Banking Group

2018

ANNUAL REPORT 2018 Annual Report 2018 CONTENTS

Statement of the Chairman General Manager 04 Business Segments Activities and Analysis 32 Control Functions Activities and Analysis 54 Support Functions Activities and Analysis 78 Financial Highlights 06 Retail Banking Activities 34 Risk Management and Strategy 56 Banking Information Technologies 80 International and Local Awards 08 Marketing and Business Development 36 Internal Audit 68 Human Resources 82 CL Group Medium-Term Strategy 10 Electronic Banking 38 Compliance and AML/CFT 72 Credit Libanais' Identity 11 Corporate Banking 40 Consumer Financial Protection 76 Facts and Figures 12 Corporate Responsibility 41 Corporate Governance 13 Affiliated Companies 46 Macroeconomic Operating Environment 28 Treasury, Global Markets, Asset Management 50 Overview of Credit Libanais Group 31 and Private Banking

Investment Banking (CLIB) 51 01 02 03

Financial Statements 84 Branch Network and Correspondent Banks 226 CL Milestones 236

CL Group Financial Results 86 CL Network in Lebanon 229

CLIB Financial Results 202 CL Network Worldwide 234

CLA Financial Results 214 Correspondent Banks Network 235 04 05

Annual Report 2018 Credit Libanais Group On the corporate banking level, Credit Libanais has been a major contributor in the development of Lebanon’s highly resilient private sector. In this context, the year ended with around 800 group files for total net facilities of USD 2.0 billion as at end-December 2018. In addition, our Bank entered into another loan agreement with the International Finance Corporation (IFC), which will make some USD 50 million with a hedged fixed interest rate, to boost the social and economic growth of the private sector in Lebanon. New agreements with the European Bank for Reconstruction and Development (EBRD), and the development financial institution PROPARCO will also follow in the short-term period.

On the retail banking level, our propensity modelling analysis proposed timely appropriate solutions to clients managed Statement of the according to risk profiles and changing market conditions. CHAIRMAN GENERAL MANAGER Moreover, in 2018, retail commercial lending provided quality customer experience by further simplifying a large number of business processes thus increasing quality, speed, and efficiency of service. In addition, by leveraging on our extensive correspondent network, Credit Libanais also continuously supports customers’ businesses in overseas markets.

