Opening doors to opportunity Annual Report 2008 Strong performance has combined with several new initiatives to determine exceptional growth

Our Vision To be the leading financial services provider in Iraq, and to consistently meet or exceed customer expectations. Our Mission To provide leading financial service solutions that contribute to and support the long-term well being and success of all our customers, our country and our worldwide partners. Our Values guide everything we do: Trust and Integrity; Mutual Respect; Teamwork and Commitment; Excellence and Innovation. Bank of Baghdad is a member of the KIPCO Group Over 27 years in the financial services industry The KIPCO Group is one of the biggest diversified holding companies in the Middle East and North Africa, with assets worth more than US$19 billion under management or control. The Group has substantial ownership interests in a portfolio of over 50 companies operating across 21 countries. The company’s main business sectors are financial services and media. Through the subsidiaries and affiliates of its core companies, KIPCO also has interests in Real Estate, Industry, Healthcare and the Management & Advisory sector. KIPCO’s financial services interests include holdings in commercial and investment banking, asset management and insurance companies. The Group’s core operating companies in this sector include United Gulf Bank, Gulf Insurance Company and Burgan Bank.

2008 witnessed a massive improvement in the quality of the bank’s branch presentation. New branding applications, fittings and signages were applied at our new prototype regional branch in Erbil, ready for roll out across the full branch network.

2 I Bank of Baghdad Annual Report 2008 Financial Highlights

Bank of Baghdad concentrated primarily on strengthening its position during 2008. The bank’s asset base increased to IQD 542.2 billion compared to IQD 363.7 billion in 2007. A steady increase in net income was reinvested to capitalise on future opportunities, resulting in a net operating profit of IQD 21.9 billion.

93.3 542.9 22.4 19.3 43.7 21.9 16.6 76.1

32.3 363.7 59.5 331.2

9.6 17.7

3.6 Billions (I QD ) Billions (I QD ) Billions (I QD ) Billions (I QD ) Billions (I QD ) 08 07 06 08 07 06 08 07 06 08 07 06 08 07 06 Total Assets Operating Net Operating Shareholders’ Net Income Revenue Profit Equity

Bank of Baghdad Annual Report 2008 I 3 Chairman’s Statement

On behalf of the Board of Directors, it is our pleasure to present the annual results of Bank of Baghdad for the year ending 2008.

Bank of Baghdad concentrated primarily To support this human endeavour we have on strengthening its position during 2008. reinforced the IT operational efficiency of The bank’s asset base increased to IQD 542.2 the bank by updating all of our core banking billion compared to IQD 363.7 billion in modules; looking for complimentary systems 2007. A steady increase in net income was to our core banking practices. The result of reinvested to solidify and capitalise on future this is proven by increased levels of customer opportunities, resulting in a net operating service across every delivery channel. profit of IQD 21.9 billion. Our IT infrastructure was divided into two The bank’s operating revenue grew from distinct areas, reinforcing banking operations IQD 32.3 billion in 2007 to IQD 43.7 and introducing innovation. An example is billion in 2008, with major reinvestment to our growth in the provision and linking of strengthen our capabilities in infrastructure new ATM locations and the issuance of new and operations – boosting our resources debit cards. to build for the future. Despite the global I am pleased to announce further key economic crisis, Iraq has continued on its achievements this year: journey of growth and recovery, building its infrastructure and national capabilities. Bank of Baghdad has started issuing ATM debit cards that can be used worldwide The recent drop in oil pricing as a result of through MasterCard. We have launched our the sub-prime collapse has been offset by new Erbil regional headquarters as a ‘Regional new initiatives in economic restructuring, Branch’ to service the Northern Province with and I am pleased to announce that your bank increased efficiency, forming a link to several has capitalised on many of these initiatives, branches and a centralisation of our northern becoming more global in its outlook and operations. Erbil now also boasts a state-of- winning significant international business. As the-art branch experience for customers, a result we have been able to focus on many which will be implemented right across our new initiatives. branch network in time. The bank has invested considerably in As a result of these initiatives, your bank its human capital, improving skills and has become recognised internationally. The efficiencies through the creation of additional increase in our service presentation efficiencies training courses, performance appraisals and has created increased customer satisfaction, motivational systems. Bank staff turnover in and we have embarked on a period of 2008 was virtually nil, proving new confidence significant international business acquisition, and professionalism amongst our staff and attracting major corporate businesses creating a solid platform of efficiency for the and forming a solid focus for the inward future. investment vital to the growth of Iraq.

4 I Bank of Baghdad Annual Report 2008 Bank of Baghdad has Our activity during 2008 has placed Bank of In closing, I would like to thank my fellow become recognised Baghdad in a strong position to face future Directors and our Management for their challenges. We face an ongoing need for strong commitment and unwavering internationally. training and advancement of employee skill dedication to the long term success of our Increased service levels and this need represents an ongoing bank. I would also like to thank every member efficiencies have focus for our management. of our team – from front-line tellers to back office support staff – for supporting our Bank of Baghdad operates in a country created increased endeavour, for being adaptable to change whose re-emergence is not yet complete: and for their commitment to continual customer satisfaction, The country’s infrastructure – power, improvement. I would also like to thank the allowing us to telecommunications and the like – continue to Central Bank of Iraq for their wisdom and be reinstated and security issues over the last embark on a period of guidance. Above all, I thank our customers year have improved considerably. To that end, international business for their confidence and continued support Bank of Baghdad is now introducing CCTV of the Bank of Baghdad. I look forward acquisition, forming security technology, complimenting existing to announcing many new initiatives and security systems but reducing the need for a solid focus for the successes in 2009. inward investment such human resource. vital to the growth of The biggest challenge facing business in Iraq Iraq. is stability and while this is improving, there is much work to be done. The recovery of the general economy is an accelerating one. Bank of Baghdad is wholly committed to such Emad Ismail Shareef recovery and is now looking ahead to an era Chairman of the Board of ever increasing stability and reconciliation in Iraq. The decisions that we have made this year, and those of past years, have created an infrastructure for the bank that will allow us to fully capitalise on new emerging opportunities. We are confident of increasing the bank’s international exposure and, in line with a decision of Government to distribute a portion of trade business volume in Iraq to private banks, we are now increasing our trade finance capability accordingly.

Bank of Baghdad Annual Report 2008 I 5 Annual Review

We have made massive strides in the advancement of our earlier stated priorities in raising our business performance and growth, focusing on the further development and implementation of our strategic goals.

In 2008 we continued to enjoy the full continue to enter into ever more productive KEY ACHIEVEMENT: commitment of our Board and employees dialogue with key business and corporate New Erbil Branch in realising our vision of being Iraq’s best customers. Bank of Baghdad embarked financial services provider, through delivery The results of all our efforts are witnessed by on a programme of change of the best customer service, the best products a growing staff confidence within the bank for its branch network during and the best technologies. 2008. A new suite of graphic and this in turn has seen ever higher customer systems were developed and We have made massive strides in the focused results being achieved. implemented through identity advancement of our earlier stated four and environment guides that Marketing / Bank of Baghdad has embarked strategic priorities in raising our business address the bank’s requirements on a new wave of proactive marketing of its performance and growth: customer for signage systems, point of sale, products and services, reaching out to the merchandising and information relationships; branch expansion; sales culture; community in several key areas to promote provision. This was combined technology and operational excellence. The the significant advancement of our banking with a branch fit out programme. progress made in 2007 has been built upon The bank’s premises department offerings. We have created general awareness further this year, and this is having a positive worked with architects and campaigns to coincide with the opening of our impact for all our areas of businesses. contractors to develop a new regional branch in Erbil. complete new customer Bank of Baghdad has focused on many areas, experience in our branches. The In addition, we introduced debit cards that can but of vital importance during 2008 was first prototype for the bank’s new be used internationally, and we have promoted branches is at Erbil. business development and customer service. our superior capability in electronic banking At the root of our structure has been the and money transfer. The bank is also now a implementation of a ‘sales culture’ within Western Union agent, in addition to offering every branch. We have introduced sales call its own ‘MoneyLink’ transfer service. programmes with customer visits and regular follow-ups to ensure better response to key Our marketing channels have helped to customer needs. Of particular focus has been increase business efficiency through a more the implementation of customer satisfaction direct approach to customers, with better surveys, which have helped create a better information presentation, collateral and understanding of Iraqi market needs. customer communication methods. In addition, we have concentrated on Our new Erbil regional headquarters was improving our communication to all sectors, developed from the ground up to utilise best and in particular Small to Medium Enterprises of breed ‘zoning’ and ‘customer journey’ (SMEs). In this area, we have sought to adopt efficiencies in its design. The branch offers a more advisory role and have established self-service banking, teller counters and advances in salary transfer and payroll customer service desks together, with solutions services. Bank of Baghdad now dedicated ‘browse’ areas and seating. All of offers loans to employees of corporates against this has created a customer experience that salary transfers or domiciliation and this has has already been highly lauded. The Erbil been acclaimed as a leading service, adding branch model will be established right across value to employers’ human resource practices. Iraq and several key branch refurbishments Our initiatives continue to be accepted very are planned for the forthcoming year. With favorably by the business community and we

6 I Bank of Baghdad Annual Report 2008 nEw teller counters at erbil with security glass fronts combine with bright graphics and poster systems on the wall behind, create a bright, modern feel to Erbil branch

Bank of Baghdad Annual Report 2008 I 7 Our new Erbil branch model will be established right across Iraq and several key branch refurbishments are planned for the forthcoming year. With the establishment of better environments for our customers, the bank is now able to concentrate on the provision of new products and channels such as credit cards and internet banking services.

new meeting rooms and new customer seating areas allow greater comfort for the Bank’s customers

8 I Bank of Baghdad Annual Report 2008 Annual Review

KEY ACHIEVEMENT: the establishment of better environments The bank revised its policies and procedures CREDIT CARDS IN IRAQ for our customers, the Bank is now able to and job descriptions during the year. It has concentrate on the provision of new products strengthened its middle management base and During the year, Bank of and channels such as credit cards and internet implemented a succession planning system. Baghdad gained authorisation banking services. This has created better empowerment for to offer its customers branch level decision making, creating more MasterCard – leading the IT Operations / Bank of Baghdad has responsive customer service standards. In way to offering a full range of sought opportunities throughout 2008 and financial services. In addition, addition, an objective-based compensation through analysis has developed a programme Bank of Baghdad became system has been introduced to provide better to minimise IT gaps. We have embarked on an agent of Western Union, focus and career empowerment. The bank providing its customers with an significant initiatives in IT systems training has also adjusted salary scales on a bank- international money transfer and have also started to implement Advanced wide basis. During the year, Bank of Baghdad service, besides the bank’s Management Information Systems. These will own ‘Moneylink’ service. This determined an HR mandate to become the be completed by 2009. We have also initiated international connectivity has ‘best employer’, attracting the ‘best staff’ who data cleansing of records to increase our significantly raised the profile of in turn provide the ‘best customer service’. Bank of Baghdad. operational efficiency. The bank has fine- tuned its back-office infrastructure to support The result of these programmes has been an these new systems. increase in confidence – both in our staff and in our customers. A significant part of our IT capability growth is witnessed through our linked ATM network. Risk & Audit / Parallel to disclosing the This area has also seen expansion with the results in compliance with local GAAP, Bank provision of stand-alone ATMs located of Baghdad has successfully put in place within major corporates with high staff processes that provide the bank’s management numbers. These companies can now offer their with results that are in compliance with employees on-the-spot money services. Our IFRS. The result of this will see a far better internet banking and SMS initiatives continue, international understanding of our structure and will be completed during 2009. and our financial strength, and a higher appreciation of transparency. This significant Human Resources / The bank has embarked change will see Bank of Baghdad well on a comprehensive series of training modules positioned to take advantage of international with PIGIER, a French / Lebanese professional business and inward investment opportunities. training firm. Training seminars have been, and continue to be, conducted across a full The bank has also capitalised on its affiliation spectrum of banking requirements, from with the KIPCO Group and has drawn on this systems and procedures to customer-facing unique relationship to benefit from the group’s sales-oriented training. Better transparency experience in corporate governance standards, and internal communication practice has been risk culture and infrastructure. This continues achieved through the establishment of regular to assist in strengthening robust standards in management meetings at all levels. policies and procedures.

