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Annual Report 2019 Worldwide Correspondent Banks

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Annual Report 2019 Worldwide Correspondent Banks REPORT 2019 Table of Content I Chairman’s Letter 4 II Key Figures 6 III Evolution of Main Indicators 8 IV Organizational Chart 9 V Group Chart 10 VI Corporate Governance 12 1. Code of Corporate Governance 2. BLOM BANK S.A.L. Major Common Shareholders 3. Honorary and Advisory 4. Board of Directors 5. Information about Board of Directors 6. Biographies of Key Members of BLOM BANK S.A.L. Management 7. BLOM BANK S.A.L. Commercial Arrangements 8. General Management of BLOM BANK S.A.L. VII Management Discussion & Analysis 2019 32 1. The Operating Environment in Lebanon and the MENA Region 2. Overview 3. Evolution of Total Assets 4. Sources of Funds 5. Uses of Funds 6. Performance 7. Dividend Distribution 8. Risk Management and Basel Preparations 9. Corporate Governance 10. Universal Banking Services 11. Information Systems and Technology 12. People Development 13. Bank’s Operational Efficiency 14. Corporate Social Responsibility 2 VIII Consolidated Financial Statements 80 1. Auditors’ Report 2. Consolidated Income Statement for the year ended 31 December 2019 3. Consolidated Statement of Comprehensive Income for the year ended 31 December 2019 4. Consolidated Statement of Financial Position at 31 December 2019 5. Consolidated Statement of Changes in Equity for the year ended 31 December 2019 6. Consolidated Statement of Cash Flows at 31 December 2019 7. Notes to the Consolidated Financial Statements IX Worldwide Correspondent Banks 198 X BLOM BANK Group Management & Network 199 1. Banks & Financial Subsidiaries 2. Insurance Subsidiaries 3 Chairman's Letter BLOM BANK’s performance in year 2019 came largely better than expected but was surely affected by the impact of the financial and economic crisis that has struck Lebanon since October 2019. Net profits came to USD 115.411 million, lower by 77.44% from year 2018. As to balance sheet items, assets stood at USD 33.296 billion, lower by 9.38%; deposits were USD 26.462 billion, lower by 2.78%; loans decreased to USD 5.814 billion, less by 18.85%; and shareholders’ equity declined to USD 3.156 billion, less by 3.44%. In terms of profitability and efficiency ratios, return on average common equity was 3.48% and return on average assets was 0.33%; while the cost to income ratio stood at 56.12% (excluding depreciation) and the ratio of gross non-performing loans at 7.1%. Net profits emanated mostly from our units outside Lebanon, especially from our unit operating in Egypt which constituted 43% of consolidated profits. As to our branches operating in Lebanon, they did not generate any profits in 2019, as a result of the provisions that the Bank took in accordance with Banque Du Liban’s (BDL) circulars, so as to cover for the credit risks arising from the conditions prevailing in Lebanese financial ASSETS markets. In this respect, it is interesting to note that BLOM was the only Bank among the USD 33.30 billion four largest listed banks to record positive net profits in 2019, largely as a result of the lower relative provisions that it booked and which totaled USD 327.0 million. And besides recording the best returns on average equity and assets, the Bank also had the highest Tier 1 CAR at 9.88%. Moreover, and as is well known, BLOM BANK is required to comply by all BDL circulars as DEPOSITS stipulated in the Code of Money and Credit, especially article 208. As a result, the Bank has complied by these circulars when calculating expected credit losses in accordance USD 26.46 billion to the specified ratios listed in Appendix 6 of BDL circular number 44, and as amended by the intermediate circular number 543 issued by BDL on February 3rd, 2020 for the year 2019 accounts. In this context, the Board of Directors has noted and approved the adverse opinion of the external auditors concerning the financial statements of our Bank in Lebanon for year 2019. And the Board has unanimously decided, for the sake of transparency, to publicize this adverse opinion of the external auditors, and this decision LOANS has been approved by the General Assembly. It is worth pointing out, though, that after USD 5.81 billion the Lebanese government’s default on its foreign debt in March 2020, there is not yet a clear enough picture on the extent of the losses that banks will assume. It is hoped that this uncertainty will be cleared with the formation of a new government and the implementation of a credible economic and financial reform program. Equally important, BLOM BANK would like to take this opportunity to express its regret for all the restrictions that it was obliged to impose – like the rest of the banking sector and in coordination with BDL – and that were applied without favoritism towards any of its clients, shareholders, or employees. 