mr. Michael Matossian EVP - Head of Compliance American 1200 1200 ------

15. Mr. Fadi Zouein EVP – Head of Internal Audit Lebanese ------

16. Mrs. Eman Jamal Omar Al-Sahhar Head of Secretariat Department Jordanian 5250 5250 ------

109 Board of Directors of Board Report ,

N umb Number of Arab Bank Shares Owned by the Relatives of the Board Members : e

r Number of Shares Holdings of Controlled Companies

o Name Relationship Nationality

f 31.12.2012 31.12.2011 31.12.2012 31.12.2011 A rab Mr. Sabih Taher Darwish Al Masri

B Chairman

ank 1. Mrs. Najwa Mohamad Abdul Rahman Madi Spouse Jordanian 3172800 3172800 ------

Sh Minors ------

ar - - - H. E. Mr. Samir Farhan Kawar

e Deputy Chairman s - - -

Own 2. Mrs. Randa Elias Issa Moa’sher Spouse Jordanian - - - 105000 ------

e Minors ------d

by Ministry of Finance and Economy, Saudi Arabia

t Member of the Board he Rel he Represented by H. E. Mr. Saleh Saad Al-Muhanna 3. Spouse ------ativ Minors ------

e Mrs. Nazek Asaad Oudeh/Al Hariri s

o Member of the Board

f 4.

t ------he Bo he Minors ------

Social Security Corporation ard Member of the Board

Me Represented by H. E. Mr. Ibrahim Yusuf Izziddin 5.

mb Spouse ------

e Minors ------rs

110 N umb Number of Arab Bank Shares Owned by the Relatives of the Board Members : e

Number of Shares Holdings of Controlled Companies r

Name Relationship Nationality o

31.12.2012 31.12.2011 31.12.2012 31.12.2011 f A rab Mr. Sabih Taher Darwish Al Masri

Chairman B

1. ank Mrs. Najwa Mohamad Abdul Rahman Madi Spouse Jordanian 3172800 3172800 ------

Minors ------Sh

- - - ar H. E. Mr. Samir Farhan Kawar

Deputy Chairman e - - - s

2. Own Mrs. Randa Elias Issa Moa’sher Spouse Jordanian - - - 105000 ------

Minors ------e d

Ministry of Finance and Economy, Saudi Arabia by

Member of the Board t he Rel he Represented by H. E. Mr. Saleh Saad Al-Muhanna 3. Spouse ------ativ Minors ------

Mrs. Nazek Asaad Oudeh/Al Hariri e s

Member of the Board o

4. f

------t Bo he Minors ------

Social Security Corporation ard Member of the Board

Represented by H. E. Mr. Ibrahim Yusuf Izziddin Me 5.

Spouse ------mb

Minors ------e rs

111 N umb

Number of Shares Holding of Controlled Companies e

r Name Relationship Nationality o 31.12.2012 31.12.2011 31.12.2012 31.12.2011 f A

rab Mr. Riad Burhan Taher Kamal Member of the Board

B 6. Spouse ------ank Minors ------Sh Mr. Mohammed Hariri ar Member of the Board

e 7. s Spouse ------

Own Minors ------

e Mr. Wahbe Abdullah Tamari d Member of the Board by 8.

t Spouse ------he Rel he Minors ------Abdul Hameed Shoman Foundation Member of the Board ativ Represented by H. E. Mr. Khaled Anis Mohammad “Zand Al-Erani” 9. Spouse ------e s Minors ------o f Dr. Omar “Ahmad Munif” AL Razzaz t Member of the Board he Bo he 10. Spouse ------

ard Minors ------Me mb e rs

112 N umb

Number of Shares Holding of Controlled Companies e

Name Relationship Nationality r 31.12.2012 31.12.2011 31.12.2012 31.12.2011 o f A

Mr. Riad Burhan Taher Kamal rab Member of the Board

6. B Spouse ------ank Minors ------Sh Mr. Mohammed Hariri Member of the Board ar

7. e

Spouse ------s

Own Minors ------

Mr. Wahbe Abdullah Tamari e Member of the Board d

8. by

Spouse ------t he Rel he Minors ------Abdul Hameed Shoman Foundation Member of the Board Represented by H. E. Mr. Khaled Anis Mohammad “Zand Al-Erani” ativ 9. Spouse ------e

Minors ------s o

Dr. Omar “Ahmad Munif” AL Razzaz f

Member of the Board t he Bo he 10. Spouse ------

Minors ------ard Me mb e rs

113 Board of Directors of Board Report ,

umb Number Of Arab Bank Shares Owned by the Relatives of Senior Executives:

e Number of Shares Holdings of Controlled Companies r Name Relationship Nationality o

f 31.12.2012 31.12.2011 31.12.2012 31.12.2011 A

rab Mr. Nemeh Elyas Sabbagh

1. Spouse Lebanese ------B

ank Moinors ------

Ms. Randa El Sadek Sh 2. ------ar ------e s

Mr. Mohamed Abdul Fattah Hamad Ghaname Own 3. Spouse Jordanian ------

e Minors ------d

by Mr. Samer Saadi Hassan Al Saheb Al Tamimi

4. t Spouse Jordanian ------he Rel he Minors ------Mr. Antonio Mancuso Marcello

ativ 5. Spouse British ------Minors ------e s

o Mr. Naem Rasem Kamel Al Husseini

f 6.

Spouse Saudi ------t he Se he Minors ------Mrs. Kholoud Mohammad Hashem Al Saqqaf ni 7. ------o

r ------

e Mr. Mohamad Mousa Dawoud Mohamad Issa cutiv 8. Spouse ------Minors ------e s

114 N

Number Of Arab Bank Shares Owned by the Relatives of Senior Executives: umb

Number of Shares Holdings of Controlled Companies e Name Relationship Nationality r o

31.12.2012 31.12.2011 31.12.2012 31.12.2011 f A

Mr. Nemeh Elyas Sabbagh rab

1. Spouse Lebanese ------B

Moinors ------ank

Ms. Randa El Sadek Sh 2. ------ar ------e s

Mr. Mohamed Abdul Fattah Hamad Ghaname Own 3. Spouse Jordanian ------

Minors ------e d

Mr. Samer Saadi Hassan Al Saheb Al Tamimi by

4. Spouse Jordanian ------t he Rel he Minors ------Mr. Antonio Mancuso Marcello

5. Spouse British ------ativ Minors ------e s

Mr. Naem Rasem Kamel Al Husseini o

6. f

Spouse Saudi ------t Minors ------Se he Mrs. Kholoud Mohammad Hashem Al Saqqaf ni 7. ------o

------r

Mr. Mohamad Mousa Dawoud Mohamad Issa e cutiv 8. Spouse ------Minors ------e s

115 N umb

Number of Shares Holdings of Controlled Companies e

r Name Relationship Nationality o 31.12.2012 31.12.2011 31.12.2012 31.12.2011 f A Mr. Ghassan Hanna Suleiman Tarazi rab Mrs. Nawal Wafa Najib Tarazi Spouse Jordanian 1005 1005 ------9. B Dalya Ghassan Hanna Tarazi Minors Jordanian 9510 ------ank Layan Ghassan Hanna Tarazi Minors Jordanian 9510 ------

Sh Mr. Dawod Mohammad Dawoud Al Ghoul

ar 10. Spouse Jordanian ------

e Minors ------s

Own Mr. Basem Ali Abdullah Al Emam

11. Spouse Jordanian ------e d Minors ------by Mr. Marwan Nashat Ragheb Riyal t he Rel he 12. Spouse Jordanian ------Minors ------

Mr. George Fouad Georgy El Hage ativ

13. Spouse Jordanian ------e

s Minors ------o Mr. Michael Matossian f t 14. he Se he Spouse American ------Minors ------

ni Mr. Fady Zouein o 15.

r Spouse Lebanese ------

Ex Minors ------e cutiv Mrs. Eman Jamal Omar Al-Sahhar 16. Mr. “Jamal Abdelnaser” Mohamad Alhaj Ahmad Spouse Jordanian 2400 2400 ------

e Minors ------s

116 N umb

Number of Shares Holdings of Controlled Companies e

Name Relationship Nationality r 31.12.2012 31.12.2011 31.12.2012 31.12.2011 o f A Mr. Ghassan Hanna Suleiman Tarazi rab Mrs. Nawal Wafa Najib Tarazi Spouse Jordanian 1005 1005 ------9. Dalya Ghassan Hanna Tarazi Minors Jordanian 9510 ------B ank Layan Ghassan Hanna Tarazi Minors Jordanian 9510 ------

Mr. Dawod Mohammad Dawoud Al Ghoul Sh

10. Spouse Jordanian ------ar

Minors ------e s

Mr. Basem Ali Abdullah Al Emam Own

11. Spouse Jordanian ------e

Minors ------d

by Mr. Marwan Nashat Ragheb Riyal

12. Spouse Jordanian ------Rel he Minors ------

Mr. George Fouad Georgy El Hage ativ

13. Spouse Jordanian ------e

Minors ------s o Mr. Michael Matossian f

14. t Spouse American ------Se he Minors ------

Mr. Fady Zouein ni

15. o

Spouse Lebanese ------r

Minors ------Ex e

Mrs. Eman Jamal Omar Al-Sahhar cutiv 16. Mr. “Jamal Abdelnaser” Mohamad Alhaj Ahmad Spouse Jordanian 2400 2400 ------

Minors ------e s

117 Board of Directors of Board Report ,

Bo Board Compensation and Benefits in 2012: (In JOD) ard

Annual Annual Transportation Name Position Board Remuneration Total

o Salary Allowance f

D 1. Mr. Sabih Taher Masri Chairman - 24 000 5 000 29 000 ir

e 2. Mr. Samir Farhan Khalil Kawar Deputy Chairman - 24 000 5 000 29 000 ct o Mininstry of Finance , Saudi Arabia rs 3. Member - 24 000 5 000 29 000 Represented by Saleh Saad A. Al-Muhanna Co

mp 4. Mrs. Nazik Odah Al-Hariri Member - 24 000 5 000 29 000 e

nsati Social Security Corporation 5. Member - 24 000 5 000 29 000 Represented by Ibrahim Yusuf Ibrahim Izziddin

6. Mr. Riad Burhan Taher Kamal Member - 24 000 5 000 29 000 o ns 7. Mr. Mohammed Ahmad Mokhtar Hariri Member - 24 000 5 000 29 000

and

8. Mr. Wahbe Abdallah Wahbe Tamari Member - 24 000 5 000 29 000 Be Abdul Hameed Shoman Foundation 9. Member - 24 000 5 000 29 000 Represented by Khaled Anis Moh’d (Zand Irani) n e

fits 10. Dr. Omar Ahmad Muneef Alrazzaz (from 11/11/2012) Member - 3 333 - 3 333

11. Mr. Abdel Hamid A. M. Shoman (Till 16/8/2012) Chairman (resigned) 300 810 15 032 5 000 320 842 paid

Ms. Dina "Mohammad Abdel Hamid" A. M. Shoman 12. Member (resigned) - 15 032 5 000 20 032 (Till 16/8/2012)

in 2012 2012

118 Board Compensation and Benefits in 2012: Bo (In JOD) ard

Annual Annual Transportation Name Position Board Remuneration Total

Salary Allowance o f

1. Mr. Sabih Taher Masri Chairman - 24 000 5 000 29 000 D ir

2. Mr. Samir Farhan Khalil Kawar Deputy Chairman - 24 000 5 000 29 000 e ct o Mininstry of Finance , Saudi Arabia 3. Member - 24 000 5 000 29 000 rs Represented by Saleh Saad A. Al-Muhanna Co

4. Mrs. Nazik Odah Al-Hariri Member - 24 000 5 000 29 000 mp e

Social Security Corporation nsati 5. Member - 24 000 5 000 29 000 Represented by Ibrahim Yusuf Ibrahim Izziddin

6. Mr. Riad Burhan Taher Kamal Member - 24 000 5 000 29 000 o ns 7. Mr. Mohammed Ahmad Mokhtar Hariri Member - 24 000 5 000 29 000

and

8. Mr. Wahbe Abdallah Wahbe Tamari Member - 24 000 5 000 29 000 Be Abdul Hameed Shoman Foundation 9. Member - 24 000 5 000 29 000 Represented by Khaled Anis Moh’d (Zand Irani) n e

10. Dr. Omar Ahmad Muneef Alrazzaz (from 11/11/2012) Member - 3 333 - 3 333 fits

11. Mr. Abdel Hamid A. M. Shoman (Till 16/8/2012) Chairman (resigned) 300 810 15 032 5 000 320 842 paid

Ms. Dina "Mohammad Abdel Hamid" A. M. Shoman 12. Member (resigned) - 15 032 5 000 20 032 (Till 16/8/2012)

in 2012 2012

119 Board of Directors of Board Report ,

Ex Executive Management Compensation and Benefits in 2012: e (In JOD) cutiv Annual Annual transportation Travel expenses (not include Name Position Total Salary allowance accommodation and tickets)

e M e 1. Mr. Nemeh Elias Sabbagh Chief Executive Officer 432 000 - - 432 000

anag 2. Ms. Randa Muhammad Sadik Deputy Chief Executive Officer 400 000 - - 400 000

3. Mr. Mohamed A. Hamad Ghanameh EVP - Head of Credit 216 316 - - 216 316

e EVP - Head of Corporate & Institutional 4. Mr. Samer S. Tamimi 281 474 281 474

m - - Banking e

nt 5. Mr. Antonio Mancuso-Marcello ("Tony Marcello") EVP - Head of Treasury 410 206 - - 410 206

Co 6. Mr. Naim Rassem Kamel Al-Hussaini EVP - Head of Consumer Banking 240 080 - - 240 080

mp 7. Mrs. Kholoud M. Saqqaf EVP - Jordan & Palestine Country Manager 161 941 - - 161 941

e 8. Mr. Mohammad Musa Dawood "Moh'd Issa" EVP - Jordan Country Manager 244 863 - - 244 863 nsati EVP - Head of Financial Planning & Manage- 9. Mr. Daoud M. Al-Goul 298 028 - - 298 028 ment Accounting

o 10. Mr. Basem Ali Abdallah Alemam Head of Legal Affairs 162 326 - - 162 326 n

11. Mr. Marwan Nasha'at R. Riyal EVP - Head of Human Resources Division 200 755 - - 200 755 and

12. Mr. George Fouad El-Hage EVP - Chief Risk Officer 110 576 - - 110 576

Be EVP - Head of Group Regulatory Compli- 13. Mr. Michael Matossian 322 776 - - 322 776 ance n e

fits 14. Mr. Fadi J. Zouein EVP - Head of Internal Audit 229 865 - - 229 865

VP - Head of Secretariat Department - 15. Mrs. Eman Al-Sahhar 84 171 84 171 - -

in Shareholders Unit 2012

* Records at Finance Accountancy and Mohasabeh - Geneva showed the following : (In CHF)

Annual Annual transportation Travel expenses (not include Name Position Total Salary allowance accommodation and tickets) EVP - Chief Financial Officer - Secretary of 1 Mr. Ghassan Hanna Suleiman Tarazi 324 480 the Board

120 Ex Executive Management Compensation and Benefits in 2012: (In JOD) e cutiv Annual Annual transportation Travel expenses (not include Name Position Total Salary allowance accommodation and tickets)

1. Mr. Nemeh Elias Sabbagh Chief Executive Officer 432 000 - - 432 000 M e

2. Ms. Randa Muhammad Sadik Deputy Chief Executive Officer 400 000 - - 400 000 anag

3. Mr. Mohamed A. Hamad Ghanameh EVP - Head of Credit 216 316 - - 216 316

EVP - Head of Corporate & Institutional e 4. Mr. Samer S. Tamimi 281 474 281 474

- - m Banking e

5. Mr. Antonio Mancuso-Marcello ("Tony Marcello") EVP - Head of Treasury 410 206 - - 410 206 nt

6. Mr. Naim Rassem Kamel Al-Hussaini EVP - Head of Consumer Banking 240 080 - - 240 080 Co

7. Mrs. Kholoud M. Saqqaf EVP - Jordan & Palestine Country Manager 161 941 - - 161 941 mp

8. Mr. Mohammad Musa Dawood "Moh'd Issa" EVP - Jordan Country Manager 244 863 - - 244 863 e nsati EVP - Head of Financial Planning & Manage- 9. Mr. Daoud M. Al-Goul 298 028 - - 298 028 ment Accounting

10. Mr. Basem Ali Abdallah Alemam Head of Legal Affairs 162 326 - - 162 326 o n

11. Mr. Marwan Nasha'at R. Riyal EVP - Head of Human Resources Division 200 755 - - 200 755 and

12. Mr. George Fouad El-Hage EVP - Chief Risk Officer 110 576 - - 110 576

EVP - Head of Group Regulatory Compli- Be 13. Mr. Michael Matossian 322 776 - - 322 776 ance n e

14. Mr. Fadi J. Zouein EVP - Head of Internal Audit 229 865 - - 229 865 fits

VP - Head of Secretariat Department - 15. Mrs. Eman Al-Sahhar 84 171 84 171 - -

Shareholders Unit in 2011

* Records at Finance Accountancy and Mohasabeh - Geneva showed the following : (In CHF)

121 Board of Directors of Board Report ,

A rab

B Project / Entity JOD ank Abdul Hameed Shoman Foundation 8,082,721 ’

s Donation for local community needs 2,000,000 Do King Hussein Cancer Foundation 320,250

nati Donation for the establishment of a main building of the Jordan River Foundation 200,000

Teaching employees children 70,284 o

ns Jordan Hashimite Fund for Human Development 50,000

during Donation for Amman Baccalaureate School 35,450

Tkiyet Um Ali 27,500

Donation for Kings Accademy School 16,532 Ye Al Aman Fund For The Future Of The Orphans 11,874 ar Fuel Support for Employees 11,853 2012 Donation for Jordan Strategy Forum 10,000

Donation Through the Together Program 6,374

Donation for Forest Project / Al Shajarah 5,348

Other Donations 31,596

Total 10,879,782

122 Board of Directors of Board Report ,

TRANSACTI

Excluding transactions carried out within the context of the Bank’s regular business, the Bank did not enter in any form of contracts, projects or commitments with any of its subsidiaries, sister companies or affiliates. The Bank has neither entered in any form of contracts with its Chairman, any of its Directors, the Chief

Executive Officer, any of its staff or their relatives. O NS WIT NS

In JOD (thousands)

31 December 2012 H R EL Deposits owed Direct Credit LCs, LGs, Unutilized Deposits owed to from Related Facilities at Credit Facilities and AT Related Parties Parties amortized cost Acceptances E D PARTI D

Subsidiary and Sister companies 2 143 329 125 186 445 486 137 536

Associates 260 097 - 129 988 14 031

Major shareholders and Members E - 201 193 267 734 60 701 of the Board of Directors S Total 2 403 426 326 379 843 208 212 268

In JOD (thousands)

31 December 2011

Deposits owed Direct Credit LCs, LGs, Unutilized Deposits owed to from Related Facilities at Credit Facilities and Related Parties Parties amortized cost Acceptances

Subsidiaries & Sister Company 1 769 505 138 554 743 457 202 314

Associates 101 013 - 91 266 2 163

Major shareholders and mem- - 264 739 294 678 57 211 bers of the Board of Directors

Total 1 870 518 403 293 1 129 401 261 688

123 TRANSACTI

In JOD (thousands)

2012 O

NS WIT NS Interest Income Interest expense

Subsidiaries & Sister Company 12 720 9 418

H Associates 256 248 R

EL Total 12 976 9 666 AT E

D PARTI D In JOD (thousands)

2011

Interest Income Interest expense E

S Subsidiaries & Sister Company 16 664 14 860

Associates 218 47

Total 16 882 14 907

Interest on facilities granted to major shareholders and members of the Board of Directors is recorded at arm’s length.

124 Board of Directors of Board Report ,

Envir

Arab Bank believes that a clean and sustainable environment is essential for the welfare of future generations including employees, their families and society as a o whole. Based on this conviction, the Bank participates actively in initiatives and nm activities aimed at protecting the environment, both internally and externally. e nta In regards to the internal environment, the Bank has worked in recent years to

reduce the direct negative effects on the environment through a number of ini- P l tiatives to rationalize water, electricity, and fuel consumption, thus protecting natural resources and improving internal operating processes. During 2012, the r average savings in electricity consumption were 2% (350,000 KW) despite the ex- o pansion of the Bank’s operations. This was achieved by replacing lighting at the t e

Bank gradually with new highly efficient Light Emitting Diode (LED) lights. The cti new lights provide the same intensity and lighting capacity, but not exceeding a fifth of the consumption of the LUX lighting in addition to being more environ- o mentally friendly. The Bank is currently studying further decreasing (LUX) light- n ing in line with engineering standards. Moreover, the Bank’s water system was equipped with filters to save on overall consumption. The Bank’s air-conditioning system was replaced with new Variable Refrigerate Volume models that save on electricity consumption, using three times less than the older model and with cooling gas that is more environmentally friendly.

As part of the Bank’s continuous commitment toward environmental sustainability and efforts to reduce natural resources and paper consumption, Arab Bank in 2012 launched the eStatement service in the UAE. It is noteworthy that Arab Bank launched the eStatement service in 2011 and this work continued in 2012. Cus- tomers can now get their statements electronically for their accounts and credit cards rather than traditional paper statements in Jordan, Palestine, Egypt and UAE.

With regards to the external environment, Arab Bank considers certain criteria when participating in projects and new investment opportunities that take into account reducing environmental impact on natural resources.

To promote financial responsibility, the Bank integrated environmental and social criteria in the management of credit relationships with corporate clients with plans to reflect these standards in its lending policy.

Arab Bank follows the basic standards of the Equator Principles for project financing, which are a set of accredited lending criteria adopted by leading international banks. Arab Bank will adopt these standards formally, which will include a credit and loan documentation process to review environmental impact reports from

125 Environm

customers based on their commitments to prevailing legal permits and licenses.

In addition, Arab Bank arranged the financing for the Samra Waste Water Treat-

e ment Plant Expansion Project that will expand existing plant’s water treatment n capacity currently estimated at 267,000 cubic metres, by an additional 100,000 tal Prot tal cubic metres of treated water per day. This expansion will increase the amount of treated water available for irrigation and reduce dependence on fresh water. In addition, the completion of this project will lead to reduced odor emitted from wastewater and enable the plant to generate its own electricity without relying on the national power grid. e c

tion tion Moreover, Arab Bank is acting as an account bank and security agent in the financing of the first, secord and more recently fourth independent power generation plant in Jordan. The projects are a partnership between the private and public sectors and structured on a Build Own and Operate (BOO) basis. Each plant uses two natural gas fired turbines and a third combined cycle–steam turbine, which is considered a source of ‘green’ fuel that reduces emissions.

Supporting renewable energy projects in Jordan is in line with the objectives of the Bank’s strategy, accordingly the Project Finance team at the Bank pursues opportunities closely through meetings with companies involved in solar and wind electricity generation projects that submitted bids through the Ministry of Energy and Mineral Resources.

Examples of renewable energy projects in Jordan include Al-Fujeij wind farm and a solar energy plant in Maan. It is worthwhile to mention that Jordan’s Energy Strategy aims to achieve 10% of the Kingdom’s electricity needs by the year 2020 through renewable energy.

Arab Bank has supported a number of initiatives that are concerned with protecting the environment in Jordan mainly through the collaboration with the Royal Society for the Conservation of Nature (RSCN). The Bank participated in a tree planting organized by the Royal Society for the Conservation of Nature in celebration of Arbor Day in Madaba and in collaboration with Al Shajarah NGO with the participation of 26 employees.

Arab Bank also continued its support for “Oryx Safari” project to redevelop the Shaumari Wildlife Reserve, the first reserve established in Jordan in 1975 to become a world-class Desert Safari Center enhancing tourism in the area and 126 Envir providing job opportunities as well as protecting the Arabian Oryx and other endangered species. Sixty three employees participated in four volunteering ac- o tivities in which they contributed to this initiative through leveling the Safari trail, nm planting tamarix trees, clean-ups and animal handling and feeding. e nta In addition, the Bank has supported the “Clean Up the World” campaign, which

was held in the protected forest of Dibeen where 16 employees volanteered. Arab P l Bank also sponsored the World Wetlands Day, which was held at the Azraq Wet- land Reserve with the participation of 31 employees. r o t

The RSCN has also received donations from the Bank’s channels through individu- e al customers. These channels allow customers to donate directly to the non-profit cti organizations participating in the Together program. o n

At the end of 2012, the Bank in collaboration with Al Shajarah NGO adopted 10 acres of “Asfour Forest” in Jerash and the work at the forest will be implemented during 2013.

In Palestine, and as part of the Bank’s pursuit in having a positive role in environmental protection, on the occasion of World Environment Day, the Bank emphasized the culture and values of responsibility by raising employees’ environmental awareness communicating a number of tips on adopting environmentally friendly behavior. Additionally, 10 employees participated in a tree planting activity in Ramallah with the aim of protecting the environment and creating a greener landscape.

127 Board of Directors of Board Report ,

Co rp Sustainability at Arab Bank o

rat Arab Bank’s sustainability journey began since its inception in 1930 and evolved over time based on the Bank’s purpose, part of the Bank’s name sake, to enable the Arab world to reach preeminence. The Bank, has, and continues e So e to play a significant role in shaping the lives of people in the Arab world, developing the Arab economy and communities in which it operates. The Bank does this through supporting and financing strategic projects in the region in cia addition to pioneering its social responsibility toward developing and building the capacity of the Arab world, serving the communities needs and priorities. l Re l Within this context, the Bank established the Abdul Hameed Shoman Founda- tion in 1978 and launched a multi-dimensional corporate social responsibility

sp (CSR) program “Together” in 2009. In pursuit of achieving its vision and mission, emerging from the Bank’s purpose, values and ambitions, the Bank has o adopted a strategic approach to its social and economic responsibility beyond nsibi financial contributions following a clear plan to integrate sustainability concepts within daily banking operations and the Bank’s main activities. The strategic approach followed by the Bank is multi-dimensional and re- l volves around five main strategic focus areas: Responsible financing, system ity optimization, empowered employees, transparent reporting and community cooperation, to achieve a sustainable future for the Bank through economic performance, environmental impact and community contributions. To catalyze the integration of sustainability concepts within the Bank’s daily operations, in 2012, the Bank launched the “Sustainability Champions” program which includes employees from different departments and divisions based on their capabilities and competencies to represent their department or division in the implementation of the sustainability strategy through continuous coordination with the sustainability department and providing periodic reports of their achievements. Implementing this program at the Bank contributes to integrating sustainability concepts in all its operations and daily activities and developing a road map guiding the Bank toward achieving its strategic objectives of empowering communities and sustainable development. In line with this approach, the Bank issued its first sustainability report for the year 2010 based on the “Global Reporting Initiative” (GRI) guidelines to be the first bank in Jordan to publish such a specialized report to enhance transparency and engagement with stakeholders. The Bank has committed to publish this report on an annual basis since. The Bank also aims to integrate sustainability concepts within its community contributions by enhancing its CSR program beyond financial support to include the following aspects: Providing special products and services to enable customers to donate and support the community, building the capacities of NGO’s through providing training and development opportunities to ensure their sustainability, and involving employees in voluntary activities and initiatives to support their mission.

128 Co rp Corporate Social Responsibility Program: Together o

Together is a multi-dimensional Corporate Social Responsibility (CSR) program rat launched by Arab Bank in 2009 in collaboration with various non-governmental organizations (NGOs) and aims to support the community in terms of four main areas: Health, poverty alleviation, environmental protection and educa- So e tion and orphan support.

The program aims to implement community initiatives in these areas to cia achieve sustainable development, creating a long-term positive impact on communities through collaboration with NGOs and engaging Arab Bank’s em- l Re l ployees and customers. The Bank has made great strides in these areas through cooperating with various NGO’s such as Al Aman Fund for the Future of Orphans, the Royal Soci- sp

ety for the Conservation of Nature, Tkiyet Um Ali and the King Hussein Can- o cer Foundation in Jordan. This is in addition to the participation of employees nsibi through voluntary work and customer engagement providing them with the opportunity to donate for the benefit of the Together program’s participants through the following service channels: Internet Banking Service (Arabi On- line), Phone Banking Service (Hala Arabi), ATMs and the Bank’s branches across l the Kingdom. In addition there is the Together platinum credit card, which of- ity fers cardholders a unique mechanism that allows them to donate up to (0.5%) of the value of their purchases to the Together program’s participants and in return the Bank will match the amount, in addition to donating 50% of the card’s annual membership fee to these organizations. In 2012, 357 employees volunteered in Jordan, representing a 14% increase since 2011. Thirty two volunteering activities took place, with 672 participations, impacting 13,342 beneficiaries. The Together program participants received donations reaching approximately 108,000 Jordanian dinars through the Bank’s donation channels, which offers customers the opportunity to make direct donations for the benefit of these organizations. In addition to involving employees and customers in the program, the Bank pays special attention to building the capacity of NGOs by providing training and development opportunities to enhance their employees’ skills and capabilities to ensure the sustainability of their operations. In the middle of 2012, Arab Bank launched its own capacity building program which was developed based on the needs and priorities of these NGOs. This program is unique due to the participation of the Bank’s Certified Internal Trainers utilizing their skills and competencies to help develop NGOs through a range of courses that were identified by these NGOs based on importance and priority for their operations. The Bank has provided in 2012, five specialized training courses, benefiting 73 participants from six NGOs with 107.5 training hours. Based on the success of the “Together” program in Jordan and emerging from the Bank’s commitment toward the development and empowerment of

129 Co rp communities in which it operates, the Bank expanded the program in 2012 o to include Palestine in order to contribute to achieving social, economic, and rat Environmental development based on the same four areas covered by the program: Health, poverty alleviation, environmental protection and education e So e and orphan support. Since the launch of the CSR program in Palestine, 107 employees volunteered with 301 volunteering hours, impacting around 794 beneficiaries. cia The below are highlights of the Bank’s contributions in the fields of education and orphan support, environmental protection, poverty alleviation and health. l Re l

Health sp As part of the Bank’s cooperation with the King Hussein Cancer Foundation o (KHCF) in Jordan , 83 employees donated blood for the benefit of patients at

nsibi the King Hussein Cancer Center (KHCC) as well as spending a day with sick children from KHCC in a sports activity, with the participation of 11 volunteers. The Bank is also keen on protecting the health of its employees, as the Bank

l organized a number of activities with the KHCF to enhance awareness on ity healthy lifestyles, such as the “Nutrition and Cancer” seminar which came as part of marking World Day for Cancer in addition to the early detection for breast cancer in collaboration with the Jordan Breast Cancer Program (JBCP), which benefited 44 employees. To support the building and equipping the new building of the KHCC, which will provide 182 extra beds for young and old patients, the Bank was the dia- mond sponsor of the Hope Gala for the year 2012 which resulted in donations for this project. KHCF has also received donations from the Bank’s channels through individual customers. These channels allow customers to donate directly to the non-profit organizations participating in the Together program. In addition to the previously mentioned cooperation with the King Hus- sein Cancer Foundation, Arab Bank demonstrated the importance of health through supporting several sports and social activities in Jordan. In 2012, the Bank continued supporting the Jordan National Football and youth leagues through the four years sponsorship of the Jordan Football Association. The Bank was also the golden sponsor of the Amman International Marathon where the Bank sponsored the participation of a large number of employees in this national event in addition to sponsoring the participation of employees in the Dead Sea Ultra Marathon. In Palestine, the Bank implemented a number of initiatives for the benefit of employees and the local community such as supporting Al Najah National University Teaching Hospital, the first teaching hospital in Palestine where the Bank’s contribution supported the establishment of a treatment and diagnosis unit for ear, nose and throat diseases that will provide medical support for the community.

130 Co rp As for combating cancer in Palestine, the Bank collaborated with Dunya Women’s Cancer Clinic to educate women in marginalized areas on the impor- o tance of screening and early detection of breast cancer as well as covering the rat costs of screening expenses. Protecting employees’ health, the Bank held an

awareness session to educate them on the importance of early detection of So e breast cancer during Breast Cancer Awareness Month. On the other hand, in celebration of World Blood Donation Day for and in cooperation with the National Blood Bank 61 employees participated in donat- cia ing for the benefit of patients in Palestine. The Bank also implemented an awareness initiative concerning the harmful Re l effects of smoking and tips on how to quit smoking on World Anti-Smoking

Day. sp o

Poverty Alleviation nsibi The Bank continues its support of programs that aim at alleviating poverty pockets in the Kingdom through its ongoing initiatives with Tkiyet Um Ali

(TUA). The Bank continued sponsoring 17 under priveleged families in Ru- l weished to receive monthly food packages for one year. The Bank has also ity supported their Ramadan campaign to distribute 6,000 Iftar meals to families in poverty areas throughout the holy month with the participation of 134 volunteers including employees and their guests. In addition, the volunteers vis- ited families to distribute Iftar meals during the holy month in Amman, Zarqa, Maan, Irbid and Karak. Furthermore, the Bank’s employees supported TUA staff over three weeks in preparing and packaging 2,843 meals in their kitchens. Arab Bank has also supported the “Lamsit Dafa” campaign implemented by TUA where 37 employees helped in distributing 2,142 blankets in East Amman, Zarqa, Karak, Ma’an and Tafileh. TUA has also received donations from the Bank’s channels through individual customers. These channels allow customers to donate directly to the non-profit organizations participating in the Together program. The Bank continued its support of the revolving loans project implemented by the Jordan River Foundation (JRF), funded by the Bank to support poverty pockets in the Kingdom. This project was completed in 2012 and the Bank has funded 148,000 JD in revolving loans distributed to Zarqa and Maan governorates through community based organizations that were trained by JRF to effectively manage loan portfolios. There were 149 beneficiaries in Zarqa and Maan (82 beneficiaries in Zarqa, and 67 beneficiaries in Maan) from the micro loans to create income-generating projects and provide job opportunities to fight poverty. As part of JRF’s Community Empowerment Program (CEP) 11 employees participated in beautifying two nurseries in Anjara, Ajloun painting the walls of schools that serve 102 children from the area. Additionally, the Bank has supported the Zikra initiative by sponsoring a fun-

131 Co rp draising leadership training workshop to help raise funds for Zikra’s programs. o Also19 employees participated in the exchange tourism program for this ini- rat tiative, which aims to raise awareness on equal relationships with marginalized communities and experience the riches of the communities in the Dead Sea e So e (Ghor Al Mazra’a). The Bank also hosted 200 orphans at the Children’s Museum for an iftar during the holy month of Ramadan, where 10 employees engaged with the chil- cia dren in an enjoyable evening. The Bank also supported the charity concerts of Promise Welfare Society and UNICEF to benefit their programs and their efforts l Re l in the Kingdom. In Palestine, and within Arab Bank’s commitment to alleviate poverty in the

sp communities in which it operates, in 2012 the Bank collaborated with SOS Chil- dren’s Village to support 120 orphan children to cover part of the cost of the o children in Bethlehem. Also, 15 employees participated in a recreational and nsibi entertaining activity with the orphan children on Eid Al-Adha.

Environmental Protection l ity Arab Bank has supported a number of initiatives that are concerned with protecting the environment in Jordan mainly through collaboration with the Royal Society for the Conservation of Nature (RSCN). The Bank participated in tree planting organized by the Royal Society for the Conservation of Nature in celebration of Arbor Day in Madaba and in collaboration with Al Shajarah NGO with the participation of 26 employees.

Arab Bank also continued its support for Oryx Safari project to redevelop the Shaumari Wildlife Reserve , the first reserve established in Jordan in 1975 to become a world-class Desert Safari Center enhancing tourism in the area and providing job opportunities as well as protecting the Arabian Oryx and other endangered species. Sixty three employees participated in four volunteering activities through which they contributed to this initiative through leveling the safari trail, planting tamarix trees, clean-ups and animal handling and feeding .

In addition, the Bank has supported the Clean Up the World campaign, which was held in the protected forest of Dibeen, whereby 16 employees participated. Arab Bank also sponsored the World Wetlands Day, which was held at the Azraq Wetland Reserve with the participation of 31 employees. The RSCN has also received donations from the Bank’s channels through individual customers. These channels allow customers to donate directly to the non-profit organizations participating in the Together program. At the end of 2012, the Bank in collaboration with the Al Shajarah NGO adopted 10 acres of Asfour Forest in Jerash and work at the forest will be implemented during 2013.