Bank of Baghdad Annual Report 2008 I 9 Annual Review

Our internal processes have been strengthened retention. We have initiated a sales culture KEY ACHIEVEMENT: through our advancement of IT infrastructure within the organisation and have committed NEW BRANCHES AND ATMs allowing better process control and risk to customer care in significantly improved As part of the bank’s expansion, mitigation. areas. new ATM locations were established in ten locations The introduction of international audit Looking ahead / Our vision for Bank of across Iraq including Basra, standards to Bank of Baghdad during the year Baghdad has always been to be the leading Erbil, Hilla and Khadmia. The have added further transparency and provide financial service provider in Iraq, and Bank also increased its branch an additional boost to our international to consistently meet or exceed customer presence with a second branch in Erbil, Dahook branch in recognition. expectations. We gave particular attention Northern Provinces and in in 2008 to building stronger customer Network expansion / Bank of Baghdad Dewania and Koot in Southern relationships, improving products and Provinces. continued its strategic vision of network services, expanding the branch network expansion across Iraq, opening new branches and improving on the bank’s image in the in new areas to reach new audiences. Our ATM marketplace. network has increased significantly through this branch expansion and all branches are The bank’s ability to deliver the strong connected through IT infrastructure allowing performance we have seen over the past a streamlining of operations and information year would not have been possible without sharing across a wider network. the dedication and commitment of our employees. The challenges of change, and As part of its organisational restructuring of moving into a more customer driven in 2008, the bank created a regional branch culture are not to be under-estimated, and we approach to its network. Bank of Baghdad recognise the tremendous amount of effort now has three main regional branches: each and every one of our employees has Erbil, serving the Northern Region; Main contributed over the last year. Branch, serving Baghdad; and Hilla Branch, serving the Southern Region. These new branches provide the bank with more efficient management of its branch network. Organisational structure / During 2008, Bank of Baghdad reorganised its internal structure and reporting systems into two streams – business / customer care and operations. The outcome has already been seen through increased branch efficiency; better focus on sales; better responsiveness to customer needs and higher customer

10 I Bank of Baghdad Annual Report 2008 As part of its organisational restructuring in 2008, Bank of Baghdad now has three main regional branches: Erbil, serving the Northern Region; Main Branch, serving Baghdad; and Hilla Branch, serving the Southern Region.

Bank of Baghdad Annual Report 2008 I 11 Iraq has continued on its journey of growth and recovery with new initiatives in economic restructuring. Bank of Baghdad has facilitated and capitalised on many of these, becoming more global in its outlook and winning significant international business.

FROM TRADITIONAL established ROOTS, BANK OF BAGHDAD IS OPENING NEW DOORS TO OPPORTUNITY RIGHT ACROSS IRAQ WITH NEW financial products and SERVICES, NEW MODERN BANKING BRANCHES and NEW ATM LOCATIONS.

12 I Bank of Baghdad Annual Report 2008 Independent Auditor’s Report

We examined the Balance Sheet of Bank of Baghdad (Private Joint Stock Company), Baghdad, as at 31st December, 2008, the Profit and Loss and Distributions Account for the year ended on the said date and the Bank’s Annual Report prepared according to the provisions of the Banking Law No. 94 of 2004 and the Companies Law No. 21 of 1997 and the Regulations and instructions issued in accordance therewith.

We obtained the information and clarifications, which we felt necessary for carrying out our duties in accordance with the applicable legislation and in compliance with the recognizing auditing procedures, which included the necessary tests of the Bank’s business which are part of our duties. We would like to note the following comments:

First: Paid up Capital The paid up capital of the Bank was increased during the year from ID 52,973,256,470 (Fifty two billion nine hundred seventy three million two hundred fifty six thousand and four hundred seventy Iraqi Dinars) to ID 70,000,000,000 (Seventy billion Iraqi Dinars), that is in accordance to the Registrar of Companies letter No. 11593 dated July 15th 2008. Second: Banks’ Business Activities: The surplus of the Bank’s business activities for the year subject to the audit amount to ID 21,948,977,331 while it was ID 22,496,776,327 in the previous year, which shows that it increased by an amount of ID 547,798,996 representing a decrease of 2.43% as shown in the following details: a) Increase in the Revenues of Current Business During the year ended on 31st December, 2008 there was an increase in the revenues of current business in an amount of ID 11,543,088 arising as follows: Iraqi Dinar % Decrease in Banking Operations Revenues (391,389,801) (3) Increase in Investment Revenues 11,777,811,631 102 Increase in Service Business Revenues 156,666,209 1 11,543,088,039 100 b) Increase in Expenses of Current Business During the year ended on 31st December, 2008 there was an increase in the expenses of current business in an amount of ID 8,234,755,215 Iraqi Dinar % Banking Operations Expenses 5,580,038,513 68 Depreciation 63,970,302 1 Administrative Expenses 2,590,746,400 31 8,234,755,215 100

Bank of Baghdad Annual Report 2008 I 13 Independent Auditor’s Report

c) “Miscellaneous Revenues” and “Other Transfer Expenses” The decrease in miscellaneous revenues amounted to ID 198,184,915 while the increase in the Transfer and Other Expenses amounted to ID 3,657,946,905.

According to the above, the decrease in the Bank’s business surplus amounting to ID 547,798,996 arose from the following: Iraqi Dinars Increase in Current Business Revenues 11,543,088,039 Less: Increase in Expenses of Current Business 8,234,755,215 Less: Decrease in Miscellaneous Revenues 198,184,915 Less: Increase in Transfer and Other Expenses 3,657,946,905 (547,798,996) Third: Financial Position The asset balance increased as at 31/12/2008 compared with the balance as at 31/12/2007 by an amount of ID 179,186,854,469 as follows: Iraqi Dinar % Current Assets: Cash 43,766,043,480 24 Investments 132,165,667,853 74 Cash Credits (10,734,264,833) (6) Receivables 13,155,218,260 7 178,352,664,760 Net Fixed Assets 834,189,709 1 179,186,854,469 100

14 I Bank of Baghdad Annual Report 2008 Sources of Finance The aforesaid increase being ID 179,186,854,469 represents the increase arising from the sources of finance as shown hereunder: Iraqi Dinar % Short term sources of finance 161,951,918,514 90 Long term sources of finance 17,234,935,955 10 179,186,854,469 100 Short Term Sources of Finance: Current Liabilities: Current Accounts and Deposits 148,702,824,113 92 Provisions 5,258,335,042 3 Payables 7,990,759,359 5 161,951,918,514 100 Long Term Sources of Finance: Shareholders’ Equity: Paid-up Capital 17,026,743,530 99 Reserves 208,192,425 1 17,234,935,955 100

Fourth: Financial Investments The market value of the short term financial investments / private sector (shares) according to the Price Bulletin of the Iraq Stock Exchange at the last session of the Exchange in 2008 amounted at more than the cost of the investment portfolio, hence no provision was made for the decline in the value of investments in the year subject to the audit.

Fifth: Provision for Doubtful Debts A provision was made for doubtful debts being ID 3,520,219,042 according to the instructions of the Central Bank of Iraq received in this respect, so that the balance of the provision for doubtful debts as at 31st December 2008 amounted to ID 14,000,000,000.

Sixth: Money Laundering and Terrorism Financing Through our examination of the accounting records and our review of the nature of banking operations undertaken by the Bank during the year subject to the audit, we did not find any activities indicating that there were banking transactions related to money laundering or those that contributed to financing terrorist activities.

Bank of Baghdad Annual Report 2008 I 15 Independent Auditor’s Report

Seventh: Capital Adequacy Through our examination of the accounting records and statements prepared for the purpose of calculating the capital adequacy, we found that the capital adequacy ratio was 73.5% according to Article 16 of the Banking Law No. 94 of 2004.

In our opinion and according to the results of our examination as indicated in the Bank’s records and the information and clarifications given to us:

1) The books of accounts maintained by the Bank fully comply with the book-keeping requirements and in our opinion they contain full records of all the Bank’s assets, liabilities, expenditure and revenues of the Bank. The internal control system has consisted of the necessary procedures which ensure the accuracy of the financial statements, in a proportionate manner with the volume of the Bank’s activities.

2) The inventory of assets and the cash stock took place properly under our supervision, and the inventory results were in conformity with the available records and such assets were evaluated according to the approved principles, rules and standards followed in the previous year.

3) The annual report and its contents reflect in a comprehensive manner the Bank’s development during the year subject to the audit and do not include anything that violates the provisions of the applicable laws and statutes.

4) The final statements and accounts have been prepared in compliance with the applicable legislation and accounting standards which conform with the data shown in registers and are drawn up according to the Companies Law, regulations and instructions in accordance therewith and the Iraq Central Bank Law.

In compliance with the above that have an effect on the financial statements, the attached Balance Sheet reflects the financial position of the Bank as at 31st December, 2008 and the final accounts show the business profits for the year ended on the said date and as shown by the books and records.

