CHAIRMAN’S LETTER CONSOLIDATED FINANCIAL STATEMENTS 06 92 Consolidated Financial Statements KEY FIGURES 86 Auditors’ Report 89 Consolidated Income Statement for 08 the year ended 31 December 2017 90 Consolidated Statement of ORGANIZATIONAL CHART Comprehensive Income for the year 11 ended 31 December 2017 91 Consolidated Statement of Financial GROUP CHART Position at 31 December 2017 12 92 Consolidated Statement of Changes in Equity for the year ended 31 December 2017 CORPORATE GOVERNANCE 96 Consolidated Statement of Cash 16 Flows at 31 December 2017 97 Notes to the Consolidated Financial Code of Corporate Governance Statements BLOM BANK S.A.L. Major Common Shareholders Board of Directors List of Board Members WORldwIDE Information about Board of Directors CORRESPONDENT BANKS Board Meetings held in 2017 186 Information on Key Members of BLOM BANK S.A.L. Management BLOM BANK S.A.L. Commercial Arrangements BLOM BANK GROUP General Management of BLOM BANK S.A.L. MANAGEMENT & NETwoRK 188 MANAGEMENT DISCUSSION 188 Banks & Financial Subsidiaries & ANALYSIS 2017 BLOM BANK S.A.L. 33 BLOMINVEST BANK S.A.L. BLOM DEVELOPMENT BANK S.A.L. 33 The Operating Environment in Lebanon BLOM BANK FRANCE and the MENA Region BLOM BANK (SWITZERLAND) S.A. 40 Overview BLOM BANK EGYPT 41 Total Assets BLOM EGYPT SECURITIES 42 Sources of Funds BLOMINVEST SAUDI ARABIA 45 Uses of Funds BLOM BANK QATAR LLC 51 Liquidity BLOM SECURITIES 51 Performance BLOM ASSET MANAGEMENT COMPANY S.A.L. 58 Dividend Distribution and Preferred BLOM EGYPT INVESTMENT S.A.E. Shares Revenue 207 Insurance Subsidiaries . L 59 Risk Management and Basel Preparations . A AROPE INSURANCE S. 65 Corporate Governance AROPE INSURANCE EGYPT 67 Universal Banking Services 74 Information Systems and Technology 75 People Development BLOM BANK BANK BLOM 80 Bank’s Operational Efficiency 80 Corporate Social Responsibility 2 DR. NAAMAN AZHARI Chairman of BLOM BANK Group MR. SAAD AZHARI Chairman and General Manager of BLOM BANK S.A.L. Annual Report 2017 3 Annual Report 2017 5 CHAIRMAN’S LETTER As is well known, 2017 was a tough year for Lebanon, which is the lowest among listed banks. In addition, especially towards its end, as political uncertainty was BLOM BANK’s GDR stock was a shareholders’ favorite, heightened and as the economy and the banking sector rising highest at 12.4% over the year and registering the were subjected to more and higher taxes. But BLOM BANK, highest market capitalization among listed banks at USD thanks to its conservative yet flexible business model, 2.73 billion. And with a dividend of USD 1.13 per share was able to surpass these difficulties and record some before tax, it generated a dividend yield of 10.21%, again impressive accomplishments, in terms of performance, the highest among listed banks, and implied a payout innovation, and service. ratio of 50.14%. What was also noteworthy was the Bank’s lending portfolio as it split into 42.5% in retail, 27.0% in In terms of performance, BLOM BANK managed to corporate, 20.0% in SMEs, 6.6% in project finance, and attain the highest level of operational net profit in the 3.9% in real estate, thus indicating a healthy coverage of Lebanese banking sector at USD 485.3 million, driven by financial inclusion. As important, it implied strong market its managerial efficiency and the notable performance leadership in retail in Lebanon, with the Bank grabbing the of its domestic and foreign operations. The same was highest market shares in car loans at 26.6% and in housing true of profitability ratios as the Bank scored an ROAA loans at 14.7%. of 1.56% and ROACE of 17.20%, the highest among listed banks. Balance sheet aggregates faired very well too: In terms of innovation, what stand out are the Bank’s assets stood at USD 32.54 billion, up by 10.3% from 2016; digitalization drive and the widening scope of its activities. deposits at USD 26.64 billion, up by 7.4%; loans at USD The Bank’s digital agenda has become an important part 7.54 billion, up by 5.2%; and shareholders’ equity at USD of the Bank’s strategy to ease and reduce the cost of 3.01 billion, up by 2.5% and mildly affected by the retrieval interacting and delivering services to its clients, as it slows of the Bank’s 2011 preferred shares. This performance down its reliance on the “bricks and mortar” format of new has additionally benefited from the Bank’s excellent branches. The latest of these innovations is BLOMPAY, the acquisition and merger of HSBC Lebanon’s 3 branches in new service that enables customers to make purchases June 2017, which contributed USD 592 million in deposits using their Android smartphones. It was also a “market and USD 464 million in loans to the Bank’s consolidated first” in that it was the first in Lebanon to be integrated to balance sheet and