132 Co rp In Palestine, and as part of the Bank’s pursuit of having a positive role in environmental protection, on the occasion of World Environment Day, the Bank o emphasized the culture and values of responsibility toward the environment rat by raising employees’ environmental awareness, communicating a number of

tips on adopting environmentally friendly behavior. Additionally, 10 employ- So e ees participated in planting an area in Ramallah with the aim of protecting the environment and creating a greener landscape. cia

Education and orphan support: l Re l The Bank collaborates with a number of organizations to empower youth through education and training, notably with Al Aman Fund for the Future of Orphans and INJAZ. sp

During the year 2012, the Bank supported several programs with Al Aman o

Fund for the Future of Orphans in Jordan, including the completion of univer- nsibi sity education for four students that are expected to graduate at the end of the academic year in 2013, and sponsored Al Aman Fund’s vocational training

program benefiting 50 orphans, where the students gained practical training l

to enhance their skills and abilities before entering the job market. The Bank ity has also supported the establishment of Al Aman Fund for the Future of Or- phans’ service center in Maan serving students in the area as well as providing job opportunities to a number of graduating students from Al Aman Fund’s programs who were trained to manage the center. The center will be open to the public at the beginning of 2013. Al Aman Fund for the Future of Orphans has also received donations from the Bank’s channels through individual customers. These channels allow customers to donate directly to the non-profit organizations participating in the To- gether program. As part of the collaboration with INJAZ, the Bank has adopted four schools in the area of Hashemi Al Shamali to provide a better educational environment for its students, approximately 2,672 students benefitted from this initiative. The Bank’s employees also participated, whereby 17 employees volunteered to deliver curricular and extra-curricular programs in schools and universities and contributed in painting the walls of some of the adopted schools. Emerging from the Bank’s belief in the importance of raising environmental awareness amongst students, the Bank in collaboration with the Ministry of Water and Irrigation installed 75 water saving devices and held awareness lectures on water conservation for the students. To promote the concept of volunteerism among students, the Bank sponsored Young Volunteers Day, in which 1014 students from 20 schools participated, and 21 employees volunteered to implement the program in eight schools. The Bank was also the gold sponsor of the job shadowing program which benefited more than 150 students from all governorates in the Kingdom. The Bank also hosted 20 students at a number of branches with 28 employees being

133 Co rp shadowed at work by the students. The students followed the employees at o work and performed tasks and activities that teach job skills and identify edu- rat cational requirements. The Bank, in collaboration with Raneen Foundation, worked to develop crea- e So e tive and innovative skills of students through setting up 20 audio libraries and holding workshops reaching 335 students. In addition the Bank and the Foun- dation held training workshops in Aqaba and another workshop targeting the cia Bank’s employees to contribute to the continuity of the activities and success of the program as well as sponsoring Raneen’s story telling celebration event. l Re l Additionally, 15 employees volunteered to prepare a summer camp in Baqa’ area in collaboration with the Orphan Welfare Association, hosting 110 or-

sp phans in recreational activities. The Bank in collaboration with Sherkatuna initiative, one of Al Jude Organiza- o tion for Scientific Care’s initiatives, sponsored 25 schools through training and nsibi providing the required funding to start their businesses. The Bank continued supporting the Traffic Department to enhance road safety awareness through sponsoring the awareness publications that are distribut- l ed to students across the Kingdom. ity In Palestine, as one of the board members of INJAZ, 21 employees from the Bank volunteered to deliver academic and non-academic programs through 110.5 volunteering hours, benefiting 613 students. The Bank also contributed to supporting Al Najah National University Teaching Hospital in Palestine, which offers medical students a unique opportunity to acquire needed skills and expertise in the first teaching hospital in Palestine.

Other initiatives: In order to promote economic development and investment, the Bank played a leading role in supporting the Euromoney Conference in Jordan, which brings together business leaders to discuss the strategy of economic growth strategies in the Kingdom. Arab Bank was the Senior Lead Sponsor of the event, and participated in several workshops and panels on topics such as entrepreneurship in Jordan and Financing Jordan’s Challenges and promoting growth.

As part of ongoing support of entrepreneurship and entrepreneurs, in 2012 the Bank sponsored the training Boot Camp initiative from OASIS 500 which offered specialized and advanced training courses related to establishing start ups for 65 entrepreneurs. For the second consecutive year employees were given the opportunity to attend the training boot camp through an internal competition which aims to encourage them to innovative and practical ideas related to the Bank’s lines of business.

134 Co rp Abdul Hameed Shoman Foundation o

The establishment of the Abdul Hameed Shoman Foundation in 1978 by Arab rat Bank represents its contribution toward social responsibility. The various activities of the Foundation and its achievements since its establishment reflect its commitment toward social responsibility in Jordan in particular, and in the Arab world in So e general. Among the activities conducted by the Foundation in the field of scientific research is the continuous support to Arab intellectuals through several channels cia such as the Abdul Hameed Shoman Award for Young Arab Researchers. The total number of winners since its establishment in 1982 is 349 from various Arab coun- Re l tries. The Foundation held a ceremony on October 6, 2012 honoring the winners of the 2011 cycle. sp The Foundation in 2012 continued to encourage and support students excelling in contests held by the Ministry of Culture through the Princess Salma Center, o

International Relief Agency and the Haya Cultural Center. The Foundation sup- nsibi ported three activities organized by the above mentioned parties. During these activities, the Foundation recognized the participating students and teachers and the judges. The Foundation also coordinated with the Friends of Children Associa- l

tion’s 17th Festival to promote reading as part of its national campaign. ity The Abdul Hameed Shoman Fund for Supporting Science approved the financial support – to date – of 69 research papers, out of which 36 have been completed. Work is currently underway to complete the rest. The Foundation continued with its policy to support universities in Jordan in the form of granting financial support to conferences and workshops held at the universities in the fields that correspond with the Foundation’s objectives. The Foundation signed several agreements with a large number of organizations, un- ions and universities in Jordan and in the Arab world. The Foundation organized in cooperation with the Arab Thought Foundation (Beirut) a book classification within the Arab Project (21). The Foundation also signed an agreement in 2012 in cooperation with the Ministry of Education - Jordan, and the Arab Organization for Translation (Lebanon). The Abdul Hameed Shoman Cultural Forum hosted in 2012 a number of distinguished intellectuals who gave lectures on various topics ranging from cultural, social, economic, educational, medical, and financial subjects. In addition, lectures about water, youth, women, media and food security were held at the Forum. In this context and in collaboration with the Sultan Bin Ali Owais Foundation in Du- bai, the Foundation held on September 22 and 23, 2012 a seminar entitled: “Arab development prospects in the midst of the current developments: Toward an Arab renaissance development.” The Foundation has adopted a policy designed to encourage Jordanian writers by holding seminars of their literary work. The Foundation’s film committee carried out during 2012 weekly presentations of movies from many different continents. The film committee also worked to trans- late these movies into Arabic. In addition, the committee organized a Moroccan Film Week in the month of March over several days at Al Hussein Cultural Center, with the participation of a guest Moroccan director.

135 Co rp The head of the film committee oversaw several media training lectures for aL iby- o an delegation made up of cinematographers, actors and trainees. The head of the rat film committee also participated as a judge on a panel for the Dubai Film Festival as part of his role in the Foundation. e So e In terms of publications, the Foundation issued three books in 2012 including “Water Issues on Arab and Regional Levels” which includes lectures presented at the seminar held in cooperation with the Arab Thought Forum in Amman. The cia second book that was published was entitled, “The economic Roots of the Current Transformations in Arab Countries”, which is also the fruit of a forum held in co-

l Re l operation with the Arab Society for Economic Research in Egypt. The third book, “Kamel Ajlouni- Doctor, Scientist and Human Being,” a product of the symposium which was held within the Guest of the Year program. sp At the same time, the Foundation adopted a policy to support Jordanian writers

o by convening seminars during which they present their accomplishments.

nsibi The Abdul Hameed Shoman Library remains an excellent reference for readers and researchers, housing many recent publications covering various topics. The Library’s management continued its periodic visits to the libraries established in various governorates in Jordan to ensure their requirements are being met. At the l same time, the Foundation continued to provide libraries established in a number ity of cities in Palestine with recent publications. The Foundation also continued participating in the mobile library in cooperation with the Haya Cultural Center and the Ministry of Culture, in addition to its support and participation in the “Family Book” project. Among the most prominent activities in 2012 were the participation in the Pales- tine International Book Fair, collecting and gifting books to 57 libraries in Jordan and celebrating the opening of the Arab Library at the invitation of the Arab Or- ganization for Education, Culture and Arts. In addition, the Foundation participated in the celebration organized by the Jordan Library Association on the occasion of World Book Day. One of the outstanding achievements include the Abdul Hameed Shoman Foundation Award going to the Arab Federation for Libraries and Information for their unique projects in establishing libraries in Jordan and Palestine. The award was announced at the 23rd Arab Federation for Libraries and Information Conference in Doha - Qatar (November 18-20, 2012). Arab Bank supports the Abdul Hameed Shoman Foundation as an extension of its cooperation and engagement with the Jordanian and Arab community, reaching their various public and private institutions. This engagement aims to build solid foundations for activating social development, on convictions that developing the community cannot be achieved without social, scientific and cultural progress for Arabs to reach their aspirations.

136 FINANACIAL STATEMENTS AND AUDITOR’S REPORT AUDITOR’S AND STATEMENTS FINANACIAL

Arab Bank Group

Consolidated Statement of Financial POSITION 139 Consolidated Statement of INCOME 140 Consolidated Statement of Comprehensive INCOME 141 Consolidated Statement of Changes in OWNERS’ Equity 142 Consolidated Statement of Cash FLOWS 144 Notes to the Consolidated Financial STATEMENTS 145 independent auditor’s REPORT 210

Arab Bank plc STATEMENT OF FINANCIAL POSITION 213 STATEMENT OF INCOME 214 STATEMENT OF COMPREHENSIVE INCOME 215 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITy 216 STATEMENT OF CASH FLOWS 218 Notes to the Financial STATEMENTS 219 independent auditor’s REPORT 284

137

ARAB BANK GROUP December 31,

USD ‘000 Note 2012 2011

Cash and balances with central banks 6 7 749 111 7 787 678 Balances with banks and financial institutions 7 4 841 549 4 084 882 Deposits with banks and financial institutions 8 101 824 175 793 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FINANCIAL OF STATEMENT CONSOLIDATED Financial assets at fair value through profit or loss 9 964 486 952 545 Financial derivatives - positive fair value 39 50 604 53 261 Direct credit facilities at amortized cost 11 20 480 414 20 954 633 Financial assets at fair value through other comprehensive income 10 553 760 641 581

Other financial assets at amortized cost 12 7 280 524 7 535 368 ASSETS Investment in associates 13 2 426 449 2 244 764 Fixed assets 14 516 799 530 635 Other assets 15 637 114 613 684 Deferred tax assets 16 43 890 38 387 TOTAL ASSETS 45 646 524 45 613 211

Banks and financial institutions' deposits 17 3 836 388 4 323 310 Customer deposits 18 29 352 384 28 744 612 Cash margin 19 3 533 721 2 975 389 Financial derivatives - negative fair value 39 76 316 64 920 Borrowed funds 20 156 512 810 412 Provision for income tax 21 218 692 197 905 Other provisions 22 120 773 131 370 Other liabilities 23 643 070 693 446 Deferred tax liabilities 24 9 502 15 099 Total Liabilities 37 947 358 37 956 463

Share capital 25 776 027 776 027 Share premium 25 1 225 747 1 225 747 Statutory reserve 26 579 202 529 652 Voluntary reserve 27 977 315 977 315 General reserve 28 1 822 824 1 822 824 General banking risks reserve 29 363 458 363 458 Reserves with associates 1 540 896 1 540 896

Foreign currency translation reserve 108 389 120 182 LIABILITIES AND OWNERS’ EQUITY Investment revaluation reserve 30 ( 110 983) ( 39 002) Retained earnings 31 255 600 165 330 Total Equity Attributable to Shareholders of the Bank 7 538 475 7 482 429 Non-controlling interests 160 691 174 319 Total Owners' Equity 7 699 166 7 656 748 TOTAL LIABILITIES AND OWNERS' EQUITY 45 646 524 45 613 211

The accompanying notes from (1) to (55) are an integral part of these consolidated financial statements and should be read with them.

139 ARAB BANK GROUP

USD ‘000 Note 2012 2011

Interest income 32 1 765 242 1 623 647

CONSOLIDATED STATEMENT OF INCOME OF STATEMENT CONSOLIDATED Less: interest expense 33 753 763 666 930 Net interest income 1 011 479 956 717 Net commissions income 34 301 778 303 422 Net interest and commissions income 1 313 257 1 260 139 Foreign exchange differences 72 874 70 462 (Loss) from financial assets at fair value through profit or loss 35 ( 61 315) ( 22 898) Dividends on financial assets at fair value through other com- 8 855 5 707 prehensive income REVENUE Group's share of profits of associates 13 294 497 265 860 Other revenue 36 36 808 46 016 TOTAL INCOME 1 664 976 1 625 286

Employees' expenses 37 401 633 393 566 Other expenses 38 285 071 258 820 Depreciation and amortization 14 51 375 51 375 Provision for impairment - direct credit facilities at amortized 11 347 500 434 941 cost Provision for impairment - other financial assets at amortized

EXPENSES 12 7 256 3 231 cost Other provisions 22 9 236 15 528 TOTAL EXPENSES 1 102 071 1 157 461

Profit before Income Tax 562 905 467 825 Less: Income tax expense 21 210 855 161 881 Profit for the Year 352 050 305 944 Y ear t h e Attributable to : Bank shareholders 344 064 292 177 Non-controlling interests 7 986 13 767 f it or P ro Total 352 050 305 944

Earnings per share attributable to Bank Shareholders - Basic and Diluted (US Dollars) 51 0.64 0.55

The accompanying notes from (1) to (55) are an integral part of these consolidated financial statements and should be read with them.

140 ARAB BANK GROUP CONSOLIDATED STATEMENT OF COMPRE OF STATEMENT CONSOLIDATED

USD ‘000 2012 2011

Profit for the Year 352 050 305 944

Add: Other comprehensive income items - after tax Net differences arising on the translation of foreign operations ( 12 284) ( 83 191) Net change in fair value of financial assets at ( 83 956) ( 90 208) fair value through other comprehensive income Total other comprehensive income items - after tax ( 96 240) ( 173 399) Total Comprehensive Income for the Year 255 810 132 545

Attributable to : - Bank shareholders 259 298 129 602 - Non-controlling interests ( 3 488) 2 943 Total 255 810 132 545 H ENSI V E INCOME E

The accompanying notes from (1) to (55) are an integral part of these consolidated financial statements and should be read with them.

141 ARAB BANK GROUP

CONSOLIDATED STATEMENT OF C OF STATEMENT CONSOLIDATED General Foreign Total Equity Attrib- Non- Share Statutory Voluntary General Reserves with Investment Retained Share Capital Banking Risks Currency Translation utable to Sharehold- Controlling Total Premium Reserve Reserve Reserve Associates Revaluation Reserve Earnings Reserve Reserve ers of the Bank Interests

Balance at the beginning of the year 776 027 1 225 747 529 652 977 315 1 822 824 363 458 1 540 896 120 182 ( 39 002) 165 330 7 482 429 174 319 7 656 748

Profit for the year ------344 064 344 064 7 986 352 050

Other comprehensive income for the year ------( 11 793) ( 72 973) - ( 84 766) ( 11 474) ( 96 240) Total Comprehensive Income for the Year ------( 11 793) ( 72 973) 344 064 259 298 ( 3 488) 255 810

Appropriation to reserves - - 49 550 ------( 49 550) - - -

2012 Transferred from investments revaluation ------992 ( 992) - - - reserve to retained trainings Paid dividends ------( 193 900) ( 193 900) ( 5 320) ( 199 220)

Adjustments during the year ------( 9 352) ( 9 352) ( 4 820) ( 14 172) Balance at the End of the Year 776 027 1 225 747 579 202 977 315 1 822 824 363 458 1 540 896 108 389 ( 110 983) 255 600 7 538 475 160 691 7 699 166

Balance at the beginning of the year 776 027 1 225 747 482 547 977 315 1 822 824 363 458 1 540 896 193 033 ( 13 576) 279 567 7 647 838 161 214 7 809 052

Effect of adopting of IFRS (9) ------63 610 ( 202 370) ( 138 760) ( 1 263) ( 140 023) Balance at the beginning of the year 776 027 1 225 747 482 547 977 315 1 822 824 363 458 1 540 896 193 033 50 034 77 197 7 509 078 159 951 7 669 029 (adjusted) H Profit for the Year ------292 177 292 177 13 767 305 944 AN Other comprehensive income for the year ------( 72 851) ( 89 724) - ( 162 575) ( 10 824) ( 173 399)

G Total Comprehensive Income for the Year ------( 72 851) ( 89 724) 292 177 129 602 2 943 132 545 2011 ES IN OWNERS IN ES Appropriation to reserves - - 47 105 ------( 47 105) - - - Transferred from investments revaluation ------688 ( 688) - - - reserve to retained trainings Paid dividends ------( 156 251) ( 156 251) ( 4 922) ( 161 173)

Effect of increase in ownership in subsidiary ------16 347 16 347 Balance at the End of the Year 776 027 1 225 747 529 652 977 315 1 822 824 363 458 1 540 896 120 182 ( 39 002) 165 330 7 482 429 174 319 7 656 748

* The retained earnings include restricted deferred tax assets in the amount of USD 43.9 million. Moreover, restricted retained earnings that cannot be distributed or otherwise utilized except only under certain ,

E circumstances, as a result of the adoption of certain International Financial Reporting Standards, amounted to USD 2.3 million as of December 31, 2012.

Q * Retained earnings include an unrealized loss in the amount of USD (142.6) million due to the effect of the adoption of IFRS 9 as of December 31, 2012. UIT * The use of the General Banking Risk Reserve is restricted and requires prior approval from the Central Bank of Jordan. * The negative balance of the investments revaluation reserve in the amount of USD (110.9) million as of December Y 31, 2012 is restricted according to the Jordanian Securities Exchange Commission instructions. The accompanying notes from (1) to (55) are an integral part of these consolidated financial statements and should be read with them. 142 USD ‘000 C OF STATEMENT CONSOLIDATED General Foreign Total Equity Attrib- Non- Share Statutory Voluntary General Reserves with Investment Retained Share Capital Banking Risks Currency Translation utable to Sharehold- Controlling Total Premium Reserve Reserve Reserve Associates Revaluation Reserve Earnings Reserve Reserve ers of the Bank Interests

Balance at the beginning of the year 776 027 1 225 747 529 652 977 315 1 822 824 363 458 1 540 896 120 182 ( 39 002) 165 330 7 482 429 174 319 7 656 748

Profit for the year ------344 064 344 064 7 986 352 050

Other comprehensive income for the year ------( 11 793) ( 72 973) - ( 84 766) ( 11 474) ( 96 240) Total Comprehensive Income for the Year ------( 11 793) ( 72 973) 344 064 259 298 ( 3 488) 255 810

Appropriation to reserves - - 49 550 ------( 49 550) - - - Transferred from investments revaluation ------992 ( 992) - - - reserve to retained trainings Paid dividends ------( 193 900) ( 193 900) ( 5 320) ( 199 220)

Balance at the beginning of the year 776 027 1 225 747 482 547 977 315 1 822 824 363 458 1 540 896 193 033 ( 13 576) 279 567 7 647 838 161 214 7 809 052

Total Comprehensive Income for the Year ------( 72 851) ( 89 724) 292 177 129 602 2 943 132 545 G ES IN OWNERS IN ES Appropriation to reserves - - 47 105 ------( 47 105) - - - Transferred from investments revaluation ------688 ( 688) - - - reserve to retained trainings Paid dividends ------( 156 251) ( 156 251) ( 4 922) ( 161 173)

143 ARAB BANK GROUP

USD ‘000 Note 2012 2011 Profit for the year before tax 562 905 467 825 Adjustments for: - Group's share from associates profits ( 294 497) ( 265 860)

CONSOLIDATED STATEMENT OF CASH FLOWS CASH OF STATEMENT CONSOLIDATED - Depreciation and amortization 51 375 51 375 - Provision for impairment - direct credit facilities at amortized cost 347 500 434 941 - Net interest income 2 662 ( 6 525) - Loss (Gain) from sale of fixed assets 714 ( 185) - Dividends on financial assets at fair value through other comprehensive income ( 8 855) ( 5 707) - Loss from revaluation of financial assets at fair value through profit or loss 68 430 35 569 - Provision for impairment- other financial assets at amortized cost 7 256 3 231 - Other provisions 9 236 15 528 Total 746 726 730 192 (Increase) decrease in assets: Balances with central banks (maturing after 3 months) ( 81 877) 40 780 Deposits with banks and financial institutions (maturing after 3 months) 73 969 50 056 Direct credit facilities at amortized cost 126 719 ( 533 894) Financial assets at fair value through profit or loss ( 80 371) 486 221 Other assets and financial derivatives ( 22 553) 104 271 Increase (decrease) in liabilities: Bank and financial institutions deposits (maturing after 3 months) 62 628 98 131 Customer deposits 607 772 1 289 918 Cash margin 558 332 ( 207 058) Other liabilities and financial derivatives ( 82 296) ( 368 582)

CASH FLOWS FROMNet OPERATING ACTIVITIES change in assets and liabilities 1 162 323 959 843 Net Cash Generated by Operations before Income Tax 1 909 049 1 690 035 Income tax paid ( 187 050) ( 181 761) Net Cash Generated by Operations Activities 1 721 999 1 508 274

(Purchase) sale of financial assets at fair value through other comprehen- ( 3 741) 22 381 sive income Sale (purchase) of other financial assets at amortized cost 247 588 ( 967 333) (Purchase) of investments in associates ( 16 464) ( 50 486) Dividends received from associates 152 678 122 834 Dividends received from financial assets at fair value through other comprehensive income 8 855 5 707 CASH FLOWS FROM FROM CASH FLOWS

INVESTING ACTIVITIES (Increase) in fixed assets - net ( 79 486) ( 22 311) Proceeds from sale of fixed assets 41 233 34 236 Net Cash Generated by (Used in) Investing Activities 350 663 ( 854 972)

(Paid) borrowed funds ( 653 900) - Dividends paid to shareholders ( 192 474) ( 156 928) Dividends paid to non-controlling interests ( 5 320) ( 4 922) ACTIVITIES CASH FLOWS

FROM FINANCING FROM Net Cash (Used in) Financing Activities ( 851 694) ( 161 850)

Net Increase in Cash and Cash Equivalents 1 220 968 491 452 Exchange differences - change in foreign exchange rates ( 35 196) ( 72 851) Cash and cash equivalent at the beginning of the year 7 938 770 7 520 169 Cash and Cash Equivalent at the End of the Year 53 9 124 542 7 938 770

The accompanying notes from (1) to (55) are an integral part of these consolidated financial statements and should be read with them.

144 ARAB BANK GROUP

1. General • Arab Bank was established in 1930, and is registered as a Jordanian public shareholding limited company. The Head Office of the Bank is domiciled in Amman, Jordan, and the Bank operates worldwide through its branches 77 branch in Jordan and 104 branch abroad, subsidiaries and sister company,

Arab Bank (Switzerland) Limited. TO T NOTES • Arab Bank shares are traded on Amman Stock Exchange. • The accompanying consolidated financial statements were approved by the Board of Directors in its meeting Number (1) on January 21, 2013 and are subject to the approval of the General Assembly of Shareholders.

2. Basis of Consolidation • The accompanying consolidated financial statements of Arab Bank Group, H presented in US dollars, comprise the financial statements of Arab Bank plc, STATEMENTS FINANCIAL CONSOLIDATED E its sister company, Arab Bank (Switzerland) Limited and its subsidiaries. The Group main subsidiaries are as follows:

Percentage of Ownership (%) Place of Date of Company Name 2012 2011 Principal Incorpo- Paid-up Acquisition Activity ration Capital United Europe Arab Bank plc 100.00 100.00 2006 Banking € 610m Kingdom

Arab Bank Australia Limited 100.00 100.00 1994 Banking Australia AUD 62.5m

Islamic International Arab 100.00 100.00 1997 Banking Jordan JD 100m Bank plc

Arab National Company for 100.00 100.00 1996 Financial Leasing Jordan JD 25m Leasing of Equipment

Brokerage and Al-Arabi Investment Group 100.00 100.00 1996 Jordan JD 14m Financial Services

Arab Sudanese Bank Limited 100.00 100.00 2008 Banking Sudan SDG 117.5m

Arab Investment Bank S.A.L. 100.00 100.00 1998 Banking Lebanon LBP 15b

Brokerage and Al Arabi Investment Group 100.00 100.00 2009 Palestine JD 1.7m Financial Services

Arab Tunisian Bank 64.24 64.24 1982 Banking Tunisia TND 100m

Arab Bank Syria 51.43 51.29 2005 Banking Syria SYP 5.05b

Al Nisr Al Arabi Insurance plc 50.00 50.00 2006 Insurance Jordan JD 10m

145 • Subsidiaries are companies under the effective control of Arab Bank plc. Control is achieved when the Group has the power to govern the strategic financial and operating policies of the subsidiary so as to obtain benefits NOTES TO T NOTES from its activities.

• The consolidated financial statements reflect the financial position and results of operations at the level of the consolidated economic ownership of Arab Bank plc and the sister company, Arab Bank (Switzerland) Limited, which is considered an integral part of Arab Bank Group. H

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E • The financial statements of subsidiaries are prepared using uniform accounting policies of those used by other members of the Group. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

• The results of operations of subsidiaries are included in the consolidated statement of income effective from the acquisition date, which is the date of transfer of control over the subsidiary by the Group. The results of operations of subsidiaries disposed of during the year are included in the consolidated statement of income up to the effective date of disposal, which is the date of loss of control over the subsidiary.

• Upon consolidation, inter-Group transactions and balances between Arab Bank plc, the sister company, Arab Bank (Switzerland) Limited and other subsidiaries are eliminated. Items in transit are stated within other assets or other liabilities, as appropriate. Non-controlling interests (the interest not owned by the Group in the equity of subsidiaries) are stated separately within owners’ equity in the consolidated statement of financial position.

3. Adoption of new and revised International Financial Reporting Standards (IFRSs) 3.a. New and revised IFRSs applied with no material effect on the consolidated financial statements: • The following new and revised IFRSs have been adopted in the preparation of the Group’s consolidated financial statements for which they did not have any material impact on the amounts and disclosures of the consolidated financial statements, however, they may affect the accounting for future transactions and arrangements:

146 • Amendments to IFRS 1 Se- The amendments regarding severe hy- vere Hyperinflation (Effec- perinflation provide guidance for enti-

tive for annual periods be- ties emerging from severe hyperinflation TO T NOTES ginning on or after 1 July either to resume presenting IFRS financial 2011) statements or to present IFRS financial statements for the first time.

• Amendments to IFRS 1 re- The amendments regarding the removal moval of Fixed Dates for of fixed dates provide relief to first-time

First-time Adopters (Effec- adopters of IFRSs from reconstructing H

tive for annual periods be- transactions that occurred before their STATEMENTS FINANCIAL CONSOLIDATED E ginning on or after 1 July date of transition to IFRSs. 2011)

• Amendments to IFRS 7 Dis- The amendments to IFRS 7 increase the closures – Transfers of Fi- disclosure requirements for transactions nancial assets (effective for involving transfers of financial assets. annual periods beginning These amendments are intended to on or after 1 July 2011) provide greater transparency around risk exposures of transactions where a financial asset is transferred but the transferor retains some level of continuing exposure in the asset.

• Amendments to IAS 12: De- Amends IAS 12 Income Taxes to provide ferred Tax – Recovery of Un- a presumption that recovery of the carry- derlying assets (Effective for ing amount of an asset measured using annual periods beginning the fair value model in IAS 40 Investment on or after 1 January 2012) Property will, normally, be through sale.

As a result of the amendments, SIC-21 Income Taxes — Recovery of Revalue Non- Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC-21, which is accordingly withdrawn.

147 NOTES TO T NOTES

3.b. New and revised IFRSs issued but not yet effective The Group has not applied the following new and revised IFRSs that have been issued and are available for early application but are not effective yet: H

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Effective for annual periods beginning on or after

Amendments to IFRS 9 and IFRS 7 Man- 1 January 2015 datory Effective date of IFRS 9 and transition Disclosures

IFRS 10 Consolidated Financial State- 1 January 2013 ments

IFRS 11 Joint Arrangements 1 January 2013

IFRS 12 Disclosure of Interests in Other 1 January 2013 entities

Amendments to IFRS 10, IFRS 11 and IFRS 1 January 2013 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of In- terests in Other entities: Transition Guid- ance

IAS 27 Separate Financial Statements (as 1 January 2013 revised in 2011)

Amendments to IFRS 10 and IFRS 12 1 January 2014 Consolidated Financial Statements, and Disclosure of Interests in Other entities: Transition Guidance and IAS 27 Separate Financial Statements (as revised in 2011)

IAS 28 Investments in Associates and 1 January 2013 Joint Ventures (as revised in 2011)

148 NOTES TO T NOTES

IFRS 13 Fair Value Measurement 1 January 2013

IAS 19 Employee Benefits (as revised in 1 January 2013 2011) H

Amendments to IAS 32 Financial State- 1 January 2014 STATEMENTS FINANCIAL CONSOLIDATED E ments Offsetting Financial Assets and Li- abilities

Amendments to IFRS 1 Government 1 January 2013 Loans

Amendments to IFRS 7 Disclosures – Off- 1 January 2013 setting Financial Assets and Financial Li- abilities

Amendments to IAS 1 Presentation of 1 July 2012 Items of Other Comprehensive Income

Annual Improvements to IFRSs 2009 – 1 January 2013 2011 Cycle

IFRIC 20 Stripping Costs in the Produc- 1 January 2013 tion Phase of a Surface Mine

The Group’s Management anticipates that each of the above standards and interpretations will be adopted in the consolidated financial statements by its date mentioned above without having any material impact on the Group’s consolidated financial statements.

149 4. Significant Accounting Policies A. Basis of preparation of the consolidated financial statement • The accompanying consolidated financial statements are prepared in ac-

NOTES TO T NOTES cordance with International Financial Reporting Standards issued by the In- ternational Accounting Standards Board and the Interpretations issued by the International Financial Reporting Interpretations Committee, the prevailing rules in the countries where the Group operates and the instructions of the Central Bank of Jordan. • The consolidated financial statements are prepared using the historical cost principle, except for financial assets and financial liabilities which are stated at fair value as of the date of the consolidated financial statements. H The accounting policies adopted for the current year are consistent with E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E • those applied in the year ended December 31, 2011 except for what is stated in note (3 - a) to the consolidated financial statements.

B. Revenue Recognition Interest Income and Expenses • Interest income and expenses for all interest bearing financial instruments are recognized in the consolidated statement of income using the effective interest rate method except for interest and commissions on non performing credit facilities, which are recorded as interest and commission in a suspense account. • The effective interest rate is a method of calculating the amortized cost of financial assets or financial liabilities and of allocating the interest income and expenses over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial assets or financial liability, or where appropriate a shorter period to the net carrying of the financial asset or the financial liability. TheG roup estimates the cash flow considering all contractual terms of the financial instruments but does not consider future credit losses. • Commission income in general is recognized on the date that the transaction arises. Loan recoveries are recorded upon receipt.

Dividends income • Dividends income from financial assets is recognized when the Group’s right to receive dividends has been established (upon the general assembly resolution).

150 Insurance Contract Revenue • Insurance premiums arising from insurance contract are recorded as revenue for the year (earned insurance premiums) on the basis of the maturi-

ties of time periods and in accordance with the insurance coverage periods. TO T NOTES Insurance premiums from insurance contracts unearned at the date of the consolidated statement of financial position are recorded as unearned insurance premiums within other liabilities.

Leasing Contracts Revenue • The Group’s policy relating to leasing contracts is illustrated in note (4.C)

below: H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E C. Leasing contracts • Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases as follows:

1.The Group as lessor: • - Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

2.The Group as lessee: • Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum future lease payments. The finance lease obligation is recorded at the same value. Lease payments are apportioned between finance costs and reduction of the lease liabilities so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to the consolidated statement of income. • Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

D. Foreign currencies • Transactions in foreign currencies during the year are recorded at the exchange rates prevailing at the date of the transaction. • Monetary assets and liabilities denominated in foreign currencies and recorded at fair value are translated on the date when the fair value was determined at the date of the consolidated financial statements. Gains or losses resulting from foreign currency translation are recorded in the consolidated statement of income.

151 NOTES TO T NOTES

• Non-monetary items recorded at historical cost are translated according to the exchange rate prevailing at the transaction date. • Differences resulting from the translation of non-monetary assets and liabilities denominated in foreign currency, such as equity shares, are recorded as part of the change in the fair value. H • Upon consolidation, the financial assets and financial liabilities of the E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E branches, sister company and subsidiaries abroad are translated from the local currency to the reporting currency at the average rates prevailing at the date of the consolidated financial statements. Exchange differences arising from the revaluation of the net investment in the branches and subsidiaries abroad are recorded in a separate item in other comprehensive income items.

E. Fixed assets • Fixed assets are stated at cost, net of accumulated depreciation and any impairment in value. Such cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of fixed assets have different useful lives, they are accounted for as separate items of fixed assets. • Depreciation is charged so as to write-off the cost of assets, using their useful lives of the respective assets • Land and assets under construction are not depreciated. • Assets under construction is carried at cost, less any accumulated impairment losses and is depreciated when the assets are ready for intended use using the same depreciation rate of the related category with fixed assets. • Fixed assets are derecognized when disposed of or when no future benefits are expected from their use or disposal. • The gain or loss arising on the disposal of an item (the difference between the sales proceeds and the carrying amount of the asset) is recognized in the consolidated statement of income in the year that the assets were disposed.

152 NOTES TO T NOTES

F. Investments in associates • Associates are those in which the Group exerts significant influence over the financial and operating policy decisions, and in which the Group holds between 20% and 50% of the voting rights. • Investments in associated companies are accounted for according to the equity method. H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E • Transactions and balances between the Group and the associates are eliminated to the extent of the Group’s ownership in the associate.

G. Income taxes • Income tax expenses represent current and deferred taxes for the year. • Income tax expense is measured on the basis of taxable income. Taxable income differs from income reported in the consolidated financial statements, as the latter includes non-taxable revenue, tax expenses not deductible in the current year but deductible in subsequent years, accumulated losses approved by tax authorities and items not accepted for tax purposes or subject to tax. • Taxes are calculated on the basis of the enacted tax rates according to the prevailing laws, regulations and instructions of countries where the Group operates. • Taxes expected to be incurred or recovered as a result of temporary timing differences between the value of the assets and liabilities in the consolidated financial statements and their respective tax bases. Deferred taxes are calculated on the basis of the liability method, and according to the rates expected to be enacted when it is anticipated that the liability will be settled or when tax assets are recognized. • Deferred tax assets are reviewed on the date of the consolidated financial statements, and reduced if it is expected that no benefit will arise from the deferred tax, partially or totally.

H. Financial assets • Financial assets transactions are measured at the trade date at fair value net of direct transaction cost except for costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit and loss are recognized immediately in the consolidated statement of income.

153 NOTES TO T NOTES

Financial Assets Classification Financial assets at amortized cost • Debt instruments, including direct credit facilities, treasury bills and bonds, are measured at amortized cost only if: a. The asset is held within a business model whose objective is to hold assets H in order to collect contractual cash flows; and E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E b. The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at amortized cost are recorded at cost upon purchase plus acquisition expenses. Moreover, the issue premium \ discount is amortized using the effective interest rate method, and recorded to interest or in its account. Any allocations resulting from the decline in value of these investments leading to the inability to recover the investment or part thereof are recorded, and any impairment is registered in the consolidated statement of income. • In case the business model objective changed to contradict with amortized cost conditions, the Group should reclassify its financial instrument classified as amortized cost to be at fair value through profit or loss. • The Group might choose to classify debt instruments that meets the amortized cost criteria to designate such financial asset as FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Financial assets at fair value through profit or loss (FVTPL) • Debt instruments that do not meet the amortized cost criteria (as described above) are measured at FVTPL. In addition, debt instruments that meet the amortized cost criteria but are designated as at FVTPL by the Group are measured at FVTPL. • In case the business model objectives changes and contractual cash flows meets the amortized cost criteria, the Group should reclassify the debt instrument held at FVTPL to amortized cost. Reclassification of debt instruments that are designated as at FVTPL on initial recognition is not allowed.

154 NOTES TO T NOTES

• Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition. • Financial assets at FVTPL are measured at fair value, with any gains or losses arising on re-measurement recognized in the consolidated statement of in-

come. H • Dividend income on investments in equity instruments at FVTPL is recog- STATEMENTS FINANCIAL CONSOLIDATED E nized in the consolidated statement of income when the Group’s right to receive the dividends is established (upon the general assembly resolution).

Financial assets at fair value through other comprehensive income (FVTOCI) • - At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.

A financial asset is held for trading if: - it has been acquired principally for the purpose of selling it in the near term; or - on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or - it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

• Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the investments revaluation reserve. Where the asset is disposed of, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not transferred to consolidated income statement, but is reclassified to retained earnings. • Dividends on these investments in equity instruments are recognized in the consolidated income statement when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

155 I. Fair value • The closing price of quoted financial assets and derivatives in active mar-

NOTES TO T NOTES kets represents their fair value. When no quoted prices are available or when no active markets exist for the financial instrument, the fair value is estimated by one of the following methods: - Comparing the fair value of another financial asset with similar terms and conditions; - Discounting future cash flows; or - Using options pricing models.

H • The valuation methods aim at arriving at a fair value that reflects the expec-

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E tations of market participants, expected risks and expected benefits. When the fair value cannot be measured reliably, financial assets are stated at cost / amortized cost.

J. Impairment in the value of the financial assets • The Group reviews the values of the amortized cost on the date of the consolidated financial statements in order to determine if there are any indications of impairment in their value, individually or in the form of a portfolio. If such indications exist, the recoverable value is estimated so as to determine the amount of impairment loss. • Impairment in the financial assets recorded at cost is determined on the basis of the difference between the carrying amount and the present value of the expected cash flows discounted at the market interest rate of similar instruments. • Financial assets recorded at amortized cost is reduced by the impairment in value through provision for impairment in the consolidated statement of income.

K. Financial derivatives • - Financial derivatives (e.g. currency forward contracts, forward rate agreements, swaps and option contracts) are recognized at fair value in the consolidated statement of financial position.

1. Financial derivatives held for hedge purposes • Fair value hedge: Represents hedging for changes in the fair value of the Group’s assets and liabilities. When the conditions for an effective fair value hedge are met, gains or losses from changes in the fair value of financial derivatives are recognized in the consolidated statement of income. Changes in the fair value of the hedged assets or liabilities are also recognized in the consolidated statement of income.

156 • Cash flow hedge: Represents hedging for changes in the current and expected cash flows of the Group’s assets and liabilities that affects the consolidated statement of income. When the conditions for an effective cash flow hedge are met, gains or losses from changes in the fair value of finan- TO T NOTES cial derivatives are recognized in other comprehensive income and are reclassified to the statement of income in the period in which the hedge transaction has an impact on the consolidated statement of income. • When the conditions for an effective hedge are not met, gains or losses from changes in the fair value of financial derivatives are recognized in the consolidated statement of income.