Farquad Hasan Ahmed Al Salman Fellow of the Public Accountants Association UK of Farqad Al Salman & Associates Company, Auditors (Partnership) Baghdad, 1st March 2009

16 I Bank of Baghdad Annual Report 2008 Financial Statements 2008

Bank of Baghdad Annual Report 2008 I 17 Financial Statements 2008

Balance Sheet (As at 31st December 2008) Statement A

Statement Accounting 31/12/2008 31/12/2007 No. Manual No. Iraqi Dinars Iraqi Dinars ASSETS Current Assets 1 18 Cash in Hand 204,708,679,911 160,942,636,431 2 15 Investments 217,149,527,722 84,983,859,869 14 Cash Credits 3 144 Discounted Commercial Papers 1,791,021,852 5,437,493,913 4 14 except 144 Loans and Advances 45,576,096,710 52,663,889,482 47,367,118,562 58,101,383,395 16 Receivables Debit Contra Accounts 24,167,515,298 12,423,849,659 5 Debit Balances 37,656,831,881 36,245,279,260 61,824,347,179 48,669,128,919 531,049,673,374 352,697,008,614 Fixed Assets 6 11 & 12 Existing-at book value - (after depreciation) 11,861,767,446 11,027,577,737 Total Assets 542,911,440,820 363,724,586,351 Contra Accounts 12 19 Contra Customers’ Obligations for Banking Transactions (after deducting deposits) 203,181,392,923 124,229,295,886 SOURCES OF FINANCE Short Term Sources 7 25 Current Accounts and Deposit 404,177,095,939 255,474,271,826 11 22 Provisions 18,490,548,084 13,232,213,042 8 26 Payables 26,901,858,799 18,911,099,440 449,569,502,822 287,617,584,308 Long Term Sources 9 211 Paid-up Capital 70,000,000,000 52,973,256,470 10 22 Reserves 23,341,937,998 23,133,745,573 Shareholders’ Equity 93,341,937,998 76,107,002,043 542,911,440,820 363,724,586,351 Contra Accounts 12 29 Contra Customers’ Obligations for Banking Transactions (after deducting deposits) 203,181,392,923 124,229,295,886

Ali Muhsin Al-Asadi Adnan Kanan Al-Chalabi Emad Ismail Shareef Accounts Manager Managing Director Chairman of The Board of Directors

18 I Bank of Baghdad Annual Report 2008 Profit and Loss Account (For the year ended on 31st December 2008) Statement B

Statement Accounting 31/12/2008 31/12/2007 No. Manual No. Iraqi Dinars Iraqi Dinars Current Business Revenues 13 43 Service Business Revenue 178,322,422 21,656,213 14 44 Banking Operation Revenue 18,699,221,575 19,090,611,376 15 46 Investment Revenue 24,921,854,227 13,144,042,596 43,799,398,224 32,256,310,185 Less: Current Business Expenses 16 34 Banking Operations Expenses 10,045,624,082 4,465,585,569 6 37 Depreciation 419,435,950 355,465,648 17 31-33 Overheads 7,603,828,485 5,013,082,085 18,068,888,517 9,834,133,302 Current Operations Surplus 25,730,509,707 22,422,176,883 Add: Transferred and Other Revenues 18 49 Other Revenues 235,841,774 434,026,689 Less: Transferred and Other Expenses 19 38 Transferred Expenses 196,825,973 42,176,111 20 39 Other Expenses 3,820,548,177 317,251,134 4,017,374,150 359,427,245 Distributable Surplus: 21,948,977,331 22,496,776,327

Distributed as follows: Doubtful Debts 1,097,341,924 Tax Provisions 531,776,000 Statutory Reserve according to the Iraqi Central Bank Law 1,015,992,970 Undistributed Profits (Accumulated Surplus) 19,303,866,437 21,948,977,331

Bank of Baghdad Annual Report 2008 I 19 Financial Statements 2008 continued

Cash Flow Statement (For the year ended on 31st December 2008) Statement C

Iraqi Dinars Iraqi Dinars Surplus according to the attached Statement (B) 21,948,977,331 Cash flows from Operational Activities Depreciation and Amortization 419,435,950 Increase in Receivables (13,155,218,260) Increase in Current Accounts and Deposits 148,702,824,113 Increase in Payables 7,990,759,359 Net Cash Flow from Operational Activities 143,957,801,162 Cash flow from Investment Activities Increase in Investments (132,165,667,853) Decrease in Cash Credit 10,734,264,833 Net Decrease in Fixed Assets 1,631,334,760 Increase in Projects Under Construction (2,884,960,419) Net Cash Flow from Investment Activities (122,685,028,679) Cash Flow from Financing Activities Increase in Paid-up Capital 17,026,743,530 Decrease in Reserves (20,111,666,982) Increase in Provisions 3,629,217,118 Net Cash Flow from Financing Activities 544,293,666 Net Cash Flow 43,766,034,480 Add: Cash Balance at beginning of the year 160,942,636,431 Cash balance as of 31st December 2008 204,708,679,911

20 I Bank of Baghdad Annual Report 2008 Cash Statement (As at 31st December 2008) Statement No. 1

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 181 Cash in Hand 21,921,128,653 11,156,489,158 182 Standing Advance 5,000 - 183 Cash Funds in Local Banks 34,080,387,566 61,924,212,385 184 Statutory Deposits with Central Bank 63,189,315,000 41,105,679,000 185 Cheques and Drafts - - 186 Foreign Currency Notes 31,138,051,811 34,340,729,618 187 Cash Funds with Overseas Banks 54,379,791,881 12,415,526,270 204,708,679,911 160,942,636,431

Investment Statement (As at 31st December 2008) Statement No. 2

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 152 Long-term Financial Investments 1526 Long-term Financial Investments 1,812,337,920 1,582,121,422 153 Short-term Financial Investments 1531 Short-term Financial Investments/ Government Sector 203,180,000,000 70,000,000,000 1536 Short-term Investments/ Private Sector 437,189,802 36,738,447 1538 Short-term Investments/ Overseas World 11,720,000,000 13,365,000,000 215,337,189,802 83,401,738,447 217,149,527,722 84,983,859,869

Statement of Discounted and Purchased Commercial Papers (As at 31st December 2008) Statement No. 3

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 144 Discounted and Purchased Commercial Papers 1441 Discounted Bills of Exchange 34,000,000 2,829,050,000 1445 Purchased Local Drafts 1,757,021,852 2,608,443,913 1,791,021,852 5,437,493,913

Bank of Baghdad Annual Report 2008 I 21 Financial Statements 2008 continued

Statement of Loans and Advances (As at 31st December 2008) Statement No. 4

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 142 Short Term Loans 14271 Short Term Loans/Individuals-I. Dinar 5,550,594,332 6,671,124,658 14272 Short Term Loans/Individuals-Foreign Currencies 25,087,493,110 36,883,515,001 30,638,087,442 43,554,639,659 143 Receivables Current Account 1436 Receivables Current Accounts/Private Sector/Companies 6,085,778,888 285,309,816 1437 Receivables Current Accounts/Private Sector/Individuals 6,099,622,387 7,781,939,003 12,185,401,275 8,067,248,819 1484 Advances Against Gold Jewellery Mortgage 2,746,578,581 1,024,927,471 1491 Staff Advances 6,029,412 17,073,533 45,576,096,710 52,663,889,482

Statement of Receivables (As at 31st December 2008) Statement No. 5

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 161 Current Business Receivables 1,879,120,603 3,869,034 165 Non-current Business Receivables 4,591,271 4,128,169 166 Miscellaneous Receivables Accounts 1661 Deposits with Third Parties 54,480,039 21,842,275 1662 Accrued earnings 5,121,601,529 2,407,595,943 1663 Prepaid Expenses 991,307,875 1,043,098,552 1664 Compensation Claims 2,408,406,641 2,009,406,104 1665 Currency Differentials - 12,071,639 1666 Legal Costs 166,987,920 105,380,400 8,742,784,004 5,599,394,913 167 Advances 1671 Advances for Business Purposes 905,303,927 285,336,741 16722 Advances for Currency Differentials (Counterfeit) 107,652,401 827,431,568 1,012,956,328 1,112,768,309 169 Miscellaneous Receivables Accounts 1691 Overdue Receivables Accounts 25,906,661,675 29,414,400,835 1693 Letter of Guarantee Debtors 110,718,000 110,718,000 26,017,379,675 29,525,118,835 37,656,831,881 36,245,279,260

22 I Bank of Baghdad Annual Report 2008 Statement of Fixed Assets and their Depreciation (As at 31st December 2008) Statement No. 6

Office Deferred Buildings & Plant & Vehicles & Furniture & Revenue Investment Land Facilities Equipment Transport Equipment Expenses Expenses Total Fixed Assets Accounting Manual No. 111 112 113 114 116 118 12 Movement During the Year Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Cost Balance as at 1/1/2008 838,792,450 1,930,017,833 397,096,034 142,224,200 1,181,497,399 2,584,326,769 - 7,073,954,685 Net Movement during the Year - 5,213,700 107,338,831 10,147,500 269,423,033 (2,169,261,786) - (1,777,138,722) Balance as at 31/12/2008 838,792,450 1,935,231,533 504,434,865 152,371,700 1,450,920,432 415,064,983 - 5,296,815,963 Provision of Accumulated Depreciation Balance as at 1/1/2008 - 294,660,150 193,268,020 95,089,838 845,208,372 - - 1,428,226,380 Settlements during the Year - 13,100,127 18,662,777 (7,167,075) (79,207,472) - - (54,611,643) Add: Depreciation of Current Year - 53,893,520 74,044,320 7,106,888 228,785,236 55,605,986 - 419,435,950 Balance as at 31/12/2008 - 361,653,797 285,975,117 95,029,651 994,786,136 55,605,986 - 1,793,050,687 Book Value at 31/12/2008 838,792,450 1,573,577,736 218,459,748 57,342,049 456,134,296 359,458,997 - 3,503,765,276 Projects in Progress ------8,358,002,170 8,358,002,170 11,861,767,446

Bank of Baghdad Annual Report 2008 I 23 Financial Statements 2008 continued

Statement of Current Accounts & Deposits (As at 31st December 2008) Statement No. 7

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 251 Payable Current Accounts 2516 Payable Current Accounts/Private Sector/Companies 15,703,706,645 15,389,959,699 2517 Payable Current Accounts/Private Sector/Individuals 67,562,527,098 48,143,992,354 25191 Crossed Cheques 4,160,020,881 5,083,278,998 25192 Amounts Booked by Phone 123,281,981 259,375,730 25193 Dormant Payable Current Accounts - - 87,549,536,605 68,876,606,781 252 Savings Accounts 2521 Savings Accounts 68,147,829,515 42,749,224,335 253 Term and Demand Deposit Accounts 2531 Fixed and Call Deposits 61,584,931,745 18,030,746,878 25331 Foreign Currency Savings Accounts 24,006,232,228 21,311,579,002 25332 Foreign Currency Fixed Deposits 35,367,915,694 670,162,507 2534 Foreign Currency Current Deposits 103,607,915,854 85,474,755,420 224,566,995,521 125,487,243,807 255 Deposits Received for Banking Transactions 2551 Deposits for issued Letters of Credit 3,448,273,015 3,289,653,506 2552 Deposits for Letters of Guarantee 14,385,340,328 8,168,282,462 2555 Deposits for Leased Safe Deposit Boxes 997,300 1,017,300 17,834,610,643 11,458,953,268 256 Internal Drafts and Cheques 2562 Bills of Exchange drawn against the Bank 4,858,202,109 4,498,677,262 2563 Cheques drawn against the Bank 175,542,461 1,495,696,354 2571 Overseas Drafts drawn against the Bank 1,044,379,085 907,870,019 6,078,123,655 6,902,243,635 404,177,095,939 255,474,271,826

24 I Bank of Baghdad Annual Report 2008 Payables Statement (As at 31st December 2008) Statement No. 8

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 261 Current Business Payables 2613 Financial Sector Payables 90,660,000 16,370,000 2617 Private Sector/Individuals Payables 747,650,101 751,091,307 838,310,101 767,461,307 262 Insurance Premium Receipts 100,420,478 65,891,777 265 Non-current Business Payables 1,103,868,808 1,866,392,263 266 Miscellaneous Payable Accounts 2661 Received Deposits 15,359,970 77,511,251 2662 Prepaid Earnings 7,914,935,731 10,060,802,721 26631 Accrued Interest 2,873,750,465 1,921,412,313 26632 Accrued Interest/US$ 1,191,960,220 618,712,397 26633 Payable Overheads 1,506,671,815 1,139,641,788 2664 Payable Salaries and Wages 21,500,440 (349,623) 26663 Financial Stamps Fees 172,122,107 140,553,527 2668 Increase in the Fund 24,748,279 3,554,229 26695 Amounts Received for Registration of Companies 6,190,174,815 669,280,000 26696 Subscription Deposits 3,571,343,764 327,430 26699 Accounts under Settlement 934,457,811 932,210,714 24,417,025,417 15,563,656,747 267 Deductions for the Account of Third Parties 2671 Staff Deductions for the Account of Third Parties 46,146,886 83,838,643 2672 Non-staff Deductions for the Account of Third Parties 64,443 42,000 46,211,329 83,880,643 268 Profit Distribution Payables 11,507,315 16,892,121 269 Other Payable Accounts 2695 Balances and Compensations of Deceased Customers 383,941,491 545,295,178 2696 Amounts Retained at Authorities’ Request 573,860 1,629,404 384,515,351 546,924,582 26,901,858,799 18,911,099,440