As part of CL digital transformation strategy, our Bank continued to dedicate ongoing efforts to adapt to today’s customers’ changing lifestyles, while anticipating their needs. In this perspective, Credit Libanais launched an updated version of CL Despite the difficult environment in 2018, Lebanon accomplished several positive steps in the first half of the e-bank Mobile app on the stores (Android, Apple, etc.), by adding new biometric access for added security in addition to year, such as the successful completion of the parliamentary elections, the official inking of the petroleum advanced features on the Online Banking service. The latest NFC contactless payment technology was also introduced, contract between the government, and the consortium of Total, ENI and Novatek for the exploration and the one-time passcode (OTP) on our 3D secure authentication service and upgraded the POS infrastructure. production of oil and gas from two offshore blocks. Furthermore, the passing of several key laws to ensure more transparency, accountability and security related to e-government, combatting cybercrime, decentralized solid While digital technology has radically changed people’s lives and offered countless benefits, it has also brought cybercrime. waste management and the protection of whistleblowers shall reinforce the process of combating corruption. At Credit Libanais, we embedded the preventive compliance culture across all entities, locally and abroad, to ensure application of sound banking practices within a safe financial environment, while abiding by highly recognized ethics and In this context, Credit Libanais recorded an enhanced overall performance across all business lines in 2018 code of conduct. despite the surrounding turmoil. In fact, the quality of the Bank’s balance sheet improved with consolidated assets reaching USD 12.45 billion revealing a y-o-y increase of 7.77%. Customer and related parties deposits In addition, the Bank sustained its strategy of adopting a firm risk management and compliance culture, combined neared USD 9.34 billion, posting a y-o-y increase of 0.41%; assets under management increased to USD with the best corporate governance and transparency practices. In 2018, the compliance function continued to embed 380.33 million in 2018, compared to USD 345.88 million in 2017, representing a 10% yearly growth. This and spread the compliance culture across all entities of the group, to ensure application of sound banking practices, advancement clearly reflects the reliance and trustworthiness granted by our customers to the Bank in general, while abiding by highly recognized ethics, laws, rules and regulatory requirements, in view of supporting the board and to private banking in particular. of directors and executive senior management in managing and mitigating compliance risks in a timely manner. Early in 2019, the Compliance division advanced the Financial Crimes Investigation in a separate section, which main role In parallel, net loans reached USD 3.30 billion demonstrating a y-o-y decrease of 4.49%, while loans-to- consists of conducting investigations on bribery, corruption, fraud and other financial crimes resulting from misconduct deposits ratio firmed at 35.38%. This slight decrease is due to the economic downturn in 2018 as witnessed and unethical behaviors. by all sectors of the Lebanese economy. In addition, the culture of transparency, equitability, suitability and fairness in conducting banking operations with Group CL maintained its strong financial situation in terms of liquidity, financial flexibility, and capital adequacy, customers continues to be actively promoted by the Bank’s Consumer Financial Protection function to ensure a valuable allowing for sound risk coverage in a challenging operating environment. With regards to liquidity, the Bank customer experience across all lines of business. enjoys sound liquidity ratio of 93.21%. As for financial flexibility, the Bank’s core equity Tier 1 ratio (CET1) as per Basel III stood at 12.51% as at end-December 2018, compared to 11.27% as at end-December 2017 and Year after year we reaffirm our commitment to conducting business with high ethical standards and sustainability in mind. 10% minimum regulatory ratio, while the Capital Adequacy Ratio reached 16.60%, compared to BDL threshold In fact, since Credit Libanais officially joined the United Nations Global Network locally and internationally back in 2015, of 15.00 % at year-end 2018. The shareholders’ equity (including profits of the year) neared USD 994 million the Bank annually publishes the Communication on Progress (COP) Report, a key component of our commitment to the at year-end 2018, compared to USD 924 million in 2017. UN global compact Sustainable Development Goals (SDGs), the world’s largest corporate responsibility initiative.

On the level of asset quality, consolidated gross non-performing loans represented 7.23% of gross loans. As of On the national level, in 2018, the Bank also took part in the Public Communication and Public Consultation with beginning of 2018, the Bank embarked on the implementation of the second phase of IFRS9 which establishes stakeholders related to the National Strategy for Preventing Violent Extremism (PVE), an initiative led by the Office of a new approach for impairment - an “expected credit loss” model - that focuses on the risk that a loan will the Prime Minister of Lebanon and aims at regaining social trust, promoting citizenship, achieving social justice and default as opposed to the previous incurred loss model which only recognizes the losses after a credit loss monitoring social transformations. event has occurred. As a result, allowance for ECL on stage 1 and 2 amounted to USD 71.08 million, of which USD 46.35 million is related to loans constituting 1.45% of the total loan portfolio. Coverage ratio of credit Noteworthy that the heart of our business relies on the dedication of our strongest assets, our people. To develop their impaired loans on the other hand stood at 53.68% in 2018, reaching 120.06% when including real guarantees. skills and knowledge, the Bank continues to provide trainings to boost staff skills and adaptability in a fast changing environment. On the profitability front, net profits rose to USD 83.36 million, while net interest income stood at USD 182.40 million, with net fees and commission income expanding to USD 42.82 million, increasing net operating Lastly, a genuine word of gratitude goes to our shareholders and customers for their trust and above all our great people income to USD 234.18 million. for their utmost commitment to our values in this period of significant turbulence in the macroeconomic environment.

With regards to return ratios, pre-tax return on average equity (ROaE) stood at 12.02% and pre-tax return on Dr. Joseph Torbey average assets (ROaA) reached 0.81%. Chairman General Manager

Annual Report 2018 Credit Libanais Group 04 05 Financial Highlights As at 31 December