• The ineffective portion is recognized in the consolidated statement of in- H come. STATEMENTS FINANCIAL CONSOLIDATED E • Hedge for net investment in foreign entities When the conditions of the hedge for net investment in foreign entities are met, fair value is measured for the hedging instrument of the hedged net assets. In case of an effective relationship, the effective portion of the loss or profit related to the hedging instrument is recognized in the consolidated statement of comprehensive income and recorded in the consolidated statement of income when the investment in foreign entities is sold. The ineffective portion is recognized in the consolidated statement of income.

2. Financial derivatives for trading • Financial derivatives held for trading are recognized at fair value in the consolidated statement of financial position among “other assets” or “other liabilities” with changes in fair value recognized in the consolidated statement of income.

L. Foreclosed assets • Such assets are those that have been the subject of foreclosure by the Group, and are initially recognized among “other assets” at the foreclosure value or fair value whichever is least.

• At the date of the consolidated financial statements, foreclosed assets are revalued individually; any decline in fair value is recognized in the consolidated statement of income. Any subsequent increase in value is recognized only to the extent that it does not exceed the previously recognized impairment losses.

M. Provisions • Provisions are recognized when the Group has an obligation as of the date of the consolidated financial statements as a result of past events, the obligation is likely to be settled, and a reliable estimate can be made of the amount of the obligation. 157 • Provision for employees’ end-of-service indemnities is estimated in accor- NOTES TO T NOTES dance with the prevailing rules and regulations in the countries in which the Group operates. The expense for the year is recognized in the consolidated statement of income. Indemnities paid to employees are reduced from the provision. N. Fiduciary deposits • Fiduciary deposits resulting from holding or placing of assets on behalf of customers. These assets and the income arising from them are excluded

H from the consolidated financial statements of the Group. Commission and

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E fees income for managing these accounts are recognized in the consolidated statement of income. • Provision for the decline in fair value is recognized only when the fair value of a portfolio of guaranteed capital declines below the amount of guaranteed capital.

O. Offsetting • Financial assets and financial liabilities are offset, and the net amount is presented in the consolidated statement of financial position only when there is a legal right to offset the recognized amounts, and the Group intends to either settle them on a net basis or to realize the assets and settle the liabilities simultaneously.

P. Cash and cash equivalents • Cash and cash equivalents comprise cash and balances with central banks and balances with banks and financial institutions maturing within three months, less restricted funds and balances owing to banks and financial institutions maturing within three months.

5. Accounting Estimates • Preparation of the consolidated financial statements and the application of the accounting policies require the Group’s management to perform assessments and assumptions that affect the amounts of financial assets, financial liabilities, fair value reserve and to disclose contingent liabilities. Moreover, these assessments and assumptions affect revenues, expenses, provisions, and changes in the fair value shown in the consolidated statement of other comprehensive income and owners’ equity. In particular, this requires the Group’s management to issue significant judgments and assumptions to assess future cash flow amounts and their timing. Moreover, the said assessments are necessarily based on assumptions and factors with varying degrees of consideration and uncertainty. In addition, actual results may differ from assessments due to the changes resulting from the conditions and circumstances of those assessments in the future. 158 Management believes that the assessments adopted in the consolidated financial statements are reasonable. The details are as follows: TO T NOTES

- A provision for non-performing loans is taken on the bases and estimates approved by management in conformity with International Financial Re- porting Standards (IFRSs). The outcome of these bases and estimates is compared against the provisions that should be taken under the instructions of the regulatory authorities, through which the Bank branches and

subsidiary companies operate. Moreover, the strictest outcome that con- H

forms with the (IFRSs) is used. STATEMENTS FINANCIAL CONSOLIDATED E - Impairment loss for foreclosed assets is booked after a sufficient and recent evaluation of the acquired properties has been conducted by approved surveyors. The impairment loss is reviewed periodically. - Management estimates the impairment in value when the market prices reach a certain limit that indicates the impairment loss provided that this does not contradict the instructions of the regulatory authorities or Inter- national Financial Reporting Standards. - The fiscal year is charged with its portion of income tax expenditures in accordance with the regulations, laws, and accounting standards. Moreover, deferred tax assets and liabilities and the income tax provision are recorded. - Management periodically reassesses the economic useful lives of tangible and intangible assets for the purpose of calculating annual depreciation and amortization based on the general condition of these assets and the assessment of their useful economic lives expected in the future. Impair- ment loss is taken to the consolidated statement of income. - A provision is set for lawsuits raised against the Group. This provision is based to an adequate legal study prepared by the Group’s legal advisor. Moreover, the study highlights potential risks that the Group may encounter in the future. Such legal assessments are reviewed periodically. - Management frequently reviews financial assets stated at fair value or at cost to estimate any impairment in their value. The impairment amount is taken to the consolidated statement of income for the year. - Fair value hierarchy - The level in the fair value hierarchy is determined and disclosed into which the fair value measurements are categorised in their entirety, segregating fair value measurements in accordance with the levels defined in IFRS. The difference between Level 2 and Level 3 fair value measurements represents whether inputs are observable and whether the unobservable inputs are significant, which may require judgment and a careful analysis of the inputs used to measure fair value, including consideration of factors specific to the asset or liability.

159 NOTES TO T NOTES 6. Cash and Balances with Central Banks The details of this item are as follows: USD ‘000 December 31, 2012 2011 Cash in vaults 463 813 342 154 Balances with central banks:

H - Current accounts 903 543 529 466

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E - Time and notice 4 864 327 5 532 004 - Mandatory cash reserve 1 137 431 1 120 608 - Certificates of deposit 379 997 263 446 Total 7 749 111 7 787 678

- Except for the mandatory cash reserve, there are no restricted balances at Central Bank. - Balances maturing after three months amounted to USD 244.1 million as of December 31, 2012 (USD 162.2 million as of December 31, 2011).

7. Balances with Banks and Financial Institutions The details of this item are as follows: USD ‘000 December 31, 2012 2011 Current accounts 880 679 1 192 201 Time deposits maturing within 3 months 3 960 870 2 892 681 Total 4 841 549 4 084 882

- There are time deposits with local banks for the time period less than three months in the amount USD 138.2 million as of December 31, 2012 (USD 33.8 million as of December 31, 2011).

8. Deposits with Foreign Banks and Financial Institutions The details of this item are as follows: USD ‘000 December 31, 2012 2011 Time deposits maturing after 3 months and before 6 months 74 917 124 228 Time deposits maturing after 6 months and before 9 months 21 759 27 341 Time deposits maturing after 9 months and before a year 1 926 20 874 Time deposits maturing after one year 3 222 3 350 Total 101 824 175 793

- There are no restricted balances as of December 31, 2012 and 2011. - There are no restricted balances or deposits that don’t pay interest as of December 31, 2012 and 2011. 160 NOTES TO T NOTES 9- Financial Assets at Fair Value through Profit or Loss The details of this item are as follows: USD ‘000 December 31,

2012 2011

Treasury bills and bonds 572 945 194 223

Corporate bonds 226 056 450 028 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Loans and advances 28 340 126 619

Corporate shares and mutual funds* 137 145 181 675

Total 964 486 952 545

* During the year 2012, foreclosed shares in the amount of USD12.256 million which were classified as financial assets at fair value through profit or loss were transferred to other assets (Note 15) within other foreclosed assets.

10 - Financial assets at fair value through other comprehensive income

The details of this item are as follows: USD ‘000 December 31,

2012 2011

Corporate shares and mutual funds* 553 760 641 581

Total 553 760 641 581

* Cash dividends from investments above amounted to USD 8.9 million for the year ended December 31,2012 (USD 5.7 million as of December 31, 2011).

161 NOTES TO T NOTES

11. Direct Credit Facilities at Amortized Cost The details of this item are as follows:

H USD ‘000

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E December 31, 2012

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills * 70 414 219 067 398 490 234 946 31 889 954 806 Overdrafts * 112 903 691 780 3 028 839 916 412 123 4 246 561 Loans and advances * 1 962 968 1 565 106 11 051 859 140 853 771 420 15 492 206 Real-estate loans 1 489 211 211 124 23 018 - - 1 723 353 Credit cards 91 030 - - - - 91 030 Total 3 726 526 2 687 077 14 502 206 376 715 1 215 432 22 507 956

Less: Interest and commission in 53 583 101 672 156 802 2 273 - 314 330 suspense Provision for impairment - direct 166 819 158 344 1 379 391 6 473 2 185 1 713 212 credit facilities at amortized cost Total 220 402 260 016 1 536 193 8 746 2 185 2 027 542 Net Direct Credit Facilities 3 506 124 2 427 061 12 966 013 367 969 1 213 247 20 480 414 at Amortized Cost

* Net of interest and commission received in advance, which amounted to USD 94.5 million as of December 31, 2012. - Rescheduling loans as of December 31, 2012 amounted to USD 68.9 million. - Restructuring loans as of December 31, 2012 amounted to USD 353.2 million. - Direct credit facilities granted to and guaranteed by the government of Jordan as of December 31, 2012 amounted to USD 122.9 million, or .5% of total direct credit facilities. - Non-performing direct credit facilities as of December 31, 2012 amounted to USD 1816.3 million, or 8.1% of total direct credit facilities. - Non-performing direct credit facilities net of interest and commission in suspense as of December 31, 2012 amounted to USD 1502 million, or 6.8% of net direct credit facilities. 162 NOTES TO T NOTES

USD ‘000 H

December 31, 2011 STATEMENTS FINANCIAL CONSOLIDATED E

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills * 63 928 221 962 345 352 227 944 10 706 869 892 Overdrafts * 80 290 719 104 2 725 234 375 355 317 3 880 320 Loans and advances * 1 853 765 1 621 382 11 673 442 145 953 861 115 16 155 657 Real-estate loans 1 297 851 257 929 16 785 - - 1 572 565 Credit cards 86 826 - - - - 86 826 Total 3 382 660 2 820 377 14 760 813 374 272 1 227 138 22 565 260

Less: Interest and commission in 37 770 92 821 105 755 1 519 - 237 865 suspense Provision for impairment - direct 148 014 148 098 1 070 924 3 290 2 436 1 372 762 credit facilities Total 185 784 240 919 1 176 679 4 809 2 436 1 610 627 Net Direct Credit Facilities 3 196 876 2 579 458 13 584 134 369 463 1 224 702 20 954 633 at amortized cost

* Net of interest and commission received in advance, which amounted to USD 103.3 million as of December 31, 2011. - Direct credit facilities granted to and guaranteed by the government of Jordan as of December 31, 2011 amounted to USD 147.2 million, or 0.7% of total direct credit facilities. - Non-performing direct credit facilities as of December 31, 2011 amounted to USD 1586.5 million, or 7% of total direct credit facilities. - Non-performing direct credit facilities net of interest and commission in suspense as of December 31, 2011 amounted to USD 1348.7 million, or 6% of net direct credit facilities.

163 The details of movement on interest and commissions in suspense are as follows: NOTES TO T NOTES 2012 USD ‘000

Corporates Govern- Banks and ment and Retail Financial Total Small and Public Large Institutions Medium Sector

Balance at the beginning of the 37 770 92 821 105 755 1 519 - 237 865 year H Interest and commission suspend-

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E 19 123 12 625 54 826 754 - 87 328 ed during the year Interest and commission in sus- ( 537) ( 3 636) ( 288) - - ( 4 461) pense (written off) Recoveries ( 4 224) ( 2 203) ( 3 621) - - ( 10 048) Adjustments during the year 1 718 2 340 1 276 - - 5 334 Translation adjustments ( 267) ( 275) ( 1 146) - - ( 1 688) Balance at the End of the Year 53 583 101 672 156 802 2 273 - 314 330

USD ‘000 2011

Corporates Govern- Banks and ment and Retail Financial Total Small and Public Large Institutions Medium Sector

Balance at the beginning of the 27 971 91 233 85 125 869 - 205 198 year Interest and commission suspend- 11 869 12 309 40 056 649 - 64 883 ed during the year Interest and commission in suspense ( 280) ( 8 512) ( 17 064) - - ( 25 856) (written off) Recoveries ( 1 548) ( 1 949) ( 2 010) - - ( 5 507) Adjustments during the year ------Translation adjustments ( 242) ( 260) ( 352) 1 - ( 853) Balance at the end of the Year 37 770 92 821 105 755 1 519 - 237 865

- Suspended interest on real-estate loans amounted to USD 11.1 million as of December 31, 2012 against USD 7.8 million as of December 31, 2011.

164 The details of movement on the provision for impairment of direct credit facilities at amortized cost are as

follows: TO T NOTES 2012 USD ‘000 Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector

Balance at the beginning of 148 014 148 098 1 070 924 3 290 2 436 1 372 762 the year H

Impairment losses charged to STATEMENTS FINANCIAL CONSOLIDATED E 27 451 45 243 343 180 3 184 202 419 260 income Used from provision (written off) ( 700) ( 19 599) ( 1 757) - - ( 22 056) Surplus in provision trans- ( 8 699) ( 21 127) ( 41 541) - (393) ( 71 760) ferred to statement of income Adjustments during the period 2 696 2 268 8 110 - - 13 074 Translation adjustments ( 1 943) 3 461 475 ( 1) ( 60) 1 932 Balance at the End of the Year 166 819 158 344 1 379 391 6 473 2 185 1 713 212

2011 USD ‘000 Corporates Govern- Banks and ment and Retail Financial Total Small and Public Large Institutions Medium Sector Balance at the beginning of 129 147 138 788 786 251 - 2 676 1 056 862 the year Effect of applying IFRS ( 9 ) - - ( 87 082) - - ( 87 082) Balance at the beginning of 129 147 138 788 699 169 - 2 676 969 780 the year - Adjusted Impairment losses charged to 30 222 25 948 405 476 3 290 199 465 135 income Used from provision (written off) ( 1 584) ( 11 012) ( 15 417) - - ( 28 013) Surplus in provision trans- ( 7 513) ( 8 110) ( 14 190) - ( 381) ( 30 194) ferred to statement of income Adjustments during the year - 293 ( 293) - - - Translation adjustments ( 2 258) 2 191 ( 3 821) - ( 58) ( 3 946) Balance at the end of the Year 148 014 148 098 1 070 924 3 290 2 436 1 372 762

- Impairment is assessed based on individual customer accounts. - Provision for real-estate loans amounted to USD 63.2 million as of December 31, 2012 against USD 64.2 million as of December 31, 2011.

165 USD ‘000 12- Other financial assets at amortized cost The details of this item are as follows: December 31, 2012 2011 Treasury bills and bonds 4 728 724 4 435 491

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED TO THE NOTES Government bonds 1 134 708 1 387 910 Corporate bonds 1 432 421 1 719 974 Less: Provision for impairment ( 15 329) ( 8 007) Total 7 280 524 7 535 368

Analysis of bonds based on interest payments: USD ‘000 December 31, 2012 2011 Floating rate 792 384 1 274 305 Fixed rate 6 488 140 6 261 063 Total 7 280 524 7 535 368

Analysis of financial assets based on market quotation: USD ‘000 December 31, Financial assets quoted in the market: 2012 2011 Treasury bills and bonds 1 122 140 915 137 Government bonds 257 857 247 288 Corporate bonds 1 183 288 1 243 234 Total 2 563 285 2 405 659 USD ‘000 December 31, Financial assets unquoted in the market: 2012 2011 Treasury bills and bonds 3 606 584 3 520 354 Government bonds 876 851 1 140 622 Corporate bonds 233 804 468 733 Total 4 717 239 5 129 709

The details of movement on the provision for impairment of other USD ‘000 financial assets at amortized cost: 2012 2011 Balance at the begging of the year 8 007 23 764 Impairment losses charged to income 7 256 3 231 Used from provision (written off) - ( 18 713) Translation adjustments 66 ( 275) Balance at the End of the year 15 329 8 007

166 13. Investment in Associates The details of this item are as follows: December 31, 2012 2011 NOTES TO T NOTES Place of In- Principal Ownership Cost Ownership Cost corporation Activity The Group’s investments in % USD ‘000 % USD ‘000 associates: Turkland Bank A.Ș. 50.00 194 441 50.00 172 268 Turkey Banking Oman Arab Bank S.A.O. 49.00 234 296 49.00 204 903 Oman Banking

Arab National Bank 40.00 1 942 619 40.00 1 817 001 Saudi Arabia Banking H

Arabia Insurance Company 36.79 38 624 36.79 37 423 Lebanon Insurance STATEMENTS FINANCIAL CONSOLIDATED E Other Various 16 469 Various 13 169 Various Various Total 2 426 449 2 244 764

USD ‘000 The details of movement on investments in associates are as follows: 2012 2011 Balance at the beginning of the year 2 244 764 2 077 809 Purchase of additional investments 16 464 50 486 Group's share of profits for the year 294 497 265 860 Dividends received ( 152 678) ( 122 561) Group's share of other changes in equity 23 402 ( 26 830) Balance at the end of the Year 2 426 449 2 244 764

* The closing price of the Arab National Bank’s share as of December 31, 2012 was Saudi Riyal 26.4 as quoted on Saudi Arabia Stock Exchange (Saudi Riyal 27.5 as of December 31, 2011). However, due to matters relating to the ownership concentrations of the Arab National Bank, the closing price of the share may not necessarily represent its fair value.

The Group’s share from assets, liabilities and revenue of associates are as follows: USD ‘000

2012 2011 Total Assets 17 188 252 14 691 273 Total Liabilities 14 850 637 12 530 725 Total Revenue 630 503 592 742

167 14. Fixed Assets USD ‘000 The details of this item are as follows:

Furniture, Computers and Leasehold

NOTES TO T NOTES Motor Land Buildings Fixtures and Communica- Improve- Total Vehicles Equipment tion Equipment ments Historical Cost:

Balance as of January 1, 2011 59 112 420 705 158 248 116 622 14 882 112 698 882 267

Additions 9 782 9 263 22 352 2 233 1 683 17 342 62 655

H Disposals ( 1 735) ( 31 711) ( 8 318) ( 5 588) ( 1 674) ( 26 853) ( 75 879)

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Translation Adjustments - 878 ( 384) ( 254) ( 8) - 232

Balance as of December 31, 2011 67 159 399 135 171 898 113 013 14 883 103 187 869 275

Additions 19 585 18 094 28 852 10 179 1 313 17 037 95 060

Disposals ( 6 616) ( 28 430) ( 6 585) ( 4 842) ( 1 180) ( 14 836) ( 62 489)

Adjustments during the year ( 1 281) ( 6 547) ( 104) ( 144) 7 859 ( 7 210)

Translation Adjustments - ( 3 096) ( 442) 2 865 ( 509) ( 3 488) ( 4 670)

Balance at December 31, 2012 78 847 379 156 193 619 121 071 14 514 102 759 889 966

Accumulated Depreciation :

Balance as of January 1, 2011 - 73 404 104 095 83 149 10 554 51 366 322 568

Depreciation charge for the year - 10 550 13 796 10 040 1 752 15 237 51 375

Disposals - ( 715) ( 7 643) ( 5 294) ( 1 345) ( 20 203) ( 35 200)

Translation adjustments - 318 ( 206) ( 8) ( 34) ( 173) ( 103)

Balance as of December 31, 2011 - 83 557 110 042 87 887 10 927 46 227 338 640

Depreciation charge for the year - 12 124 17 103 9 869 1 576 10 703 51 375

Disposals - ( 162) ( 4 664) ( 4 536) ( 983) ( 10 197) ( 20 542)

Adjustments during the year - 116 ( 167) ( 234) 7 ( 172) ( 450)

Translation adjustments - 198 355 3 816 ( 291) 66 4 144

Balance at December 31, 2012 - 95 833 122 669 96 802 11 236 46 627 373 167

Net Book Value as of 78 847 283 323 70 950 24 269 3 278 56 132 516 799 December 31, 2012

Net Book Value as of 67 159 315 578 61 856 25 126 3 956 56 960 530 635 December 31, 2011

168 15. Other Assets USD ‘000 The details of this item are as follows: December 31, 2012 2011 Accrued interest receivable 218 721 220 501

Prepaid expenses 131 459 107 293 TO T NOTES Foreclosed assets * 78 781 47 446 Items in transit 10 554 399 Miscellaneous assets 197 599 238 045 Total 637 114 613 684 * The Central Bank of Jordan instructions require to get rid of these assets during a maximum period of two years from the date of assignment. H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E

* The details of movement on foreclosed assets are as follows: USD ‘000 2012 Land Buildings Other Total Balance at the beginning of the year 4 855 42 591 - 47 446 Additions 22 254 2 985 - 25 239 Disposals ( 63) ( 6 102) - ( 6 165) Impairment losses charged to income - (4) - ( 4) Impairment loss - returned to profit ( 85) ( 21) - ( 106) Adjustments during the year - note (9) - - 12 256 12 256 Translation adjustments 167 (52) - 115 Balance at the End of the Year 27 128 39 397 12 256 78 781

USD ‘000 2011 Land Buildings Total Balance at the beginning of the year 5 096 39 969 45 065 Additions 2 981 7 312 10 293 Disposals ( 2 745) ( 4 692) ( 7 437) Impairment losses charged to income ( 481) (42) ( 523) Impairment loss - returned to profit 3 141 144 Translation adjustments 1 ( 97) ( 96) Balance at the End of the Year 4 855 42 591 47 446

169 16. Deferred Tax Assets Items attributable to deferred tax assets are as follows: USD ‘000 2012 Balance at the Adjustments Amounts Amounts Balance at the Beginning of During the Added Released End of the Year

NOTES TO T NOTES the Year Year Provision for impairment - direct 44 317 1 969 28 240 ( 26 382) 48 144 credit facilities at amortized cost End-of-Service indemnity 52 197 ( 419) 3 925 ( 3 322) 52 381 Interest in suspense 8 592 6 1 785 ( 4 582) 5 801 Other provisions 36 853 1 312 34 390 ( 12 825) 59 730 Total 141 959 2 868 68 340 ( 47 111) 166 056

H USD ‘000

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E 2011 Balance at the Adjustments Amounts Amounts Balance at the Beginning of During the Added Released End of the Year the Year Year Provision for impairment - direct 35 177 2 524 11 514 ( 4 898) 44 317 credit facilities at amortized cost End-of-Service indemnity 46 829 422 5 669 ( 723) 52 197 Interest in suspense 6 984 - 4 180 ( 2 572) 8 592 Other provisions 39 118 ( 10 114) 13 744 ( 5 895) 36 853 Total 128 108 ( 7 168) 35 107 ( 14 088) 141 959

Deferred tax assets balances are as follows: USD ‘000 December 31, 2012 2011 Provision for impairment - direct credit facilities at amortized cost 11 913 12 207 End-of-Service indemnity 15 755 14 538 Interest in suspense 1 224 2 009 Other provisions 14 998 9 633 Total 43 890 38 387 * Deferred tax results from temporary timing differences of the provisions not deducted for tax purposes in the current year or previous years. This is calculated according to the regulations of the countries where the Group operates. The Group will benefit from these amounts in the near future.

USD ‘000 The details of movements on deferred tax assets are as follows: 2012 2011 Balance at the beginning of the year 38 387 33 737 Additions during the year 17 392 4 209 Adjustments during the year 5 521 1 574 Amortized during the year ( 17 410) ( 1 133) Balance at the End of the Year 43 890 38 387

170 17. Banks and Financial Institutions Deposits USD ‘000 The details of this item are as follows: December 31,

2012 2011 Current and demand 396 208 920 701 NOTES TO T NOTES Time deposits maturing within 3 months 2 825 853 2 850 909 Time deposits maturing after 3 months and before 6 months 327 551 438 292 Time deposits maturing after 6 months and before 9 months 229 152 57 459 Time deposits maturing after 9 months and before one year 37 625 34 390 Time deposits maturing after one year 19 999 21 559 Total 3 836 388 4 323 310 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E - There are time deposits with local banks for the time period less than three months in the amount USD 51.4 million as of December 31, 2012 (USD 7 million as of December 31, 2011).

18. Customer Deposits The details of this item are as follows: USD ‘000 December 31, 2012

Corporates Government Retail Small and and Public Total Large Medium Sector Current and demand 6 205 961 1 975 259 2 137 643 367 348 10 686 211 Savings 2 315 567 16 887 14 042 433 2 346 929 Time and notice 7 963 456 996 652 3 534 638 2 790 574 15 285 320 Certificates of deposit 474 025 32 864 118 865 408 170 1 033 924 Total 16 959 009 3 021 662 5 805 188 3 566 525 29 352 384

- The government of Jordan and Jordanian public sector deposits amounted to USD 443.8 million, or 1.5% of total customer deposits as of December 31, 2012. - Non-interest bearing deposits amounted to USD 8911.5 million, or 30.4% of total customer deposits as of December 31, 2012. - Blocked deposits amounted to USD 572.4 million, or 1.9% of total customer’ deposits as of December 31, 2012. - Dormant deposits amounted to USD 314.2 million, or 1.1% of total customer deposits as of December 31, 2012.

171 NOTES TO T NOTES

The details of this item are as follows: USD ‘000

December 31, 2011

Corporates H Government

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Retail and Public Total Small and Large Sector Medium

Current and demand 5 439 224 1 580 295 2 122 826 455 078 9 597 423

Savings 2 145 076 20 452 8 377 204 2 174 109

Time and notice 8 503 993 951 017 4 174 162 2 858 643 16 487 815

Certificates of deposit 410 364 4 040 51 602 19 259 485 265

Total 16 498 657 2 555 804 6 356 967 3 333 184 28 744 612

- The Government of Jordan and Jordanian public sector deposits amounted to USD 527.3 million, or 1.9% of total customer deposits as of December 31, 2011. - Non-interest bearing deposits amounted to USD 7889.8 million, or 27.4% of total customer deposits at December 31, 2011. - Blocked deposits amounted to USD 432.3 million, or 1.5% of total customer’ deposits as of December 31, 2011. - Dormant deposits amounted to USD 333.8 million, or 1.2% of total customer deposits as of December 31, 2011.

172 NOTES TO T NOTES

USD ‘000 19. Cash Margin The details of this item are as follows: December 31, 2012 2011 Against direct credit facilities at amortized cost 2 965 621 2 491 660

Against indirect credit facilities 523 554 430 760 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Against margin trading 4 102 7 290 Other cash margins 40 444 45 679 Total 3 533 721 2 975 389

20. Borrowed Funds USD ‘000 The details of this item are as follows: December 31, 2012 2011 From banks and financial institutions * 156 512 810 412 Total 156 512 810 412

* In the year 2007, the Group issued a USD 500 million syndicated term loan to its favor through the external banking unit in Bahrain with a tenure of five years and paying LIBOR + 25 basis points, it has been matured and paid in July 2012. The Group borrowed amounts from banks and financial institutions, as well issued syndicated term loans through the Arab Tunisian Bank for periods ranging from five years to thirteen years at different interest rate the lowest of which amounted to 2% and the highest to TMM plus 200 basis points (TMM + 200bp). During the year 2010, the Group issued through Arab Bank Australia Limited a syndicated term loan of AUD 200 million for a term of three years paying interest equivalent to BBSW plus 47 basis points (BBSW + 47 bp). These bonds are guaranteed by the Australian Government at a cost of 100 basis points. During the year 2010, the Group borrowed USD 5 million from the American Overseas Private Investment Corporation through the branches of Arab Bank plc in Jordan for a term of 25 years and paying fixed interest of 5.015%, it has been paid in September 2012. Analysis of borrowed funds according to interest payments is as follows:

December 31,USD ‘000 2012 2011 Floating rate 156 512 805 412 Fixed rate - 5 000 Total 156 512 810 412

173 21. Provision for Income Tax The details of this item are as follows: USD ‘000 2012 2011 Balance at the beginning of the year 197 905 213 340 Income tax expense 207 837 166 326 Income tax paid ( 187 050) ( 181 761) Balance at the End of the Year 218 692 197 905

NOTES TO T NOTES Income tax expense charged to the consolidated statement of income consists of the following: USD ‘000 2012 2011 Income tax expense for the year 207 837 166 326 Effect of deferred tax assets 3 018 ( 4 445) Total 210 855 161 881 The banking sector income tax rate in Jordan is 30%, while, the tax rate in the countries where the Group has branches and subsidiaries is ranging between 0 to 40%. H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E

22. Other Provisions The details of this item are as follows: USD ‘000 2012 Balance at the Addition Utilized Returned Adjustments Balance at Beginning of during during to In- during the the End of the Year the Year the Year come Year the Year End-of-service indemnity 98 100 12 226 ( 8 769) ( 883) 5 100 679 Legal cases 7 921 1 215 ( 4) ( 4 131) ( 23) 4 978 Other 25 349 2 458 ( 13 933) ( 1 649) 2 891 15 116 Total 131 370 15 899 ( 22 706) ( 6 663) 2 873 120 773 USD ‘000 2011 Balance at the Addition Utilized Returned Adjustments Balance at Beginning of during during to In- during the the End of the Year the Year the Year come Year the Year End-of-service indemnity 90 453 11 988 ( 4 406) ( 296) 361 98 100 Legal cases 7 686 885 ( 194) ( 425) ( 31) 7 921 Other 35 218 3 521 ( 12 385) ( 145) ( 860) 25 349 Total 133 357 16 394 ( 16 985) ( 866) ( 530) 131 370

23. Other Liabilities USD ‘000 The details of this item are as follows: December 31, 2012 2011 Accrued interest payable 131 902 131 020 Notes payable 101 699 158 007 Interest and commission received in advance 140 861 135 250 Accrued expenses 69 134 66 267 Other miscellaneous liabilities 199 474 202 902 Total 643 070 693 446

174 24. Deferred Tax Liabilities Items attributable to deferred tax liabilities are as follows: USD ‘000 2012 Adjust- Balance at the Balance at Amounts Amounts ments Beginning of the End of Added Released during the the Year the Year Year Investment revaluation reserve 45 178 4 654 ( 34 985) 8 14 855 Retained earnings 8 366 3 413 ( 1 539) ( 171) 10 069 TO T NOTES Other 870 12 901 - ( 32) 13 739 Total 54 414 20 968 ( 36 524) ( 195) 38 663

2011 USD ‘000 Adjust- Balance at the Balance at Amounts Amounts ments Beginning of the End of Added Released during the H the Year the Year Year STATEMENTS FINANCIAL CONSOLIDATED E Investment revaluation reserve 51 096 13 953 ( 29 410) 9 539 45 178 Retained earnings 591 2 604 ( 6 651) 11 822 8 366 Other 4 838 513 ( 456) ( 4 025) 870 Total 56 525 17 070 ( 36 517) 17 336 54 414

USD ‘000 The balance of deferred tax liabilities is as follows: December 31, 2012 2011

Investment revaluation reserve 4 457 13 556

Retained earnings 1 958 1 456 Other 3 087 87 Total 9 502 15 099

USD ‘000 The details of movements on deferred tax liabilities are as follows: 2012 2011 Balance at the beginning of the year 15 099 17 427 Additions during the year 5 310 133 Amortized during the year ( 10 907) ( 2 461) Balance at the End of the Year 9 502 15 099

175 NOTES TO T NOTES 25. Share Capital

A. The subscribed and paid-up capital amounted to USD 776.027 million as of December 31, 2012 and 2011. B. Share premium amounted to USD 1225.747 million as of December 31, 2012 (USD 1225.747million as of 31 December 2011).

H 26. Statutory Reserve

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E • Statutory reserve amounted to USD 579.202 million as of December 31, 2012 (USD 529.652 million as of December 31, 2011) and cannot be distributed to shareholders

27. Voluntary Reserve

• The voluntary reserve amounted to USD 977.315 million as of December 31, 2012 (USD 977.315 million as at December 31, 2011). This reserve is used for purposes determined by the Board of Directors and the General Assembly has the right to distribute it in whole or part thereof to shareholders as dividends.

28. General Reserve

• The general reserve amounted to USD 1822.824 million as of December 31, 2012 (USD 1822.824 million as of December 31, 2011). This reserve is used for purposes determined by the Board of Directors and the General Assembly has the right to distribute it in whole or part thereof to shareholders as dividends.

29. General Banking Risks Reserve

• The general banking risk reserve amounted to USD 363.458 million as of December 31, 2012 (USD 363.458 million as of December 31, 2011) and it is available for use in accordance with certain procedures, including the approval of the Central Bank of Jordan and the General Assembly, only when the amount of that reserve exceeds the minimum amount set or required according to the instructions of the relevant banking authorities.

176 30. Investment Revaluation Reserve USD ‘000 The details of this item are as follows: 2012 Shares Bonds Derivatives Total Balance at the beginning of the year ( 39 002) - - ( 39 002) Change in fair value during the year ( 72 973) - - ( 72 973) NOTES TO T NOTES Net realized loss transferred to retained earning 992 - - 992 Balance at the End of the Year ( 110 983) - - ( 110 983)

2011 USD ‘000 Shares Bonds Derivatives Total Balance at the beginning of the year 38 244 ( 51 304) (516) ( 13 576) Effect of adoption of IFRS 9 12 306 51 304 - 63 610 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Change in fair value during the year ( 90 240) - 516 ( 89 724) Net realized loss transferred to retained earning 688 - - 688 Balance at the End of the Year ( 39 002) - - ( 39 002) * Investment revaluation reserve is stated net of deferred tax liabilities in the amount of USD 4.5 million as of December 31, 2012 (USD 13.6 million as of December 31, 2011).

USD ‘000 31. Retained Earnings The details of this item are as follows: December 31, 2012 2011 Balance at the beginning of the year 165 330 279 567 Effect of adoption of IFRS (9) - ( 202 370) Adjusted balance at the beginning of the year 165 330 77 197 Profit for the year Attributable to Shareholders of the Bank 344 064 292 177 Investments revaluation reserve transferred to retained earnings ( 992) ( 688) Paid dividends ( 193 900) ( 156 251) Appropriation to reserves ( 49 550) ( 47 105) Adjustments during the year ( 9 352) - Balance at the End of the Year * 255 600 165 330

* In 2012, Arab Bank plc Board of Directors recommended a 30% of capital as cash dividend, equivalent to USD 225.9 million. This proposal is subject to the approval of the General Assembly of shareholders (USD 188.2 million for the year 2011 equivalent 25% of paid-up capital).

177 NOTES TO T NOTES 32. Interest Income The details of this item are as follows: USD ‘000 2012 2011 Direct credit facilities at amortized cost * 1 092 180 1 105 952 Central banks 88 273 80 255 Banks and financial institutions 47 545 21 033 Financial assets at fair value through profit or loss 32 937 27 812 H Other financial assets at amortized cost 504 307 388 595 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Total 1 765 242 1 623 647

* The details of interest income earned on direct credit facilities at amortized cost are as follows:

USD ‘000 2012 Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills 3 890 9 680 22 363 3 610 2 016 41 559 Overdrafts 6 701 46 054 175 089 - 19 792 247 636 Loans and advances 147 900 96 752 392 784 6 457 33 095 676 988 Real estate loans 95 869 12 503 1 864 - - 110 236 Credit cards 15 761 - - - - 15 761 Total 270 121 164 989 592 100 10 067 54 903 1 092 180

2011 USD ‘000 Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills 4 247 12 696 23 663 4 969 865 46 440 Overdrafts 8 336 39 076 166 691 - 19 313 233 416 Loans and advances 121 132 107 806 432 292 9 789 39 309 710 328 Real estate loans 82 928 17 352 749 - - 101 029 Credit cards 14 739 - - - - 14 739 Total 231 382 176 930 623 395 14 758 59 487 1 105 952

178 33. Interest Expense USD ‘000 TO T NOTES The details of this item are as follows: 2012 2011 Customer deposits * 593 012 511 183 Banks and financial institutions 71 888 69 423 Cash margins 56 209 49 730 Borrowed funds 15 053 20 372 H Deposit insurance fees 17 601 16 222 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Total 753 763 666 930

* Interest expense charged to income on customers’ deposits is as follows:

2012 USD ‘000

Corporates Government Retail Small and and Public Total Large Medium Sector Current and demand 5 880 2 154 10 634 1 171 19 839 Savings 43 833 244 39 - 44 116 Time and notice 263 938 44 019 91 552 74 492 474 001 Certificates of deposit 43 754 557 3 670 7 075 55 056 Total 357 405 46 974 105 895 82 738 593 012

2011 USD ‘000 Corporates Government Retail Small and and Public Total Large Medium Sector Current and demand 4 736 2 019 9 047 1 909 17 711 Savings 44 988 196 61 - 45 245 Time and notice 226 894 32 651 98 508 50 434 408 487 Certificates of deposit 31 505 845 1 858 5 532 39 740 Total 308 123 35 711 109 474 57 875 511 183

179 NOTES TO T NOTES

USD ‘000 34. Net Commission Income The details of this item are as follows: 2012 2011 Commission income: - Direct credit facilities at amortized cost 78 602 83 204 H - Indirect credit facilities 150 155 152 283 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E - Fiduciary deposits 16 575 14 090 - Other 77 634 72 440 Less: commission expense 21 188 18 595 Net Commission Income 301 778 303 422

35.(Loss) from Financial Assets at Fair Value Through Profit or Loss The details of this item are as follows: USD ‘000 2012 Realized Unrealized Dividends Total Gains (Losses) Treasury bills and bonds 3 200 ( 75 337) - ( 72 137) Companies shares 2 580 6 907 1 335 10 822 Total 5 780 ( 68 430) 1 335 ( 61 315)

2011 USD ‘000 Realized Unrealized Dividends Total Gains (Losses) Treasury bills and bonds 7 528 ( 22 253) - ( 14 725) Companies shares 2 012 ( 13 316) 3 131 ( 8 173) Total 9 540 ( 35 569) 3 131 ( 22 898)

180 36. Other Revenue USD ‘000 The details of this item are as follows: 2012 2011 Revenue from customer services 18 770 18 385 Safe box rent 2 287 2 306 Gains (Loss) from derivatives 565 ( 2 350) NOTES TO T NOTES Miscellaneous revenue 15 186 27 675 Total 36 808 46 016

37. Employees’ Expenses USD ‘000 The details of this item are as follows: 2012 2011 Salaries and benefits 296 282 294 813

Social security 24 930 23 598 H

Savings fund 4 668 4 956 STATEMENTS FINANCIAL CONSOLIDATED E Indemnity compensation 10 264 7 459 Medical 9 559 8 556 Training 2 349 2 387 Allowances 37 512 38 636 Other 16 069 13 161 Total 401 633 393 566

38. Other Expenses USD ‘000 The details of this item are as follows: 2012 2011 Occupancy 62 667 56 161 Office 62 788 65 551 Services 74 217 78 821 Fees 12 459 12 263 Information technology 27 441 27 523 Other administrative expenses 45 499 18 501 Total 285 071 258 820

39. Financial Derivatives The details of this item are as follows: USD ‘000 December 31, 2012 2011 Forward contracts 217 433 307 695 Interest rate swaps 1 876 227 1 847 562 Foreign currency forward contracts 9 029 519 7 521 801 Total 11 123 179 9 677 058

181 NOTES TO T NOTES

The details of financial derivatives are as follows: USD ‘000

December 31, 2012 Notional amounts by maturity Total Positive Negative From 3 From 1 More Notional Within 3 H Fair Value Fair Value Months Year to 3 than 3 Amount Months

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E to 1 Year Years Years Forward rate agreements 3 823 4 668 192 070 128 642 14 236 17 773 31 419 Interest rate swaps 20 130 35 779 1 612 423 125 071 852 764 303 767 330 821 Currency forward contracts 13 727 13 908 8 591 708 4 333 139 4 258 569 - - Derivatives held for trading 37 680 54 355 10 396 201 4 586 852 5 125 569 321 540 362 240 Forward rate agreements - - 25 363 - - 25 363 - Interest rate swaps 8 185 12 592 110 784 - 75 765 - 35 019 Currency forward contracts - - 125 468 75 432 50 036 - - Derivatives held for fair 8 185 12 592 261 615 75 432 125 801 25 363 35 019 value hedge Interest rate swaps - 4 910 153 020 10 380 20 761 39 543 82 336 Currency forward contracts 4 739 4 459 312 343 312 343 - - - Derivatives held for cash 4 739 9 369 465 363 322 723 20 761 39 543 82 336 flow hedge Total 50 604 76 316 11 123 179 4 985 007 5 272 131 386 446 479 595

The notional amount represents the value of the transactions at year-end and does not refer to market or credit risks.