Bank of Baghdad Annual Report 2008 I 25 Financial Statements 2008 continued

Statement of Capital (As at 31st December 2008) Statement No. 9

Accounting Manual No. Iraqi Dinars 211 Nominal Capital Nominal and Authorised Capital: Number of Shares Share Value Paid up Capital 1.1.2008 52,973,256,470 IQD1 52,973,256,470 Increase during the year 17,026,743,530 IQD1 17,026,743,530 Paid up Capital 31/12/2008 70,000,000,000

Reserves Statement (As at 31st December 2008) Statement No. 10

Capital Reserve Reserve (According to for Replacement Accumulated Surplus Type of Reserve Central Bank Law) of Fixed Assets (Undistributed Profits) Accounting 2141 2144 217 Total Manual No. Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars Balance as at 1.1.2008 2,965,258,094 56,842,298 20,111,645,181 23,133,745,573 Additions 1,015,992,970 - 19,303,866,437 20,319,859,407 Write-offs - (21,801) (20,111,645,181) (20,111,666,982) Balance as at 31.12.2008 3,981,251,064 56,820,497 19,303,866,437 23,341,937,998

Statement of Provisions (As at 31st December 2008) Statement No. 11

1 of 2 Balance as at Additions Depreciation Balance as at Accounting 1.1.2008 During the Year During the Year 31.12.2008 Manual No. Iraqi Dinars Iraqi Dinars Iraqi Dinars Iraqi Dinars 222 Provision for Doubtful Debts 10,117,280,958 3,882,719,042 - 14,000,000,000 224 Tax Provisions 2,743,209,200 531,776,000 - 3,274,985,200 225 Miscellaneous Provisions 2251 Provision for Decline in Investment Value 9,222,884 - - 9,222,884 2252 Provision for Stolen Cash 362,500,000 843,840,000 - 1,206,340,000 13,232,213,042 5,258,335,042 - 18,490,548,084

26 I Bank of Baghdad Annual Report 2008 Statement of Provisions (As at 31st December 2008) Statement No. 11

2 of 2 - Calculation of Tax Provisions Iraqi Dinars Iraqi Dinars 21,948,977,331 Business Surplus according to the attached Profit & Loss Statement (B) Add: Unacceptable Expenses for Tax Purposes 1,400,000 Donations to Others 1,305,737 Compensations and Fines 894,007 Special Service Costs 29,000,000 Employees’ Income Tax 2,650,000 Aid Provided to Employees 35,249,744 21,984,227,075 Less: Non-Taxable Revenues: 18,313,041,833 Treasury Bills’ Interest 126,014,800 Earnings from Property Rents 18,439,056,633 3,545,170,442 Business Surplus Subject to Tax Provisions Tax Provisions 15% x Taxable Business Surplus 531,776,000 15% x IQD 3,545,170,442

Statement of Contra Obligations for Banking Transactions (As at 31st December 2008) Statement No. 12

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 192/292 Issued Letters of Guarantee 1921/2921 Letters of Guarantee (after deducting deposits) 34,496,122,910 15,478,643,084 193/293 Issued LC Accounts 1931/2931 Issued LCs (after deducting deposits) 908,428,217 3,682,098,506 196/296 Accounts of Transactions under Collection 1967/2967 Treasuries under collection at Branches 3,060,000 - 1969/2969 Cheques for Clearing 254,012,000 138,560,300 257,072,000 138,560,300 198/298 Contra Receivable Guarantee Accounts 1983/2983 Mortgages for Banking Facilities 167,519,764,662 104,929,988,007 199/299 Contra Debit Accounts at Nominal Value 5,134 5,989 203,181,392,923 124,229,295,886

Bank of Baghdad Annual Report 2008 I 27 Financial Statements 2008 continued

Service Business Revenues Statement (For the year ended on 31st December 2008) Statement No. 13

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 437 Miscellaneous Service Revenues 52,307,622 11,420,713 438 Rents of Fixed Assets 126,014,800 10,235,500 178,322,422 21,656,213

Statement of Banking Operations Income (For the year ended on 31st December 2008) Statement No. 14

1 of 2 Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 441 Foreign Exchange Income 4413 Foreign currency selling and buying income 1,507,433,880 2,438,765,900 1,507,433,880 2,438,765,900 442 Internal Advances and Loans Income 4421 Loan interest 44211 Loan Interest/Iraqi Dinar 6,668,933,332 3,985,886,069 4422 Receivable Current Accounts Interest 2,378,434,643 2,080,960,551 44231 Discounted bills of exchange and drafts interest 400,841,993 3,062,190,126 44233 Commissions of bills for collection 764,270 2,474,647 44243 Interest of advances against securities pledge 89,708,402 100,000 44245 Interest of advances against jewellery mortgage 148,216,842 88,756,850 44246 Personal Loans interest 311,635 2,401,966 9,687,211,117 9,222,770,209 443 Drafts Commissions 4431 Commission of Sold Internal Drafts - 19,579,736 4432 Commission of Overseas Drafts 3,938,780,008 3,076,716,975 3,938,780,008 3,096,296,711 444 Income of Drafts and Letters of Credit 4441 Commission of Outgoing LCs and its drafts 2,391,195 - 4442 Interest of Outgoing LCs - 620,753 2,391,195 620,753 445 Letter of Guarantee Income 4451 Commission of Internal Letters of Guarantee/I. Dinar 972,462,812 279,495,808 Carried Forward 16,108,279,012 15,037,949,381

28 I Bank of Baghdad Annual Report 2008 Statement of Banking Operations Income (For the year ended on 31st December 2008) Statement No. 14

2 of 2 Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars Brought Forward 16,108,279,012 15,037,949,381 447 Miscellaneous Bank Commissions 4471 Commission for Issue of Promissory Notes and Cheques 210,369,181 118,505,930 4473 Commission for Stock and Bond Sales - 55,650,585 4479 Other Bank Commissions 2,338,693,771 3,816,540,686 2,549,062,952 3,990,697,201 448 Recovered Expenses 4482 Recovered communication expenses 22,170,816 22,440,009 4485 Sales of Banking Stationery 19,468,795 39,304,785 41,639,611 61,744,794 449 Other Banking Operations Revenues 4492 Safe Deposit Box Rents 240,000 220,000 18,699,221,575 19,090,611,376

Statement of Investment Earnings (For the year ended on 31st December 2008) Statement No. 15

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 462 Earnings of Domestic Financial Investments 4621 Interest of Treasury Bills 18,313,041,833 4,221,002,500 4622 Interest of Cash Deposits with Third Parties 6,569,897,532 8,914,303,883 4624 Earnings of Domestic Participations 38,914,862 8,736,213 24,921,854,227 13,144,042,596

Bank of Baghdad Annual Report 2008 I 29 Financial Statements 2008 continued

Statement of Banking Operations Expenses (For the year ended on 31st December 2008) Statement No. 16

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 342 Paid Bank Interest 3421 Savings Accounts Interest 4,851,690,282 3,092,955,748 3422 Fixed Deposit Interest 5,107,544,841 1,278,739,717 3424 Overdrawn Current Account Interest - - 3425 Credit Current Account Interest 38,259,951 64,035,253 9,997,495,074 4,435,730,718 343 Paid Banking Commissions 48,129,008 29,854,851 10,045,624,082 4,465,585,569

Statement of Overheads (For the year ended on 31st December 2008) Statement No. 17 1 of 3 Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 31 Salaries and Wages 312 Cash Salaries 3121 Salaries 762,141,843 665,751,099 3123 Overtime Wages 75,880,016 36,235,797 3124 Staff Bonus 14,948,000 176,928,760 3125 Professional and Technical Provisions 511,914 99,376,568 3126 Compensation Provisions 4,525 32,298,355 3129 Other Provisions 2,254,863,786 925,537,777 3,108,350,084 1,936,128,356 315 Contribution to Employees’ Social Security 3151 Bank’s Share to Social Security 168,062,003 106,239,325 Total Salaries and Wages 3,276,412,087 2,042,367,681 32 Goods and Supplies 322 Fuel and Oils 178,092,732 216,830,275 323 Standby Items 2,158,230 453,500 325 Miscellaneous Items 3251 Supplies and Requirements 31,906,103 23,564,801 3252 Stationery Items 37,958,198 24,632,244 69,864,301 48,197,045 326 Staff Facilities 717,000 135,007,743 327 Water and Electricity 29,784,978 16,266,638 Total Goods and Supplies 280,617,241 416,755,201

30 I Bank of Baghdad Annual Report 2008 Statement of Overheads (For the year ended on 31st December 2008) Statement No. 17 2 of 3

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 33 Service Requirements 331 Maintenance Services 3312 Buildings and Facilities Maintenance 45,274,661 41,477,662 3313 Machinery and Equipment Maintenance 30,010,690 42,443,977 3314 Transport Facilities & Vehicle Maintenance 10,980,690 10,806,500 3316 Office Furniture and Equipment Maintenance 11,982,200 64,919,077 98,248,241 159,647,216 332 Research and Consultancy Services 1,921,377,156 1,404,828,600 333 Publicity, Printing and Entertainment 3331 Publicity and Advertising 189,191,618 28,050,344 3332 Publishing and Printing 109,419,749 10,433,508 3333 Entertainment 6,687,300 4,690,025 3334 Exhibitions - - 3335 Ceremonies 30,000 125,000 3336 Conferences and Seminars 2,879,000 2,164,380 308,207,667 45,463,257 334 Transport, Trips & Communications 3341 Staff Transport 165,657,300 134,567,733 3342 Goods and Items Transport 140,149,925 41,994,510 3343 Travel and Business Trips 640,071,127 214,901,003 3344 Corporate Communications 134,624,873 120,880,473 1,080,503,225 512,343,719 335 Fixed Assets Leasing 3352 Lease of Buildings and Facilities 243,080,254 182,232,146 243,080,254 182,232,146 Carried Forward 3,651,416,543 2,304,514,938

Bank of Baghdad Annual Report 2008 I 31 Financial Statements 2008 continued

Statement of Overheads (For the year ended on 31st December 2008) Statement No. 17 3 of 3

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars Brought Forward 3,651,416,543 2,304,514,938 336 Miscellaneous Service Expenses 3361 Subscriptions 26,812,550 31,865,350 3362 Insurance Premiums 92,367,437 106,487,338 3363 Non-Staff Bonuses 8,397,570 6,257,057 3364 Taxes and Fees for Foreign Parties - 71,800 3365 Legal Services 9,267,207 4,315,450 3366 Banking Services 121,385,679 21,596,935 3367 Training and Qualification 14,824,172 17,484,500 3368 Accounting Services 336821 Audit Fees/Central Bank - - 336822 Audit Fees/Auditor 25,000,000 20,000,000 3369 Other Service Expenses 97,327,999 41,365,835 395,382,614 249,444,265 Total Service Requirements 4,046,799,157 2,553,959,203 Total Overheads 7,603,828,485 5,013,082,085