(millions LBP) 2018 2017 2016 2015

Balance Sheet Total assets 18,773,294 17,419,164 16,066,394 14,978,191 Customer and related parties deposits 14,079,683 14,021,735 13,427,483 12,673,778 12.02% 7.77% Shareholders’ equity 1,499,149 1,393,439 1,310,549 1,260,677 Loans & advances to customers and related parties 4,981,190 5,215,165 4,836,811 4,474,881 PRE-TAX Growth in Total Assets Return On average Equity (ROaE) 16.60% Income Statement Capital Adequacy Ratio Net interest income 274,965 279,363 245,704 228,808 (as per Basel III) Net financial income 353,043 352,347 320,666 292,859 Net profit for the year 125,667 122,700 106,035 100,418 Return on Average Assets (ROA) 0.81% 0.89% 0.81% 0.81% Return on Average Equity (ROE) 12.02% 12.96% 11.46% 11.18%

353,043 Growth 1,499,149 320,666 1,310,549 Total Assets 7.77% 8.42% 7.27% 8.44%

352,347 1,393,439 Customer and related parties deposits 0.41% 4.43% 5.95% 8.64% 1,260,677 292,859 Solvency ratio (As per Basel III) 16.60% 15.20% 14.75% 15.47% Loans and advances to customers and related parties -4.49% 7.82% 8.09% 3.94% 2015 2016 2017 2018 2015 2016 2017 2018 Loans to deposits 35.38% 37.19% 36.02% 35.31% Sustainable Profitability Cost to income 57.55% 52.07% 57.41% 58.01% and Value Creation Strong Capital Base

Net Financial Income Shareholders’ Equity 7.77% Growth in Total Assets

Assets, Customer and Related Parties Deposits, Shareholders’ Equity and Net Profits 12.45 (Assets and Customer and Related Parties Deposits in Billions USD) 11.56 10.66 18,773,294 14,079,683 (Shareholders’ Equity and Net Profits in Millions USD) 16,066,394 13,427,483 4,836,811 4,981,190 9.93 9.34 14,021,735 9.30 17,419,164 12,673,778 5,215,165 8.91 14,978,191 4,474,881 8.41 Assets 994.46 924.34 2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018 869.35 Customer and Related Parties Deposits 836.27 83.36 81.39 Growth Trend in the Banking Activity Growth Trend in the Banking Activity Growth Trend in the Banking Activity Shareholders’ Equity 70.34 66.61 Total Assets Total Customer Deposits Loans & Advances to Customers

Net Profits 2015 2016 2017 2018 (millions LBP)

Annual Report 2018 Credit Libanais Group 06 07 International and Local Awards

The Prestigious “Lifetime Achievement Award” to Dr. Joseph Torbey by Visa International Inc. AWARDSFOR EXCELLENCE

Correspondent Banks Awards to Credit Libanais JP Morgan recognizes Credit Libanais with the STP Excellence Award. (2017-2013-2015) Citibank recognizes Credit Libanais with the STP Excellence Award. (2016-2014-2015) Deutsche Bank recognizes Credit Libanais with the Euro STP Excellence Award. (2017-2014) Standard Chartered grants Credit Libanais the STP USD Clearing Excellence Award. (2014-2013)

On March 27, 2019, Visa International recognized Dr. Joseph Torbey Chairman General Manager of Credit Libanais National And International Stakeholders’ Awards to Credit Libanais Group with the prestigious “Lifetime Achievement Award”, which is defined as: Signature of the “Investors for Governance and Integrity - IGI Declaration”. (2019)

“A recognition for Dr. Torbey for his long and historical contribution in setting up and growing Visa business in Union of Arab Banks (UAB) recognizes Credit Libanais with the Reconstruction and Development Award. (2017) Lebanon, electronic payments industry, and the banking sector in general. This is a unique award that hasn’t been World Union of Arab Bankers (WUAB) grants Credit Libanais the Safest Bank Award. (2017) given to anyone else in Lebanon and to very top few executives in the MENA region.” VISA Inc. The Middle East Security Awards (MESA) Conference grants Credit Libanais the CISO (Chief Information Security Officer) 100 Award. (2018-2017-2016) The Award Ceremony was held in the presence of Mr. Andrew Torre, Visa Inc. CEMEA Regional President who Cross Knowledge E-learning Iquad Solutions recognizes Credit Libanais with the Best E-learning Roll-out Academy Award. (2014) oversees more than ninety countries in the region, along with a high delegation of Visa officials, Credit Libanais The Social Economic Award (SEA) grants Credit Libanais the National and Social Impact Award (2014), and the Housing loans Category board members and senior executives and staff. Award for financing stability in the lives of Lebanese families (2012). World Finance Banking Awards names Credit Libanais the Best Commercial Bank in Lebanon. (2013) The World Confederation of Businesses grants Credit Libanais the Peak of Success Award. (2013) Annual Report 2018 Credit Libanais Group 08 09 CL Group Medium-Term Strategy Credit Libanais’ Identity