182 NOTES TO T NOTES

USD ‘000

December 31, 2011 Notional amounts by maturity Total Positive Negative From 3 From 1 More Notional Within 3 Fair Value Fair Value Months Year to 3 than 3 H Amount Months

to 1 Year Years Years STATEMENTS FINANCIAL CONSOLIDATED E Forward rate agreements 2 722 3 328 307 695 134 754 82 542 53 268 37 131 Interest rate swaps 26 493 38 180 1 395 891 25 847 203 030 839 518 327 496 Currency forward contracts 28 802 18 791 7 177 411 3 355 157 3 815 615 6 639 - Derivatives held for trading 58 017 60 299 8 880 997 3 515 758 4 101 187 899 425 364 627 Interest rate swaps ( 5 191) 393 277 431 28 350 4 400 115 000 129 681 Currency forward contracts - - 118 140 38 956 79 184 - - Derivatives held for fair ( 5 191) 393 395 571 67 306 83 584 115 000 129 681 value hedge Interest rate swaps 37 3 865 174 240 25 217 18 155 104 089 26 779 Currency forward contracts 398 363 226 250 226 250 - - - Derivatives held for cash 435 4 228 400 490 251 467 18 155 104 089 26 779 flow hedge Total 53 261 64 920 9 677 058 3 834 531 4 202 926 1 118 514 521 087

The notional amount represents the value of the transactions at year-end and does not refer to market or credit risks.

183 40 - Business Segments a) Description of Segment’s Activities The Group has an integrated group of products and services dedicated to serve the Group’s customers and constantly developed in response to the ongoing changes in the banking business environment, and related state-of-the-art tools. NOTES TO T NOTES

The following is a summary of these groups’ activities stating their business nature and future plans:

1. Corporate and Investment Banking This group provides banking services and finances the following: corporate sector,

H private projects, foreign trading, small and medium sized projects, and banks and

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E financial institutions.

2. Treasury Group This group is considered a source of financing for the Group, in general, and for the strategic business units, in particular. It steers the financing of the Group, and manages both the Group’s cash liquidity and market risks. Moreover, this group is responsible for the management of the Group’s assets and liabilities within the frame set by the Assets and Liabilities Committee. This group is considered the main source in determining the internal transfer prices within the Group’s departments, in addition to being a central unit for the financial organization and main dealing in the following: - Foreign exchange. - Foreign exchange derivatives. - Money market instruments. - Certificates of deposit. - Interest rate swaps. - Other various derivatives. - Stocks.

3. Elite During the year 2009, the Group consolidated its services provided to high- networth customers with those provided to the Elite within the retail domain in order to enhance the Group’s onshore services and products offered to customers in the countries where it operates. At the same time, the Group transfers ownership of the offshore activities to Arab Bank (Switzerland) Ltd. The most significant objective of the ultimate work model is to reinforce the Group’s ability to benefit from the distribution channels relating to the Elite and retail activities in a more efficient manner so as to fulfill the needs of all types of clients of the Group. This will be through transferring the Group’s offshore activities to Arab Bank (Switzerland) Ltd as it is the arm dedicated to dealing with all requirements of the external activities of the Group’s high-net worth clients. 184 4. Retail Banking Group This group provides banking services to individuals, and endeavors to meet their financial services needs using the best methods, through effective distribution channels, and a variety of product services. Moreover, this group is in direct and close contact with the customers in order to provide them with timely and

continuous services through different electronic channels, such as direct phone TO T NOTES calls, the internet, and text messaging via cellular phones.

Information about the Group’s Business Segments

2012 USD ‘000

Corporate Retail Bank- Treasury Elite Other Total H Banking ing E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Total income 671 384 626 706 ( 122 624) 161 000 328 510 1 664 976

Net inter-segment interest income ( 114 927) ( 250 580) 218 555 146 952 - -

Provision for impairment - direct credit 202 729 - 138 29 697 114 936 347 500 facilities at amortized cost

Other provisions 5 514 1 128 319 5 660 3 871 16 492

Direct administrative expenses 102 520 23 412 25 056 164 694 2 862 318 544

Result of operations of segments 245 694 351 586 70 418 107 901 206 841 982 440

Indirect expenses on segments 173 164 69 755 38 075 132 947 5 594 419 535

Profit for the year before income 72 530 281 831 32 343 ( 25 046) 201 247 562 905 tax

Income tax expense 27 859 66 088 16 235 ( 11 452) 112 125 210 855

Profit(Loss) for the Year 44 671 215 743 16 108 ( 13 594) 89 122 352 050

Depreciation and amortization 16 229 2 931 1 041 31 174 - 51 375

Other information Segment assets 17 587 623 19 728 553 1 193 033 3 471 771 1 239 095 43 220 075

Inter-segment assets - - 8 831 894 4 253 812 4 654 620 -

Investment in associates - - - - 2 426 449 2 426 449

TOTAL ASSETS 17 587 623 19 728 553 10 024 927 7 725 583 8 320 164 45 646 524

Segment liabilities 16 617 935 2 957 915 10 024 927 7 725 583 620 998 37 947 358

Capital and reserves - - - - 7 699 166 7 699 166

Inter-segment liabilities 969 688 16 770 638 - - - -

TOTAL LIABILITIES AND 17 587 623 19 728 553 10 024 927 7 725 583 8 320 164 45 646 524 OWNERS' EQUITY

185 NOTES TO T NOTES

Information about the Group’s Business Segments

2011 USD ‘000

H Corporate Retail Bank- Treasury Elite Other Total Banking ing E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E

Total income 763 463 485 141 ( 115 073) 190 322 301 433 1 625 286

Net inter-segment interest income ( 143 510) ( 138 053) 184 576 96 987 - -

Provision for impairment - direct credit 179 233 - 1 492 30 716 223 500 434 941 facilities at amortized cost

Other provisions 5 341 911 748 3 562 8 197 18 759

Direct administrative expenses 107 398 22 932 23 142 153 408 6 156 313 036

Result of operations of segments 327 981 323 245 44 121 99 623 63 580 858 550

Indirect expenses on segments 183 733 72 858 35 441 127 793 ( 29 100) 390 725

Profit for the year before income 144 248 250 387 8 680 ( 28 170) 92 680 467 825 tax

Income tax expense 47 302 49 068 8 125 5 958 51 428 161 881

Profit(Loss) for the Year 96 946 201 319 555 ( 34 128) 41 252 305 944

Depreciation and amortization 10 289 2 658 1 193 37 235 - 51 375

Other information Segment assets 17 925 006 19 853 255 1 113 112 3 108 934 1 368 140 43 368 447

Inter-segment assets - - 8 559 955 4 699 864 4 548 260 -

Investment in associates - - - - 2 244 764 2 244 764

TOTAL ASSETS 17 925 006 19 853 255 9 673 067 7 808 798 8 161 164 45 613 211

Segment liabilities 15 821 433 4 148 749 9 673 067 7 808 798 504 416 37 956 463

Capital and reserves - - - - 7 656 748 7 656 748

Inter-segment liabilities 2 103 573 15 704 506 - - - -

TOTAL LIABILITIES AND 17 925 006 19 853 255 9 673 067 7 808 798 8 161 164 45 613 211 OWNERS' EQUITY

186 NOTES TO T NOTES

41 - Banking Risk Management The Group manages its various risks by methods within a comprehensive strategy that defines the risks and the related methods to meet them and mitigate them. Risk management is exercised at several levels including the Board of Directors, Chief Executive Officer, Asset and Liability Management Committee (ALCO),

Group Chief Financial Officer, Global Treasury, Head of Departments, Group H

Risk Management, Group Internal Audit, the Strategic Business Units and other STATEMENTS FINANCIAL CONSOLIDATED E supporting units and committees at different managerial levels.

The following illustrates the Groups methods in managing its various risks: a. Credit Risk Management Credit risk refers to the risk that the customer / counterparty will default on its contractual obligation resulting in financial insolvency or/and loss to the Group. Credit risks arise in the course of the normal activities of the Group. In pursuit of improving the size of businesses and increasing the loans and facilities portfolio, the Group adopts the highest credit standards and best methods and techniques on credit management, thus maintaining the high quality and variety of the credit portfolio. Moreover, the Group enforces the corporate framework that governs credit management through continuously developing and upgrading the related policies and procedures.

• Credit Concentration The Group’s credit concentration is subject to specific limits set by the Central Bank of Jordan which requires that credit concentration should not exceed 25% of regulatory capital.

• Criteria for Credit Ratings 1) Borrower’s Strength The borrowers’ strength is measured based on the nature of the economic sector, competitiveness, operating performance, cash flow, financial position and management.

2) Credit Risk Classification Credit risk classification is measured on the basis of guarantees, structure of the loan, duration and collateral.

187 NOTES TO T NOTES

• Risk Mitigation The Group offers the appropriate facilities structure, monitors and follows up on the utilization of the facilities and obtains proper collaterals (as a second source of payment) to mitigate credit risks. H • Credit Facilities Analysis E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E The Group has independent managerial units in charge of studying, monitoring, and following up on credit utilization and repayment of facilities. These units are the credit relationships development unit, analysis unit, execution unit and monitoring unit.

b. Geographic Concentration Risk The Group reduces the geographic concentration risk through distributing its operations over various sectors and various geographic locations inside and outside the Kingdom. Note (43 e) shows the details of the geographical distribution of assets.

c. Interest Rate Risk Interest rate risk arises from potential changes in interest rates. The Group has several committees, with duties to mitigate these risks to the minimum. Note (45) shows the details of the interest gap sensitivity of the Group.

d. Liquidity Risk Liquidity risk is defined as the inability to raise adequate funds to meet either the Group’s short-term or long-term obligations. The Group has several managerial levels, with duties to review and manage assets, liabilities and liquidity. Note (46) shows the maturities of the assets and liabilities of the Group.

e. Foreign Currency Risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The major part of income from foreign currency exchange differences comes from dealing with the Group’s customers. Moreover, the Group follows studied policies in managing its foreign currencies risks. Note (47) shows the net positions of foreign currencies.

188 NOTES TO T NOTES f. Market Risk Market risk is defined as the potential loss in the value of financial instruments. The Group manages this risk through several units that supervise, monitor, and manage these risks. The Group continuously follows up on developments and changes in the global financial markets, and implements procedures designed to mitigate those risks H through applying several methods, such as entering into hedges and swaps when STATEMENTS FINANCIAL CONSOLIDATED E needed. Note (44) shows the details of market risk sensitivity analysis.

g. Operational Risk Operational risk is defined as the loss incurred by the Group due to disorder in work policies or procedures, personnel, automated systems, technological infrastructure, in addition to external accidents. Such risk is measured through statistical methodologies compatible with the Group’s operations.

189 42. Concentration of Assets and Revenues According to Geographical Distribution The Group undertakes its banking activities through its branches in Jordan and abroad. The following are the details of the distribution of assets and revenues inside and outside Jordan:

USD ‘000 December 31, NOTES TO T NOTES Assets 2012 2011 Inside Jordan 10 821 599 10 348 125 Outside Jordan 34 824 925 35 265 086 Total 45 646 524 45 613 211 Revenues Inside Jordan 417 914 366 876

H Outside Jordan 1 247 062 1 258 410

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Total 1 664 976 1 625 286

43. Credit Risk A. Gross exposure to credit risk (net of impairment provisions and prior to other risk collaterals):

USD ‘000 December 31, Credit risk exposures relating to assets: 2012 2011 Balances with central banks 7 285 298 7 445 524 Balances with banks and financial institutions 4 841 549 4 084 882 Deposits with banks and financial institutions 101 824 175 793 Financial assets at fair value through profit or loss 827 341 770 870 Financial derivatives - positive fair value 50 604 53 261 Direct credit facilities at amortized cost 20 480 414 20 954 633 Retail 3 506 124 3 196 876 Small and medium 2 427 061 2 579 458 Large 12 966 013 13 584 134 Banking and financial institutions 367 969 369 463 Government and public Sector 1 213 247 1 224 702 Other financial assets at amortized cost 7 280 524 7 535 368 Other assets 350 180 327 794 Credit risk exposures relating to items off the consolidated statement of financial position: Letters of credit 2 417 843 2 381 202 Acceptances 870 946 777 922 Letters of guarantees 13 324 303 13 284 272 Unused credit facilities 3 332 293 3 160 799 Total 61 163 119 60 952 320

190 B. Classification of direct credit facilities at amortized cost based on credit risk: The table below shows the amount of direct credit facilities for each internal credit scoring.

December 31, 2012 USD ‘000 Corporates Banks and Government TO T NOTES Retail Small and Financial and Public Total Large Medium Institutions Sector Low risk 1 167 470 1 090 398 1 848 629 9 798 956 178 5 072 473 Acceptable risk 2 299 516 1 146 641 10 941 167 353 972 257 120 14 998 416 Due: 36 149 50 427 160 033 376 276 247 261 - Up to 30 days 21 571 43 505 136 057 376 - 201 509 - 31 - 60 days 14 578 6 922 23 976 - 276 45 752 Watch list 29 475 91 647 485 810 12 945 844 620 721 H Non-performing: 230 065 358 391 1 226 600 - 1 290 1 816 346 STATEMENTS FINANCIAL CONSOLIDATED E - Substandard 32 347 51 497 26 017 - - 109 861 - Doubtful 29 729 54 430 662 764 - - 746 923 - Problematic 167 989 252 464 537 819 - 1 290 959 562 Total 3 726 526 2 687 077 14 502 206 376 715 1 215 432 22 507 956 Less: interest and commis- 53 583 101 672 156 802 2 273 - 314 330 sion in suspense Less: provision for impairment - direct credit facilities 166 819 158 344 1 379 391 6 473 2 185 1 713 212 at amortized cost Net direct facilities at 3 506 124 2 427 061 12 966 013 367 969 1 213 247 20 480 414 amortized cost

December 31, 2011 USD ‘000

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Low risk 1 206 533 1 524 845 1 645 419 154 191 917 702 5 448 690 Acceptable risk 1 978 164 908 563 11 592 464 206 924 307 956 14 994 071 Due: 36 768 82 863 297 044 - - 416 675 - Up to 30 days 29 175 72 778 253 709 - - 355 662 - 31 - 60 days 7 593 10 085 43 335 - - 61 013 Watch list 25 902 50 232 446 691 13 157 - 535 982 Non-performing: 172 061 336 737 1 076 239 - 1 480 1 586 517 - Substandard 23 845 76 745 62 005 - - 162 595 - Doubtful 23 841 21 111 602 423 - - 647 375 - Problematic 124 375 238 881 411 811 - 1 480 776 547 Total 3 382 660 2 820 377 14 760 813 374 272 1 227 138 22 565 260 Less: interest and commis- 37 770 92 821 105 755 1 519 - 237 865 sion in suspense Less: provision for impairment - direct credit facilities 148 014 148 098 1 070 924 3 290 2 436 1 372 762 at amortized cost Net direct facilities at 3 196 876 2 579 458 13 584 134 369 463 1 224 702 20 954 633 amortized cost

191 NOTES TO T NOTES

C. Fair value of collaterals obtained against direct credit facilities at amortized cost:

December 31, 2012 USD ‘000

Corporates Govern- Banks and ment and Retail Financial Total

H Small and Public Large Institutions Medium Sector E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E

Collaterals against direct credit facilities of: Low risk 961 243 429 654 1 162 275 - 184 412 2 737 584

Acceptable risk 935 367 705 895 6 821 076 2 580 172 8 465 090

Past due 16 615 30 260 - - - 46 875

Watch list 19 744 48 189 263 030 - - 330 963

Non-performing: 50 924 125 468 179 948 - 14 356 354

- Substandard 17 639 37 885 8 780 - - 64 304

- Doubtful 16 208 40 328 50 490 - - 107 026

- Problematic 17 077 47 255 120 678 - 14 185 024

Total 1 983 893 1 339 466 8 426 329 2 580 184 598 11 936 866

Of which: Cash margin 367 648 314 088 2 386 059 - 61 621 3 129 416

Accepted letters of guar- 115 142 51 508 919 663 313 - 1 086 626 antees

Real estate properties 118 155 720 790 2 215 465 2 267 - 3 056 677

Listed securities 285 717 11 049 318 108 - 71 614 945

Vehicles and equipment 64 470 22 779 456 099 - - 543 348

Other 1 032 761 219 252 2 130 935 - 122 906 3 505 854

Total 1 983 893 1 339 466 8 426 329 2 580 184 598 11 936 866

192 NOTES TO T NOTES

December 31, 2011 USD ‘000

Corporates Govern- Banks and ment and Retail Financial Total Small and Public Institutions

Large H Medium Sector E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E

Collaterals against direct credit facilities of:

Low risk 564 313 1 237 278 1 213 248 - 238 566 3 253 405

Acceptable risk 799 075 529 326 6 342 691 8 454 9 778 7 689 324

Past due 18 457 62 399 14 037 - - 94 893

Watch list 18 543 34 358 307 778 - - 360 679

Non-performing: 37 857 122 796 158 053 - 14 318 720

- Substandard 13 184 55 232 14 635 - - 83 051

- Doubtful 6 284 9 021 29 605 - - 44 910

- Problematic 18 389 58 543 113 813 - 14 190 759

Total 1 438 245 1 986 157 8 035 807 8 454 248 358 11 717 021

Of which: Cash margin 442 175 670 909 1 064 576 - 39 441 2 217 101

Accepted letters of guar- 14 999 72 364 1 421 771 1 089 60 364 1 570 587 antees

Real estate properties 75 242 432 631 2 571 159 6 990 - 3 086 022

Listed securities 48 485 9 012 554 930 375 1 350 614 152

Vehicles and equipment 91 153 48 855 526 781 - - 666 789

Other 766 191 752 386 1 896 590 - 147 203 3 562 370

Total 1 438 245 1 986 157 8 035 807 8 454 248 358 11 717 021

193 NOTES TO T NOTES

D. Classification of debt securities facilities based on credit risk: The table below analyzes the credit exposure of the debt securities using the rating by global credit rating agencies.

H USD ‘000

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E December 31, 2012 Credit rating Financial assets at fair value Other financial assets Total through Profit or loss at amortized cost Private sector: AAA to A- 203 785 963 332 1 167 117 BBB+ to B- 20 113 294 531 314 644 Below B- 2 158 8 215 10 373 Unrated 28 340 151 014 179 354 Governments and public sector 572 945 5 863 432 6 436 377 Total 827 341 7 280 524 8 107 865

USD ‘000 December 31, 2011 Credit rating Financial assets at fair value Other financial assets Total through Profit or loss at amortized cost Private sector: AAA to A- 392 298 1 322 124 1 714 422 BBB+ to B- - 267 025 267 025 Below B- 1 892 13 901 15 793 Unrated 182 457 108 917 291 374 Governments and public sector 194 223 5 823 401 6 017 624 Total 770 870 7 535 368 8 306 238

194 NOTES TO T NOTES

E. Credit exposure categorized by geographical region:

December 31, 2012 USD ‘000

Other Arab Rest of the Jordan Asia * Europe America Total countries World

Balances with central banks 2 568 043 2 164 605 14 071 2 521 274 - 17 305 7 285 298 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Balances and deposits with banks 371 862 1 827 484 284 435 1 851 612 501 486 106 494 4 943 373 and financial institutions

Financial assets at fair value 16 986 461 451 - 311 307 1 728 35 869 827 341 through profit or loss

Direct credit facilities at amortized 5 309 469 11 935 793 499 537 1 717 978 135 126 882 511 20 480 414 cost

Other financial assets at amortized 2 273 624 3 652 466 17 390 487 137 437 120 412 787 7 280 524 cost

Other assets 44 827 303 502 5 035 41 146 182 6 092 400 784 Total 10 584 811 20 345 301 820 468 6 930 454 1 075 642 1 461 058 41 217 734

December 31, 2011 USD ‘000 Other Arab Rest of the Jordan Asia * Europe America Total countries World

Balances with central banks 3 692 051 1 921 069 329 1 832 075 - - 7 445 524

Balances and deposits with banks 201 041 1 562 688 284 777 1 709 605 491 079 11 485 4 260 675 and financial institutions

Financial assets at fair value 17 471 277 797 29 699 419 569 2 726 23 608 770 870 through profit or loss

Direct credit facilities at amortized 5 116 646 14 059 140 334 326 1 014 018 261 572 168 931 20 954 633 cost Other financial assets at amortized 2 141 913 3 682 780 61 618 787 565 457 942 403 550 7 535 368 cost Other assets 89 484 153 645 36 145 47 884 242 53 655 381 055 Total 11 258 606 21 657 119 746 894 5 810 716 1 213 561 661 229 41 348 125

* Excluding Arab Countries.

195 F. CREDIT EXPOSURE CATEGORIZED BY ECONOMIC SECTOR NOTES TO T NOTES December 31, 2012

Corporates Corporates Banks and Government Retail Industry and Tourism General Financial and Public Total Constructions Real Estate Trade Agriculture Transportation Mining and Hotels Services Institutions Sector Balances with Central Banks ------7 285 298 - 7 285 298 Balances and deposits with banks ------4 943 373 - 4 943 373 H and financial institutions E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Financial assets at fair value - 20 340 - - 1 851 - - 28 216 2 158 201 831 572 945 827 341 through profit or loss Direct credit facilities at amortized 3 506 124 4 579 100 1 309 887 1 756 246 3 466 449 217 324 733 621 1 013 640 2 316 807 367 969 1 213 247 20 480 414 cost Other financial assets at amortized - 67 979 10 865 22 071 1 149 - - 1 229 94 161 1 219 638 5 863 432 7 280 524 cost Other assets 15 918 21 481 4 927 6 521 16 669 999 2 468 13 660 48 549 144 708 124 884 400 784 Total 3 522 042 4 688 900 1 325 679 1 784 838 3 486 118 218 323 736 089 1 056 745 2 461 675 14 162 817 7 774 508 41 217 734

December 31, 2011

Corporates Corporates Banks and Government Retail Industry and Tourism & General Financial and Public Total Constructions Real Estate Trade Agriculture Transportation Mining Hotels Services Institutions Sector Balances with Central Banks ------7 445 524 - 7 445 524 Balances and deposits with banks ------4 260 675 - 4 260 675 and financial institutions

Financial assets at fair value - 24 220 - 134 237 9 183 - - 26 487 23 938 358 582 194 223 770 870 through profit or loss

Direct credit facilities at amortized 3 196 876 4 341 083 1 581 684 1 846 432 3 364 005 174 406 813 052 1 332 931 2 709 999 369 463 1 224 702 20 954 633 cost Other financial assets at amortized - 47 417 38 136 10 094 1 149 - - 8 647 193 927 1 412 597 5 823 401 7 535 368 cost Other assets 21 418 13 010 2 523 4 910 13 678 1 156 4 054 12 095 67 137 111 287 129 787 381 055 Total 3 218 294 4 425 730 1 622 343 1 995 673 3 388 015 175 562 817 106 1 380 160 2 995 001 13 958 128 7 372 113 41 348 125

196 F. CREDIT EXPOSURE CATEGORIZED BY ECONOMIC SECTOR USD ‘000 NOTES TO T NOTES December 31, 2012

Corporates Corporates Banks and Government Retail Industry and Tourism General Financial and Public Total Constructions Real Estate Trade Agriculture Transportation Mining and Hotels Services Institutions Sector Balances with Central Banks ------7 285 298 - 7 285 298 Balances and deposits with banks ------4 943 373 - 4 943 373 and financial institutions H Financial assets at fair value STATEMENTS FINANCIAL CONSOLIDATED E - 20 340 - - 1 851 - - 28 216 2 158 201 831 572 945 827 341 through profit or loss Direct credit facilities at amortized 3 506 124 4 579 100 1 309 887 1 756 246 3 466 449 217 324 733 621 1 013 640 2 316 807 367 969 1 213 247 20 480 414 cost Other financial assets at amortized - 67 979 10 865 22 071 1 149 - - 1 229 94 161 1 219 638 5 863 432 7 280 524 cost Other assets 15 918 21 481 4 927 6 521 16 669 999 2 468 13 660 48 549 144 708 124 884 400 784 Total 3 522 042 4 688 900 1 325 679 1 784 838 3 486 118 218 323 736 089 1 056 745 2 461 675 14 162 817 7 774 508 41 217 734

USD ‘000 December 31, 2011

Financial assets at fair value - 24 220 - 134 237 9 183 - - 26 487 23 938 358 582 194 223 770 870 through profit or loss

197 NOTES TO T NOTES 44. Market Risk

Market Risk sensitivity

Assuming market prices as of December 31,2012 and 2011 change by 5%, the impact on the consolidated statement of income and owners’ equity will be as follows:

H USD ‘000 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E December 31, 2012 December 31, 2011

Statement of Owners’ Statement Owners’ Total Total Income Equity of Income Equity

Interest rate sensitivity 36 236 - 36 236 21 886 - 21 886

Foreign exchange rate 18 431 3 626 22 057 6 519 2 035 8 554

Share prices 6 857 27 688 34 545 9 084 32 079 41 163

Total 61 524 31 314 92 838 37 489 34 114 71 603

198 45. Interest Rate Risk A - Exposure to interest rate volaitility as of December 31, 2012 (classification is based on interest rate repricing or maturity date, whichever is closer). USD ‘000 After 3 After 6 Months After 1 Year Not Tied to

Within 3 Months and TO T NOTES and before 1 and before After 3 Years Interest Rate Total Months before 6 Year 3 Years Risk Months ASSETS Cash at vaults - - - - - 463 813 463 813 Mandatory cash reserve - - - - - 1 137 431 1 137 431 Balances with central banks 5 000 267 32 262 81 660 30 005 100 130 903 543 6 147 867 Balances and deposits with banks and 3 960 870 92 939 8 885 - - 880 679 4 943 373 financial institutions H

Financial assets at fair value through STATEMENTS FINANCIAL CONSOLIDATED E 269 942 184 217 346 527 6 963 19 692 137 145 964 486 profit or loss Direct credit facilities at amortized cost 13 483 846 2 303 498 668 431 1 352 174 2 672 465 - 20 480 414 Financial assets at fair value through OCI - - - - - 553 760 553 760 Other financial assets at amortized cost 2 310 553 821 028 1 257 262 1 960 076 931 605 - 7 280 524 Investment in associates - - - - - 2 426 449 2 426 449 Fixed assets - - - - - 516 799 516 799 Other assets 59 940 24 129 1 959 - - 601 690 687 718 Deferred tax assets - - - - - 43 890 43 890 TOTAL ASSETS 25 085 418 3 458 073 2 364 724 3 349 218 3 723 892 7 665 199 45 646 524

LIABILITIES AND OWNERS' EQUITY Banks and financial institutions' deposits 2 825 853 327 551 266 777 19 999 - 396 208 3 836 388 Customer deposits 14 477 870 2 535 973 2 188 894 1 012 845 225 259 8 911 543 29 352 384 Cash margin 1 464 116 1 685 615 102 410 5 682 353 275 545 3 533 721 Borrowed funds 110 289 1 841 2 615 11 486 30 281 - 156 512 Provision for income tax - - - - - 218 692 218 692 Other provisions - - - - - 120 773 120 773 Other liabilities - - - - - 719 386 719 386 Deferred tax liabilities - - - - - 9 502 9 502 Total owners' equity - - - - - 7 699 166 7 699 166 Total liabilities and owners' equity 18 878 128 4 550 980 2 560 696 1 050 012 255 893 18 350 815 45 646 524 Gap 6 207 290 (1 092 907) ( 195 972) 2 299 206 3 467 999 (10 685 616) - Accumulated gap 6 207 290 5 114 383 4 918 411 7 217 617 10 685 616 - -

199 B - Exposure to interest rate volatility as of December 31, 2011 (classification is based on interest rate repricing or maturity date, whichever is closer).

NOTES TO T NOTES USD ‘000 After 3 After 6 Months After 1 Year Not Tied to Within 3 Months and and before 1 and before After 3 Years Interest Rate Total Months before 6 Year 3 Years Risk Months ASSETS Cash at vaults - - - - - 342 154 342 154 Mandatory cash reserve - - - - - 1 120 608 1 120 608

H Balances with central banks 5 640 227 90 560 20 610 44 053 - 529 466 6 324 916

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Balances and deposits with banks and 2 892 681 63 732 108 711 - 3 350 1 192 201 4 260 675 financial institutions Financial assets at fair value through 604 660 112 910 53 300 - - 181 675 952 545 profit or loss Direct credit facilities at amortized cost 11 912 514 2 591 754 2 021 283 1 602 239 2 826 843 - 20 954 633 Financial assets at fair value through OCI - - - - - 641 581 641 581 Other financial assets at amortized cost 2 386 303 1 209 520 1 155 556 1 895 175 888 814 - 7 535 368 Investment in associates - - - - - 2 244 764 2 244 764 Fixed assets - - - - - 530 635 530 635 Other assets 86 445 42 549 3 474 268 83 534 126 666 945 Deferred tax assets - - - - - 38 387 38 387 TOTAL ASSETS 23 522 830 4 111 025 3 362 934 3 541 735 3 719 090 7 355 597 45 613 211

LIABILITIES AND OWNERS’ EQUITY Banks and financial institutions’ deposits 3 367 232 200 629 54 379 21 559 - 679 511 4 323 310 Customer deposits 14 342 130 3 199 997 2 179 719 860 341 272 572 7 889 853 28 744 612 Cash margin 1 448 904 1 280 415 120 807 30 572 4 323 90 368 2 975 389 Borrowed funds 701 589 2 852 2 936 28 214 74 821 - 810 412 Provision for income tax - - - - - 197 905 197 905 Other provisions - - - - - 131 370 131 370 Other liabilities - - - - - 758 366 758 366 Deferred tax liabilities - - - - - 15 099 15 099 Owners’ equity - - - - - 7 656 748 7 656 748 Total liabilities and owners’ equity 19 859 855 4 683 893 2 357 841 940 686 351 716 17 419 220 45 613 211 Gap 3 662 975 ( 572 868) 1 005 093 2 601 049 3 367 374 (10 063 623) - Accumulated gap 3 662 975 3 090 107 4 095 200 6 696 249 10 063 623 - -

200 46. Liquidity Risk A. The details of the maturity of assets and liabilities as of December 31, 2012:

USD ‘000 NOTES TO T NOTES After 1 Month After 3 Months After 6 After 1 Year Not Tied to Within 1 After and before 3 and before 6 Months and and before 3 a Specific Total Month 3 Years Months Months before 1 Year Years Maturity ASSETS Cash at vaults ------463 813 463 813 Mandatory cash reserve ------1 137 431 1 137 431 Balances with central banks 4 600 154 400 113 32 262 81 660 30 005 100 130 903 543 6 147 867 H Balances and deposits with 666 335 3 294 535 74 917 23 685 3 222 - 880 679 4 943 373 STATEMENTS FINANCIAL CONSOLIDATED E banks and financial institutions Financial assets at fair value 57 085 47 548 106 482 275 527 193 888 146 811 137 145 964 486 through profit or loss Direct credit facilities at amor- 5 319 931 2 990 745 1 787 952 865 778 2 654 361 6 861 647 - 20 480 414 tized cost Financial assets at fair value ------553 760 553 760 through OCI Other financial assets at amor- 521 870 1 342 433 811 021 1 321 824 2 270 404 1 012 972 - 7 280 524 tized cost Investment in associates ------2 426 449 2 426 449 Fixed assets ------516 799 516 799 Other assets 21 031 21 883 114 768 4 287 566 13 498 511 685 687 718 Deferred tax assets ------43 890 43 890 TOTAL ASSETS 11 186 406 8 097 257 2 927 402 2 572 761 5 152 446 8 135 058 7 575 194 45 646 524

LIABILITIES AND OWNERS’ EQUITY Banks and financial institutions' 2 520 351 305 502 327 551 266 777 19 999 - 396 208 3 836 388 deposits Customer deposits 8 550 566 4 398 529 2 481 557 2 144 634 999 702 91 185 10 686 211 29 352 384 Cash margin 924 672 354 852 1 783 110 75 805 57 633 353 337 296 3 533 721 Borrowed funds 372 62 572 6 681 2 615 21 169 63 103 - 156 512 Provision for income tax - 218 692 - - - - - 218 692 Other Provisions ------120 773 120 773 Other liabilities 122 657 39 994 46 115 5 238 10 683 24 414 470 285 719 386 Deferred tax liabilities ------9 502 9 502 Total owners' equity ------7 699 166 7 699 166 Total liabilities and owners' equity 12 118 618 5 380 141 4 645 014 2 495 069 1 109 186 179 055 19 719 441 45 646 524 Gap ( 932 212) 2 717 116 (1 717 612) 77 692 4 043 260 7 956 003 (12 144 247) - Accumulated gap ( 932 212) 1 784 904 67 292 144 984 4 188 244 12 144 247 - -

201 B. The details of the maturity of assets and liabilities as of December 31, 2011:

USD ‘000

NOTES TO T NOTES After 1 Month After 3 Months After 6 After 1 Year Not Tied to Within 1 After and before 3 and before 6 Months and and before 3 a Specific Total Month 3 Years Months Months before 1 Year Years Maturity ASSETS Cash at vaults ------342 154 342 154 Mandatory cash reserve ------1 120 608 1 120 608 Balances with central banks 5 555 142 78 128 97 444 64 053 683 - 529 466 6 324 916 H Balances and deposits with

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E 941 706 1 950 975 124 228 48 215 3 350 - 1 192 201 4 260 675 banks and financial institutions Financial assets at fair value 144 837 96 813 97 734 63 780 184 279 183 427 181 675 952 545 through profit or loss Direct credit facilities at amor- 4 037 204 3 804 813 1 418 227 1 859 382 3 428 021 6 406 986 - 20 954 633 tized cost Financial assets at fair value ------641 581 641 581 through OCI Other financial assets at amor- 714 114 1 036 200 1 308 857 1 253 545 2 272 987 949 665 - 7 535 368 tized cost Investment in associates ------2 244 764 2 244 764 Fixed assets ------530 635 530 635 Other assets 31 640 60 087 58 140 32 202 5 524 12 666 466 686 666 945 Deferred tax assets ------38 387 38 387 TOTAL ASSETS 11 424 643 7 027 016 3 104 630 3 321 177 5 894 844 7 552 744 7 288 157 45 613 211

LIABILITIES AND OWNERS’ EQUITY Banks and financial institutions' 1 393 923 1 456 986 438 292 91 849 21 559 - 920 701 4 323 310 deposits Customer deposits 8 357 494 4 225 751 3 199 997 2 231 031 860 341 272 575 9 597 423 28 744 612 Cash margin 1 287 816 150 315 1 289 259 122 564 30 744 4 323 90 368 2 975 389 Borrowed funds - - 2 852 502 936 229 803 74 821 - 810 412 Provision for income tax - 197 905 - - - - - 197 905 Other Provisions 179 - - - - - 131 191 131 370 Other liabilities 29 063 10 473 6 818 3 908 14 402 21 049 672 653 758 366 Deferred tax liabilities ------15 099 15 099 Total owners' equity ------7 656 748 7 656 748 Total liabilities and owners' equity 11 068 475 6 041 430 4 937 218 2 952 288 1 156 849 372 768 19 084 183 45 613 211 Gap 356 168 985 586 (1 832 588) 368 889 4 737 995 7 179 976 (11 796 026) - Accumulated gap 356 168 1 341 754 ( 490 834) ( 121 945) 4 616 050 11 796 026 - -

202 47. Net Foreign Currency Positions TO T NOTES The details of this item are as follows: December 31, USD ‘000 2012 2011 Base Equivalent in Base Equivalent in currency in thousand US currency in thousand US thousands Dollars thousands Dollars H USD ( 465 989) ( 465 989) 293 807 293 807 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E GBP ( 8 517) ( 13 755) 525 812 EUR 21 360 28 178 124 632 161 074 JPY 3 454 619 40 088 2 808 763 36 036 CHF ( 2 633) ( 2 879) ( 87 191) ( 92 491) Other currencies * 45 745 24 945 Total ( 368 612) 424 183

* Various foreign currencies translated to US dollars.