Statement of Other Revenues (For the year ended on 31st December 2008) Statement No. 18

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 491 Previous Years’ Revenues 232,555,904 433,227,644 492 Incidental Revenues 3,285,870 799,045 235,841,774 434,026,689

32 I Bank of Baghdad Annual Report 2008 Statement of Transferred Expenses (For the year ended on 31st December 2008) Statement No. 19

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 383 Miscellaneous Transferred Expenses 3831 Donations to Third Parties 1,400,000 2,000,000 3832 Compensations and Fines 1,305,737 2,506,101 3833 Doubtful Debts 1,097,341,924 3,135,819,092 3834 Special Services Expenses 894,007 50,000 1,100,941,668 3,140,375,193 384 Taxes and Fees 3843 Financial Stamps Fees 77,071,145 (18,350) 3846 Miscellaneous Taxes and Fees 113,505,084 32,871,580 190,576,229 32,853,230 385 Aid 3851 Staff Aid 2,650,000 3,271,000 3852 Third Party Aid - 1,495,780 2,650,000 4,766,780 Total Transferred Expenses 1,294,167,897 3,177,995,203

Statement of Other Expenses (For the year ended on 31st December 2008) Statement No. 20

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 391 Previous Years’ Expenses 3,807,673,058 306,743,301 392 Incidental Expenses 12,875,119 10,507,833 393 Capital Losses - - 3,820,548,177 317,251,134

Bank of Baghdad Annual Report 2008 I 33 Financial Statements 2008 continued

Statement of Added Value at the Production Elements Cost Price (For the year ended on 31st December 2008) Statement A

Statement Accounting 31/12/2008 31/12/2007 No. Manual No. Iraqi Dinars Iraqi Dinars (1) Value of Total Production at Product’s Price 1 Commissions 7,463,461,237 7,368,964,367 2 Charged Service Fee (311,048,227) 4,785,185,597 3 Other Revenues 1,705,465,097 2,499,946,898 8,857,878,107 14,654,096,862 (2) Value of Production Requirements 4 32 Goods Requirements 279,900,241 281,747,458 5 33 Service Requirements 3,905,448,354 2,393,166,506 6 34 Banking Operations Expenses 48,129,008 29,854,851 4,233,477,603 2,704,768,815 (3) Total Added Value at Product Price (1)-(2) 4,624,400,504 11,949,328,047 384 Less: (Indirect) Fees and Taxes 190,576,229 32,853,230 Total Added Value at Production Elements Cost Price 4,433,824,275 11,916,474,817

Statement of Added Value at the Production Elements Cost Price (For the year ended on 31st December 2008) Statement B

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars (1) Staff Compensations 31 (a) Salaries and Wages 3,276,412,087 2,042,367,681 326 (b) Benefits in-kind – Staff Facilities 717,000 135,007,743 3,277,129,087 2,177,375,424 (2) Operations Surplus: Net Profits 737,259,238 9,383,633,745 37 (3) Depreciation and Amortization: 419,435,950 355,465,648 4,433,824,275 11,916,474,817

34 I Bank of Baghdad Annual Report 2008 Statement of Received Commissions (For the year ended on 31st December 2008) Statement No. 1

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 442 Revenues of Domestic Loans and Advances 4423 Revenues of Discounting and Collection of Commercial Papers 44233 Commissions of bills for Collection 764,270 2,474,647 44247 Commissions and Charges/ Miscellaneous Advances - - 443 Drafts Commissions 4431 Commission of Domestic Drafts - 19,579,736 4432 Commission of Overseas Drafts 3,938,780,008 3,076,716,975 444 Revenues of LCs and Drafts 4441 Commission of Opening of Outgoing LCs 2,391,195 - 445 Letter of Guarantee Revenues 4451 Commission of Domestic Letters of Guarantee 972,462,812 279,495,808 447 Miscellaneous Bank Commissions 2,549,062,952 3,990,697,201 Total Commissions Received 7,463,461,237 7,368,964,367

Statement of Components of Service Fees Charged (For the year ended on 31st December 2008) Statement No. 2

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars (1) Interest Received: 442 Revenues of Domestic Loans and Advances: 4421 Loan Interest 6,668,933,332 3,985,886,069 4422 Interest of Debit Current Accounts 2,378,434,643 2,080,960,551 4423 Interest of Discounted Bills of Exchange and Drafts 400,841,993 3,062,190,126 44243 Interest of Advances against Pledged Securities 89,708,402 100,000 44245 Interest of Advances against Mortgaged Gold Jewellery 148,216,842 88,756,850 44246 Interest of Personal Advances 311,635 2,401,966 9,686,446,847 9,220,295,562 444 Revenues of LCs and Drafts 4442 Interest of Outgoing LCs - 620,753 445 Revenues of Letters of Guarantee 4453 Interest of Letters of Guarantee - - 9,686,446,847 9,220,916,315 (2) Paid Interest: 342 Bank Interest Paid 3421 Interest of Savings Accounts 4,851,690,282 3,092,955,748 3422 Interest of Fixed Deposits 5,107,544,841 1,278,739,717 3423 Interest of Domestic Borrowing - - 3424 Interest of Overdrawn Current Accounts - - 3425 Interest of Credit Current Accounts 38,259,951 64,035,253 9,997,495,074 4,435,730,718 Service Fees Charged (1 – 2) (311,048,227) 4,785,185,597

Bank of Baghdad Annual Report 2008 I 35 Financial Statements 2008 continued

Statement of Other Revenues (For the year ended on 31st December 2008) Statement No. 3

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 43 Revenues of Service Business 437 Miscellaneous Service Revenues 52,307,622 11,420,713 438 Rents of Fixed Assets 126,014,800 10,235,500 178,322,422 21,656,213 441 Foreign Exchange Revenues 4412 Revenues of Sale and Buying Foreign Currencies - - 4413 Revenues of Foreign Exchange Selling and Buying 1,507,433,880 2,438,765,900 1,507,433,880 2,438,765,900 448 Recovered Expenses 4485 Sales of Banking Stationery 19,468,795 39,304,785 449 Revenues of Other Banking Operations 4492 Rents of Safe Deposit Boxes 240,000 220,000 4493 Charges for Safekeeping of Sealed Deposits - - 240,000 220,000 1,705,465,097 2,499,946,898

Statement of Goods Requirements for National Accounts Statements (For the year ended on 31st December 2008) Statement No. 4

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 32 Goods Requirements 280,617,241 416,755,201 326 Less: Staff Facilities 717,000 135,007,743 279,900,241 281,747,458

Statement of Goods Requirements for National Accounts Statements (For the year ended on 31st December 2008) Statement No. 5

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 33 Service Requirements 4,046,799,157 2,553,959,203 3361 Less: Subscriptions 26,812,550 31,865,350 3362 Insurance Premiums 92,367,437 106,487,338 119,179,987 138,352,688 3,927,619,170 2,415,606,515 448 Less: Recovered Expenses 4482 Recovered Communications Expenses 22,170,816 22,440,009 3,905,448,354 2,393,166,506

Statement of Banking Operations Expenses for National Accounts Statements (For the year ended on 31st December 2008) Statement No. 6

Accounting 31/12/2008 31/12/2007 Manual No. Iraqi Dinars Iraqi Dinars 343 Paid Bank Commissions 48,129,008 29,854,851

36 I Bank of Baghdad Annual Report 2008 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

We are pleased to present to you the report of the Board of Directors of your Bank (Bank of Baghdad) with respect to the audited final accounts for the financial year ended on 31.12.2008 including the details and information about the Bank’s activities and operations, which was prepared according to the provisions of Articles 117 and 134 of the Companies Law No.21 of 1997 (amended) Instructions Concerning the Companies’ Accounting Regulation No.1 of 1998, Accounting Rule No.10 issued by the Board of Accounting and Control Standards in the Republic of Iraq and provisions of the Banking Law No.94 of 2004.

First: Summary about the Bank’s Activities

1. The Bank was established as a Joint Stock Company with a nominal capital of Iraqi Dinars 100 million pursuant to the Certificate of Incorporation No.M.SH/4512 dated 18.2.1992 and it was the first privately owned Iraqi Bank allowed to be established pursuant to the Law Amending the Central Bank of Iraq Law No.12 of 1991. The Bank commenced its activities on 12.9.1992 by carrying on the usual banking business. On 25.10.1997 the Bank amended the Memorandum of Association to enable it to carry on full banking business and such amendment took place according to the resolution of its General Meeting on 25.09.1998. The Bank continued to expand by increasing its capital as from 1997 when it reached Iraqi Dinars 160 million. Such increases continued until 2003 when it amounted to Iraqi Dinars 2,640 million and then to Iraqi Dinars 5280 million at the end of 2004. In 2005 the capital reached Iraqi Dinars 52,973.3 million following the entry of United Gulf Bank and Iraq Holding Company as shareholders, hence its international banking operations expanded inside and outside Iraq. The Bank enjoyed considerable confidence and credibility in carrying on its business with its customers and corporations efficiently and at the highest levels of confidentiality and privacy.

2. Bank’s Principal Objectives: (a) Attracting national savings and investing them in various investment areas and contributing to enhance Iraq’s economic growth according to the general policy and monetary policy approved by the Central Bank of Iraq. (b) Last year we took a number of steps to further strengthen our abilities and to prepare for the future with the focus on bringing about further development and implementing our strategic objectives that we laid down in 2007. Our success during the year demonstrates the value of the improvements we made and the restructuring of our activities with the intention to bring about further improvements in the future. We also enjoy the full commitment of our Board of Directors and employees to realize our vision by becoming the best financial services institution in Iraq through providing the best services, best products and best technologies for our customers. (c) Realising the objective of effective supervision on the internal and external levels so as to enhance banking confidence and develop banking performance in the local and international levels.

3. Developments of the Paid-up Capital: AUTHORISED AND PAID UP CAPITAL Upon its incorporation in 1992, the Bank’s capital was 70,000

Iraqi Dinars 100 million and the Bank continued to expand 60,000 its capital as from 1997 when it reached Iraqi Dinars 50,000 160 million. Such increases continued until 2003 when it reached Iraqi Dinars 2,640 million then Iraqi Dinars 5,280 40,000 million at the end of 2004. By the end of 2005 the capital 30,000

amounted to Iraqi Dinars 52,973.3 million following the 20,000 entry of United Gulf Bank and Iraq Holding Company as 10,000 shareholders. 0

In 2008 the paid-up capital was increased to Iraqi Dinars 70 1992 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

billion. The following chart shows the developments in the 100 100 160 320564051280 50 1990 2,640 5,280 2,970 52,970 2,970 70,000 paid-up capital: (Value in thousands) Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

Second: Financial and General Indicators for Bank of Baghdad During 2008:

1. Certain Features of the Iraqi Economy: The Iraqi economy continued its recovery during the year following the significant improvement of security conditions. The economy witnessed some improvement through several positive factors including the increase in oil prices on the world markets and the significant growth in non-oil sectors and specifically in the construction sector in the northern provinces. The Central Bank of Iraq contributed to the increase in the growth rate through its ability to control inflation through its policies related to the exchange rates and interest rates. It also embarked upon launching a number of principal structural reforms such as the restructuring of foreign debts and development of the private sector, both of which will contribute to maintaining economic growth in future years. As part of the Iraqi economy’s drive to develop the banking system included its technological advancement, improving its facilities and activating it, seeking to increase the banks’ capital, enhancing their financial position by pursuing modern and prudent credit policy, striving to recover debts owed to banks by their customers, setting aside sufficient provisions for outstanding credits which are all part of the efforts made by the Central Bank of Iraq in its policy with the Iraqi banks.