4 Chairman's Letter On a different note, the crisis in 2019 has not deterred BLOM BANK's innovative streak, BLOM BANK would for it continued to add new products and services to its wide spectrum of products; in addition to crucial initiatives in CSR. These mainly were: like to take this opportunity to i) BLOMPay: a first of its kind service in Lebanon and the region (only Emirates NBD had express its regret for introduced a similar service) that allows the cardholder of any BLOM Visa or Mastercard card, whether debit or credit, to make payments via an android mobile phone integrated all the restrictions within our internet/mobile banking platform eBLOM quickly, safely and easily. BLOMPay that it was obliged uses the latest technologies from Visa (VTS) and MasterCard (MDES). to impose – like the ii) BLOM Visa Infinite Privilege: BLOM BANK is the first bank in Lebanon to launch the Visa rest of the banking Infinite Privilege card. Few banks in the region were selected to do the same. This card is sector and in exclusive and addressed to the UHNWI, the highest category with Visa. coordination with iii) Zero Liability: a guarantee to cardholders that they won’t be held responsible for BDL – and that were unauthorized charges made with their account or account information. This provides applied without protection for them if their Visa card is lost stolen or fraudulently used, online or offline. It got global recognition from Visa as a case study and received Excellence in Risk favoritism towards Management award by Visa CEMEA. any of its clients, shareholders, or iv) START Savings Account: in terms of CSR initiatives, BLOM BANK became in September 2019 the first commercial bank to collaborate with the USAID on a new endeavor that employees. aims to embark unbanked clients in rural Lebanese areas, as part of the Bank’s financial inclusion strategy. BLOM BANK has introduced START Savings Program - a one of a kind savings account without any minimum balance, offering a preferential interest rate on amounts as low as LBP 40,000 (approximately USD 27 at the official rate) to encourage low income individuals to save money for a better future. Of course, the year 2020 brought additional shocks to Lebanon - the Covid-19 pandemic, the port of Beirut explosion, and the prolonged absence of a functioning government – that has left the Lebanese economy struggling for more than a year and so has its banking sector. And in this difficult financial and low-volume environment, BLOM BANK’ strategy going forward will be to minimize possible damages to its stakeholders by continuing to provide best services to its clients; by maintaining its capital adequacy and shareholders’ value; and by protecting the employment of its employees and staff. Mr. Saad AZHARI Chairman and General Manager 5 Key Figures Consolidated Customers’ Deposits Evolution (In USD Million) 2019 26,462 27,220 2017 26,642 24,811 2015 25,091 24,006 2013 22,572 21,791 2011 20,296 19,606 2009 18,024 15,109 2007 13,737 11,735 2005 10,161 8,992 2003 7,686 6,215 2001 5,525 5,056 1999 4,330 3,861 1997 3,333 2,686 1995 1,805 1,259 years 0 5,000 10,000 15,000 20,000 25,000 30,000 6 Key Figures Key Figures Strong and Continuous Growth TOTAL ASSETS (IN USD MILLION) 2019 33,296 36,741 2017 32,544 29,518 2015 29,099 27,975 2013 26,149 25,051 2011 23,165 22,344 years 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 NET PROFITS (IN USD MILLION) 2019 115.41 511.62 2017 485.27 462.83 2015 404.26 364.78 2013 352.44 335.93 2011 331.55 330.60 years 0 100 200 300 400 500 600 TOTAL CAPITAL FUNDS (IN USD MILLION) 2019 3,156 3,269 2017 3,005 2,932 2015 2,722 2,523 2013 2,349 2,182 2011 1,983 1,891 years 0 500 1,000 1,500 2,000 2,500 3,000 3,500 7 Evolution of Main Indicators Evolution of Main Indicators 2019 /2018 USD Million 2019 2018 Change 19/18 Assets 33,296 36,741 -9.4% Net Loans and Advances to Customers 5,814 7,165 -18.9% Customers’ Deposits 26,462 27,220 -2.8% Tier 1 Equity 3,140 3,259 -3.7% Capital Funds 3,156 3,269 -3.4% Net Liquid Assets 24,128 21,981 8.2% Net Profits 115.41 511.62 -77.4% Consolidated Financial Ratios 2019 2018 Liquidity Ratios Net liquidity in LL 180.60% 116.39% Net immediate liquidity in foreign currency 76.56% 74.15% Liquid assets over total assets 69.83% 56.31% Liquidity in Total Currency 92.89% 83.49% Loans to Deposits Ratios LL 32.29% 27.70% F/C 20.09% 25.95% Total 21.97% 26.32% Asset Quality Ratios Net Credit impaired Loans / Net Loans 2.72% 1.08% Gross Credit impaired Loans / Gross Loans 7.08% 4.48% Loan loss provisions / Credit impaired loans (Including allowance for ECL stage 1 & 2) 64.51% 76.91% Capital Adequacy Ratios After dividend distribution (Basel III) 11.05% 20.07% Required ratio 10.50% 15.00% Profitability Ratios Return on average equity 3.61% 16.36% Return on average equity (Common) 3.48% 16.52% Return on average assets 0.33% 1.48% Cost-to-income ratio 56.12% 35.38% Earnings per share USD USD 0.51 USD 2.37 Book value per common share USD USD 14.39 USD 14.97 Dividend per common share USD USD 0.000 USD 1.128 Dividend payout ratio 0.00% 47.55% Retention Ratio 100.00% 52.45% Dividend Yield (Prices as at payment date) 0.00% 13.28% Loan loss provisions / Credit impaired loans (Including allowance for ECL stage 1 & 2) 105.66% 95.07% 8 Evolution of Main Indicators Organizational Chart External Auditors Shareholders Solicitors Board of Directors Ernst & Young p.c.c.
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