48. Fair Value of Financial Assets and Financial Liabilities A. Financial assets and financial liabilities not stated at fair value: The details of this item are as follows: December 31, USD ‘000 2012 2011 Book Value Fair Value Book Value Fair Value ASSETS Cash and balances with central banks 7 749 111 7 754 400 7 787 678 7 789 734 Balances and deposits with banks and 4 943 373 4 951 483 4 260 675 4 276 875 Direct credit facilities at amortized cost 20 480 414 20 555 947 20 954 633 21 035 459 Other financial assets at amortized cost 7 280 524 7 369 238 7 535 368 7 614 746 LIABILITIES Banks' and financial institutions' deposits 3 836 388 3 848 769 4 323 310 4 340 643 Customer deposits 29 352 384 29 456 595 28 744 612 28 841 826 Cash margin 3 533 721 3 543 395 2 975 389 2 984 322 Borrowed funds 156 512 158 951 810 412 814 250

203 B. Financial assets and financial liabilities stated at fair value The table below analyzes financial instruments carried at fair value by the valuation method. The different levels have been defined as follows:

NOTES TO T NOTES • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The details of this item are as follows: USD ‘000 December 31, 2012 Level 1 Level 2 Level 3 Total H ASSETS

E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Financial assets at fair value through profit 905 558 58 928 - 964 486 or loss Financial derivatives - positive fair value - 50 604 - 50 604 Financial assets at fair value through other 338 474 215 286 - 553 760 comprehensive income TOTAL ASSETS 1 244 032 324 818 - 1 568 850

LIABILITIES Financial derivatives - negative fair value - 76 316 - 76 316 TOTAL LIABILITIES - 76 316 - 76 316 USD ‘000 December 31, 2011 Level 1 Level 2 Level 3 Total ASSETS Financial assets at fair value through profit 802 226 65 371 84 948 952 545 or loss Financial derivatives - positive fair value - 53 261 - 53 261 Financial assets at fair value through other 397 395 244 186 - 641 581 comprehensive income TOTAL ASSETS 1 199 621 362 818 84 948 1 647 387

LIABILITIES Financial derivatives - negative fair value - 64 920 - 64 920 TOTAL LIABILITIES - 64 920 - 64 920

Reconciliation of Level 3 fair value measurements of financial assets: USD ‘000 Financial Asset Financial Asset at Fair Value Through at Fair Value Through Profit or Loss Profit or Loss 2012 2011 Balance at the beginning of the year 84 948 46 106 Effect of adopting IFRS9 - 57 757 Net additions and settlements ( 31 475) ( 1 179) Net change in fair value restricted to con- ( 55 624) ( 17 453) solidated statement of income Translation adjustments 2 151 ( 283) Balance at the End of the Year - 84 948

204 NOTES TO T NOTES

49. Contractual Maturity of the Contingent Accounts The table below details the maturity of expected liabilities and commitments on the basis of contractual maturity: December 31, 2012 USD ‘000 After 1 Year and Within 1 Year After 5 Years Total before 5 Years Letters of credit 2 368 306 49 537 - 2 417 843 H E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Acceptances 809 742 61 120 84 870 946 Letters of guarantee: - Payment guarantees 1 704 107 402 772 112 680 2 219 559 - Performance guarantees 2 181 090 2 225 209 158 849 4 565 148 - Other guarantees 4 421 094 1 965 872 152 630 6 539 596 Unutilized credit facilities 2 739 858 572 117 20 318 3 332 293 Total 14 224 197 5 276 627 444 561 19 945 385

Constructions projects contracts - - - - Procurement contracts 4 240 - 199 4 439 Operating lease contracts 3 936 9 707 15 416 29 059 Total 8 176 9 707 15 615 33 498

USD ‘000 December 31, 2011 After 1 Year and Within 1 Year After 5 Years Total before 5 Years Letters of credit 2 289 915 91 287 - 2 381 202 Acceptances 701 847 75 992 83 777 922 Letters of guarantee: - Payment guarantees 1 072 282 531 978 4 359 1 608 619 - Performance guarantees 2 576 182 2 149 665 76 312 4 802 159 - Other guarantees 4 216 806 2 517 116 139 572 6 873 494 Unutilized credit facilities 2 583 820 559 340 17 639 3 160 799 Total 13 440 852 5 925 378 237 965 19 604 195

Constructions projects contracts 92 - - 92 Procurement contracts 3 315 458 - 3 773 Operating lease contracts 3 715 7 014 15 669 26 398 Total 7 122 7 472 15 669 30 263

205 NOTES TO T NOTES 50. Capital Management The Group manages its capital to safeguard its ability to continue as a going concern while maximizing the return to shareholders. The composition of the regulatory capital, as defined by the Basel Committee, is as follows: USD ‘000 December 31, 2012 2011

H A- CORE CAPITAL E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E Share capital 776 027 776 027 Statutory reserve 579 202 529 652 Voluntary reserve 977 315 977 315 Share premium 1 225 747 1 225 747 General reserve 1 822 824 1 822 824 Retained earnings * ( 22 005) ( 66 747) Intangible assets ( 3 154) ( 4 198) Foreclosed assets ( 11 389) ( 11 269) Total core capital 5 344 567 5 249 351 B- SUPPLEMENTARY CAPITAL Foreign currency translation reserve 108 389 120 182 Investments revaluation reserve ( 110 983) ( 39 002) Subordinated loans 28 285 35 709 General banking risk reserve 340 848 349 998 Total supplementary capital 366 539 466 887

C- INVESTMENTS 1 094 666 962 299 Regulatory capital (A+B-C) 4 616 440 4 753 939 Risk-weighted assets (RWA) 30 599 266 31 412 688 Regulatory capital / risk-weighted assets 15.1% 15.1% Core capital / risk-weighted assets 15.1% 15.1%

* Net after deducting deffered tax assets - The Board of Directors performs an overall review of the capital structure of the Group on a quarterly basis. As part of such review, the Board takes into consideration matters such as cost and risks of capital as integral factors in managing capital through setting dividend policies and capitalization of reserves. - The minimum level of the capital adequacy ratio as defined by the Basel Committee is 8% and 12% as per the instructions of the Central Bank of Jordan. Capital adequacy ratio amounted to 15.1% as of December 31, 2012 (15.1% as of December 31, 2011).

206 NOTES TO T NOTES

51. Earnings Per Share USD ‘000 The details of this item are as follows: December 31,

2012 2011

Profit for the year attributable to Shareholders of the Bank 344 064 292 177 H

Thousand Shares STATEMENTS FINANCIAL CONSOLIDATED E

Average number of shares 534 000 534 000

USD / Share

Earnings Per Share 0.64 0.55

52. Fiduciary Deposits

Fiduciary deposits as of December 31,2012 amounted to USD 1055.9 million (USD 1193.1 million as of December 31,2011). These deposits are not included in the Group consolidated financial statements.

53. Cash and Cash Equivalent USD ‘000 The details of this item are as follows: December 31,

2012 2011

Cash and balances with central banks maturing within 3 months 7 505 054 7 625 498

Add: balances with banks and financial institutions maturing within 3 4 841 549 4 084 882 months

Less: banks and financial institutions deposits maturing within 3 3 222 061 3 771 610 months

Total 9 124 542 7 938 770

207 54. Transactions and Balance with Related Parties NOTES TO T NOTES The details of this item are as follows: USD ‘000 December 31, 2012 Direct Credit Deposits Owed LCs, LGs, Unutilized Facilities at Due to Related from Related Credit Facilities and Amortized Parties Parties Acceptances Cost Associates 367 059 - 217 595 55 636

H Major Shareholders and Mem- - 328 830 385 589 149 203 E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E ber of the Board of Directors Total 367 059 328 830 603 184 204 839

December 31, 2011 USD ‘000 Direct Credit Deposits Owed LCs, LGs, Unutilized Facilities at Due to Related from Related Credit Facilities and Amortized Parties Parties Acceptances Cost Associates 148 683 - 149 924 30 825 Major Shareholders and Mem- - 442 715 450 200 139 902 ber of the Board of Directors Total 148 683 442 715 600 124 170 727 - All facilities granted to related parties are performing loans in accordance with the credit rating of the Group. Moreover, no provisions for the year have been recorded in relation to impairment in value.

The details of transactions with related parties are as follows: USD ‘000 2012 Interest Income Interest Expense Associated companies 464 533

2011 Interest Income Interest Expense Associates companies 313 323

- Interest on credit facilities granted to major shareholders and members of the Board of Directors is recorded at arm’s length. - The salaries and other fringe benefits of the Group’s key management personnel, inside and outside Jordan, amounted to USD 48.5 million for the year ended on December 31, 2012 (USD 47.3 million for the year ended on December 31, 2011).

208 NOTES TO T NOTES

55. Legal Cases

a. Lawsuits have been filed against Arab Bank Plc in which it was alleged that Arab Bank has, through its New York branch, channeled funds to parties described as «terrorists» and «terrorist organizations in Palestine», and has

aided and abetted acts of terrorism which led to the death or the injury of H family members of the claimants. The claimants in the said lawsuits are E CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED E requesting compensation for the damages that have befallen them as a result of the alleged acts of the Bank. The lawsuits are currently in the pre- litigation phase and the appellate court is considering appeals submitted by the adversaries in the lawsuits in connection with procedural rulings.

Arab Bank, in the opinion of its management, has been and is still fully re- spectful of and compliant with all anti-terrorism legislation in all countries in which it operates.

In 2005, the Bank in New York has entered into an agreement with the Of- fice of the controller of Currency pursuant to which the branch was converted into a Federal Agency with limited operations in compliance with the provisions of the US Federal Banking Act. It was also agreed that the Federal Agency shall be allowed to maintain financial assets in the amount of USD 420 million.

b. There are other lawsuits filed against the Group totaling USD 77.1 million as of December 31, 2012 (USD 209.7 million as of December 31, 2011).

In the opinion of the management and the lawyers representing the Bank in the litigation at issue, the Bank will not be held liable for any amount in excess of the amount of provisions taken in connection with the lawsuits totaling USD 5.9 million as of December 31, 2012 ( USD 7.9 million as of December 31, 2011).

209 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT

210 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT

211 212 ARAB BANK Plc JD ‘000 STATEMENT OF FINANCIAL POSITION FINANCIAL OF STATEMENT December 31, Note 2012 2011 Cash and balances with central banks 5 3 354 402 3 964 882 Balances with banks and financial institutions 6 4 044 307 3 415 545 Deposits with banks and financial institutions 7 232 417 361 490 Financial assets at fair value through profit or loss 8 322 742 223 808 Financial derivatives - positive fair value 39 14 499 1 357 Direct credit facilities at amortized cost 10 9 937 597 10 003 554 Financial assets at fair value through other comprehensive 9 288 252 357 532 income

Other financial assets at amortized cost 11 4 057 170 4 032 873 ASSETS Investments in subsidiaries and associates 12 1 119 506 1 060 196 Fixed assets 13 206 860 210 637 Other assets 14 316 906 271 369 Deferred tax assets 15 17 758 18 242 TOTAL ASSETS 23 912 416 23 921 485

Banks' and financial institutions' deposits 16 2 172 535 2 512 210 Customer deposits 17 15 015 865 14 682 026 Cash margin 18 2 346 998 2 021 692 Financial derivatives - negative fair value 39 19 011 5 590 Borrowed funds 19 - 358 155 Provision for income tax 20 95 935 97 607 Other provisions 21 74 281 75 612 Other liabilities 22 307 798 344 781 Deferred tax liabilities 23 4 482 10 288 Total Liabilities 20 036 905 20 107 961 Share capital 24 534 000 534 000 Share premium 24 859 626 859 626 Statutory reserve 25 375 885 340 744 Voluntary reserve 26 614 920 614 920 General reserve 27 1 066 674 1 066 674 General banking risks reserve 28 200 468 200 468 Foreign currency translation reserve 36 393 42 476 Investment revaluation reserve 29 ( 98 490) ( 39 397) Retained earnings 30 286 035 194 013 LIABILITIES AND SHAREHOLDERS’ EQUITY Total Shareholders' Equity 3 875 511 3 813 524 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 23 912 416 23 921 485

The accompanying notes from (1) to (53) are an integral part of these financial statements and should be read with them.

213 ARAB BANK Plc STATEMENT OF INCOME OF STATEMENT JD ‘000

Note 2012 2011 Interest income 31 954 607 847 331 Less: interest expense 32 408 676 341 428 Net interest income 545 931 505 903 Net commission income 33 151 231 153 941 Net interest and commission income 697 162 659 844 Foreign exchange differences 37 705 36 511 Gain (loss) from financial assets at fair value through profit or loss 34 5 845 ( 1 274)

REVENUE Dividends from financial assets at fair value through other com- 6 037 3 693 prehensive income

Dividends from subsidiaries and associates 35 76 001 70 936

Other revenue 36 25 376 22 493 Total Income 848 126 792 203

Employees expenses 37 184 624 183 484 Other expenses 38 155 655 156 976 Depreciation and amortization 13 25 306 25 721 Provision for impairment - direct credit facilities at amortized cost 10 126 668 83 352

EXPENSES Other provisions 21 4 460 8 586 Total Expenses 496 713 458 119

Profit before Income Tax 351 413 334 084

Less: Income tax expense 20 90 072 71 083 THE YEAR

PROFIT FOR Profit for the Year 261 341 263 001

The accompanying notes from (1) to (53) are an integral part of these financial statements and should be read with them.

214 ARAB BANK Plc STATEMENT OF COMPREHENSIVE INCOME COMPREHENSIVE OF STATEMENT JD ‘000

2012 2011

Profit for the year 261 341 263 001

Add: Other comprehensive income items - after tax

Exchange differences arising on the translation of foreign operations ( 6 083) ( 37 073) Net change in fair value of financial assets at fair value through other ( 59 771) ( 72 801) comprehensive income Total Other Comprehensive Income Items - After Tax ( 65 854) ( 109 874)

Total Comprehensive Income for the Year 195 487 153 127

The accompanying notes from (1) to (53) are an integral part of these financial statements and should be read with them.

215 ARAB BANK Plc General Foreign Cur- Share Share Statutory Voluntary General Investment re- Banking Risk rency Translation Retained Earnings Total STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY SHAREHOLDERS’ IN CHANGES OF STATEMENT Capital Premium Reserve Reserve Reserve valuation reserve Reserve Reserve

Balance at the beginning of the year 534 000 859 626 340 744 614 920 1 066 674 200 468 42 476 ( 39 397) 194 013 3 813 524

Profit for the year ------261 341 261 341

Other comprehensive income for the year ------( 6 083) ( 59 771) - ( 65 854)

Total Comprehensive Income for the Year ------( 6 083) ( 59 771) 261 341 195 487

2012 Investment revaluation reserve transferred ------678 ( 678) - to retained earnings

Appropriation to reserves - - 35 141 - - - - - ( 35 141) - Paid dividends ------( 133 500) ( 133 500) Balance at the End of the Year 534 000 859 626 375 885 614 920 1 066 674 200 468 36 393 ( 98 490) 286 035 3 875 511

Balance at the beginning of the year 534 000 859 626 307 336 614 920 1 066 674 200 468 79 549 ( 18 310) 142 332 3 786 595 Effect of adoption of IFRS 9 ------51 226 ( 70 624) ( 19 398) Balance at the beginning of the year (adjusted) 534 000 859 626 307 336 614 920 1 066 674 200 468 79 549 32 916 71 708 3 767 197 Profit for the year ------263 001 263 001 Other comprehensive income for the year ------( 37 073) ( 72 801) - ( 109 874) Total comprehensive income for the year ------( 37 073) ( 72 801) 263 001 153 127 2011 Investment revaluation reserve transferred ------488 ( 488) - to retained earnings Transferred to statutory reserve - - 33 408 - - - - - ( 33 408) - Paid dividends ------( 106 800) ( 106 800) Balance at the end of the year 534 000 859 626 340 744 614 920 1 066 674 200 468 42 476 ( 39 397) 194 013 3 813 524

“* Retained earnings include restricted deferred tax assets of JD 17.8 million, as well as of JD 2 million. Restrict- ed retained earnings that cannot be distributed or otherwise utilized except under certain circumstances amounted to JD 1.6 million as of December 31, 2012. * The retained earnings include unrealized loss of JD (38.9 ) million as result of the adoption of IFRS (9) as of December 31, 2012. * The use of the General Banking Risk Reserve is restricted and requires prior approval from the Central Bank of Jordan. * The negative balance of the investments revaluation reserve in the amount of JD (98.5) million as of Decem- ber 31, 2012 is restricted according to the Jordanian Securities Exchange Commission instructions. The accompanying notes from (1) to (53) are an integral part of these financial statements and should be read with them. 216 JD ‘000

General Foreign Cur- Share Share Statutory Voluntary General Investment re- Banking Risk rency Translation Retained Earnings Total Capital Premium Reserve Reserve Reserve valuation reserve EQUITY SHAREHOLDERS’ IN CHANGES OF STATEMENT Reserve Reserve

Balance at the beginning of the year 534 000 859 626 340 744 614 920 1 066 674 200 468 42 476 ( 39 397) 194 013 3 813 524

Profit for the year ------261 341 261 341

Other comprehensive income for the year ------( 6 083) ( 59 771) - ( 65 854)

Total Comprehensive Income for the Year ------( 6 083) ( 59 771) 261 341 195 487

Investment revaluation reserve transferred ------678 ( 678) - to retained earnings

Balance at the beginning of the year 534 000 859 626 307 336 614 920 1 066 674 200 468 79 549 ( 18 310) 142 332 3 786 595 Effect of adoption of IFRS 9 ------51 226 ( 70 624) ( 19 398) Balance at the beginning of the year (adjusted) 534 000 859 626 307 336 614 920 1 066 674 200 468 79 549 32 916 71 708 3 767 197 Profit for the year ------263 001 263 001 Other comprehensive income for the year ------( 37 073) ( 72 801) - ( 109 874) Total comprehensive income for the year ------( 37 073) ( 72 801) 263 001 153 127 Investment revaluation reserve transferred ------488 ( 488) - to retained earnings Transferred to statutory reserve - - 33 408 - - - - - ( 33 408) - Paid dividends ------( 106 800) ( 106 800) Balance at the end of the year 534 000 859 626 340 744 614 920 1 066 674 200 468 42 476 ( 39 397) 194 013 3 813 524

217 JD ‘000 ARAB BANK Plc Note 2012 2011 Profit for the year before tax 351 413 334 084 Adjustments for: - Depreciation and amortization 25 306 25 721 - Provision for impairment - direct credit facilities at amortized cost 126 668 83 352 - Net interest income ( 5 759) 336 STATEMENT OF CASH FLOWS CASH OF STATEMENT - (Gain) from sale of fixed assets ( 2 477) ( 131) - (Gain) Loss from revaluation of financial assets at fair value through profit or loss ( 1 998) 7 481 - Dividends from subsidiaries and associates ( 76 001) ( 70 936) - Dividends from financial assets at fair value through other comprehensive income ( 6 037) ( 3 693) - Other provisions 4 460 8 586 Total 415 575 384 800 (Increase) Decrease in assets Balances with central banks (maturing after 3 months) ( 54 570) 29 003 Deposits with banks and financial institutions (maturing after 3 months) 129 073 17 838 Direct credit facilities at amortized cost ( 60 711) ( 209 302) Financial assets at fair value through profit or loss ( 96 936) 317 190 Other assets and financial derivatives ( 48 975) 3 646 (Decrease) Increase in liabilities: Banks and financial institutions deposits (maturing after 3 months) 95 306 ( 43 483) CASH FLOWS FROM OPERATING ACTIVITIES FROM OPERATING CASH FLOWS Customer deposits 333 839 684 368 Cash margin 325 306 ( 140 498) Other liabilities and financial derivatives ( 34 310) ( 65 993) Net change in assets and liabilities 588 022 592 769 Net Cash Generated by Operations before Income Tax 1 003 597 977 569 Income tax paid ( 88 844) ( 76 698) Net Cash Generated by Operations 914 753 900 871

Financial assets at fair value through other comprehensive income 3 703 25 497 (purchase) of other financial assets at amortized cost ( 24 297) ( 689 608) (Purchase) of investments in subsidiaries and associates ( 64 215) ( 27 765) (Increase) of fixed assets - Net ( 48 367) ( 39 864) ACTIVITIES CASH FLOWS

FROM INVESTING Proceeds from selling fixed assets 29 315 24 412 Dividends from investments in subsidiaries and associates 76 001 70 936 Dividends from financial assets at fair value through other comprehensive income 6 037 3 693 Net Cash (used in) Investing Activities ( 21 823) ( 632 699)

Dividends paid to shareholders ( 132 488) ( 106 320) Paid borrowed funds ( 358 155) - ACTIVITIES ACTIVITIES CASH FLOWS CASH FLOWS Net Cash (used in) Financing Activities

FROM FINANCING ( 490 643) ( 106 320)

Net Increase (Decrease) in Cash and Cash Equivalent 402 287 161 852 Exchange differences - change in foreign exchange rates ( 3 594) ( 37 073) Cash and cash equivalent at the beginning of the year 4 942 228 4 817 449 Cash and Cash Equivalent at the End of the Year 52 5 340 921 4 942 228

The accompanying notes from (1) to (53) are an integral part of these financial statements and should be read with them. 218 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

1. GENERAL

• Arab Bank was established in 1930, and is registered as a Jordanian public shareholding limited company. The Head Office of the Bank is domiciled in Amman - Jordan, and the Bank operates worldwide through its 77 branches in Jordan and 104 abroad. • Arab Bank shares are traded on Amman Stock Exchange. The share of Arab Bank represents the Bank’s share in all entities of the Group except for the sister company, Arab Bank (Switzerland) Limited shares that are stapled with Arab Bank shares and traded at the same time. • The accompanying financial statements were approved by the Board of Di- rectors in its meeting No. (1) on January 21, 2013 and are subject to the approval of the General Assembly of Shareholders.

2. Adoption of new and revised International Financial Reporting Standards (IFRSs)

a. New and revised IFRSs applied with no material effect on the consolidated financial statements:

• The following new and revised IFRSs have been adopted in the preparation of the financial statements for which they did not have any material impact on the amounts and disclosures of the financial statements. However, they may affect the accounting for future transactions and arrangements.

219 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

• Amendments to IFRS 1 Se- The amendments regarding severe vere Hyperinflation (Effective hyperinflation provide guidance for annual periods beginning for entities emerging from severe on or after 1 July 2011) hyperinflation either to resume presenting IFRS financial statements or to present IFRS financial statements for the first time. • Amendments IFRS 1 removal The amendments regarding the removal of Fixed Dates for First-time of fixed dates provide relief to first-time Adopters (Effective for an- adopters of IFRSs from reconstructing nual periods beginning on or transactions that occurred before their after 1 July 2011) date of transition to IFRSs.

• Amendments to IFRS 7: Dis- The amendments to IFRS 7 increase the closures – Transfers of Finan- disclosure requirements for transactions cial assets (effective for an- involving transfers of financial assets. nual periods beginning on or These amendments are intended to after 1 July 2011) provide greater transparency around risk exposures of transactions where a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. • Amendments to IAS 12: De- Amends IAS 12 Income Taxes to provide ferred Tax – Recovery of Un- a presumption that recovery of the derlying assets (Effective for carrying amount of an asset measured annual periods beginning on using the fair value model in Investment or after 1 January 2012) Property will, normally, be through sale. As a result of the amendments, SIC-21 Income Taxes — Recovery of Revalue Non-Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC-21, which is accordingly withdrawn.

220 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

b. New and revised IFRSs issued but not yet effective

• The Bank has not applied the following new and revised IFRSs that have been issued and are available for early application but are not effective yet:

Effective for annual periods beginning on or after

Amendments to IFRS 9 and IFRS 7 Manda- 1 January 2015 tory Effective date of IFRS 9 and transition Disclosures

IFRS 10: Consolidated Financial State- 1 January 2013 ments

IFRS 11: Joint Arrangements 1 January 2013

IFRS 12: Disclosure of Interests in Other 1 January 2013 entities

Amendments to IFRS 10, IFRS 11 and IFRS 1 January 2013 12 -Consolidated Financial Statements, Joint Arrangements and Disclosure of In- terests in Other entities: Transition Guid- ance

IAS 27 Separate Financial Statements (as 1 January 2013 revised in 2011)

Amendments to IFRS 10 and IFRS 12- 1 January 2012 Consolidated Financial Statements, and Disclosure of Interests in Other entities: Transition Guidance and IAS 27 Separate Financial Statements (as revised in 2011)

221 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

IAS 28 Investments in Associates and 1 January 2013 Joint Ventures (as revised in 2011)

IFRS 13 Fair Value Measurement 1 January 2013

IAS 19 Employee Benefits (as revised in 1 January 2013 2011)

Amendments to IAS 32 Financial State- 1 January 2014 ments Offsetting Financial Assets and Li- abilities

Amendments to IFRS 1 Government Loans 1 January 2013

Amendments to IFRS 7 Disclosures – Off- 1 January 2013 setting Financial Assets and Financial Li- abilities

Amendments to IAS 1 Presentation of 1 July 2012 Items of Other Comprehensive Income

Annual Improvements to IFRSs 2009 – 1 January 2013 2011 Cycle

IFRIC 20 Stripping Costs in the Production 1 January 2013 Phase of a Surface Mine

• Management anticipates that each of the above standards and interpretations will be adopted in the financial statements by its date mentioned above without having any material impact on the Bank’s financial statements.

222 3 - SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Preparation STATEMENTS FINANCIAL TO THE NOTES • The accompanying financial statements are prepared in accordance with International Financial Reporting Standards issued by the International Ac- counting Standards Board and the Interpretations issued by the Interna- tional Financial Reporting Interpretations Committee, the prevailing rules in the countries where the Bank operates and the instructions of the Central Bank of Jordan.

• The financial statements are prepared using the historical cost principle, except for financial assets and financial liabilities which are stated at fair value as of the date of the financial statements.

• The reporting currency is the Jordanian Dinar, which is the functional currency of the Bank.

B. Basis of Presentation • The accompanying financial statements include the financial statements of the Bank’s branches in Jordan and abroad after eliminating inter-branch balances. Transactions in transit at year end are presented among other assets or other liabilities, as appropriate. The financial statements of the Bank’s branches operating outside the Kingdom of Jordan are translated to Jordanian Dinars using the exchange rates prevailing as at the date of the financial statements.

• The Bank issues consolidated financial statements for the Bank and its subsidiaries, including the financial statements of its sister company, Arab Bank (Switzerland) Limited, to reflect the consolidated financial position and results of operations at the level of the consolidated economic ownership of the Group.

• The accounting policies adopted for the current year are consistent with those applied in the year ended December 31, 2011 except for what is stated in note (2 - a) to the financial statements.

C. Revenue Recognition Interest Income and Expenses • Interest income and expenses for all interest bearing financial instruments are recognized in the statement of income using the effective interest rate method except for interest and commissions on non performing credit facilities, which are recorded as interest and commission in a suspense account.

223 • The effective interest rate is a method of calculating the amortized cost of NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES financial assets or financial liabilities and of allocating the interest income and expenses over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial assets or financial liability, or where appropriate a shorter period to the net carrying of the financial asset or the financial liability. The Bank estimates the cash flow considering all contractual terms of the financial instrument but does not consider future credit losses.

• Commission income in general is recognized on the date that the transaction arises and loan recoveries is recorded upon receipt.

Dividends income • Dividends income from financial assets is recognized when the Bank’s right to receive dividends has been established (upon the general assembly resolution).

Leasing Contracts Revenue • The Bank’s policy relating to leasing contract is illustrated in note (3.D) below:

D. Leasing Contracts Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases as follows:

1.The Bank as lessor: Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

2.The Bank as lessee: Assets held under finance leases are initially recognized as assets of the Bank at their fair value at the inception of the lease or, if lower, at the present value of the minimum future lease payments. The finance lease obligation is recorded at the same value. Lease payments are apportioned between finance costs and reduction of the lease liabilities so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to the statement of income.

224 • Operating lease payments are recognized as an expense on a straight-line NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES basis over the lease term.

E. Foreign Currencies • Transactions in foreign currencies during the year are recorded at the exchange rates prevailing at the date of the transaction.

• Monetary assets and liabilities denominated in foreign currencies and recorded at fair value are translated on the date when the fair value was determined at the date of the financial statements. Gains or losses resulting from foreign currency translation are recorded in the statement of income.

• Non-monetary items recorded at historical cost are translated according to the exchange rate prevailing at the transaction date.

• Differences resulting from the translation of non-monetary assets and liabilities denominated in foreign currency, such as equity shares, are recorded as part of the change in the fair value.

• Upon compilation, the financial assets and financial liabilities of the branches are translated from the local currency to the reporting currency at the average rates prevailing at the date of the financial statements. Exchange differences arising from the revaluation of the net investment in the branches abroad are recorded in a separate item in other comprehensive income items.

F. Fixed Assets • Fixed assets are stated at cost, net of accumulated depreciation and any impairment in value. Such cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of fixed assets have different useful lives, they are accounted for as separate items of fixed assets.

• Depreciation is charged so as to write-off the cost of assets, using their useful life of the respective assets

• Land and assets under construction are not depreciated.

• Assets under construction are carried at cost, less any accumulated impairment losses and is depreciated when the assets are ready for intended use using the same depreciation rate of the related category with fixed assets.

225 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

• Fixed assets are derecognized when disposed of or when no future benefits are expected from their use or disposal.

• The gain or loss arising on the disposal of an item (the difference between the sales proceeds and the carrying amount of the asset) is recognized in the statement of income in the year that the assets were disposed.

G. Investments in Associates • Associates are those in which the Bank exerts significant influence over the financial and operating policy decisions, and in which the Bank holds between 20% and 50% of the voting rights.

• Investments in associated companies are accounted for according to the cost method.

H. Income Taxes • Income tax expenses represent current and deferred taxes for the year.

• Income tax expense is measured on the basis of taxable income. Taxable income differs from income reported in the financial statements, as the latter includes non-taxable revenue, tax expenses not deductible in the current year but deductible in subsequent years, accumulated losses approved by the tax authorities and items not accepted for tax purposes or subject to tax.

• Taxes are calculated on the basis of the enacted tax rates according to the prevailing laws, regulations and instructions of the countries where the Bank operates.

• Deferred taxes represent taxes expected to be incurred or recovered as a result of temporary timing differences between the value of the assets and liabilities in the financial statements and their respective tax basis. Deferred taxes are calculated on the basis of the liability method, and according to the rates expected to be enacted when it is anticipated that the liability will be settled or when tax assets are recognized.

• Deferred tax assets are reviewed on the date of the financial statements, and reduced if it is expected that no benefit will arise from the deferred tax, partially or totally.

226 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

I. Financial Assets • Financial assets transactions are measured at the trade date (the date the Bank’s commitment to buy or sell financial assets) at fair value net of direct transaction cost except for costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in the statement of income.

All financial assets are measured at amortized cost or fair value as follows:

Financial Assets at Amortized Cost • Debt instruments, including direct credit facilities, treasury bills and bonds, are measured at amortized cost only if:

1) The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and 2) The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets at amortized cost are measured at fair value upon purchase plus acquisition expenses. Moreover, the issuing premium \ discount is amortized using the effective interest rate method, and recorded to interest or in its account. Any allocations resulting from the decline in value of these investments leading to the inability to recover the investment or part thereof are recorded, and any impairment is registered in the statement of income.

• In case the business model objective changed to contradict with amortized cost conditions, the Bank should reclassify its financial instruments classified as amortized cost to be at fair value through profit or loss.

• The Bank might choose to classify debt instruments that meets the amortized cost criteria to designate such financial asset as FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

227 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

Financial Assets at Fair Value Through Profit or Loss (FVTPL) • Debt instruments that do not meet the amortized cost criteria (as described above) are measured at FVTPL. In addition, debt instruments that meet the amortized cost criteria but are designated as at FVTPL by the Bank are measured at FVTPL.

• In case the business model objectives change and contractual cash flows meet the amortized cost criteria, the Bank should reclassify the debt instrument held at FVTPL to amortized cost. Reclassification of debt instruments that are designated as at FVTPL on initial recognition is not allowed.

• Investments in equity instruments are classified as at FVTPL, unless the Bank designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition.

• Financial assets at FVTPL are measured at fair value, with any gains or losses arising on re-measurement recognized in the statement of income.

• Dividend income on investments in equity instruments at FVTPL is recognized in the statement of income when the Bank’s right to receive the dividends is established (upon the general assembly resolution).

Financial Assets at Fair Value Through Other Comprehensive Income (FVTOCI) • At initial recognition, the Bank can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.

A financial asset is held for trading if: - it has been acquired principally for the purpose of selling it in the near term; or - on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or - it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

228 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

• Dividends on these investments in equity instruments are recognized in the statement of income when the Bank’s right to receive the dividends is established, unless the dividends clearly represent a recovery part of the cost of the investment.

J. Fair Value • The closing price of quoted financial assets and derivatives in active markets represents their fair value. When no quoted prices are available or when no active markets exist for the financial instrument, the fair value is estimated by one of the following methods:

- Comparing the fair value of another financial asset with similar terms and conditions; - Discounting future cash flows; - Using options pricing models.

The valuation methods aim at arriving at a fair value that reflects the expectations of market participants, expected risks and expected benefits. When the fair value cannot be measured reliably, financial assets are stated at cost / amortized cost.

K. Impairment in the Value of the Financial Assets • The Bank reviews the values of the amortized cost on the date of the financial statements in order to determine if there are any indications of impairment in their value, individually or in the form of a portfolio. If such indications exist, the recoverable value is estimated so as to determine the amount of impairment loss.

229 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

• Impairment in the financial assets recorded at cost is determined on the basis of the difference between the carrying amount and the present value of the expected cash flows discounted at the market interest rate of similar instruments.

• Financial assets recorded at amortized cost is reduced by the impairment in value through provision for impairment in the statement of income.

L. Financial Derivatives Financial derivatives (e.g. currency forward contracts, forward rate agreements, swaps and option contracts) are recognized at fair value in the statement of financial position.

a) Financial Derivatives Held for Hedge Purposes • Fair value hedge: Represents hedging for changes in the fair value of the Bank’s assets and liabilities. When the conditions for an effective fair value hedge are met, gains or losses from changes in the fair value of financial derivatives are recognized in the statement of income. Changes in the fair value of the hedged assets or liabilities are also recognized in the statement of income. • Cash flow hedge: Represents hedging for changes in the current and expected cash flows of the Bank’s assets and liabilities that affects the statement of income. When the conditions for an effective cash flow hedge are met, gains or losses from changes in the fair value of financial derivatives are recognized in other comprehensive income and are reclassified to the statement of income in the period in which the hedge transaction has an impact on the statement of income. • When the conditions for an effective hedge are not met, gains or losses from changes in the fair value of financial derivatives are recognized in the statement of income. • Hedge for net investment in foreign entities When the conditions of the hedge for net investment in foreign entities are met, fair value is measured for the hedging instrument of the hedged net assets. In case of an effective relationship, the effective portion of the loss or profit related to the hedging instrument is recognized in the statement of comprehensive income and recorded in the statement of income when the investment in foreign entities is sold. The ineffective portion is recognized in the statement of income.

230 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES b) Financial Derivatives for Trading • Financial derivatives held for trading are recognized at fair value in the statement of financial position among “assets” or “liabilities” with changes in fair value recognized in the statement of income.

M. Foreclosed assets • Such assets are those that have been the subject of foreclosure by the Bank, and are initially recognized among “other assets” at the foreclosure value or fair value whichever is least.

• At the date of the financial statements, foreclosed assets are revalued individually; any decline in fair value is recognized in the statement of income. Any subsequent increase in value is recognized only to the extent that it does not exceed the previously recognized impairment losses.

N. Provisions • Provisions are recognized when the Bank has an obligation as of the date of the financial statements as a result of past events, the obligation is likely to be settled, and a reliable estimate can be made of the amount of the obligation.

• Provision for employees’ end-of-service indemnities is estimated in accordance with the prevailing rules and regulations in the countries in which the Bank operates. The expense for the year is recognized in the statement of income. Indemnities paid to employees are reduced from the provision.

O. Fiduciary deposits • Fiduciary deposits resulting from holding or placing of assets on behalf of customers. These assets and the income arising from them are excluded from the financial statements of the Bank. Commission and fees income for managing these accounts are recognized in the statement of income.

• Provision for the decline in fair value is recognized only when the fair value of a portfolio of guaranteed capital declines below the amount of guaranteed capital.

231 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES P. Offsetting • Financial assets and financial liabilities are offset, and the net amount is presented in the statement of financial position only when there is a legal right to offset the recognized amounts, and the Bank intends to either settle them on a net basis or to realize the assets and settle the liabilities simultaneously.

Q. Cash and cash equivalents • Cash and cash equivalents comprise cash and balances with central banks and balances with banks and financial institutions maturing within three months, less restricted funds and balances owing to banks and financial institutions maturing within three months.