2. Bank of Baghdad’s Financial Position: The Bank’s financial position (Total balance sheet footings without contra accounts) as at 31.12.2008 totalled Iraqi Dinars 542.9 billion an increase of 49.3% while it was Iraqi Dinars 363.73 billion in 2007. The asset items which include the cash items contributed an increase of 27% and the investments contributed 155%. The receivables contributed 3.9% and the fixed assets contributed 8% while the cash credit item declined by 18%. Bank of Baghdad’s financial position as at the end of 2008 and 2007:

31.12.2008 31.12.2007 Annual Account’s Name ID (Millions) % ID (Millions) % Rate of Change ASSETS Cash in Hand 204.6 37.7 160.9 44.2 27% Investments 217.1 40.0 85 23.4 155% Cash Credits 47.4 8.7 58.1 16 -18% Receivables 37.7 6.9 36.3 10.0 3.9% Mutual Receivables Accounts 24.2 4.5 12.4 3.4 Fixed Assets 11.9 2.2 11 3 8% Total 542.9 100 363.7 100 49.3%

LIABILITIES Current Accounts and Deposits 404.2 74.4 255.5 70.3 58% Provisions 18.5 3.4 13.2 3.6 40% Payables 26.9 5.0 18.9 5.2 42% Paid-up Capital 70.0 12.9 53 14.6 32.1% Reserves 23.3 4.3 23.1 6.3 1% Total 542.9 100 363.7 100 49.3%

2.2% 3.4% 4.5% 4.3% 6.9% BANK’S ASSETS IN 2008 5% BANK’S LIABILITIES IN 2008 40% Fixed Assets 8.7% 12.9% Provisions Mutual Receivables Accounts Reserves Receivables Payables Cash Credit Paid-up Capital Cash Current Account & Deposits Investments 74.4% 37.7%

38 I Bank of Baghdad Annual Report 2008 Development of the Bank’s Financial Position as at the end of the Five Years 2004-2008:

Year 2004 2005 2006 2007 2008 ID billion 61.878 318.090 331.210 363.725 542.9

5-YEAR DEVELOPMENT OF THE BANK’S FINANCIAL POSITION (2004-2008) 600

500

400

300

200

100

0 2004 2005 2006 2007 2008 61.878 318.09 331.21 363.725 542.9 (ID Billion) Banking Business a) Current Accounts and Deposits The amount held (current accounts and deposits) with the Bank totaled Iraqi Dinars 404.2 billion at the end of 2008 including Iraqi Dinars 240.2 billion held in local currency and representing 59.4% while the amounts deposited in foreign currencies with their equivalent in the Iraqi Dinars were Iraqi Dinars 164.0 billion representing 40.6%. The current accounts and deposits constituted 74.4% of the total liabilities which confirmed the ability of the Bank to attract deposits with it during the period ended on 31.12.2008 especially the low cost deposits (Credit Current Accounts + Other Accounts) which represented 53% of the total deposits. This is a positive indicator reflecting the customers’ preference to do business with the Bank and their satisfaction with its services. In addition, the increase in the balances of savings accounts and fixed deposits is evidence that the savers and investors do trust and prefer our Bank. Breakdown of the Bank’s deposits as at the end of 2008 and 2007:

31.12.2008 31.12.2007 Account’s Name ID (Millions) % ID (Millions) % Rate of Change Credit Current Accounts 191,157 47.3 154,351 60.4 23.8% Savings Accounts 92,154 22.8 64,061 25.1 43.9% Fixed Deposit Accounts 96,953 24.0 18,701 7.3 418% Other Accounts 23,913 5.9 18,361 7.2 30.2% Total 404,177 100 255,474 100 58%

1.2% 5.9% 4.4% 0.3% CURRENT ACCOUNTS & DEPOSITS OF ALL TYPES BREAKDOWN OF THE BANK’S AS AT 31.12.2008 DEPOSITS IN 2008 22.8% 22.8% Drawn Overseas Drafts Other Accounts Internal Drafts and Bonds

Savings Accounts Received Deposits

Fixed Deposit Account Savings Accounts

Current Accounts Payable Fixed Deposit Account 47.3% 47.3% Current Accounts Payable 24% 24%

Bank of Baghdad Annual Report 2008 I 39 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

Current Accounts and Deposits of All Types as at 31.12.2008:

Foreign Currency In Iraqi Currency its equivalent Total Type of Deposits ID (Millions) % to ID (Millions) % ID (Millions) % Credit Current Accounts 87,549.5 36.5 103,607.9 63.2 191,157.4 47.3 Savings Accounts 68,147.8 28.4 24,006.2 14.6 92,154.0 22.8 Fixed Deposit Accounts 61,584.9 25.6 35,367.9 21.6 96,952.8 24.0 Received Deposits 17,834.6 7.4 17,834.6 4.4 Internal Drafts and Bonds 5,033.7 2.1 5,033.7 1.2 Drawn Overseas Drafts 1,044.4 0.6 1,044.4 0.3 Total 240,150.5 100 164,026.4 100 404,176.9 100 Percentage 59.4% 40.6% 100%

Development of Deposit Volumes at the end of the Five Years 2004-2008: Year 2004 2005 2006 2007 2008 ID billion 49.006 246.127 242.317 255.474 404.2 b) Banking Facilities: 1. Cash Credits: The amounts of cash credits used by the Bank’s customers as loans, advances and other credits at the end of 2008 totalled Iraqi Dinars 47.36 billion against Iraqi Dinars 58.1 billion as at the end of 2007 with a fall of 18.5%. This decline is due to the measures taken by the Bank’s management for collection of the accrued debts. The loans given constituted 64.7% of the total credit amounts while the receivables represented 25.7% of the total facilities. The banking facilities extended against gold accounted for 5.8% followed by discounted or sold commercial papers with 3.8%. It should be noted that credit facilities extended against gold registered an increase of 168% since they were free of risks. Breakdown of the Cash Credits used as at the end of 2008 and 2007:

31.12.2008 31.12.2007 Annual Account’s Name ID (Millions) % ID (Millions) % Rate of Change Overdraft Accounts 12,185 25.7 8,067.3 13.9 51 Loans Extended 30,638 64.7 43,554.6 75 -69.7 Discounted and Sold Commercial Papers 1,791 3.8 5,437.5 9.4 -95.6 Advances against Mortgage of Gold Jewellery 2,747 5.8 10,24.9 1.7 168 Staff Advances 6 17.1 Total 47,367 100 58,101.4 100 18.5 Development of Cash Credit used at the end of the Years from 2004-2008:

Year 2004 2005 2006 2007 2008 ID billion 17.337 68.642 48.517 58.81 47.36

2. Contracting Credits: The contracting credits registered a total sum of Iraqi Dinars 202.181 billion in 2008 against a sum of Iraqi Dinars 124.2 billion or a growth rate of 85% reflecting the customers’ confidence and their preference to do business with our Bank. Following are the components of this type of credit:

31.12.2008 31.12.2007 Sector Breakdown ID (Millions) % ID (Millions) % Issued Letters of Credit 908 1 3,682.1 3.0 Issued Letters of Guarantee 34,496 17 15,478.6 12.5 Transactions Under Collection 257 138.6 Contra Guarantees Accounts 167,520 82 104,929.9 84.5 Total Contracting Credits (after deducting deposits) 203,181 100 124,229.2 100

40 I Bank of Baghdad Annual Report 2008 3. Doubtful Debt Provision: In spite of the decline in the total balances of cash credit accounts used as at the end of 2008 compared with the total as at the end of the previous year owing to the collection of the accrued and outstanding debts, yet the Bank set aside provisions for doubtful debts in the sum of Iraqi Dinars 3,520 million from the revenues of this year according to the guidelines of the Central Bank of Iraq. Thus, the total balance of the doubtful debt provision was Iraqi Dinars 14,000 million as at the end of 2008. c) Cash Liquidity:

The cash in hand and at banks account represents the 10.7% Bank’s cash liquidity in local and foreign currencies. BREAKDOWN OF THE CASH ACCOUNT The management of cash liquidity held by commercial 30.9% AS AT THE END OF 2008 banks has become an activity only undertaken by highly 15.2% Cash in Hand experienced and qualified bankers. The cash money account (in hand and at banks) as at 31.12.2008 Foreign Currency Notes reached a sum of Iraqi Dinars 204.6 billion compared Cash at Local Banks with Iraqi Dinars 160.9 billion as at 31.12.207 an increase Cash held in Overseas Banks of 27%. Statutory Deposits held in the 16.6% The cash liquidity ratio (cash in hand/current accounts Central Bank of Iraq and deposits) constitutes a percentage of 38.5%. 26.6% Breakdown of the Cash Account as at the end of 2008 and 2007:

31.12.2008 31.12.2007 Account’s Name ID (Millions) % ID (Millions) % % Cash in hand 21,921 10.7 11,157 6.9 96.5 Cash at local banks 34,080 16.6 61,924 38.5 -94 Statutory deposits held in the Central Bank of Iraq 63,189 30.9 41,106 25.5 53.7 Cash held in overseas banks 54,380 26.6 12,415 7.7 33.8 Foreign currency notes 31,138 15.2 34,341 21.4 -9.3 Total 204,708 100 160,943 100 27 Development of Cash Account at the end of Five Years from 2004-2008:

Year 2004 2005 2006 2007 2008 ID billion 16.360 163.195 187.525 160.943 204.7 d) Investment Activities: Our Bank’s investment activities increased to Iraqi Dinars 217.1 billion in 2008 after registering Iraqi Dinars 85.0 billion in 2007 an increase of 155%. This increase was due to the drive to invest in treasury bills and weekly and monthly investments with the Central Bank of Iraq. It should be noted that the Bank was able to generate revenues that totalled Iraqi Dinars 24,922 million representing interest on such deposits. The following table shows the details of such investments:

2008 Investments 2007 Investments Change No. Types of Investments ID (Millions) ID (Millions) % 1. Local Investments 205,430 71,618.8 187 a) Long-term financial investment 1,813 1,582.1 14 b) Short-Term Financial Investments/Government b-1) Treasury Bills 98,180 70,000 40 b-2) Weekly investments 105,000 c) Short Term Financial Investments/ Private Sector 437 36.7 1090 2. Short Term Overseas Investments in Deposits: 11,720 13,365.0 -12 Total 217,150 84,983.8 155

Bank of Baghdad Annual Report 2008 I 41 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

Third: Total Revenues, Expenses, Profits and Losses: 1. Revenues: The Bank’s revenues for the financial year ended on 31.12.2008 rose to Iraqi DInars 44.035 billion against Iraqi Dinars 32.690 billion in 2007 an increase of 35%. Earnings from investment revenues were on top position amounting to Iraqi Dinars 24.922 billion or 57% of the total revenues. Revenues from banking transactions represented 42% following by foreign exchange and other revenues representing 1% as shown in the following table. It should be noted that these revenues amounting to Iraqi Dinars 44.035 billion represented 62.9% of the paid-up capital as at the end of 2008 which reflects the effectiveness of banking business in generating such revenues as a result of the increase of capital and expansion of deposits of various kinds. Total Revenues in 2008:

2008 Amount 2007 Amount No. Types of Revenues ID (Millions) % ID (Millions) % 1. Investment revenues (a+b) 24,922 57 13,144 40.2 a) Local investments 24,922 57 13,144 40.2 b) Overseas investments - - - - 2. Banking Operations Revenues 18,699 42 19,090.6 58.4 3. Service Business Revenues 178 - 21.7 0.1 4. Transferred Revenues and Other Revenues 236 1 434 1.3 Total 44,035 100 32,690.3 100

2. Expenses: Expenses in 2008 totalled Iraqi Dinars 22,086 million compared with Iraqi Dinars 10,193.6 million in 2007. The total expenses represented 31.5% of the paid-up capital and such increase in expenses has been the result of the growth in sources of finance and revenues of the Bank. Expenses for banking operations in 2008 totalled Iraqi Dinars 10,045.6 million representing 45% of the total expenses followed by overheads at Iraqi Dinars 7,604 million representing 34% followed by depreciation representing 1.8% and then the transferred expenses at a sum of Iraqi Dinars 197 million or 1%. Other expenses totalled a sum of Iraqi Dinars 3,821 million representing 17% as shown in the following table: Types of Expenses in 2008:

2008 Amount 2007 Amount No. Types of Revenues ID (Millions) % ID (Millions) % 1. Banking Operations Expenses 10,046 46 4,465.6 43.8 2. Depreciation 419 2 355.5 3.5 3. Overheads including Salaries 7,604 34 5013 49.2 4. Transferred Expenses except for Doubtful Debt Provision 197 1 42.2 0.4 5. Other Expenses 3,820 17 317.3 3.1 Total 22,086 100 10,193.6 100 Overheads may be shown in detail in the following table:

2008 Amount 2007 Amount No. Overheads ID (Millions) % ID (Millions) % 1. Wages and Salaries including Social Security Contributions 3,276.4 43.1 2,042.4 40.7 2. Supplied goods 280.6 3.7 416.8 8.3 3. Supplied services 4,046.0 53.2 2,553.9 51 Total 7,603.8 100 5,013.1 100

42 I Bank of Baghdad Annual Report 2008 3. Net Profit: The Bank made a net profit of Iraqi Dinars 21.9 billion which was divided by setting aside a sum of Iraqi Dinars 1.097 billion as provision for doubtful debts according to the Guidelines and a sum of Iraqi Dinars 532 million was set aside as tax provisions and the remaining balance being Iraqi Dinars 20.3 billion was used for deducting a sum of Iraqi Dinars 1.016 billion as statutory reserve according to the Companies Law. Thus, the distributable surplus amounted to Iraqi Dinars 19.3 billion representing 28% of the paid- up capital, which can be recommended for distribution to the shareholders or its capitalization. 3.1 Shareholders’ Equity, Reserves and Provisions: Following is a summary of the shareholders’ equity, reserves and provisions as at 31.12.2008 shown in the Bank’s balance sheet for boosting its financial position and ensuring compliance with the applicable laws and instructions: 3.1.1 Shareholders’ Equity: At the end of 2008 the shareholders’ equity rose to Iraqi Dinars 93.3 billion against Iraqi Dinars 76.1 billion at the end of 2007, which is an increase of 23%. The following table shows the development of the capital and reserves:

2008 2007 Account’s Name ID (Millions) ID (Millions) % Paid-up Capital 70,000 52,973.2 32 Capital Reserve 3,981 2,965.3 26 Reserve for Replacement of Fixed Assets 56.8 56.8 Undistributed Profits 19,303 20,111.6 -4 Total 93,341 76,107 23

3.1.2 Reserves: As at 31.12.2008 the reserve balances totalled a sum of Iraqi Dinars 23.3 billion divided as follows:

Amount Account’s Name ID (Millions) % Capital Reserve Balance (according to the Companies Law) 3,981.2 17 Reserve for Replacement of Fixed Assets 56.8 Balance of Accumulated Surplus (Undistributed profits) 19,303.9 83 Total 23,341.9 100 With regard to the value of reserves for the year 2008, they amounted to Iraqi Dinars 23.3 billion while reserves for previous years amounted to Iraqi Dinars 23.1 billion. Such reserves constituted 33% of the paid-up capital which would enhance the Bank’s financial position in countering risks especially liquidity risk as shown by Statement No.10 of the final accounts for the year ended on 31.12.2008. 3.1.3 Provisions Balances: The provisions balances as at 31.12.2008 totalled Iraqi Dinars 18.5 billion representing 26.4% of the paid-up capital as shown in the following table:

Amount Account’s Name ID (Millions) % Provision for Doubtful Debts 14,000 76 Tax Provisions 3,275 18 Provision for Decline in the Investment Value 9 Provision for Stolen Cash 1,206 6 Total 18,490 100

It should be noted that such provisions have been determined according to the applicable laws and regulations and as shown in Statement No.11 of the Final Accounts for the Year ended on 31.12.2008.

Bank of Baghdad Annual Report 2008 I 43 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

Fourth: Detailed and Analytical Statements:

1. Board of Directors and Managing Director and their Equity in the Capital: a) During 2008 the number of Board meetings totalled six and the Directors did not receive any remuneration in cash or in kind during 2008. Following are the names of the Board Chairman and Members and the Shares owned by each as at the end of 2008:

Shares Owned Name Title by Each 1. Emad Ismail Sharif, Representative of Al Amin Financial Investment Co. Chairman 1,420,275,379 2. Dr. Younes Mohammed Brouche , Representative of United Gulf Bank Executive Vice Chairman 13,214 3. Adel Mohammed Al Hassoon, Representative of Al Sawari Contracting Company Director 2,642,842 4. Mohamed Ali Jaber, Representative of Al Amin Insurance Company Director 132,142 5. Abdul Aziz Kamel Sharif, Representative of Al Manal Agricultural Company Director 1,295,283,802 6. Adnan Kanaan Al Chalabi, Managing Director Director 3,092,126 7. Saad Jaboori Hamza, Representative of Al Hamra Hotels Company Director 6,991,846 Total 2,728,431,351

b) Amounts Received by the Directors: In pursuance of the resolution of the Bank’s Annual General Meeting held on 15.6.2008, fees were paid to the Chairman and Board members for the year 2007 in the sum of Iraqi Dinars 10 million for the Chairman, Iraqi DInars eight million for the Directors members of the Audit Committee and Iraqi Dinars five million for each of the other Board member. Payments totalling Iraqi Dinars 14,052,000 were made to Mr. Mohammed Ali Jaber (Board member) for providing consultancy services. (c) Amounts Received by the Managing Director: The salaries and benefits paid to the Managing Director during the year totalled Iraqi Dinars 40,200,000 (Iraqi Dinars forty million and two hundred thousand).

2. Indicators of Banking Performance and Financial Analysis:

Pre-determined No. Banking Performance Indicators 2008 2007 % 1. Liquidity Ratio: Cash Account/Total Deposits & Current Accounts Funds Investment Policies (Operating Ratios): 51% 63% a) Investments/Total Deposits & Current Accounts 54% 33.3% 20% b) Cash credits/ Total Deposits & Current Accounts 8.3% 22.7% 70% c) Investments Cash credits/Total Deposits & Current Accounts 62% 56% d) Capital Adequacy Ratio 73.5% 59% 15% e) Cash Credit/Capital & Reserves Ratio 35.5% 76.3% 400% 2. Leverage Ratio: a) Total Deposits & Current Accounts/Capital and Reserves 4.3% 3.4% b) Capital & Reserves/Total Liabilities 17.8% 20.9% 3. Business Costs Ratio: a) Total Expenses of Banking Operations/Total Deposits 2.5% 1.8% b) Total Expenses/Total Revenues 52.7% 31.2% 4. Profitability Ratio: a) Total Profits/Paid-up Capital 29.7% 42.5% b) Total Profits/Shareholders Equity 22% 29.5% c) Net Profits after distribution/Paid-up capital 24% 29.8% 5. Doubtful Debt Provision/Cash Credit 42% 18% Doubtful Debt Provision/Loans 44% 19.9%

44 I Bank of Baghdad Annual Report 2008 3. Salaries, Wages & Manpower: a. The cash salaries, wages and remuneration paid to our Bank’s employees from 1.1.2008 to 31.12.2008 totalled Iraqi Dinars 3.108 billion. b. Our Bank’s staff members enjoy transport facilities free of change provided to them by the Bank’s management and also health insurance and security staff uniforms. c. As at the end of 2008 the employees of our Bank and all its branches totalled 531 people, who include 55 cashiers representing 10% and 117 security guards representing 22% of the total employees. d. The number of employees covered by social security totalled 411 employees. e. Names and titled of the five Bank employees who receive the highest annual income: Name Position 1. Laila Adnan Yehia Regional Manager 2. Saher Hameed Mahmood Regional Manager 3. Abdul Baqi Redha Advisor 4. Mohamed Shukr Khalifa Executive Manager 5. Abdul Majeed Yehia Abdulla Compliance Officer

4. Management and Service Activities: 4.1 Development of Human Resources: Our employees’ loyalty and sincerity in carrying out their duties were the key factors behind the Bank’s success and the highest performance level in implementing our strategy. During the year, we carried out a number of initiatives. We appointed an international consulting firm specialized in training to help us with our internal training programmes for the employees. We employed a number of managers in the executive management to fill the key and responsible jobs. We also drew up new policies and procedures for the Bank that the Board of Directors had approved earlier. We also prepared new job descriptions for the executive management of the Bank and these positions were filled during the year. Following is a summary of the courses held by the Bank and the number of participants during 2008: 1. Number of training courses held outside Iraq (3) courses with 7 participants. 2. Number of training courses held inside Iraq (33) courses with 221 participants. 4.2 Breakdown of the Bank’s Staff Members According to Qualifications and Jobs: As at the end of 2008 the total number of employees in the Bank and its branches was 531 employees who included 150 people in the Bank’s management and 381 employees in the branches. Following are the job titles and academic qualifications of the Bank’s employees:

Below Inter- Inter- High Details mediate mediate Diploma Bachelor Diploma Masters Total % Employees 38 7 49 221 3 1 319 60 Cashiers 1 27 11 16 - - 55 10 Guards 80 33 3 1 - - 117 22 Workers 28 12 - - - - 40 8 Total 147 79 63 238 3 1 531 100

Bank of Baghdad Annual Report 2008 I 45 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

5. Total Amounts Spent on Publicity, Travel, Entertainment and Donations:

2008 Amount 2007 Amount No. Account’s Name ID Million % ID Million % 1. Advertising and Publicity 189 22.6 28.1 10.9 2. Travel and Assignments (including conferences & seminars) 640 76.3 217.1 84.6 3. Entertainment 6.7 0.8 4.7 1.8 4. Donations and Gifts (assistance) for Employees 3.7 0.3 6.8 2.7 Total 838.4 100 256.7 100

6. Equity in other Companies: The Bank is a shareholder in the following companies and is represented on their boards:

Current Capital Number of Company’s Name ID (Millions) Bank’s Shares 1. Al Amin Insurance Company 1,000,000,000 100,000,000 2. Al Amin Real Estate Investment Company 6,960,000,000 200,230,897 3. Al Amin Financial Investment Company 750,000,000 37,500,000