enriched its corporate and trade the Bank’s mobile banking app and to apply to credit and finance activities. debit cards and multiple cards. Good performance was also reflected in the Bank’s The Bank also engaged in a wider menu of activities. Of . L . financial position and stock market returns. The Bank’s these is the pioneering association with the Lebanese A S. capital adequacy ratio reached 18.14%, its net NPL 0.5%, General Security so as to enable citizens to pay for its primary liquidity 81%, its coverage for non-performing transactions using their Visa and Mastercard by installing loans (from specific and collective provisions and real POS machines in 50 general security locations. Another guarantees) 156%, and its cost-to-income ratio 34.36% is the trade finance guarantee agreement with the BLOM BANK BANK BLOM 6 CHAIRMAN’S LETTER As is well known, 2017 was a tough year for Lebanon, but BLOM Bank, thanks to its conservative yet flexible business model, was able to surpass these difficulties and record some impressive accomplishments, in terms of performance, innovation, and service. BLOM BANK managed to attain the highest level of operational net profit in the Lebanese banking sector at USD 485.3 million, driven by its managerial efficiency and the notable performance of its domestic and foreign operations. The same was true of profitability ratios as the Bank scored an ROAA of 1.56% and ROACE of 17.20%, the highest among listed banks. Looking forward, BLOM BANK will continue to strengthen its status as a leading bank in the region; and will continue with its successful strategy of gradual digital transformation and the development of its foreign footprints, especially in Egypt which is the second largest market of the BLOM BANK Group. IFC that provides financing to our clients in their trade launched, in partnership with Economena and Moody’s, activities at reduced and very reasonable rates. Also, the BRITE platform which is an exhaustive website that there was BLOMINVEST Bank’s advisory role for Kingdom provides free access to more than 5,000 economic and Holding Investments in the sale of its 58% stake in Beirut’s financial indicators on Lebanon. Four Seasons Hotel, which was the largest transaction completed in 2017 in the hotel landscape in Lebanon. Looking forward, BLOM BANK will continue to strengthen Last but not least, late 2017 saw the Bank’s preparation to its status as a leading bank in the region; and will issue USD 300 million in CDs (with a maturity of 5 years continue with its successful strategy of gradual digital and an interest rate of 7.5%) to lengthen the duration of its transformation and the development of its foreign liabilities, and which was launched to the market in April footprints, especially in Egypt which is the second largest 2018. market of the BLOM BANK Group. It will also look forward to partake in the economic restructuring of Lebanon In terms of service, the Bank maintained in 2017 its once, as we all hope, the “Cedre” funds start pouring into consistent selection as the “Best Bank in Lebanon” by the country and the requisite reforms are undertaken. the major international and regional institutions for the Peace of Mind that it delivers to its customers. BLOM is Lastly, BLOM BANK’s achievements would not have the Bank with the most horizontal and vertical spread in been possible without the goodwill of our stakeholders, the region and Europe, offering its clients a rainbow of from our customers and shareholders to our staff and cross services and locations. It is also the Bank that offers management. We thank you all, very truly. its services from 8am to 5pm in its branches and has a world-class system of internet banking that provides the best convenience and security. BLOM BANK’s reputable banking and financial services are also richly complemented with corporate social responsibility (CSR) services. In 2017, the Bank’s distinguished CSR record in education, culture, and humanitarian causes was reinforced by two new undertakings. First, BLOMINVEST BANK was selected to administer the Hult prize for Lebanon with a budget of USD 1.5 million, where teams will be competing on the theme of “how to leverage energy to transform the lives of I0 million people”. In addition, BLOM BANK will sponsor the communications budget for the Hult prize in Mr. Saad AZHARI Lebanon, Jordan, and Egypt. Second, BLOMINVEST BANK Chairman and General Manager Annual Report 2017 7 KEY FIGURES CONSOLIDATED CUSTOMERS’ DEPOSITS EVOLUTION (IN USD MILLION) 2017 26,642 24,811 25,091 2014 24,006 22,572 21,791 2011 20,296 19,606 18,024 2008 15,109 13,737 11,735 2005 10,161 8,992 7,686 2002 6,215 5,525 5,056 1999 4,330 3,861 3,333 1996 2,686 1,805 1,259 years 0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 .