4. Accounting Estimates Preparation of the financial statements and the application of the accounting policies require the Bank’s management to perform assessments and assumptions that affect the amounts of financial assets, financial liabilities, fair value reserve and to disclose contingent liabilities. Moreover, these assessments and assumptions affect revenues, expenses, provisions, and changes in the fair value shown in the statement of other comprehensive income and owners’ equity. In particular, this requires the Bank’s management to issue significant judgments and assumptions to assess future cash flow amounts and their timing. Moreover, the said assessments are necessarily based on assumptions and factors with varying degrees of consideration and uncertainty. In addition, actual results may differ from assessments due to the changes resulting from the conditions and circumstances of those assessments in the future.

Management believes that the assessments adopted in the consolidated financial statements are reasonable. The details are as follows:

- Impairment loss is taken after a sufficient and recent evaluation of the acquired properties has been conducted by approved surveyors. The impairment loss is reviewed periodically. 232 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES - Management estimates the impairment in value when the market prices reach a certain limit that indicates the impairment loss provided that this does not contradict the instructions of the regulatory authorities or Inter- national Financial Reporting Standards.

- The fiscal year is charged with its portion of income tax expenditures in accordance with the regulations, laws, and accounting standards. Moreover, deferred tax assets and liabilities and the income tax provision are recorded.

- Management periodically reassesses the economic useful lives of tangible and intangible assets for the purpose of calculating annual depreciation and amortization based on the general condition of these assets and the assessment of their useful economic lives expected in the future. Impair- ment loss is taken to the statement of income.

- A provision is set for lawsuits raised against the Bank. This provision is based to an adequate legal study prepared by the Bank›s legal advisors. Moreover, the study highlights potential risks that the Bank may encounter in the future. Such legal assessments are reviewed periodically.

- Management frequently reviews financial assets stated at fair value or at cost to estimate any impairment in their value. The impairment amount is taken to the statement of income for the year.

- Fair value hierarchy The level in the fair value hierarchy is determined and disclosed into which the fair value measurements are categorised in their entirety, segregating fair value measurements in accordance with the levels defined in IFRS. The difference between Level 2 and Level 3 fair value measurements represents whether inputs are observable and whether the unobservable inputs are significant, which may require judgment and a careful analysis of the inputs used to measure fair value, including consideration of factors specific to the asset or liability.

233 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES 5. Cash and Balances with Central Banks JD ‘000 The details of this item are as follows: December 31, 2012 2011 Cash in vaults 271 180 197 701 Balances with central banks: - Current accounts 139 619 154 855 - Time and notice 1 978 765 2 675 173 - Mandatory cash reserve 695 337 750 312 Certificates of deposit 269 501 186 841 Total 3 354 402 3 964 882 - Except for the mandatory cash reserve, there are no restricted balances at Central Bank. - Balances maturing after three months amounted to JD 169.1 million as of December 31, 2012 (JD 114.5 million as of December 31, 2011).

6. Balances with Banks and Financial Institutions The details of this item are as follows: JD ‘000 December 31, 2012 2011 Current accounts 1 265 096 591 426 Time deposits maturing within 3 months 2 779 211 2 824 119 Total 4 044 307 3 415 545 - There are time deposits with local banks for the time period less than three months in the amount of JD 98.045 million as of December 31, 2012 (JD 23.980 million as of December 31, 2011)

7. Deposits with Foreign Banks and Financial Institutions JD ‘000 The details of this item are as follows: December 31, 2012 2011 Time deposits maturing after 3 months and before 6 months 97 747 174 697 Time deposits maturing after 6 months and before 9 months 60 747 104 780 Time deposits maturing after 9 months and before one year 59 089 60 769 Time deposits maturing after one year 14 834 21 244 Total 232 417 361 490

There are no restricted balances and deposits as of December 31, 2012 and 2011. There are no balances and deposits that do not earn interests as of December 31, 2012 and 2011.

234 8. Financial Assets at Fair Value Through Profit or Loss JD ‘000 STATEMENTS FINANCIAL TO THE NOTES The details of this item are as follows: December 31, 2012 2011 Treasury bills and bonds 295 974 71 007 Corporate bonds - 92 466 Loans and advances 18 786 23 041 Corporate shares and mutual funds 7 982 37 294 Total 322 742 223 808 * During the year 2012, foreclosed shares in the amount of JD 8.692 million which were classified as financial assets at fair value through profit or loss were transferred to other assets (Note 14) within other foreclosed assets.

9. Financial Assets at Fair Value Through Other Comprehensive Income The details of this item are as follows: JD ‘000 December 31, 2012 2011 Corporate shares and mutual funds * 288 252 357 532 Total 288 252 357 532

* Cash dividend on the investments above amounted of JD 6.04 million for the year ended December 31, 2012 ( JD 3.7 million for the year ended December 31, 2011)

235 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

10. Direct Credit Facilities At Amortized Cost The details of this item are as follows: JD ‘000 December 31, 2012

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills * 49 479 111 258 199 354 85 926 - 446 017 Overdrafts * 23 680 309 627 2 055 192 383 286 701 2 675 583 Loans and advances * 809 633 273 470 5 280 938 222 765 419 388 7 006 194 Real-estate loans 641 876 1 157 570 - - 643 603 Credit cards 64 356 - - - - 64 356 Total 1 589 024 695 512 7 536 054 309 074 706 089 10 835 753 Less: Interest and com- 31 042 62 691 99 247 1 612 - 194 592 mission in suspense Provision for impairment - direct credit facilities at 82 341 62 904 552 179 4 591 1 549 703 564 amortized cost Total 113 383 125 595 651 426 6 203 1 549 898 156 Net Direct Credit Facilities 1 475 641 569 917 6 884 628 302 871 704 540 9 937 597 at Amortized Cost

* Net of interest and commission received in advance, which amounted to JD 20.1 million as at December 31, 2012. - Rescheduling loans as of December 31,2012 amounted to JD 8.6 million. - Restructuring loans as of December 31,2012 amounted to JD 225.6 million. - Direct credit facilities granted to and guaranteed by government of Jordan as of December 31, 2012 amounted to JD 87.2 million or 0.8% of total direct credit facilities. - Non-performing direct credit facilities as of December 31, 2012 amounted to JD 923.5 million or 8.5% of total direct credit facilities. - Non-performing direct credit facilities, net of interest and commission in suspense, as of December 31, 2012 amounted to JD 728.9 million or 6.8% of net direct credit facilities.

236 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

The details of this item are as follows: JD ‘000 December 31, 2011

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Discounted bills * 44 868 113 087 145 510 63 155 - 366 620 Overdrafts * 23 360 353 207 1 783 498 - 247 844 2 407 909 Loans and advances * 766 629 244 347 5 629 193 219 027 451 509 7 310 705 Real-estate loans 583 556 2 625 705 - - 586 886 Credit cards 60 541 - - - - 60 541 Total 1 478 954 713 266 7 558 906 282 182 699 353 10 732 661 Less: Interest and commis- 21 539 58 721 69 077 1 077 - 150 414 sion in suspense Provision for impairment - direct credit facilities at 71 169 54 285 449 178 2 333 1 728 578 693 amirtized cost Total 92 708 113 006 518 255 3 410 1 728 729 107 Net Direct Credit Facilities 1 386 246 600 260 7 040 651 278 772 697 625 10 003 554 at Amortized Cost

* Net of interest and commission received in advance, which amounted to JD 13.1 million as at December 31, 2011. - Direct credit facilities granted to and guaranteed by government of Jordan as of December 31, 2011 amounted to JD 104.4 million or 1% of total direct credit facilities. - Non-performing direct credit facilities as at December 31, 2011 amounted to JD 832 million or 7.8% of total direct credit facilities. - Non-performing direct credit facilities, net of interest and commission in suspense, as of December 31, 2011 amounted to JD 681.6 million or 6.4% of net direct credit facilities.

237 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

- The details of movement on the provision for impairment of direct credit facilities at amortized cost are as follows:

JD ‘000 2012

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector

Balance at the beginning of the year 71 169 54 285 449 178 2 333 1 728 578 693

Impairment losses charged to income 17 030 22 217 118 417 2 258 143 160 065

Used from provision (written off) ( 470) ( 924) ( 168) - - ( 1 562) Surplus in provision transferred to ( 5 160) ( 14 940) ( 13 018) - ( 279) ( 33 397) statement of income Adjustments during the year ------

Translation adjustments ( 228) 2 266 ( 2 230) - ( 43) ( 235)

Balance at the end of the Year 82 341 62 904 552 179 4 591 1 549 703 564

2011 JD ‘000

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector

Balance at the beginning of the year 60 398 57 983 385 958 - 1 898 506 237

Impairment losses charged to income 17 736 6 123 75 647 2 333 141 101 980

Used from provision (written off) ( 1 121) ( 5 307) ( 3 776) - - ( 10 204) Surplus in provision transferred to ( 5 142) ( 5 726) ( 7 490) - ( 270) ( 18 628) statement of income Adjustments during the year - 208 ( 208) - - -

Translation adjustments ( 702) 1 004 ( 953) - ( 41) ( 692)

Balance at the end of the Year 71 169 54 285 449 178 2 333 1 728 578 693

- Impairment is assessed based on individual customer accounts. - Provision for real-estate loans amounted to JD 7.1 million as of December 31, 2012 against JD 7.7 million as of December 31, 2011.

238 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

The details of movement on interest and commissions in suspense are as follows:

JD ‘000 2012

Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Balance at the beginning of the year 21 539 58 721 69 077 1 077 - 150 414 Interest and commission suspended 12 841 7 850 31 858 535 - 53 084 during the year Interest and commission in suspense ( 381) ( 2 579) ( 204) - - ( 3 164) written off Recoveries ( 2 957) ( 1 374) ( 1 401) - - ( 5 732) Translation adjustments - 73 ( 83) - - ( 10) Balance at the end of the Year 31 042 62 691 99 247 1 612 - 194 592

2011 JD ‘000 Corporates Banks and Government Retail Small and Financial and Public Total Large Medium Institutions Sector Balance at the beginning of the year 15 074 58 544 44 559 616 - 118 793 Interest and commission suspended 7 664 7 465 26 107 460 - 41 696 during the year Interest and commission in suspense / ( 115) ( 6 037) ( 685) - - ( 6 837) written off Recoveries ( 1 085) ( 1 317) ( 901) - - ( 3 303) Translation adjustments 1 66 ( 3) 1 - 65 Balance at the end of the Year 21 539 58 721 69 077 1 077 - 150 414

- Suspended interest on real-estate loans amounted to JD 6.3 million as of December 31, 2012 against JD 5.4 million as of December 31, 2011.

239 11. Other Financial Assets at Amortized Cost The details of this item are as follows: JD ‘000 December 31,

NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES 2012 2011 Treasury bills and bonds 3 353 705 3 145 738 Government bonds 356 220 437 266 Corporate bonds 350 077 452 701 Less: Provision for impairment ( 2 832) ( 2 832) Total 4 057 170 4 032 873

JD ‘000 Analysis of bonds based on interest payments: December 31, 2012 2011 Floating rate 137 275 359 200 Fixed rate 3 919 895 3 673 673 Total 4 057 170 4 032 873

Analysis of financial assets based on market quotation: JD ‘000 December 31, Financial assets quoted in the market: 2012 2011 Treasury bills and bonds 795 844 649 033 Government bonds 127 409 127 650 Corporate bonds 225 663 358 696 Total 1 148 916 1 135 379

JD ‘000 December 31, Financial assets unquoted in the market: 2012 2011 Treasury bills and bonds 2 557 861 2 496 705 Government bonds 228 811 309 616 Corporate bonds 121 582 91 173 Total 2 908 254 2 897 494

The details of movement on the provision for impairment of other financial assets at amortized cost are as follows: JD ‘000 2012 2011 Balance at the beginning of the year 2 832 2 832 Impairment losses charged to income - - Balance at the end of the year 2 832 2 832

During 2012, there was a sale of financial assets at amortized cost due to the decrease in its credit rating. 240 12. Investment in Subsidiaries and Associates The details of this item are as follows: JD ‘000

December 31, 2012 December 31, 2011 STATEMENTS FINANCIAL TO THE NOTES

Ownership Ownership Place of Cost Cost Principal activity % % incorporation The Bank’s investments in subsidiaries: Europe Arab Bank plc 100.00 570 716 100.00 504 127 U.K. Banking Arab Bank Australia Limited 100.00 46 012 100.00 44 709 Australia Banking Islamic International Arab Bank 100.00 73 500 100.00 73 500 Jordan Banking Arab National Leasing Company Ltd 100.00 15 000 100.00 15 000 Jordan Finance leasing Al-Arabi Investment Group Ltd 100.00 8 900 100.00 8 900 Jordan Financial services Arab Sudanese Bank Limited 100.00 13 928 100.00 30 253 Sudan Banking Al Arabi Investment Group Lim- Financial serv- 100.00 1 600 100.00 1 600 Palestine ited - Palestine ices Arab Investment Bank S.A.L 66.68 5 129 66.68 5 129 Lebanon Banking Arab Tunisian Bank 64.24 66 010 64.24 68 637 Tunisia Banking Arab Bank Syria 51.43 31 754 51.29 36 954 Syria Banking Al-Nisr Al Arabi insurance plc 50.00 11 250 50.00 11 250 Jordan Insurance Other 8 895 8 895 Various Total 852 694 808 954

The Bank’s investments in associates Turkland Bank A.Ș 28.33 97 613 28.33 91 067 Turkey Banking Oman Arab Bank 49.00 65 874 49.00 56 850 Oman Banking Arab National Bank 40.00 102 870 40.00 102 870 Saudi Arabia Banking Arabia Insurance Company S.A.L 36.79 75 36.79 75 Lebanon Insurance Real estate Commercial Building Company S.A.L 35.24 380 35.24 380 Lebanon operating leasing Total 266 812 251 242 Grand Total 1 119 506 1 060 196

241 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

13. Fixed Assets The details of this item are as follows: JD ‘000 Computers Furniture, Leasehold and Com- Motor Land Buildings Fixtures and Improve- Total munication Vehicles Equipment ments Equipment Historical Cost : Balance at January 1, 2011 33 246 174 967 87 162 42 049 6 639 37 343 381 406 Additions 232 14 486 15 061 3 456 459 6 191 39 885 Disposals ( 1 141) ( 22 490) ( 5 578) ( 2 900) ( 732) ( 14 302) ( 47 143) Translation adjustments - - ( 272) ( 180) ( 6) - ( 458) Balance at December 31, 2011 32 337 166 963 96 373 42 425 6 360 29 232 373 690 Additions 8 251 11 690 18 184 3 002 837 6 696 48 660 Disposals ( 3 504) ( 20 060) ( 2 565) ( 2 066) ( 543) ( 8 909) ( 37 647) Adjustments during the year 1 385 ( 1 385) ( 74) ( 160) 5 - ( 229) Translation adjustments - ( 1 038) ( 71) ( 121) ( 6) ( 12) ( 1 248) Balance at December 31, 2012 38 469 156 170 111 847 43 080 6 653 27 007 383 226

Accumulated Depreciation : Balance at January 1, 2011 - 44 083 59 088 35 405 5 373 16 682 160 631 Depreciation charge for the year - 4 956 8 164 3 101 585 8 915 25 721 Disposals - ( 507) ( 5 244) ( 2 829) ( 635) ( 13 647) ( 22 862) Translation adjustments - 113 ( 146) ( 309) ( 24) ( 71) ( 437) Balance at December 31, 2011 - 48 645 61 862 35 368 5 299 11 879 163 053 Depreciation charge for the - 5 679 9 720 2 691 596 6 620 25 306 year Disposals - ( 12) ( 1 232) ( 1 912) ( 441) ( 7 212) ( 10 809) Adjustments during the year - 82 ( 118) ( 166) 5 ( 122) ( 319) Translation adjustments - ( 92) ( 40) ( 102) ( 4) ( 627) ( 865) Balance at December 31, 2012 - 54 302 70 192 35 879 5 455 10 538 176 366

Net Book Value as of Decem- 38 469 101 868 41 655 7 201 1 198 16 469 206 860 ber 31, 2012

Net Book Value as of Decem- 32 337 118 318 34 511 7 057 1 061 17 353 210 637 ber 31, 2011

242 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

14. Other Assets The details of this item are as follows: JD ‘000 December 31, 2012 2011 Accrued interest receivable 108 556 98 852 Prepaid expenses 83 726 61 549 Foreclosed assets * 53 991 31 861 Other miscellaneous assets 70 633 79 107

Total 316 906 271 369

* The central bank of Jordan instructions require disposal of these assets during a maximum period of two years from the date of foreclosure

The details of movement on foreclosed assets are as follows: JD ‘000 2012 Land Buildings Other Total Balance at the beginning of the year 3 442 28 419 - 31 861 Additions 15 783 1 520 - 17 303 Disposals ( 45) ( 3 892) - ( 3 937) Impairment loss charged to income - ( 3) - ( 3) Impairment loss - returned to profit 60 15 - 75 Adjustments ( Note 8 ) - - 8 692 8 692 Balance at the End of the Year 19 240 26 059 8 692 53 991

JD ‘000 2011 Land Buildings Other Total Balance at the beginning of the year 3 614 26 226 - 29 840 Additions 2 114 5 186 - 7 300 Disposals ( 1 947) ( 3 084) - ( 5 031) Impairment loss charged to income ( 341) ( 30) - ( 371) Impairment loss - returned to profit 2 121 - 123 Balance at the End of the Year 3 442 28 419 - 31 861

243 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

15. Deferred Tax Assets Items attributable to deferred tax assets are as follows: JD ‘000 2012 Balance at the Transla- Balance at Amounts Amounts Deferred Beginning of tion Ad- the End of Added Released Tax the Year justments the Year Provision for impairment - direct credit facilities at 13 116 11 911 ( 5 735) - 19 292 4 294 amortized cost End-of-Service indemnity 35 225 2 460 ( 2 355) - 35 330 10 628 Interest in suspense with 6 099 1 266 ( 3 250) - 4 115 868 taxes paid on it Other provisions 13 316 1 793 ( 7 707) 6 7 408 1 968 Total 67 756 17 430 ( 19 047) 6 66 145 17 758

JD ‘000 2011 Balance at the effect of Amounts Amounts Translation Balance at Deferred Beginning of applying Added Released Adjust- the End of Tax the Year IFRS 9 ments the Year Provision for impairment - direct credit facilities at 13 838 - 233 ( 955) - 13 116 3 359 amortized cost End-of-Service indemnity 31 978 - 3 630 ( 383) - 35 225 9 777 Interest in suspense with 4 953 - 2 970 ( 1 824) - 6 099 1 425 taxes paid on it Other provisions 17 310 ( 7 018) 7 142 ( 4 099) ( 19) 13 316 3 681 Total 68 079 ( 7 018) 13 975 ( 7 261) ( 19) 67 756 18 242

The details of movement on deferred tax assets are as follows: JD ‘000 2012 2011 Balance at the beginning of the year 18 242 17 419 Effect of applying IFRS 9 - ( 1 404) Additions during the year 4 181 3 847 Amortized during the year ( 6 492) ( 1 620) Adjustments during the year 1 827 - Balance at the End of the Year 17 758 18 242

244 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

16. Banks’ and Financial Institutions’ Deposits The details of this item are as follows: JD ‘000 December 31, 2012 2011

Current and demand 133 593 217 775

Time deposits maturing within 3 months 1 755 088 2 105 887

Time deposits maturing after 3 months and before 6 months 98 871 134 691

Time deposits maturing after 6 months and before 9 months 152 927 14 177

Time deposits maturing after 9 months and before one year 17 872 24 390

Time deposits maturing after one year 14 184 15 290

Total 2 172 535 2 512 210

- There are time deposits from local banks for the time period less than three months in the amount of JD 36.5 million as of December 31, 2012 (JD 4.9 million as of December 31, 2011).

17. Customer Deposits

The details of this item are as follows: JD ‘000

December 31, 2012

Corporates Government Retail Small and and public Total Large medium sector

Current and demand 2 943 096 928 504 1 155 728 216 805 5 244 133

Savings 1 246 211 9 514 9 044 295 1 265 064

Time and notice 4 022 831 555 886 1 994 134 1 599 689 8 172 540

Certificates of deposit 330 476 2 745 907 - 334 128

Total 8 542 614 1 496 649 3 159 813 1 816 789 15 015 865

245 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

JD ‘000 December 31, 2011

Corporates Government Retail Small and and public Total Large medium sector

Current and demand 2 638 564 808 799 1 062 153 197 006 4 706 522

Savings 1 167 446 12 108 4 949 139 1 184 642

Time and notice 4 306 681 526 973 2 177 041 1 469 981 8 480 676

Certificates of deposit 291 038 2 865 4 525 11 758 310 186

Total 8 403 729 1 350 745 3 248 668 1 678 884 14 682 026

- Deposits placed by the Government of Jordan and the Jordanian public sector amounted to JD 293.7 million, or 2% of total costumer deposits of December 31, 2012 (JD 340.8 million, or 3% of total customer deposits as of December 31, 2011).

- Non-interest bearing deposits amounted to JD 4270.9 million, or 28.4% of total customers’ deposits as of December 31, 2012 ( JD 3839.9 million, or 26.2% of total customers’ deposits as of December 31 , 2011).

- Blocked deposits amounted to JD 14.1 million, or 0.09% of total customers’ deposits as of December 31, 2012 ( JD 34.2 million or 0.2% of total customers’ deposits as of December 31, 2011 ).

- Dormant deposits amounted to JD 101.3 million, or 0.67% of total customers’ deposits as of December 31, 2012 (JD 78.2 million or 0.5% of total customers’ deposits as of December 31, 2011).

246 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

18. Cash Margin The details of this item are as follows: JD ‘000 December 31,

2012 2011

Against direct credit facilities at amortized cost 2 013 568 1 731 419

Against indirect credit facilities 329 664 283 504

Against margin trading 1 985 5 170

Other cash margins 1 781 1 599

Total 2 346 998 2 021 692

19. Borrowed Funds

The details of this item are as follows: JD ‘000 December 31,

2012 2011

From foreign banks and financial institutions * - 358 155 Total - 358 155 * During the year 2007, the Bank issued a USD 500 million syndicated term loan to its favor through the external banking unit in Bahrain with a tenure of five years and paying LIBOR + 25 basis points, it has been matured and paid in July 2012.

- During the year 2010, the Bank borrowed USD 5 million from the American Overseas Private Investment Corporation for a term of 25 years and paying fixed interest of 5.015%, it has been paid in September 2012. - Analysis of borrowed funds according to interest payments is as follows: JD ‘000 December 31,

2012 2011

Floating rate - 354 610

Fixed rate - 3 545

Total - 358 155

247 20. Provision for Income Tax The details of this item are as follows: JD ‘000 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES 2012 2011 Balance at the beginning of the year 97 607 101 846 Income tax expense 87 172 72 459 Income tax paid ( 88 844) ( 76 698) Balance at the end of the year 95 935 97 607

- Income tax expense charged to the statement of income consists of the following: JD ‘000 2012 2011 Income tax expense for the year 87 172 72 459 Effect of deferred tax 2 900 ( 1 376) Total 90 072 71 083

The banking sector incom tax rate in Jordanis is 30%, while, the tax rate in the countries where the bank has branches and subsidiaries is ranging between 0 to 40%.

21. Other Provisions

The details of this item are as follows: JD ‘000 2012 Balance at the Returned Balance at the Utilized / Translation beginning of Additions to end of the Transferred adjustments the year income year End-of-service indemnity 66 436 7 848 ( 5 783) ( 626) - 67 875 Legal cases 5 162 431 (2) ( 2 930) - 2 661 Other 4 014 21 - ( 284) ( 6) 3 745 Total 75 612 8 300 ( 5 785) ( 3 840) ( 6) 74 281

JD ‘000 2011 Balance at the Returned Balance at the Utilized / Translation beginning of Additions to end of the Transferred adjustments the year income year End-of-service indemnity 61 688 8 640 ( 2 918) ( 974) - 66 436 Legal cases 4 854 516 - ( 208) - 5 162 Other 3 503 709 ( 78) ( 97) ( 23) 4 014 Total 70 045 9 865 ( 2 996) ( 1 279) ( 23) 75 612

248 22. Other Liabilities JD ‘000 The details of this item are as follows: NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES December 31, 2012 2011

Accrued interest payable 67 138 63 193 Notes payable 69 740 108 903 Interest and commission received in advance 86 565 78 346 Accrued expenses 20 045 23 145 Other miscellaneous liabilities 64 310 71 194 Total 307 798 344 781

23. Deferred Tax Liabilities

Items attributable to deferred tax liabilities are as follows: JD ‘000 2012 Balance at the Adjustments Balance at De- Amounts Amounts Beginning of during the the End of ferred Added Released the Year year the Year Tax

Investement revaluation reserve 31 847 3 301 ( 24 618) - 10 530 3 161

Other 2 934 2 413 ( 58) - 5 289 1 321 Total 34 781 5 714 ( 24 676) - 15 819 4 482

2011 JD ‘000 Balance at the Adjustments Balance at De- Amounts Amounts Beginning of during the the End of ferred Added Released the Year year the Year Tax

Investement revaluation reserve 32 471 9 702 ( 20 858) 10 532 31 847 9 556

Other 1 087 1 847 - - 2 934 732 Total 33 558 11 549 ( 20 858) 10 532 34 781 10 288

249 - The details of movement on deferred tax liabilities are as follows: JD ‘000

2012 2011 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES Balance at the beginning of the year 10 288 11 210

Effect of adoption of IFRS9 - 2 357

Additions during the year 1 594 3 373

Amortized during the year ( 7 400) ( 6 652)

Balance at the end of the year 4 482 10 288

24. Share Capital A. The subscribed and paid-up capital amounted to JD 534 million as at December 31, 2012 and 2011, divided into 534 million shares, at a nominal value of JD 1.0 each.

B. Share premium amounted to JD 859.626 million as at December 31, 2012 (JD 859.626 million as at December 31, 2011). 25. Statutory Reserve • The statutory reserve amounted to JD 375.885 million as at December 31, 2012 (JD 340.744 million as at December 31, 2011). This reserve cannot be distributed to shareholders

26. Voluntary Reserve • The voluntary reserve amounted to JD 614.920 million as at December 31, 2012 (JD 614.920 million as at December 31, 2011). This reserve is used for the purposes determined by the Board of Directors, and the General Assembly has the right to distribute it in whole or part thereof to shareholders as dividends.

27. General Reserve • The general reserve amounted to JD 1066.674 million as of December 31, 2012 (JD 1066.674 million as of December 31, 2011). This reserve is used for purposes determined by the Board of Directors and the General Assembly has the right to distribute it in whole or part thereof to shareholders as dividends.

28. General Banking Risk Reserve • The general banking risk reserve amounted to JD 200.468 million as at December 31, 2012 (JD 200.468 million as at December 31, 2011 ) and it is available for use in accordance with certain procedures, including the approval of the Central Bank of Jordan and the General Assembly, only when the amount of that reserve exceeds the minimum amount set or required according to the instructions of the relevant banking authorities.

250 29. Investment Revaluation Reserve JD ‘000 The details of this item are as follows:

2012 STATEMENTS FINANCIAL TO THE NOTES Shares Bonds Total Balance at the beginning of the year ( 39 397) - ( 39 397) Change in fair value during the year ( 59 771) - ( 59 771) Net realized losses transferred to retained earnings 678 - 678 Balance at the end of the year * ( 98 490) - ( 98 490) JD ‘000 2011 Shares Bonds Total Balance at the beginning of the year 26 627 ( 44 937) ( 18 310) Effect of adoption of IFRS9 6 289 44 937 51 226 Change in fair value during the year ( 72 801) - ( 72 801) Net realized losses transferred to retained earnings 488 - 488 Balance at the end of the year * ( 39 397) - ( 39 397)

* Investments revaluation reserve is stated net of deferred taxes in the amount of JD 3.2 million as of December 31, 2012 (JD 9.6 million as of December 31, 2011).

30. Retained Earnings and Proposed Dividends The details of this item are as follows: JD ‘000 2012 2011

Balance at the beginning of the year 194 013 142 332 Effect of adoption of IFRS 9 - ( 70 624) Adjusted balance at the beginning of the year 194 013 71 708 Profit for the year 261 341 263 001 Transferred from investment revaluation reserve to retained earnings ( 678) ( 488) Dividends paid ( 133 500) ( 106 800) Appropriation to reserves ( 35 141) ( 33 408) Balance at the end of the year * 286 035 194 013

* Arab Bank plc Board of Directors recommended a 30% of par value as cash dividend For the year equivalent to JD 160.2 million. This proposal is subject to the approval of the General Assembly of shareholders (JD 133.5 million for the year 2011 equivalent to 25% of par value).

251 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES 31. Interest Income The details of this item are as follows: JD ‘000 2012 2011 Direct credit facilities at amortized cost * 543 095 530 824 Central Banks 59 600 52 937 Banks and financial institutions 27 951 26 378 Financial assets at fair value through profit or loss 13 881 10 713 Other financial assets at amortized cost 310 080 226 479 Total 954 607 847 331

* The details of interest income earned on direct credit facilities at amortized cost are as follows:

JD ‘000 2012 Corporates Banks and Government Retail Small and financial and public Total Large medium institutions sector Discounted bills 2 730 4 068 10 214 1 370 - 18 382 Overdrafts 2 543 24 456 117 267 - 13 638 157 904 Loans and advances 71 842 19 948 203 282 4 218 18 663 317 953 Real estate loans 37 547 125 36 - - 37 708 Credit cards 11 148 - - - - 11 148 Total 125 810 48 597 330 799 5 588 32 301 543 095

JD ‘000 2011 Corporates Banks and Government Retail Small and financial and public Total Large medium institutions sector Discounted bills 2 975 5 494 8 148 377 18 17 012 Overdrafts 2 937 22 292 105 645 - 13 382 144 256 Loans and advances 65 772 17 808 213 195 5 977 21 026 323 778 Real estate loans 35 177 119 66 - - 35 362 Credit cards 10 416 - - - - 10 416 Total 117 277 45 713 327 054 6 354 34 426 530 824

252 32. Interest Expense STATEMENTS FINANCIAL TO THE NOTES JD ‘000 The details of this item are as follows: 2012 2011 Customer deposits * 320 185 260 705 Banks and financial institutions 36 168 33 239 Cash margins 38 840 34 105 Borrowed funds 1 058 1 946 Deposit insurance fees 12 425 11 433 Total 408 676 341 428

* Interest expense charged to income on customer deposits is as follows: JD ‘000 2012 Corporates Government and Retail Small and Total Large public sector medium Current and demand 3 395 761 6 069 727 10 952 Savings 17 829 138 14 - 17 981 Time and notice 140 901 24 642 53 935 39 671 259 149 Certificates of deposit 30 973 227 177 726 32 103 Total 193 098 25 768 60 195 41 124 320 185

JD ‘000 2011 Corporates Government and Retail Small and Total Large public sector medium Current and demand 2 447 840 5 435 711 9 433 Savings 16 165 119 20 - 16 304 Time and notice 115 232 16 438 50 625 25 482 207 777 Certificates of deposit 22 346 599 378 3 868 27 191 Total 156 190 17 996 56 458 30 061 260 705

253 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

33. Net Commission Income The details of this item are as follows: JD ‘000 Commission income: 2012 2011 Direct credit facilities at amortized cost 41 326 42 998 Indirect credit facilities 83 736 84 707 Other 36 804 35 103 Less: commission expense ( 10 635) ( 8 867) Net Commissions Income 151 231 153 941

34. Gain (Loss) from Financial Assets at Fair Value Through Profit or Loss The details of this item are as follows: JD ‘000 2012 Realized gains Unrealized gains (losses) Dividends Total Treasury bills and bonds 1 870 ( 3 124) - ( 1 254) Corporate shares and mutual funds 1 830 5 122 147 7 099 Total 3 700 1 998 147 5 845

2011 JD ‘000 Realized gains Unrealized gains (losses) Dividends Total Treasury bills and bonds 4 428 1 980 - 6 408 Corporate shares and mutual funds 1 470 ( 9 461) 309 ( 7 682) Total 5 898 ( 7 481) 309 ( 1 274)

35. Dividends from Subsidiaries and Associates The details of this item are as follows: JD ‘000 2012 2011 Dividends from subsidiaries 9 165 17 262 Dividends from associates 66 836 53 674 Total 76 001 70 936

254 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

36. Other Revenue The details of this item are as follows: JD ‘000 2012 2011 Revenue from customer services 11 081 10 102 Safe box rent 1 034 1 075 Gain (loss) from derivatives 728 ( 1 694) Miscellaneous revenue 12 533 13 010 Total 25 376 22 493

37. Employees’ Expenses The details of this item are as follows: JD ‘000 2012 2011 Salaries and benefits 139 963 139 379 Social security 6 680 6 442 Savings fund 1 477 1 583 Indemnity compensation 7 266 5 289 Medical 4 954 4 779 Training 640 635 Allowances 19 490 21 072 Other 4 154 4 305 Total 184 624 183 484

38. Other Expenses The details of this item are as follows: JD ‘000 2012 2011 Occupancy 31 032 28 454 Office 29 459 32 149 Services 52 128 48 997 Fees 5 029 4 732 Information technology 12 939 12 761 Other administrative expenses 25 068 29 883 Total 155 655 156 976

255 39. Financial Derivatives JD ‘000 The details of this item are as follows: December 31, 2012 2011 Interest rate swaps 674 227 527 180 Foreign currency forward contracts 6 183 963 3 796 453 Total 6 858 190 4 323 633

- The details of financial derivatives are as follows:

December 31, 2012 JD ‘000

Notional amounts by maturity Posi- Total Negative tive fair notional From 3 From 1 More fair value Within 3 value amount months to year to 3 than 3 months 1 year years years

Interest rate swaps 1 974 2 425 585 045 - 524 950 21 100 38 995

Currency forward contracts 3 359 4 493 5 634 377 1 814 619 3 784 872 12 605 22 283

Derivatives held for trading 5 333 6 918 6 219 422 1 814 619 4 309 822 33 705 61 278

Interest rate swaps 5 805 8 930 53 734 - 53 734 - -

Currency forward contracts ------

Derivatives held for fair value 5 805 8 930 53 734 - 53 734 - - hedge

Interest rate swaps - - 35 449 - - - 35 449

Currency forward contracts 3 361 3 163 549 585 549 585 - - -

Derivatives held for cash flow 3 361 3 163 585 034 549 585 - - 35 449 hedge

Total 14 499 19 011 6 858 190 2 364 204 4 363 556 33 705 96 727

256 December 31, 2011 JD ‘000

Notional amounts by maturity Posi- Total Negative From 3 From 1 More tive fair notional Within 3 fair value months to year to 3 than 3 value amount months 1 year years years

Interest rate swaps 2 827 3 346 294 971 - 3 545 233 905 57 521

Currency forward contracts 1 930 1 708 3 635 992 992 572 2 606 805 10 281 26 334

Derivatives held for trading 4 757 5 054 3 930 963 992 572 2 610 350 244 186 83 855

Interest rate swaps ( 3 682) 279 196 760 20 106 3 121 81 560 91 973

Currency forward contracts ------

Derivatives held for fair ( 3 682) 279 196 760 20 106 3 121 81 560 91 973 value hedge

Interest rate swaps - - 35 449 - - 35 449 -

Currency forward contracts 282 257 160 461 160 461 - - -

Derivatives held for cash 282 257 195 910 160 461 - 35 449 - flow hedge

Total 1 357 5 590 4 323 633 1 173 139 2 613 471 361 195 175 828

40 . Geographical Distribution of Assets and Revenue

The table below shows the geographical distribution of assets and revenue inside and outside the Hash- emite Kingdom of Jordan: JD ‘000 December 31, 2012 2011 Assets Inside Jordan 6 390 219 6 877 894 Outside Jordan 17 522 197 17 043 591 Total 23 912 416 23 921 485

JD ‘000 2012 2011

Revenue Inside Jordan 245 942 215 319 Outside Jordan 602 184 576 884 Total 848 126 792 203

257 41 - Business Segments

a) Description of Segment’s Activities The Bank has an integrated group of products and services dedicated to serve the Bank’s customers and constantly developed in response to the ongoing changes in the banking business environment.

The following is a summary of these groups’ activities stating their business nature and future plans:

1. Corporate and Investment Banking This group provides banking services and finances the following: corporate sector, private projects, foreign trading, small and medium sized projects, and banks and financial institutions.

2. Treasury Group This group is considered a source of financing for the Bank, in general, and for the strategic business units, in particular. It steers the financing of the Bank, and manages both the Bank’s cash liquidity and market risks.

Moreover, this group is responsible for the management of the Bank’s assets and liabilities within the frame set by the Assets and Liabilities Committee.

This group is considered the main source in determining the internal transfer prices within the Bank’s departments, in addition to being a central unit for the financial organization and main dealing in the following:

- Foreign exchange. - Foreign exchange derivatives. - Money market instruments. - Certificates of deposit. - Interest rate swaps. - Other various derivatives. - Stocks.

258 3. Elite During the year 2009, the Bank consolidated its services provided to high-networth customers with those provided to the Elite within the retail domain in order to enhance the Bank’s onshore services and products offered to customers in the countries where it operates. At the same time, the Bank transfers ownership of the offshore activities to Arab Bank (Switzerland) Ltd.

The most significant objective of the ultimate work model is to reinforce the Bank›s ability to benefit from the distribution channels relating to the Elite and retail activities in a more efficient manner so as to fulfill the needs of all types of clients of the Bank. This will be through transferring the Bank›s offshore activities to Arab Bank (Switzerland) Ltd as it is the arm dedicated to dealing with all requirements of the external activities of the Bank›s high-net worth clients.

4. Retail Banking Group This group provides banking services to individuals, and endeavors to meet their financial services needs using the best methods, through effective distribution channels, and a variety of product services. Moreover, this group is in direct and close contact with the customers in order to provide them with timely and continuous services through different electronic channels, such as direct phone calls, the internet, and text messaging via cellular phones.