7. Investment Portfolio: Following is a table of the Bank’s investments in the shares of Iraqi joint stock companies worth Iraqi Dinars 2,249,527,722. Since their market value according to the most recent bulletin in the Iraq Stock Exchange trading session amounted to Iraqi Dinars 2,467,374,928, which is higher than the cost of the investment portfolio, no provision has been set aside for the decline in the investment’s value. Bank of Baghdad Investment Portfolio in the Shares of Iraqi Joint Stock Companies as at 31.12.2008:

Number of No. Company’s Name Shares First: Long Term Investments Total 1,809,251,252 1. Al Amin Insurance Company 100,000,00 2. Al Amin Financial Investment Company 37,500,000 3. Al Amin Real Estate Investment Company 200,230,897 4. Al Rafidain Grains Company 766,420,355 5. Industrial Union Generation Manufacture Co. 75,000,000 6. Iraq Banking Securities Company 400,000,000 7. Al Amwal Banking Services Company 30,100,000 8. Baghdad Brokerage Company 200,000,000 Second: Short Term Investments Total 375,712,621 1. Northern Gas Company 3,650,877 2. Al Rasafa Games Company 37,651 3. Sindbad Tourism Company 1,663,777 4. Dar Al Salam Insurance Company 50 5. Ahlia Insurance Company 403,262 6. Baghdad Al Salam Food Industries Co. 2,125,977 7. National Food Industries Company 24,261 8. Al Ta’amim Construction Company 3,477 9. Readymade Garments Industry Company 443,230 10. Modern Building Materials Manufacture Co. 3,329,411 11. Iraq Seed Production Company 1,232,142 12. Carton Manufacture Company 29,899 13. Al Hilal Industrial Company 197,301 14. Gulf Commercial Bank 362,571,306 Gross Total 2,684,963,873

46 I Bank of Baghdad Annual Report 2008 8. Information about the Bank’s Owned and Leased Branch Premises:

a) Number of Branches: 24 Branches throughout Baghdad and a number of Iraqi Governorates:

No. Branch’s Name Address Date of Opening 1. Al Siba’a Branch Baghdad, Beirut Square 20.2.1992 2. Al Mansoor Branch Baghdad, Al Mansoor District Square 20.3.1992 3. Main Branch Baghdad, Karrada Kharij M903, Street 17, Building 150/65 12.9.1992 4. Al Hilla Branch Al Hilla, Imam Ali Street 29.12.1992 5. Al Zahra Street Branch, Baghdad, Al Kadhemeya, Al Qattala Area, M 419, Z 79, Building 25 20.1.1996 Kadhemeya 6. Al Rabie’e (Mosul) Mosul, Khalid Ibn Al Walid Street, Shaikh Abulala’a, Property 4/17 1.9.1996 7. Babil Mall (Property) Baghdad, Babel Mall, Al Rasheed District, 155 Property M 104, Z 41, Building 16 8.10.1997 8. Al Jadereya Al Jadereya, District 913, Z 10 Building 33 Al Hamra Hotel 23.6.1999 9. Karbla’a Karbla’a, Qiblat Al Husain Road 1.12.1999 10. Karkuk Karkuk, Al Jomohoureya Steet, Shukr Al Najar Building, Near Central Markets 7.12.1999 11. Al Hamra Baghdad, Police Tunnel 1.4.2000 12. Jamila Baghdad, Al Rasafa Jamila, M 514, Z 26 Building 26 2.9.2000 13. Basra Basra, Mookam Ali, Main Road corner of Kuwait Street, 25.4.2001 14. Baaqooba Dialli Governorate, Al Tikiya near Al Farouk Mosque 6.5.2001 15. Falooja Al Jubail Al Kharab, Al Jadid Street, Z 51, M 202 Al Risala District 19.6.2001 16. Palestine Baghdad, Beirut Square 17.11.2001 17. Al Mahmoodeya Al Mahmoodeya City 20.8.2002 18. Najaf Najaf City 2.1.2003 19. Al Baya’a Baghdad, Al Baya’a 1.12.2004 20 Al Sulaymaneya Al Sulaymaneya City 1.9.2005 21. Erbil Erbil City End of 2008 22. Dahook Dahook City Early 2009 23. Al Koot Al Koot City Early 2009 24. Al Diwaneya Al Diwaneya City Early 2009

Bank of Baghdad Annual Report 2008 I 47 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

b) Table of the Bank of Baghdad Freehold Properties:

Area Cost in Estimated value No. Branch Name Location Branch Serial No. in Sq. Metres Iraqi Dinars Land & Buildings 1. Al Baya’a Al Baya’a 19/3748M/Al Khur 261.61 225,757,453 376,680,000 2. Jamila Al Thawra 1/2979M/4/Al Wazireya 600 458,058,267 1,771,700,000 3. New Baghdad Al Rasafa 7/7390M/14/Al Wazireya 480 102,033,750 384,000,000 Plot of land 4. Main Branch Al Rasafa 150/76/Al Batawin 915.8 41,648,474 3,539,050,000 5. Al Zahra Al kadhemia 1108/33/Qutana 265.8 52,477,475 1,000,000,000 6 Al Mansoor Al Karkh 7/4517M/20/Al Dawood 967.6 777,861,231 2,290,600,000 7. Al Saba’a Al Rasafa 180/175 251.75 453,513,836 514,750,000 8. Al Mahmoodia Baghdad 426/36 203.79 100,396.487 314,845,000 Al Mahmood 9. Karbala Karbala 1664/41 158 175,223,675 1,665,000,000 10. Falooja Falooja 9/1816 258.75 64,464,990 74,950,000 11 Ba’aqooba Dialli 371/76 Tikiya 264 121,777,401 250,000,000 12. Basra Basra 668/47 122.87 233,433,755 737,310,000 13. Mosul Mosul 4/17 Shiha Bu’ali 165.54 64,247,239 656,080,000 14. Mosul Mosul 6/14/M/41 3,330 84,067,941 245,250,000 15. Erbil Erbil 17/51 M46 Warish 724.54 3,962,418,750 3,962,418,750 16. Dahuk Dahuk 1/6M/81 Dahuk North 301 1,215,000,000 1,215,000,000 Total in Iraqi Dinars 8,132,320,724 19,024,633,750

c) Table of the Branch Premises Leased by the Bank:

No. Branch’s Name Annual Rent Lease Term Landlord’s Name 1. Al Jadreya Office, ID1,000,000 One year to be renewed automatically Al Hamra Hotels Baghdad 2. Palestine Branch, 77 weights of 10 years from 22.2.2001 to 22.2.2011 Heirs of Ahmed Abdul Baghdad 24 carat gold Wadhi Kamal 3. Al Hamra Branch, 198,863 grams of 10 years from 15.9.1999 to 16.9.2009 Ali Al Aameri Baghdad 24 carat gold 4. Al Hilla Branch ID6,250,000 3 years from 1.1.2003 to 3.12.2005 Al Hilla Chamber of Commerce. to be renewed 5. Kirkuk Branch ID5,500,000 10 years from 1.8.1999 to 1.8.2009 Mohamed & Ahmed Sons of Shukr Al Najar 6. Najaf Branch $5747 10 years from 1.10.2002 to 30.9.2012. Husain Mehdi Zayed 7. Al Sulaimaneya Branch $20,400 4 years Waali Othman Juma Najm $20,000 8 Years 8. Sinak Branch, Baghdad ID3,500,000 One year to be automatically renewed Caledonian Community 9. Regional Administration ID37,000,000 10 years from 22.9.2008 Mona Mohammed Abdulredha of Southern Province/ Hilla 10. Nishtiman, Erbil $100,000 2 years and 3 months Middle East Construction & Investment Co. 11. Al Koot Branch ID42,000,000 10 years from 22.9.2008 Zahra Mohsin Jassim Al Azzawi 12. Al Diwaneya Branch ID24,000,000 10 years from 22.9.2008 Haider Noor Ali, Amir Kadhem Ali, Abdulla Mutlaq Henaish

48 I Bank of Baghdad Annual Report 2008 9. Capital Adequacy: As at the end of 2008 the Bank’s capital adequacy ratio according to the risk exposure in the Balance Sheet amounted to 73.5%. It should be noted that the minimum ratio required by the instructions of the Central Bank of Iraq is 15% and according to the Banking Law No.94 of 2004 is 12% and according to the decisions of the Basel Conference is 8%.

10. Bank’s Overseas Operations: The Bank continued its total banking business which included the issue of overseas letters of guarantee, issuing letters of credit, receiving foreign currency drafts, issue of drafts for overseas remittances according to the guidelines of the Central Bank and the anti-money laundering instructions. Thus, it was able to establish the rules of international banking, keep abreast of modern developments and approving rates of overseas transactions without allowing any scope for smuggling activities but mainly to establish the rules of competition and profitability on the international level.

11. Research, Development and Expansion Policy: The Bank continued during the year its development and expansion policy. In addition to the progress and expansion achieved by the Bank in total banking business during 2008, it embarked upon the expansion of its banking services. During the year, the Bank opened Erbil provincial branch and Hilla provincial branch. Operations of Al Koot, Dahuk and Al Diwaneya branches will be launched in the first month of 2009. In addition, the Bank’s investments grew by contributing to the incorporation of the Iraq Bank Guarantees Company And Amwal Banking Services Company.

12. Accounting Policy: The Bank adopted the recognized accounting policies and principles that are applied in the banking sector according to the requirements of the applicable Companies Law, Banking Law No.94 of 2004 and instructions of the Central Bank of Iraq in addition to applying the consolidated accounting standard for banks and insurance companies in maintaining accounts and preparation of financial statements. Since its inception, our Bank has recognized the historical cost convention in its accounting policy except for the outstanding debts and suspension of interest until actual repayment. The Bank sets aside a doubtful provision according to the rates prescribed in the guidelines issued by the Central Bank of Iraq. As for the depreciation of the fixed assets, the Bank follows the straight line method and provides for depreciation 20% annually of all the fixed assets except buildings for which depreciation are computed at the rate of 3% per annum. Moreover, our Bank implements the Central Bank’s instruction that calculates the US dollar rate according to the auction rate on the last day of December, 2008, when it was ID1,172 per US dollar.

13. Material Changes and Events Since the date of the Balance Sheet: The Central Bank of Iraq embarked upon reducing the Policy Rate more than once by as much as 14% at present with effect from 1.2.2009 and the most recent reduction was 11% as from 1.3.2009. So this decision will be one of the fundamental reasons that will certainly affect the Bank’s revenues. However, efforts will be doubled to activate other banking operations and to attract more new customers to make up for the decline and to increase our revenues.

Bank of Baghdad Annual Report 2008 I 49 Board of Directors’ Report about the Bank’s Operations For the year ended on 31st December 2008

14. Finally, the Bank’s Board of Directors would like to express on your behalf sincere thanks and appreciation to the management of the Central Bank of Iraq for its good management of the monetary and credit policy and boosting investment activities at home and abroad. We would also like to congratulate the shareholders for the excellent results of the Bank of Baghdad and all its branches which were the results of the efforts, sincerity and loyalty of the Bank’s employees and the outstanding role they played in providing excellent banking services. We would like to express our thanks and appreciation to the Bank’s customers for doing business with us. All the credit goes to the employees of our Bank as without their efforts the management could not have achieved such good results that contributed to enhancing the financial position of our Bank. It is imperative upon us to express our thanks and gratitude to the Companies Registrar Department and to the Auditors.

Emad Ismail Shareef Board Chairman

50 I Bank of Baghdad Annual Report 2008