259 Information about the Bank’s Business Segments JD ‘000 2012

Corporate Retail Treasury Elite Other Total banking banking

Total income 380 988 400 227 ( 95 833) 60 914 101 830 848 126 Net inter-segment interest income ( 47 965) ( 195 618) 146 835 96 748 - - Provision for impairment - direct 114 666 - 48 11 954 - 126 668 credit facilities at amortized cost Other provisions ( 1 133) 731 195 3 117 1 550 4 460 Direct administrative expenses 54 184 9 647 7 652 71 154 - 142 637 Result of operations of segment 165 306 194 231 43 107 71 437 100 280 574 361 Indirect expenses on segments 91 231 37 183 11 479 79 414 3 641 222 948 Profit for the year before income tax 74 075 157 048 31 628 ( 7 977) 96 639 351 413 Income tax expense 15 293 42 148 10 741 ( 7 543) 29 433 90 072 Profit (loss) for the year 58 782 114 900 20 887 ( 434) 67 206 261 341 Depreciation and amortization 6 200 2 028 738 16 340 - 25 306

Other information Segment assets 8 782 774 11 852 664 248 126 1 481 275 428 071 22 792 910

Inter-segment assets - 101 903 5 030 095 2 106 018 2 556 211 -

Investments in associates and - - - - 1 119 506 1 119 506 subsidiaries Total Assets 8 782 774 11 954 567 5 278 221 3 587 293 4 103 788 23 912 416

Segment liabilities 8 680 871 2 262 243 5 278 221 3 587 293 228 277 20 036 905 Capital and reserves - - - - 3 875 511 3 875 511 Inter-segment liabilities 101 903 9 692 324 - - - -

Total Liabilities and shareholders' 8 782 774 11 954 567 5 278 221 3 587 293 4 103 788 23 912 416 equity

260 Information about the Bank’s Business Segments JD ‘000 2011

Corporate Retail bank- Treasury Elite Other Total banking ing

Total income 407 800 297 105 ( 89 732) 78 593 98 437 792 203 Net inter-segment interest income ( 65 504) ( 121 054) 122 902 63 656 - - Provision for impairment - direct 71 535 - 899 10 918 - 83 352 credit facilities at amortized cost Other provisions 850 150 29 2 175 5 382 8 586 Direct administrative expenses 56 559 10 184 6 573 67 479 - 140 795 Result of operations of segment 213 352 165 717 25 669 61 677 93 055 559 470 Indirect expenses on segments 99 174 39 132 9 936 77 144 - 225 386 Profit for the year before income tax 114 178 126 585 15 733 ( 15 467) 93 055 334 084 Income tax expense 29 887 30 457 5 003 ( 1 782) 7 518 71 083 Profit (loss) for the year 84 291 96 128 10 730 ( 13 685) 85 537 263 001 Depreciation and amortization 6 362 1 835 846 16 678 - 25 721

Other information Segment assets 9 060 769 11 805 915 262 262 1 249 686 482 657 22 861 289

Inter-segment assets - 867 245 4 859 893 2 353 090 2 522 257 -

Investments in associates and sub- - - - - 1 060 196 1 060 196 sidiaries Total Assets 9 060 769 12 673 160 5 122 155 3 602 776 4 065 110 23 921 485

Segment liabilities 8 193 524 2 937 920 5 122 155 3 602 776 251 586 20 107 961 Capital and reserves - - - - 3 813 524 3 813 524 Inter-segment liabilities 867 245 9 735 240 - - - -

Total Liabilities and shareholders' 9 060 769 12 673 160 5 122 155 3 602 776 4 065 110 23 921 485 equity

261 42. Banking Risk Management The Bank manages its various risks by several methods within a comprehensive strategy that defines the risks and the related methods to meet them and mitigate them. Risk management is exercised at several levels including the Board of Directors, Chief Executive Officer, Asset and Liability Management Committee (ALCO), Group Chief Financial Officer, Global Treasury, Head of De- partments, Group Risk Management, Group Internal Audit, the Strategic Busi- ness Units and other supporting units and committees at different managerial levels.

1. Credit Risks Management Credit risk refers to the risk that the customer / counterparty will default on its contractual obligation resulting in financial insolvency or/and loss to the Bank. Credit risks arise in the course of the normal activities of the Bank.

In pursuit of improving the size of businesses and increasing the loans and facilities portfolio, the Bank always cares to adopt the highest credit standards and best methods and techniques on credit management, thus maintaining the high quality of the credit portfolio.

Moreover, the Bank enforces the corporate framework that governs credit management through continuously developing and upgrading the related policies and procedures. • Credit Concentration The Bank’s credit concentration is subject to specific limits set by the Central Bank of Jordan, which requires that credit concentration should not exceed 25% of regulatory capital.

• Criteria for Credit Ratings 1. Borrowers’ Strength The borrowers’ strength is measured based on the nature of the economic sector, competitiveness, operating performance, cash flow, financial position and management.

2. Credit Risk Classification Credit risk classification is measured on the basis of guarantees, structure of the loan, duration and collateral.

• Risk Management Mitigations The Bank offers the appropriate facilities structure, monitors and follows up on the utilization of the facilities and obtains proper collaterals (as a second source of payment) to mitigate credit risks.

262 • Credit Facilities Analysis The Bank has independent managerial units in charge of studying, monitoring and following up on credit utilization and repayment of facilities. These units are the credit relationships development unit, analysis unit, execution unit and monitoring unit.

2. Geographic Concentrations Risk The Bank reduces the geographic concentration risk through distributing its operations over various sectors and various geographic locations inside and outside the Kingdom.

Note (43-E) shows the details of the geographical distribution of assets.

3. Interest Rate Risk Interest rate risk arises from the potential changes in interest rates. The Bank has several committees, with duties to mitigate these risks to a minimum. Note (45) shows the details of the interest gap sensitivity of the Bank.

4. Liquidity Risk Liquidity risk is defined as the inability to raise adequate funds to meet the Bank›s either short-term or long-term obligations. The Bank has several managerial levels, with duties to review and manage assets, liabilities and liquidity. Note (46) shows the maturities of the assets and liabilities of the Bank.

5. Foreign Currencies Risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The major part of income from foreign currency exchange differences comes from dealing with the Bank’s customers. Moreover, the Bank follows studied policies in managing its foreign currencies risks. Note (47) shows the net positions of foreign currencies.

6. Market Risk Market risk is defined as the potential loss in the value of financial instruments. The Bank manages this risk through several units that supervise, monitor, and manage these risks.

The Bank continuously follows up on developments and changes in the global financial markets, and implements procedures designed to mitigate those risks through applying several methods, such as entering into hedges and swaps when needed. Note (44) shows the details of market risk sensitivity analysis.

7. Operational Risk Operational risk is defined as the loss incurred by the Bank due to disorder in work policies or procedures, personnel, automated systems, technological infrastructure, in addition to external accidents. Such risk is measured through statistical methodologies compatible with the Bank›s operations. 263 43 - Credit Risk A. Gross exposure to credit risk (net of impairment provision and prior to other risk collaterals) JD ‘000 December 31, Credit risk exposures relating to assets: 2012 2011 Balances with central banks 3 083 222 3 767 181 Balances with banks and financial institutions 4 044 307 3 415 545 Deposits with banks and financial institutions 232 417 361 490 Financial assets at fair value through profit or loss 314 760 186 514 Financial derivatives - positive fair value 14 499 1 357 Direct credit facilities at amortized cost 9 937 597 10 003 554 Retail 1 475 641 1 386 246 Corporates (meduim and small) 569 917 600 260 Corporate (large) 6 884 628 7 040 651 Banks and financial institutions 302 871 278 772 Government and public sector 704 540 697 625 Other Financial assets at amortized cost 4 057 170 4 032 873 Other assets 192 282 160 401

Credit risk exposures relating to items off the statement of financial position: Letters of credit 1 229 774 1 228 429 Acceptances 480 808 424 393 Letters of guarantee 8 051 990 7 460 544 Unused credit facilities 1 897 843 1 613 034 Total 33 536 669 32 655 315

264 B. Classification of direct credit facilities at amortized cost based on credit risk The table below shows the amount of direct credit facilities at amortized cost for each internal credit scoring: JD ‘000 December 31, 2012 Corporates Banks and Government Retail Small and financial and public Total Large medium institutions sector Performing / low risk 357 242 124 811 902 057 119 610 523 942 2 027 662 Performing / acceptable 1 126 779 420 460 5 802 149 180 283 181 892 7 711 563 risk Due: 4 986 8 472 110 933 - 196 124 587 - Up to 30 days 3 512 6 395 95 983 - - 105 890 - 31- 60 days 1 474 2 077 14 950 - 196 18 697 Watch list 7 855 12 768 143 220 9 181 - 173 024 Non-performing: 97 148 137 473 688 628 - 255 923 504 - Substandard 12 366 2 805 575 - - 15 746 - Doubtful 7 858 11 641 431 400 - - 450 899 - Problematic 76 924 123 027 256 653 - 255 456 859 Total 1 589 024 695 512 7 536 054 309 074 706 089 10 835 753 Less: interest and commis- 31 042 62 691 99 247 1 612 - 194 592 sion in suspense Less: provision for impairment - direct credit facilities at 82 341 62 904 552 179 4 591 1 549 703 564 amortized cost Net 1 475 641 569 917 6 884 628 302 871 704 540 9 937 597

JD ‘000 December 31, 2011 Corporates Banks and Government Retail Small and financial and public Total Large medium institutions sector Performing / low risk 308 014 115 180 690 841 133 122 480 607 1 727 764 Performing / acceptable risk 1 073 339 456 165 6 067 880 139 729 218 394 7 955 507 Due: 12 197 6 514 169 734 - - 188 445 - Up to 30 days 10 970 4 612 147 641 - - 163 223 - 31- 60 days 1 227 1 902 22 093 - - 25 222 Watch list 9 907 15 569 182 586 9 331 - 217 393 Non-performing: 87 694 126 352 617 599 - 352 831 997 - Substandard 9 967 3 779 19 958 - - 33 704 - Doubtful 7 124 11 435 416 646 - - 435 205 - Problematic 70 603 111 138 180 995 - 352 363 088 Total 1 478 954 713 266 7 558 906 282 182 699 353 10 732 661 Less: interest and commis- 21 539 58 721 69 077 1 077 - 150 414 sion in suspense Less: provision for impairment - direct credit facilities at 71 169 54 285 449 178 2 333 1 728 578 693 amortized cost Net 1 386 246 600 260 7 040 651 278 772 697 625 10 003 554

265 C. Fair Value of Collaterals Obtained Against Credit Facilities at amortized cost :

JD ‘000 December 31, 2012

Corporates Govern- Banks and ment and Retail financial Total Small and public Large institutions medium sector

Collaterals against credit facilities of

Performing / Low risk 112 474 162 992 686 192 - 130 739 1 092 397 Performing / Acceptable risk 448 193 270 860 3 730 946 - 122 4 450 121 Watch list 7 839 13 222 82 844 - - 103 905

Non-performing: 20 653 32 021 66 265 - 10 118 949

- Substandard 7 850 3 223 - - - 11 073

- Doubtful 3 636 4 110 6 107 - - 13 853

- Problematic 9 167 24 688 60 158 - 10 94 023

Total 589 159 479 095 4 566 247 - 130 871 5 765 372

Of which :

Cash margin 123 154 179 359 1 641 057 - 43 703 1 987 273

Accepted letters of guarantees 1 169 32 829 124 514 - - 158 512

Real estate properties 38 591 127 328 1 187 646 - - 1 353 565

Listed securities 19 377 7 766 102 045 - - 129 188

Vehicles and equipment 8 614 8 876 315 829 - - 333 319

Other 398 254 122 937 1 195 156 - 87 168 1 803 515

Total 589 159 479 095 4 566 247 - 130 871 5 765 372

266 JD ‘000 December 31, 2011

Corporates Govern- Banks and ment and Retail financial Total Small and public Large institutions medium sector

Collaterals against credit facilities of

Performing / Low risk 103 392 151 858 624 773 - 125 427 1 005 450 Performing / Acceptable risk 462 815 293 143 2 850 660 - 6 935 3 613 553 Watch list 12 097 19 261 189 595 - - 220 953

Non-performing: 16 905 35 244 63 308 - 10 115 467

- Substandard 5 404 2 580 - - - 7 984

- Doubtful 2 612 4 845 15 975 - - 23 432

- Problematic 8 889 27 819 47 333 - 10 84 051

Total 595 209 499 506 3 728 336 - 132 372 4 955 423

Of which :

Cash margin 108 512 162 475 684 561 - 27 973 983 521

Accepted letters of guarantees 1 146 33 332 162 192 - - 196 670

Real estate properties 31 953 135 615 1 365 905 - - 1 533 473

Listed securities 32 213 6 322 93 959 - - 132 494

Vehicles and equipment 18 950 10 616 357 302 - - 386 868

Other 402 435 151 146 1 064 417 - 104 399 1 722 397

Total 595 209 499 506 3 728 336 - 132 372 4 955 423

267 D. Classification of debt securities based on credit risk

The table below analyzes the credit exposure of the debt securities using the rating by global credit rating agencies:

JD ‘000 December 31, 2012 Financial assets at fair Other financial assets Credit rating value through profit or Total at amortized cost loss Private sector: AAA to A- - 152 957 152 957 BBB+ to B- - 143 915 143 915 Below B- - 5 826 5 826 Unrated 18 786 44 547 63 333 Government and public sector 295 974 3 709 925 4 005 899 Total 314 760 4 057 170 4 371 930

December 31, 2011 JD ‘000 Financial assets at fair Other financial assets Credit rating value through profit or Total at amortized cost loss Private sector: AAA to A- 57 509 271 406 328 915 BBB+ to B- - 123 600 123 600 Below B- - 9 859 9 859 Unrated 57 998 45 004 103 002 Government and public sector 71 007 3 583 004 3 654 011 Total 186 514 4 032 873 4 219 387

268 E. Credit exposure categorized by geographical region

December 31, 2012 JD ‘000

Other Arab Rest of Jordan Asia * Europe America Total countries the world

Balances with central banks 1 774 310 1 298 933 9 979 - - - 3 083 222

Balances and deposits with 255 011 1 143 182 135 592 2 541 391 188 311 13 237 4 276 724 banks and financial institutions

Financial assets at fair value - 314 760 - - - - 314 760 through profit or loss Direct credit facilities at amor- 2 575 394 6 738 199 331 231 219 431 212 73 130 9 937 597 tized cost Other Financial assets at amor- 1 587 704 2 118 603 5 357 44 125 301 381 - 4 057 170 tized cost

Other assets 24 080 175 384 3 566 3 706 40 5 206 781

Total 6 216 499 11 789 061 485 725 2 808 653 489 944 86 372 21 876 254

December 31, 2011 JD ‘000

Other Arab Rest of Jordan Asia * Europe America Total countries the world

Balances with central banks 2 565 963 1 200 985 233 - - - 3 767 181

Balances and deposits with 84 889 1 172 317 157 318 2 108 773 253 738 - 3 777 035 banks and financial institutions

Financial assets at fair value - 179 484 - 7 030 - - 186 514 through profit or loss Direct credit facilities at amor- 2 593 884 7 063 396 210 527 135 747 - - 10 003 554 tized cost Other Financial assets at amor- 1 484 581 2 045 660 39 150 141 893 321 589 - 4 032 873 tized cost

Other assets 63 466 71 631 25 158 1 454 49 - 161 758

Total 6 792 783 11 733 473 432 386 2 394 897 575 376 - 21 928 915

* Excluding Arab Countries. 269 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

F. Credit exposure categorized by economic sector

December 31, 2012

Corporates Corporates Banks and Government Industry and Construc- Tourism and Transporta- General financial and public Total Retail Real - estate Trade Agriculture mining tions hotels tion Services institutions sector Balances with Central Banks ------3 083 222 - 3 083 222 Balances and deposits with banks and financial ------4 276 724 - 4 276 724 institutions

Financial assets at fair value through profit or loss ------18 786 - - 295 974 314 760

Direct credit facilities at amortized cost 1 475 641 2 446 735 778 128 676 586 1 606 090 103 820 238 443 405 408 1 199 335 302 871 704 540 9 937 597 Other financial assets at amortized cost - 44 673 7 706 13 326 - - - - 6 820 274 720 3 709 925 4 057 170 Other Assets 7 424 9 412 2 803 2 762 9 346 315 1 008 1 079 15 628 81 143 75 861 206 781 Total 1 483 065 2 500 820 788 637 692 674 1 615 436 104 135 239 451 425 273 1 221 783 8 018 680 4 786 300 21 876 254

December 31, 2011

Corporates Corporates Banks and Government Industry and Construc- Tourism and Transporta- General financial and public Total Retail Real - estate Trade Agriculture mining tions hotels tion Services institutions sector Balances with Central Banks ------3 767 181 - 3 767 181 Balances and deposits with banks and financial ------3 777 035 - 3 777 035 institutions

Financial assets at fair value through profit or loss - 16 350 - 34 957 - - - 18 785 - 45 415 71 007 186 514

Direct credit facilities at amortized cost 1 386 246 2 321 741 864 656 839 392 1 394 723 65 791 340 087 597 093 1 217 428 278 772 697 625 10 003 554

Other financial assets at amortized cost - 30 093 17 761 4 212 - - - - 23 956 373 847 3 583 004 4 032 873 Other Assets 11 944 4 947 1 359 1 415 6 984 164 1 619 871 17 128 51 558 63 769 161 758 Total 1 398 190 2 373 131 883 776 879 976 1 401 707 65 955 341 706 616 749 1 258 512 8 293 808 4 415 405 21 928 915

270 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

F. Credit exposure categorized by economic sector JD ‘000 December 31, 2012

Financial assets at fair value through profit or loss ------18 786 - - 295 974 314 760

JD ‘000 December 31, 2011

Corporates Corporates Banks and Government Industry and Construc- Tourism and Transporta- General financial and public Total Retail Real - estate Trade Agriculture mining tions hotels tion Services institutions sector Balances with Central Banks ------3 767 181 - 3 767 181 Balances and deposits with banks and financial ------3 777 035 - 3 777 035 institutions

Financial assets at fair value through profit or loss - 16 350 - 34 957 - - - 18 785 - 45 415 71 007 186 514

Direct credit facilities at amortized cost 1 386 246 2 321 741 864 656 839 392 1 394 723 65 791 340 087 597 093 1 217 428 278 772 697 625 10 003 554

271 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

44. Market Risk

Market Risk Sensitivity

Assuming market prices as at December 31, 2012 and 2011 change by 5%, the impact on statement of income and shareholders equity will be as follows: JD ‘000 December 31, 2012 December 31, 2011

Statement Shareholders’ Statement Shareholders’ Total Total of income equity of income equity

Interest rate sensitivity 17 434 - 17 434 19 429 - 19 429

Foreign exchange rate 17 832 36 697 54 529 631 33 385 34 016

Share prices 399 14 413 14 812 1 865 17 877 19 742

Total 35 665 51 110 86 775 21 925 51 262 73 187

272 45. Interest Rate Risk A. Exposure to interest rate volatility as of December 31, 2012 (classification is based on interest rate repricing or maturity date, whichever is nearer). NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES JD ‘000

After 6 After 3 After 1 months Not tied Within 3 months year and After 3 Assets and to interest Total months and before before 3 years before 1 rate risk 6 months years year Cash at vaults - - - - - 271 180 271 180 Mandatory cash reserve with Central Bank - - - - - 695 337 695 337 Balances with central banks 2 079 157 18 900 57 915 21 280 71 014 139 619 2 387 885 Balances and deposits with banks and 2 779 211 97 747 119 836 14 834 - 1 265 096 4 276 724 financial institutions Financial assets at fair value through 47 157 49 889 198 810 4 938 13 966 7 982 322 742 profit or loss

Direct credit facilities at amortized cost 5 729 557 1 071 305 678 751 726 281 1 731 703 - 9 937 597 Financial assets at fair value through - - - - - 288 252 288 252 other comprehensive income Other financial assets at amortized cost 1 093 860 488 697 837 101 1 170 921 466 591 - 4 057 170 Investment in subsidiaries and associates - - - - - 1 119 506 1 119 506 Fixed assets - - - - - 206 860 206 860 Other assets 19 809 12 223 1 342 - - 298 031 331 405 Deferred tax assets - - - - - 17 758 17 758 Total assets 11 748 751 1 738 761 1 893 755 1 938 254 2 283 274 4 309 621 23 912 416

Liabilities and shareholders’ equity Banks' and financial institutions' deposits 1 755 088 98 871 170 799 14 184 - 133 593 2 172 535 Customer deposits 7 544 724 1 705 768 1 098 106 371 276 25 091 4 270 900 15 015 865 Cash margin 1 013 893 1 190 688 69 026 946 250 72 195 2 346 998 Other Provisions - - - - - 74 281 74 281 Provision for income tax - - - - - 95 935 95 935 Other liabilities 66 326 19 456 2 001 - 622 238 404 326 809 Deferred tax liabilities - - - - - 4 482 4 482 Shareholders' equity - - - - - 3 875 511 3 875 511 Total liabilities and shareholders' equity 10 380 031 3 014 783 1 339 932 386 406 25 963 8 765 301 23 912 416 Gap 1 368 720 (1 276 022) 553 823 1 551 848 2 257 311 (4 455 680) - Accumulated gap 1 368 720 92 698 646 521 2 198 369 4 455 680 - -

273 B. Exposure to interest rate volatility as of December 31, 2011 (classification is based on interest rate repricing or maturity date, whichever is nearer).

JD ‘000 After 6 After 3 After 1 months Not tied Within 3 months year and After 3 Assets and to interest Total months and before before 3 years before 1 rate risk 6 months years year Cash at vaults - - - - - 197 701 197 701 Mandatory cash reserve with Central Bank - - - - - 750 312 750 312 Balances with central banks 2 747 477 54 492 14 617 45 428 - 154 855 3 016 869 Balances and deposits with banks and 2 845 363 174 697 165 549 - - 591 426 3 777 035 financial institutions Financial assets at fair value through 186 514 - - - - 37 294 223 808 profit or loss Direct credit facilities at amortized cost 5 133 331 1 266 209 1 417 472 613 344 1 573 198 - 10 003 554 Financial assets at fair value through - - - - - 357 532 357 532 other comprehensive income Other financial assets at amortized cost 1 087 918 822 137 735 460 1 033 712 353 646 - 4 032 873 Investment in subsidiaries and associates - - - - - 1 060 196 1 060 196 Fixed assets - - - - - 210 637 210 637 Other assets 46 600 39 723 14 235 - 2 775 169 393 272 726 Deferred tax assets - - - - - 18 242 18 242 Total assets 12 047 203 2 357 258 2 347 333 1 692 484 1 929 619 3 547 588 23 921 485

Liabilities and shareholders’ equity Banks' and financial institutions' deposits 2 105 887 134 691 38 567 15 290 - 217 775 2 512 210

Customer deposits 7 651 419 1 766 661 1 077 940 311 609 34 522 3 839 875 14 682 026

Cash margin 979 318 897 104 67 319 20 050 3 066 54 835 2 021 692 Borrowed funds 354 610 - - - 3 545 - 358 155 Other Provisions - - - - - 75 612 75 612 Provision for income tax - - - - - 97 607 97 607 Other liabilities 64 901 - - 2 775 521 282 174 350 371 Deferred tax liabilities - - - - - 10 288 10 288 Shareholders' equity - - - - - 3 813 524 3 813 524 Total liabilities and shareholders' equity 11 156 135 2 798 456 1 183 826 349 724 41 654 8 391 690 23 921 485 Gap 891 068 ( 441 198) 1 163 507 1 342 760 1 887 965 (4 844 102) - Accumulated gap 891 068 449 870 1 613 377 2 956 137 4 844 102 - -

274 46. Liquidity Risk The details of this item are as follows:

A. The details of the Maturity of Assets and Liabilities as of December 31, 2012: JD ‘000

After 1 After 3 After 6 After 1 year Not Tied to Within 1 month and months months After 3 Assets and before a Specific Total month before 3 and before and before years 3 years Maturity months 6 months 1 year

Cash at vaults ------271 180 271 180

Mandatory cash reserve with Central Banks ------695 337 695 337

Balances with central banks 1 800 384 278 773 18 900 57 915 21 280 71 014 139 619 2 387 885 Balances and deposits with banks and 1 783 753 995 458 97 747 119 836 14 834 - 1 265 096 4 276 724 financial institutions Financial assets at fair value through 21 426 32 496 51 816 190 118 4 938 13 966 7 982 322 742 profit or loss Direct credit facilities at amortized cost 2 799 711 1 159 915 942 942 699 727 1 074 542 3 260 760 - 9 937 597 Financial assets at fair value through ------288 252 288 252 other comprehensive income Other financial assets at amortized cost 263 457 789 836 488 171 843 472 1 203 484 468 750 - 4 057 170 Investment in subsidiaries and associates ------1 119 506 1 119 506 Fixed assets ------206 860 206 860 Other assets 6 763 13 410 77 094 1 342 - - 232 796 331 405 Deferred tax assets ------17 758 17 758 Total assets 6 675 494 3 269 888 1 676 670 1 912 410 2 319 078 3 814 490 4 244 386 23 912 416

Liabilities and shareholders› equity Banks' and financial institutions' deposits 1 286 466 468 622 98 871 170 799 14 184 - 133 593 2 172 535

Customer deposits 4 792 071 2 349 367 1 095 492 1 110 642 398 459 25 699 5 244 135 15 015 865

Cash margin 637 391 245 586 1 259 833 50 157 37 791 250 115 990 2 346 998 Borrowed funds ------Other Provisions ------74 281 74 281 Provision for income tax - 95 935 - - - - - 95 935 Other liabilities 66 371 27 061 28 491 2 001 - 622 202 263 326 809 Deferred tax liabilities ------4 482 4 482 Shareholders' equity ------3 875 511 3 875 511 Total liabilities and sharehold- 6 782 299 3 186 571 2 482 687 1 333 599 450 434 26 571 9 650 255 23 912 416 ers' equity Gap ( 106 805) 83 317 ( 806 017) 578 811 1 868 644 3 787 919 (5 405 869) - Accumulated gap ( 106 805) ( 23 488) ( 829 505) ( 250 694) 1 617 950 5 405 869 - -

275 B. The details of the Maturity of Assets and Liabilities as of December 31, 2011:

JD ‘000 After 1 After 3 After 6 After 1 year Not Tied to Within 1 month and months months After 3 Assets and before a Specific Total month before 3 and before and before years 3 years Maturity months 6 months 1 year

Cash at vaults ------197 701 197 701

Mandatory cash reserve with Central Banks ------750 312 750 312

Balances with central banks 2 747 477 54 492 14 617 45 428 - - 154 855 3 016 869

Balances and deposits with banks and 1 787 613 1 036 506 174 697 165 549 21 244 - 591 426 3 777 035 financial institutions

Financial assets at fair value through 5 398 68 662 69 315 30 711 9 128 3 300 37 294 223 808 profit or loss

Direct credit facilities at amortized cost 2 110 532 1 508 353 642 006 1 095 284 1 642 900 3 004 479 - 10 003 554

Financial assets at fair value through ------357 532 357 532 other comprehensive income

Other financial assets at amortized cost 473 375 611 784 825 512 715 876 1 057 499 348 827 - 4 032 873

Investment in subsidiaries and associates ------1 060 196 1 060 196

Fixed assets ------210 637 210 637

Other assets 12 159 34 717 39 723 14 235 2 775 - 169 117 272 726

Deferred tax assets ------18 242 18 242

Total assets 7 136 554 3 314 514 1 765 870 2 067 083 2 733 546 3 356 606 3 547 312 23 921 485

Liabilities and shareholders’ equity

Banks' and financial institutions' deposits 1 222 863 883 024 134 691 38 567 15 290 - 217 775 2 512 210

Customer deposits 4 711 855 2 072 917 1 766 661 1 077 940 311 609 34 522 4 706 522 14 682 026 Cash margin 874 717 96 961 903 376 68 565 20 172 3 066 54 835 2 021 692 Borrowed funds - - - 354 610 - 3 545 - 358 155 Other Provisions ------75 612 75 612 Provision for income tax - 97 607 - - - - - 97 607 Other liabilities 47 043 17 858 - - 2 775 521 282 174 350 371 Deferred tax liabilities ------10 288 10 288 Shareholders' equity ------3 813 524 3 813 524 Total liabilities and sharehold- 6 856 478 3 168 367 2 804 728 1 539 682 349 846 41 654 9 160 730 23 921 485 ers' equity Gap 280 076 146 147(1 038 858) 527 401 2 383 700 3 314 952 (5 613 418) - Accumulated gap 280 076 426 223 ( 612 635) ( 85 234) 2 298 466 5 613 418 - -

276 47. Net Foreign Currency Positions The details of this item are as follows: December 31, 2012 December 31, 2011 Base Cur- Base Cur- Equivalent in Equivalent rency in rency in JD ‘000 in JD ‘000 Thousand Thousand USD ( 507 600) ( 360 000) 197 974 140 407 GBP ( 8 683) ( 9 946) 698 765 EUR ( 17 546) ( 16 416) 3 488 4 508 JPY 2 673 074 21 999 73 083 665 Other currencies * 7 715 6 675 Total ( 356 648) 153 020 * Various foreign currencies translated to Jordanian Dinars.

48. Fair Value of Financial Assets and Financial Liabilities

A. Financial assets and financial liabilities not stated at fair value. JD ‘000

December 31, 2012 December 31, 2011 Book value Fair value Book value Fair value ASSETS Cash and balances with central banks 3 354 402 3 358 100 3 964 882 3 966 258 Balances and deposits with banks and financial institutions 4 276 724 4 279 552 3 777 035 3 782 256 Other financial assets at amortized cost 4 057 170 4 102 842 4 032 873 4 066 402 Direct credit facilities at amortized cost 9 937 597 9 970 205 10 003 554 10 038 742 LIABILITIES Banks' and financial institutions' deposits 2 172 535 2 176 269 2 512 210 2 517 854 Customer deposits 15 015 865 15 071 106 14 682 026 14 731 089 Cash margins 2 346 998 2 353 511 2 021 692 2 027 690 Borrowed funds - - 358 155 358 155

277 B. Financial assets and financial liabilities stated at fair value NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES The table below analyzes financial instruments carried at fair value by the valuation method. The different levels have been defined as follows: • Level 1: quoted prices (not adjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (not observable inputs).

The details of this item are as follows: JD ‘000 December 31, 2012

Level 1 Level 2 Level 3 Total ASSETS Financial assets at fair value through profit or loss 303 957 18 785 - 322 742 Financial derivatives - positive fair value 10 505 3 994 - 14 499 Financial assets at fair value through other com- 220 934 67 318 - 288 252 prehensive income TOTAL ASSETS 535 396 90 097 - 625 493

LIABILITIES Financial derivatives - negative fair value 13 728 5 283 - 19 011 TOTAL LIABILITIES 13 728 5 283 - 19 011

JD ‘000 December 31, 2011 ASSETS Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss 205 022 18 786 - 223 808 Financial derivatives - positive fair value 767 590 - 1 357 Financial assets at fair value through other com- 265 207 92 325 - 357 532 prehensive income TOTAL ASSETS 470 996 111 701 - 582 697

LIABILITIES Financial derivatives - negative fair value 5 281 309 - 5 590 TOTAL LIABILITIES 5 281 309 - 5 590

278 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES

49. Contractual Maturity of the Contingent Accounts

The table below details the maturity of expected liabilities and commitments on the basis of contractual maturity:

December 31, 2012 JD ‘000

After 1 year and Within 1 year After 5 years Total before 5 years

Letters of credit 1 221 758 8 016 - 1 229 774

Acceptances 437 965 42 843 - 480 808

Letters of guarantee:

- Payment guarantees 1 419 319 62 023 3 183 1 484 525

- Performance guarantees 1 009 678 1 238 413 29 138 2 277 229

- Other guarantees 2 901 880 1 354 450 33 906 4 290 236

Unutilized credit facilities 1 726 220 157 213 14 410 1 897 843

Total 8 716 820 2 862 958 80 637 11 660 415

Constructions projects contracts - - - -

Procurement contracts 3 007 - 141 3 148

Operating lease contracts 3 64 7 136 7 203

Total 3 010 64 7 277 10 351

279 JD ‘000

December 31, 2011

After 1 year and Within 1 year After 5 years Total before 5 years

Letters of credit 1 208 421 20 008 - 1 228 429

Acceptances 370 555 53 838 - 424 393

Letters of guarantee:

- Payment guarantees 345 946 102 143 2 879 450 968

- Performance guarantees 1 222 952 1 123 681 10 662 2 357 295

- Other guarantees 2 810 833 1 742 461 98 987 4 652 281

Unutilized credit facilities 1 458 261 142 263 12 510 1 613 034

Total 7 416 968 3 184 394 125 038 10 726 400

Constructions projects contracts 65 - - 65

Procurement contracts 2 351 325 - 2 676

Operating lease contracts - 63 7 392 7 455

Total 2 416 388 7 392 10 196

280 50. Capital Management The Bank manages its capital to safeguard its ability to continue as a going concern while maximizing the return to shareholders. The composition of the regulatory capital as defined by Basel Committee is as follows: JD ‘000 December 31, A- CORE CAPITAL 2012 2011 Share capital 534 000 534 000 Statutory reserve 375 885 340 744 Voluntary reserve 614 920 614 920 Share premium 859 626 859 626 General reserve 1 066 674 1 066 674 Retained earnings* 106 477 41 150 Foreclosed properties ( 8 077) ( 7 992) Total core capital 3 549 505 3 449 122

B- SUPPLEMENTARY CAPITAL Foreign currency translation reserve 36 393 42 476 Investment revaluation reserve ( 98 490) ( 39 397) General banking risk reserve 177 282 167 545 Total supplementary capital 115 185 170 624

C. INVESTMENTS 1 365 539 1 340 088 Regulatory capital (A+B-C) 2 299 151 2 279 658 Risk-weighted assets 15 906 783 15 107 029 Regulatory capital / risk-weighted assets 14.45% 15.09% Core capital / risk-weighted assets 14.45% 15.09%

* Net after deducting deffered tax assets. - The Board of Directors performs an overall review of the capital structure of the Bank on quarterly basis. As part of such review, the Board takes into consideration matters such as cost and risks of capital as integral factors in managing capital through setting dividend policies and capitalization of reserves.

- The minimum level of the capital adequacy ratio as defined by Basel Committee is 8% and 12% as per the instructions of the Central Bank of Jordan. The capital adequacy ratio of the Bank as of December 31, 2012 was 14.45% (15.09% as of December 31, 2011).

281 51. Transactions with Related Parties The details of this item are as follows: JD ‘000 NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES December 31, 2012 Direct Credit Deposits owed Deposits owed LCs, LGs, Unutilized Facilities at from Related to Related Par- Credit Facilities and amortized Parties ties Acceptances cost Sister and Subsidiary companies 2 143 329 125 186 445 486 137 536 Associates 260 097 - 129 988 14 031 Major shareholders and Mem- - 201 193 267 734 60 701 bers of the Board of Directors Total 2 403 426 326 379 843 208 212 268 JD ‘000 December 31, 2011 Direct Credit Deposits owed Deposits owed LCs, LGs, Unutilized Facilities at from Related to Related Par- Credit Facilities and amortized Parties ties Acceptances cost Sister and Subsidiary companies 1 769 505 138 554 743 457 202 314 Associates 101 013 - 91 266 2 163 Major shareholders and Mem- - 264 739 294 678 57 211 bers of the Board of Directors Total 1 870 518 403 293 1 129 401 261 688

All facilities granted to related parties are performing loans in accordance with the credit rating of the Bank. No provisions for the year have been recorded in relation to impairment in value.

The details of transactions with related parties are as follows: JD ‘000 2012 Interest Income Interest Expense Subsidiaries and Sister companies 12 720 9 418 Associated companies 256 248 12 976 9 666

JD ‘000 2011 Interest Income Interest Expense Subsidiaries and Sister companies 16 664 14 860 Associated companies 218 47 16 882 14 907

- Interest on facilities granted to major shareholders and members of the Board of Directors is recorded at arm’s length. - The salaries and other fringe benefits of the Bank’s key management personnel, inside and outside Jordan, amounted to JD 22.4 million in 2012 (JD 22.7 million in 2011).

282 52. Cash and Cash Equivalent The details of this item are as follows: JD ‘000 December 31, NOTES TO THE FINANCIAL STATEMENTS FINANCIAL TO THE NOTES 2012 2011

Cash and balances with central banks maturing within 3 months 3 185 295 3 850 345 Add: Balances with banks and financial institutions maturing within 3 4 044 307 3 415 545 months Less: Banks and financial institutions deposits maturing within 3 months 1 888 681 2 323 662 Total 5 340 921 4 942 228

53. Legal Cases a. Lawsuits have been filed against Arab Bank Plc in which it was alleged that Arab Bank has, through its New York branch, channeled funds to parties described as «terrorists» and «terrorist organizations in Palestine», and has aided and abetted acts of terrorism which led to the death or the injury of family members of the claimants. The claimants in the said lawsuits are requesting compensation for the damages that have befallen them as a result of the alleged acts of the Bank. The lawsuits are currently in the pre-litigation phase and the appellate court is considering appeals submitted by the adversaries in the lawsuits in connection with procedural ruling.

Arab Bank, in the opinion of its management, has been and is still fully respect- ful of and compliant with all anti-terrorism legislation in all countries in which it operates.

In 2005, The Bank in New York has entered into an agreement with the Office of the controller of Currency pursuant to which the branch was converted into a Federal Agency with limited operations in compliance with the provisions of the US Federal Banking Act. It was also agreed that the Federal Agency shall be allowed to maintain financial assets in the amount of USD 420 million. b. There are other lawsuits filed against the Bank totaling JD 45.5 million as of December 31, 2012 (JD 129.6 million as of 31 December 2011).

In the opinion of the management and the lawyers representing the Bank in the litigation at issue, the Bank will not be held liable for any amount in excess of the amount of provisions taken in connection with the lawsuits totaling JD 3.7 million as of December 31, 2012 in comparison to JD 5.2 million as of De- cember 31, 2011.

283 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT

284 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT

285 ATTESTATION STATEMENT ON GOING CONCERN GOING ON STATEMENT ATTESTATION

The Board of Directors confirms that there are no significant issues that may affect the continued operations of the Bank during the financial year 2013.

Sabih Taher D. Masri Samir Farhan K. Kawar Chairman Deputy Chairman

Saleh Bin Saad A. Al-Muhanna Nazik Odeh Al-Hariri Representing The Ministry of Finance and Economy Saudi Arabia

Ibrahim Yusuf I. Izziddin Mohammed Ahmed M. Hariri Representing The Social Security Corporation

Riad Burhan T. Kamal Wahbeh Abdullah W. Tamari

Khaled Anis Moh’d (Zand Irani) Dr. Omar Ahmad Munif Razzaz Representing Abdul Hameed Shoman Foundation

286 ATTESTATION ON THE FINANCIAL STATEMENTS AND THE INTERNAL CONTROL SYSTEM CONTROL INTERNAL THE AND STATEMENTS FINANCIAL THE ON ATTESTATION

The Board of Directors confirms its responsibility for the preparation of the financial statements, and for implementing an effective internal control system in line with international standards.

Sabih Taher D. Masri Samir Farhan K. Kawar Chairman Deputy Chairman

Saleh Bin Saad A. Al-Muhanna Nazik Odeh Al-Hariri Representing The Ministry of Finance and Economy Saudi Arabia

Ibrahim Yusuf I. Izziddin Mohammed Ahmed M. Hariri Representing The Social Security Corporation

Riad Burhan T. Kamal Wahbeh Abdullah W. Tamari

Khaled Anis Moh’d (Zand Irani) Dr. Omar Ahmad Munif Razzaz Representing Abdul Hameed Shoman Foundation

287 ATTESTATION STATEMENT ON COMPLETENESS OF FINANCIAL INFORMATION INFORMATION FINANCIAL OF COMPLETENESS ON STATEMENT ATTESTATION

The Chairman, the Chief Executive Officer and the Group Chief Financial Officer attest to the accuracy and completeness of the financial statements and the financial information of this report as at 31 December 2012.

Sabih Taher D. Masri Nemeh Elyas Sabbagh Chairman Chief Executive Officer

GHASSAN HANNA S. TARAZI Group Chief Financial Officer

288 CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE

Introduction 286 The Pillars of the Code 286 1) Commitment to Corporate Governance 286 2) The Board of Directors 287 a) General principles 287 b) The Chairman and the General Manager 287 c) The role of the Chairman of the Board 287 d) Composition of the Board 288 e) Board practices 289 f) Board activities: appointments, succession & development 289 g) Board activities: self-assessment and the General Manager performance appraisal 290 h) Board activities: planning, controls, code of conduct, conflict-of-interest policy 290 3) Board Committees 291 a) General principles 291 b) The Corporate Governance Committee 292 c) The Audit Committee 292 d) The Selection and Remuneration Committee 292 e) The Risk Management Committee 293 f) The Corporate Strategy Committee 294 4) Control Environment 294 a) Internal controls 294 b) Internal audit 295 c) External audit 295 d) Risk management 295 e) Compliance 296 5) Treatment of Shareholders 296 6) Transparency and Disclosure 297 Clarification concerning the Corporate Governance Guide 299

289 Introduction

CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE Arab Bank attaches considerable importance to the good corporate governance practices and is committed to applying the highest standards of professional competence in all its activities. The Bank follows the guidelines of the Central Bank of Jordan, which are based on Basel Committee recommendations on corporate governance. It also observes the regulatory requirements of other countries in which it operates. Arab Bank pioneered corporate governance practices in the Middle East. In early 1996 the Audit Committee was established, and in 2002, a special committee for corporate governance was created. In 2006, the Selection and Remuneration Committee was formed, and in year 2007 the Risk Management Committee and the Corporate Strategy Committee were established. The Board, with all its members in attendance, holds regular and extraordinary meetings to discuss the strategic direction of the Bank and the changes in the key indicators affecting the general strategy of the Bank. This Corporate Governance of the Bank is based on the Code of Corporate Governance for Banks in Jordan issued by the Central Bank of Jordan. It is in alignment with the current Jordanian Banking Law, the current Jordanian Corporations Law and the Articles of Association and Memorandum of Association of the Bank. This Code will be kept under review, and will be developed and amended as required from time to time to meet the changing needs and expectations of the Bank and the marketplace.

The Pillars of the Code: 1) Commitment to Corporate Governance The Bank has a well established framework for good corporate governance which provides a solid basis for an effective relationship between the Bank, its Board of Directors, its shareholders and other interest groups. The general framework for corporate governance ensures equitable treatment for all shareholders, and recognizes the established legal rights of both minority and foreign shareholders. It also guarantees the availability of timely and precise information in all material matters concerning the Bank along with the accountability of the Board to the Bank and the shareholders. The Bank has prepared this Code in compliance with the requirements of the Code of Corporate Governance for Banks in Jordan issued by the Central Bank of Jordan. This Code also reflects the needs and policies of the Bank. This Code has been approved by the Board in its meeting on 30/12/2007 and an up-to- date version of the Code is available to the public on request and is also posted on the Bank’s website. The Bank publicly reports its compliance with the Code on an annual basis, where necessary detailing how each provision of the Code has been implemented and, where relevant, where and why the Bank’s executive management has adopted procedures that are different from those recommended by the Code. 290 2) The Board of Directors

a) General principles GUIDE GOVERNANCE CORPORATE i) The primary responsibility of the Board is to protect and maximize the interests of the shareholders in the long term. For this purpose the Board bears the full responsibility for corporate governance, including setting the strategy of the Bank and the goals of the executive management and overseeing the implementation to achieve those goals. ii) The Board of Directors has overall responsibility for the operations and the financial soundness of the Bank. It aims to ensure that the interests of shareholders, depositors, creditors, employees, and other stakeholders, including the Central Bank of Jordan, are met. The Board ensures that the Bank is managed prudently, within the framework of laws and regulations and the Bank’s own policies. The Bank affirms that the obligations of each Director are owed to the Bank as a whole, and not to any particular shareholder. iv) The Board sets the Bank’s strategic goals, as well as overseeing the executive management of the Bank. The day-to-day operations of the Bank are the responsibility of executive management, but the Board as a whole ensures and certifies that internal control systems are effective and that the Bank’s activities comply with strategy, policies and procedures approved by the Board or as required by law or regulation. As a critical element of these internal controls, the Board ensures that all dimensions of the Bank’s risk are managed properly.

b) The Chairman / General Manager i) The position of Chairman of the Board is separated from that of General Manager. In addition, there is no family relationship up to the third degree between the Chairman and the General Manager. The division of responsibilities is to be set in writing and to be approved by the Board and is subject to review and from time to time as necessary. ii) If the Chairman is also an executive, then the Bank will consider appointing an independent member of the Board as a Deputy Chairman to act as an independent resource and conduit for shareholders. The Chairman is an executive if he is a full-time employee and has an operational position in the Bank. iii) The status of the Chairman (whether executive or non-executive) should be publicly disclosed.

c) The role of the Chairman of the Board i) The Chairman promotes a constructive relationship between the Board and the Bank’s executive management, and between the executive Directors and the non-executive Directors.

291 ii) The Chairman promotes a culture in the boardroom that encourages

CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE constructive criticism and presentation of alternative views on certain issues under consideration, and encourages discussion and voting on those issues. iii) The Chairman ensures that both Directors and the Bank’s shareholders receive adequate and timely information. iv) The Chairman ensures high standards of corporate governance by the Bank.

d) Composition of the Board i) The Board shall be comprised of eleven members. It shall be elected by the Annual General Assembly for a term of four years. The Chairman shall be elected by the members of the Board. ii) The composition of the Board should attempt to obtain the optimal mix of skills and experience that enable each of them to participate in the Board discussions with full independence. The Board shall include the General Manager and non-executive members (members who do not occupy operational position in the Bank). iii) To foster the Board’s independence, the Bank’s policy is that the Board should have at least three independent Directors. iv) An ‘independent’ Director (whether a natural person or representing legal entity) is one whose directorship constitutes his/her only connection to the Bank, and whose judgment is therefore unlikely to be influenced by external considerations. Minimum standards for an ‘independent’ Director include: (1) A person who has not been employed by the Bank for the preceding three years; (2) Is not a relative (up to the second degree) of an executive of the Bank; (3) Is not receiving payment or compensation from the Bank (other than as a Director); (4) Is not a director or owner of a company with which the Bank does business (other than business relationships made in the ordinary course of business of the Bank and on substantially the same terms as those prevailing at the time for comparable transactions with non- affiliated parties); (5) Is not, nor in the past three years has been, affiliated with or employed by a present or former external auditor of the Bank; and (6) Is neither a shareholder with an effective interest in the capital of the Bank nor affiliated with one.

292 e) Board practices i) In order to ensure that a full range of topics is considered, the Bank’s Board meetings take place at least six times a year. GUIDE GOVERNANCE CORPORATE ii) The executive management is to schedule a specific topic(s) to be highlighted at each meeting. The topics at each meeting shall be discussed comprehensively. iv) The Bank’s policy is that the Board should include independent element in order that it can exercise objective judgment and to maintain a level of checks and balances to balance the influence of all parties, including executive management and significant shareholders, and ensures that decisions are taken in the Bank’s best interest. v) The Bank should provide adequate information to Directors sufficiently in advance of meetings to enable them to reach informed decisions. vi) The Board Secretary shall record the discussions at all Board meetings. The responsibilities of the Board are clearly identified in accordance with relevant legislation. Each Director of the Bank is provided with a formal appointment letter upon his/her election, in which he/she is advised about his/her rights, responsibilities and duties. viii) All banking transactions that require Board approval are clearly defined in writing, including: The authority of the Board to approve loans larger than a set amount. The authority of the Board to deal with related parties. ix) Directors will keep themselves informed of developments within the Bank, and in the banking industry as a whole, both local and international. The Bank shall provide the Directors with appropriate briefings regarding its activities. x) Communication between Directors and committees of the Board with executive management should be facilitated. xi) The Bank has drawn up an organizational chart, showing lines of reporting and authority including Board committees and executive management. The portion of the chart showing the more senior levels is made public. xii) In addition to the arrangement of Board meetings and the taking of meeting minutes, the Board Secretary shall ensure that Board procedures are followed, and that information is conveyed between the members of the Board, the members of the Board Committees, and the executive management. The function and duties of the Board Secretary are formally defined in writing and, in accordance with this level of responsibility, and the Board Secretary’s appointment as well as his/her removal is taken by the unanimous decision of the Board. f) Board activities: appointments, succession and development i) The Board’s policy is to appoint a General Manager with proven integrity, technical competence, and experience in banking. 293 CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE ii) The Board is required to approve the appointment of some senior executives such as the Chief Financial Officer and the Head of Internal Audit, and to ensure that they have the requisite skills. iii) The Board shall, with respect to appointment, succession and development, ensure:

- The existence of a regulation for occupational levels and grading and another for salary and benefit based on classification and evaluation methodology. - The existence of career path plans, succession plan, performance management plan, and succession plans for executive managers, which list requirements and competences. - That the Bank regularly reviews the staff regulations, instruction and benefits, to ensure maximizing the competitiveness of the Bank in response to the latest global trends in Human Resource for the purpose of attracting and retaining high effective personnel. - That the Bank focuses on providing high level professional qualification programs in areas of expertise needed by the Bank, especially in the fields of compliance, risk management, information security systems and bank secrecy, and that it offers employees the opportunity to gain those qualifications.

g) Board activities: self-assessment and the General Manager performance appraisal i) The Board assesses, at least once a year, its own performance as a Board, as well as the standards of accuracy and fairness of the financial statements of the Bank and the extent of compliance with the regulations, using specific and approved evaluation methods. The evaluation method shall be objective and comparable to those used by other similar banks and financial institutions. ii) There should be a formal annual evaluation of the General Manager by the Board. h) Board activities: planning, controls, code of conduct, conflict of interest policy i) The Board establishes the Bank’s business objectives, and draws up and approves the business strategy for achieving those objectives. Through a planning process, involving input from the Bank’s various departments, the executive management draws up business plans that are consistent with these strategies. The Board is required to approve the strategy, and the business plans, and review the Bank’s performance against the plan, ensuring that corrective action is taken as needed. The Bank’s budgeting process is part of the short-term planning and performance measurement.

294 ii) The Board ensures that the Bank maintains a high degree of integrity in its GUIDE GOVERNANCE CORPORATE operations. Formal policies, including a code of conduct, and definitions and controls on conflicts of interest and insider dealing, have been established and published. All employees and Directors are required to give their assent to these. The policies include the following: (1) Rules and procedures for related party transactions between the Bank and its employees or Directors or their companies, or other related parties, including lending and share trading transactions. Furthermore bank loans extended to Directors and/or their companies are made at market rates and not on preferential terms and the Directors involved in any such transaction do not participate in discussions, nor vote on them. Related party transactions are subject to individual approval by those Directors of the Bank who are unrelated to the transaction, and they are disclosed in the Bank’s annual report. The Bank’s internal controls ensure that all related party transactions are handled in accordance with this policy. (2) Clear controls preventing Directors or employees benefiting from the use of insider information are in place. iii) The Bank has written policies covering all significant bank activities. Such policies are regularly reviewed to ensure that they conform to any changes in laws and regulations, the economic environment and other circumstances affecting the Bank. iv) The Bank as part of its lending and credit approval process, assesses the quality of corporate governance in its corporate borrowers, especially public shareholding companies, including the strength or weakness of their corporate governance practice.

3) Board Committees a) General principles i) The Board is ultimately responsible for the conduct of the Bank’s affairs, but for greater efficiency, Board Committees have been set up with formally delegated objectives, authorities, responsibilities and tenure. The Board Committees regularly report to the full Board and do not substitute for the Board and its’ responsibilities. ii) There is a formal and transparent process for appointments to the Board Committees. The membership of Board Committees, together with summaries of their responsibilities and duties, are disclosed in the Bank’s annual report. iii) The Board may decide to combine the functions of several Committees if appropriate or if administratively more convenient.

295 b) The Corporate Governance Committee i) The corporate governance committee consists of the Chairman and three CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE non-executive members. ii) The committee oversees corporate governance practices within the Bank and ensures that all aspects of corporate governance are complied with. iii) The Committee assumes the responsibility of updating and implementation of this Code.

c) The Audit Committee i) The Bank has an Audit Committee that comprises at least three non- executive Directors. Membership of the Audit Committee is disclosed in the Bank’s annual report. ii) The Bank’s policy is that at least two members of the Audit Committee should have relevant financial management qualifications and/or expertise and at least two members of the Audit Committee are independent Directors. iii) The Audit Committee has all the duties and responsibilities required by the Banking Law and other relevant laws and regulations, including the duties to review: (1) the scope, results and adequacy of the Bank’s internal and external audits, (2) the accounting judgments that are intrinsic to the financial statements; and (3) the Bank’s internal controls. iv) The Audit Committee recommends to the Board the appointment or the removal, the remuneration, and other contractual terms of the external auditors, in addition to assessing the objectivity of the external auditors, including the consideration of any other non-audit work performed by the external auditors. v) The Audit Committee has the ability to obtain any information from executive management, and the ability to call any executive or Director to attend its meetings. vi) The Audit Committee meets each of the Bank’s external auditors, its internal auditors and its compliance officers, without the presence of the executive management, at least once a year. vii) The Bank recognizes that the Audit Committee does not substitute for the responsibilities of the Board or the Bank’s executive management for the supervision and adequacy of the Bank’s internal control systems. viii)The Audit Committee approves the annual audit plan and oversees its implementation. It also reviews audit reports and is responsible to oversee the Internal Audit Department.

d) The Selection and Remuneration Committee i) The Selection and Remuneration Committee consists of a minimum of three non-executive Directors, the majority of which (including the Committee 296 chairman) are independent. ii) The Committee determines whether a Director is ‘independent’ based on GUIDE GOVERNANCE CORPORATE the minimum standards for independence set out in this Code. iii) It is responsible for providing background briefing material for Directors as requested, as well as ensuring that they are kept up to date on relevant banking topics. The Bank encourages Directors to attend seminars and events that allow them meet local and international organizations, entities and companies. iv) The Selection and Remuneration Committee recommends to the Board the remuneration (including monthly salary and other benefits) of the General Manager. It also reviews the remuneration (including salaries) of other members of the executive management. v) The Committee ensures that the Bank has a remuneration policy, which is sufficient to attract and retain qualified individuals, and is in line with the Bank’s peers in the market. vi) A summary of the Bank’s remuneration policy is disclosed in the Annual Report. In particular, the remuneration of individual Directors and the highest paid non-Director executives is disclosed, including salary and benefits in kind. vii) Nothing prevents the Selection and Remuneration Committee from nominating members of the Board for a new term according to the Companies Law, taking into consideration their attendance, quality and extent of their participation in the Board meetings. In accordance with the Companies Law, the tenure of the Board expires every four years from the date of election, and each Director may submit himself/herself for re- election at the Annual General Assembly. e) The Risk Management Committee i) The Risk Management Committee is comprised of three Directors and the Chairman. It also includes three members of the executive management. ii) The Board reviews and approves the risk management strategies and policies of the Bank. Executive management is responsible for implementing the strategies that have been approved by the Board, and for developing the policies and procedures for managing the various types of risks. iii) The structure and development of a coherent and comprehensive risk management department within the Bank is to be proposed by executive management, reviewed by the Risk Management Committee, and approved by the Board. iv) The Bank considers that, owing to the rapid development and increasing complexity of risk management, the Risk Management Committee should keep itself fully informed of developments in the Bank’s risk management. Accordingly, the Committee makes regular reports of this to the Board.

297 v) The Board ensures that the Bank has an effective control system and is responsible to oversee its effectiveness. The Board also approves risk CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE management policies and defines their framework.

F) The Corporate Strategy Committee i) The Corporate Strategy Committee comprises three Directors as well as the Chairman/General Manager, it also includes as members; the Chief Financial Officer and the Assistant General Manager. ii) The Corporate Strategy Committee has the following duties: (1) Oversees all issues related to the Strategy of the Bank and formulates general policies to effectively implement that strategies. (2) Approves strategic decisions and oversees the work of the executive management and management team with regard to; - Strategy, business plans and performance for all divisions and business lines, - Succession planning for executive managers, and - Corporate Actions. (3) Reviews and approves any new investments, acquisitions, mergers and expansion in new markets, and selling of assets of the Bank or of its subsidiary or affiliate companies. 4) Control Environment a) Internal controls i) The Bank’s structure of internal controls is reviewed at least once a year by internal and external auditors. ii) The Board provides a statement in each annual report on the adequacy of the Bank’s internal controls on its financial reporting, it contains: (1) A statement of executive management’s responsibility for establishing and maintaining adequate internal control over financial reporting for the Bank; (2) A statement identifying the framework used by executive management to evaluate the effectiveness of the Bank’s internal controls; (3) The executive management’s assessment of the effectiveness of internal control up to the date of the financial statements included in the annual report; (4) Disclosure of any material weaknesses in the internal controls (i.e. a significant deficiency or combination of significant deficiencies that result in the possibility that a material misstatement will not be prevented or detected); (5) A statement that the Bank’s external auditor has issued an attestation on the executive management’s assessment of the effectiveness of internal controls.

298 iii) The Bank has established arrangements that allow staff to confidentially raise concerns about possible irregularities, and that allow for such concerns to be independently investigated and followed up. Such arrangements are GUIDE GOVERNANCE CORPORATE overseen and monitored by the Audit Committee. b) Internal audit i) The Bank’s policy requires the Internal Audit function of the Bank to be adequately resourced, trained and remunerated. It is to be provided full access to Bank records and staff members and should be given sufficient standing and authority within the Bank to adequately carry out its task. The functions, powers and responsibilities of Internal Audit are documented within the Internal Audit Charter which is approved by the Board and published within the Bank. ii) Internal Audit function reports primarily to the Chairman of the Audit Committee. To promote independence, internal audit staff do not also have operational responsibilities. The internal audit function is responsible for proposing the structure and scope of the audit schedule, and any potential conflicts of interest are to be reported to the Audit Committee. iv) The internal audit function’s reports may be discussed with the departments and operational units being reviewed, but it is allowed to operate and make a full and honest report without outside influence or interference. v) The primary responsibility of the internal audit function and for conducting risk focused audits, is at least the review of: (1) The Bank’s financial reporting, ensuring that significant financial, managerial, and operating information is accurate, reliable and timely; and (2) Compliance with internal policies, international standards and procedures, and applicable laws and regulations. c) External audit i) The Bank requires the regular rotation of the external audit between auditing firms. Should this no longer be practical, then the Bank will at a minimum require the regular rotation of the principal partner in charge of the external audit. ii) The external auditors’ report is submitted to both the Audit Committee and the Annual General Assembly. The external auditors meet with the Audit Committee, without executive management present, at least once a year. d) Risk Management i) The Risk Management department within the Bank reports to the Risk Management Committee of the Board, and on a day-to-day operational basis it reports to the General Manager.

299 ii) The responsibilities of the Bank’s Risk Management department include: (1) Analysis of all risks including credit risk, market risk, liquidity risk and operational risk; (2) Development of methodologies for the measurement and control of

CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE each risk; (3) Recommendation of limits to Risk Management Committee, and the approval, reporting and recording of exceptions to policy; (4) Provision of information on risk metrics and on the Bank’s risk profile to senior management and to the Board which reviews the risk statistics of the Bank, both qualitative and quantitative, at each regular Board meeting; and (5) Provision of risk information for use in the Bank’s public statements and reporting. iii) The functions of the Risk Management department are assisted by a network of properly constituted, authorized, and documented committees such as credit committees, assets and liabilities/treasury committees, and operational risk committees. iv) The structure, operation, and ongoing development of the Bank’s Risk Management Department are discussed and explained in the Bank’s public documents, primarily in its annual report.

e) Compliance i) The Bank’s policy is that it has an independent compliance function which is adequately resourced, trained and remunerated in accordance with the Central Bank’s instructions in this regard. ii) The compliance function establishes effective mechanisms to ensure that the Bank complies with all applicable laws and regulations, and any non- statutory guidelines and codes. The powers and responsibilities of the compliance function are documented and published within the Bank. iii) The compliance function is responsible for developing the compliance policy of the Bank and ensuring its implementation throughout the Bank. The Board is responsible for approving the compliance policy and overseeing its implementation. iv) The compliance function reports on operational compliance within the Bank to the Chairman or a committee of the Board, copying the General Manager on each report, in accordance with the Central Bank’s instructions in this regard.

5) Treatment of Shareholders i) The Bank takes proactive steps to encourage shareholders, in particular minority shareholders, to participate in the Annual General Assembly, and also to vote either in person or in their absence by proxy. ii) The Bank’s policy is that the chairmen of all Board Committees should be present at the Annual General Assembly, and are invited to address relevant questions from shareholders.

300 iii) Representatives from the external auditors are present at the Annual General Assembly to answer questions about the audit and their auditors’ report. iv) The Bank’s policy requires voting on each separate issue that is raised at the Annual General Assembly. v) As required by the Companies Law, Directors submit themselves for GUIDE GOVERNANCE CORPORATE election or re-election at the Annual General Assembly, as provided by the Memorandum of Association of the Bank, and the Bank’s external auditors are elected at the Annual General Assembly. vi) Notes, minutes, and a report of the proceedings of the Annual General Assembly, including the results of voting, and the questions from shareholders and executive management’s responses, are prepared and made available to shareholders after the Annual General Assembly.

6) Transparency and Disclosure i) The Bank is required to disclose in accordance with the International Financial Reporting Standards (IFRS), the Banking Law and instructions issued pursuant thereto, and other relevant legislation. Furthermore, the Bank acknowledges that financial reporting practices and the level of transparency required of financial institutions is changing rapidly. The Bank’s executive management reports on these developments to the Board, and makes recommendations for the regular enhancement of the Bank’s own disclosure practices, beyond those required by the Central Bank of Jordan. ii) The Bank recognizes its obligation to provide meaningful information on its activities to shareholders, depositors, financial market counterparts, regulators and the public in general. It also has a duty to address shareholder concerns. The Bank’s disclosure of such information on a timely basis should be available to all. iii) The Board accepts responsibility for the Bank’s financial statements and the contents of the Annual Report, for their accuracy, and for their completeness. iv) The Bank commits to maintaining the following information channels with its shareholders, depositors, financial market counterparts, regulators and the public in general: (1) A professionally-staffed investor relations function that provides comprehensive, objective, and up-to-date information on the Bank, its financial condition and performance, and its activities; (2) The Annual Report, produced after the end of the financial year; (3) Quarterly reports, providing quarterly financial information and the Board’s report on the Bank’s stocks trading and financial condition during the year; (4) Regular meetings between senior executives of the Bank and investors and shareholders; (5) Regular briefings by senior executives of the Bank, especially the General Manager and the Chief Financial Officer, for shareholders, financial market analysts, and financial journalists; and

301 CORPORATE GOVERNANCE GUIDE GOVERNANCE CORPORATE

(6) Information provided through the Bank’s annual report, or its quarterly reports, and the text of any public presentations given by executives, is made available to interested parties both in writing through the Bank’s investor relations function, and in a timely manner on the Bank’s website, in both Arabic and English. v) In its annual reports and quarterly reports, the Bank’s executive management includes ‘Management Discussion and Analysis’ (MD&A) which enables investors to understand current and future operating results and the financial condition of the Bank, including the possible impacts of known trends and events and uncertainties. The Bank commits to ensuring that such commentary is reliable, complete, fair and balanced, and understandable, and is grounded in the Bank’s financial statements as reported. vi) As part of its commitment to transparency and full disclosure, the Bank includes the following information in its annual report: (1) Its Corporate Governance Code, and annual details of its compliance, (2) Information on each individual Director: qualifications and experience, shareholding in the Bank, whether an independent, non-executive, or executive Director, the membership of Board Committees, dates of appointment to the Board, other directorships, attendance at Board and Board Committee meetings, remuneration, loans from the Bank and other transactions between the Bank and the Director or his companies or other related parties; (3) Summary organization chart; (4) Summaries of the terms of reference of Board Committees, and any authorities delegated by the Board to Board Committees; (5) The frequency of Board and Board Committee meetings; (6) Summary of the remuneration policy including remuneration of highest paid members of the executive management; (7) Statement by the Board of the adequacy of internal controls; (8) A description of the structure and activities of the risk management department; (9) A list of the largest shareholders of the Bank (for example, individual or related parties holding or controlling more than 10% of shares), identifying the ultimate beneficiaries of such interests, if this is needed for explanation.

302 The Arab Bank confirms its commitment to the application of the provisions and terms contained in the Guide to Corporate Governance adopted by the Board of Directors on 30/12/2007. C

Disclose the extent of obligation to apply the guidelines of the Corporate larification Governance Guide for listed companies in the Amman Stock Exchange.

Company name : Arab bank Fiscal year : 2012 Chairman of the Board of Directors : Sabih Taher Darwish Masri Chief Executive Officer : Nemeh Sabbagh

concerning The company is committed to all the rules, as it is committed to the rules guiding in line with the nature and type of activity / business banking and in accordance with the provisions and laws in force and applicable, and that the rules guiding the company fails it is set out, consequently, and pointing towards them justification for non-compliance by: -

No. Rule Cause the Members of the board will be elected What is happening to the Companies in accordance with the cumulative Control Department and in accordance C method of voting by the company’s with the provisions of the Companies general assembly and in secret ballot. Act is the election to all candidates or orporate 1- for some candidates or to one not ex- (Indicative Rule) ceeding the number of the company’s board In accordance with the article of the association of the company. Board of Directors sends invitations to The company is committed to send

each shareholder to attend the meet- the invitations to the shareholders to G ing of the General assembly by e-mail, attend the meeting of the General As- overnance before 21 days of the due date for the sembly in accordance with the provi- 2- meeting, to be set up arrangements sions of Article (144) of the Companies and appropriate procedures for the law. convening of the meeting, including choosing the place and time. (Indicative Rule) The date and venue of the General As- The company commits to announce

sembly meeting will be announced in the date and venue of the meeting of G 3- three local daily newspapers and at the General Assembly in accordance uide least twice on the company’s website. with the provisions of Article (145) of (Indicative Rule) the Companies law. Distribute the annual dividends of the The company commits to distribute company within thirty days after the dividends within 45 days from the date decision has been taken in the general of issuance of the decision, and distrib- 4- assembly meeting uted in accordance with the provisions (Indicative & Obligated Rule) of the Article (191 / c) of the Compa- nies Act.

303 the agendas Agenda of the 83rd Ordinary General Assembly: 1. Reciting the minutes of the previous ordinary meeting of the 82nd General of Assembly. the 2. Discussion and approval of the report of the Board of Directors for the fiscal 83 year 2012 and the future business plan of the company for 2013. rd annual 3. Presentation of the auditors’ report on the financial statements of the Bank for the fiscal year 2012.

4. Discussion and approval of the financial statements and balance sheet of ordinary the Bank for the fiscal year 2012, and adoption of the recommendation of the Board of Directors to pay dividends to shareholders at the rate of JOD 0.300 per share, i.e. 30% of the nominal value of the share being JOD 1.00. general 5. Obtaining the approval of the General Assembly on the resolution of the Board of Directors to appoint Dr. Omar Ahmad Munif Razzaz and Mr. Bas- sam Wael Rushdi Kanaan as members of the Board of Directors for its cur- assembly rent period ending in 25/3/2014, to fill the vacancy following the resigna- tion of Mr. “Mohammad Abdel Hamid” Abdul Majeed Shoman and Ms. Dina “Mohammad Abdel Hamid” Shoman according to Section 150 of Compa- nies Law Number 22 for the Year 1997 and Article 28 of the Articles of As- meeting sociation of the Bank. 6. Release of the members of the Board of Directors from liability for the fiscal year 2012. and 7. Election of the Bank’s auditors for the fiscal year 2013 and deciding on their the remuneration. Ex 8. Other matters which the General Assembly proposes to include in the traordinary agenda and are within the work scope of the General Assembly in its ordinary meeting provided that such proposal is approved by shareholders representing not less than 10% of the shares represented in the meeting. G

eneral Agenda of the Extraordinary General Assembly: - Obtaining the approval of the General Assembly to amend the item per-

A taining to the definition of the Chairman in Article (1); and to delete Sub- ssembly artilce (A) of Article (26) of the Articles of Association as per the attached text.

304 the Main Head Office Address and Address of Each Branch

Country Address arab

Tel. 00962 (6) 5600000 General Management

00962 (6) 5660140 PO BOX 950545 bank Fax. 00962 (6) 5606793 Amman 11195 Jordan 00962 (6) 5606830

Amman network Jordan Tel. 00962 (6) 4638161/9 PO Box 144186 Fax. 00962 (6) 4637082 Amman 11814 Jordan

Shmeisani Tel. 00962 (6) 5000013 PO Box 144186 Fax. 00962 (6) 5670564 Amman 11814 Jordan

PO Box 1476, Grand Park Hotel Street Tel. 00970 (2) 2978100 Palestine Al Masyoon - Ramallah Fax. 00970 (2) 2982444 Palestine

PO Box 813, Building 540, Tel. 00973 17549000 Bahrain Road 1706 - Block 317, Diplomatic Area Kingdom of Bahrain Fax. 00973 17541116

Abu Dhabi: Tel. 00971 (2) 6392225 PO Box 875 Fax. 00971 (2) 6212370 Naser St. SH. Tahnoon Bin Moh’d Bldg. United Arab Emirates Dubai: Tel. 00971 (4) 2950845 PO Box 11364 Al-Ittihad St. Fax. 00971 (4) 2955974 Port Saeed Area

PO Box 11-1015 Riad El Solh Tel. 00961 (1) 980246/9 Banks Street Lebanon Fax. 00961 (1) 980299 Commercial Buildings Co. Bldg. 00961 (1) 980803 Beirut -Lebanon

305 Country Address

46 Gamet El Dowal El Arabia St. Tel. 00 202 3332 8500 Egypt Mohandessein- Al Giza Fax. 00 202 333 88618

the PO Box 475 & 1301 Tel. 00967 (1) 276585/93 Yemen Zubairi Fax. 00967 (1) 276583 Sana’a arab PO Box 13810 Tel. 00212 (5) 2222 3152 Morocco 174 BD MED Fax. 00 212 (5) 22220233

Casablanca bank PO Box 172 Grand Hammed Area Tel. 00974 44387777 Avenue no. 119 Qatar Fax. 00 974 44387677 Doha – Qatar network 15 Boulevard du bon- heur residence Chaabani Tel: ++ 213 (21) 60 87 25 Algeria Val D›Hydra Fax: ++213 (21) 60 87 08 Alger - Algeria 80 Raffles Place Tel. 0065 65330055 Singapore UOB Plaza 2 # 32-20 Fax. 0065 65322150 Singapore 048624 Federal Agency- New York United States of America Tel.: +1 (212) 7159700 150 East 52nd Street (New York Agency) Fax.: +1 (212) 5934632 New York , NY 10022-4213 Unit 1803, China Shanghai Trade Square Tel. 0086 (21) 65077737/38 (Representative Office) 188 Si Ping Road, Fax. 0086 (21) 65072776 Shanghai 200086, China

South Korea Samwha Bldg., 4th FIoor Tel. 0082 (2) 775 4290 21 Sogong-Dong, Chung-ku (Representative Office) Seoul 100-070 Korea Fax. 0082 (2) 775 4294 Europe Arab Bank plc Tel. 0044 (20) 7315 8500 13-15 Moorgate, EC2R 6AD London United Kingdom Fax. 0044 (20) 7600 7620 PO Box 319 75365 Paris Cedex 08 Tel. 0033 (1) 4561 6000 France 26 Avenue des Champs Elysees Fax. 0033 (1) 4289 0978 75008 Paris

306 Country Address

Corso Matteotti 1A Tel. 0039 (2) 7639 8521 Italy 20121 Milan Fax. 0039 (2) 78 2172

Paseo de la Castellana 31, planta baja, Tel. 0034 (91) 308 4290 the Spain 28046 Madrid Fax. 0034 (91) 308 6484

arab Bockenheimer Landstrasse 24 Tel. 0049 (69) 242 590 Germany 60323 Frankfurt am Main Fax. 0049 (69) 235 471

Mahlerstrasse 7 bank Tel. 00431 513 4240 Austria Top 15+16 Fax. 00431 5134 2409 1010 Vienna

PO Box N 645 network Tel. 0061 (2) 9377 8900 Grosvenor Place NSW 1220 Arab Bank Australia Ltd. Fax. 0061 (2) 9221 5428 Level 9, 200 George Street Sydney NSW 2000

19 Mayis Mah. 19 Mayis Cad. Tel. 0090 (212) 368 3434 Turkland Bank A.S Sisli Plaza, A Block No. 7 Fax. 0090 (212) 368 3535 Sisli 34360 Istanbul – Turkey

Zurich Bahnhofstrasse 46 Tel. 0041 (44) 2657111 PO Box 2023 Fax. 0041 (44) 2657330 Arab Bank CH – 8022 Zurich )Switzerland(Ltd. Geneva Place Longemalle 10-12 Tel . 0041 (22) 7151211 PO Box 3575 Fax. 0041 (22) 7151311 CH – 1211 Geneva 3

24 Rue Neuve - du - Molard Finance Accountancy Tel . 0041 (22) 9083000 PO Box 3155 Mohassaba Fax. 0041 (22) 7387229 CH – 1211 Geneva 3

PO Box 9194 Amman 11191 Al Nisr Al Arabi Tel. 00962 (6) 5685171 Amman Commercial Center Insurance Co. Abdali / Amman - Jordan Fax. 00962 (6) 5685890

Al Mahdi Bin Barka St. Tel. 00963 (11) 9421 Arab Bank - Syria Abu Rummana / Damascus – Syria Fax. .00963 (11) 334 9844

307 the Country Address

arab Wasfi Al-Tal st.(Gardens) Islamic International Arab Tel. 00962 (6) 5694901 PO Box 925802 Bank plc. Fax. 00962 (6) 5694914 Amman 11190 Jordan

bank PO Box 11 -7000 Tel./Fax. 00961 (1) 985111 Arab Investment Bank Riad El- Solh - Banks St. 00961 (1) 985222 S.A.L Commercial Buildings Co. Bldg. 00961 (1) 987333

network Beirut-Lebanon

PO Box 143156 11814 Al- Rabia Al- Arabi Tel. 00962 (6) 5522239 Sharif Naser Bin Jamil, Investment Group Co. Fax. 00962 (6) 5519064 Bldg No (1) Amman – Jordan

P.O. Box 520 Tel.: 00216 (71) 351155 Arab Tunisian Bank Tunis 1001 Fax: 00216 (71) 347270

P.O. Box 2010 Ruwi Tel : 00968 24706265 Oman Arab Bank S.A.O MBD Area Postal Code No. 112 Sultanate Of Oman Fax : 00968 24797736

P.O. Box 56921 Tel. : 00966 (1) 4029000 Arab National Bank King Faisal Street Riyadh 11564 Fax.: 00966 (1) 4027747

P.O. Box 11-2172 Phiniqia Street Tel: 00966 (1) 363610 Arabia Insurance Co. Beirut - Lebanon Fax: 00966 (1) 363659

PO Box955 Tel: 00249 156550001 Arab Sudanese Bank Baladiyeh St. Fax: 00249 156550003 Khartoum-Sudan

Al Arabi Investment PO Box1476 Tel : 00970 (2) 2980240 Group Co / .Palestine Ramallah ,Palestine Fax : 00970 (2) 2980249

308