Vision

Optimize capital allocation and preserve Sound Credit Libanais’ purpose is to enhance shareholder, customer and employee value. Capital and Liquidity Management. Focus on Sustainable Technological Growth and Engage in Digital Customer Journey. Maintain a Strategic Marketing vision based on Core Values Resources Optimization Drive Growth, Expansion and and engage in a Transversal Credit Libanais’ core values are customer focus, innovation, teamwork, ethics, transparency Business Diversification locally Corporate Social and integrity as well as reward for performance. and abroad (West Africa and We at Credit Libanais are Responsibility Strategy. Middle East). committed to maintaining our aim towards excellence Mission and value creation to all our Maintain Sound Profitability stakeholders. Therefore, Maintain embedded Credit Libanais is the preferred bank in Lebanon for customers and employees. Management improving in Strategy 2021, we will prudent Risk Management, Fee Income and Follow strengthen and redirect our Compliance, Culture and Responsible Cost Efficiency focus onto the seven major Corporate Governance Strategy. Management encompassing strategic pillars. Conventional Banking, Credit Libanais is primarily a retail Investment Banking, Islamic bank and serves selected corporate Banking and Leasing customers. Activities. Optimize Human Capital, linking Credit Libanais’ Business Principles reward to long-term risk based performance.

For the medium term strategy 2021, Credit Libanais reaffirms The Bank will sustain its strategy of firm risk management its commitment to remain a leading global universal Bank, and compliance culture, combined with the best corporate in its home market and in selected captive markets, in the governance and transparency practices, and shall continue to Serve Middle East and West Africa. The Bank will prioritize the plans closely and conservatively manage and optimize the return on of expanding its digital presence and services in line with the its liquidity resources on selective financial instruments and We deliver superior changing nature of the banking services. The Bank will maintain placements, including some exposure to the sovereign and We Improve customer service. Act its plans for further capital enhancements, organic growth and Central Bank of Lebanon debt. We embrace change. We gain customer We are action-oriented acquisitions, operational excellence and cultural changes, in We continuously satisfaction with service and encourage view of differentiating and repositioning itself against local The Bank believes that its business pillars are well established seek better solutions that exceeds customers’ personal initiative. Can expectations. peers. The strategy and goals of the Bank are based on a to balance its earnings mix and to satisfy increasingly complex Cooperate to problems for the Do and Will Do are number of key assumptions reviewed at least annually. and global customer needs. Strategy 2021 defines a framework; Customer and the Bank. basic attitudes of all i) to build a stronger image for a digital Bank and reinforce the We function as a Build employees. Over the past year, a new government has been formed on Bank’s position in the E-banking and Business online services team. Cooperation January 31, 2019, ending months of deadlock over the make-up in an increasingly digital competitive world; ii) to consolidate among individuals We continuously upgrade our of the cabinet. Political disputes have prevented the formation further its Treasury and Capital Markets activities improving its and units is skills. Commitment to self- of a government since an election in May, undermining plans for fee income base; iii) to grow its Investment Banking Business fundamental in development and training are the needed fiscal and structural reforms that would unlock USD 11 and revenues through enhancing the activities of Credit delivering the Empower cornerstones of our competitive Respect billion in grants and loans. The new government is expected to Libanais Investment Bank (CLIB); iv) to further develop the whole Bank to the advantage. We emphasize We value each introduce reforms that Lebanon committed itself to, including Corporate and Correspondent Banking Division controlling customers. delegation. Acceptance others’ ideas. We reducing the deficit by a percentage point annually for the next additional market share, with improved pricing locally and in of personal treat colleagues fairly, five years, addressing corruption and fixing the ailing electricity the countries of presence; v) to sustain its leading position Communicate accountability permeates Perform sincerely and courteously sector. in the local market in the Retail business, including financing our corporate culture. We are open. We We increase productivity each regardless of differences SMEs and the Public sector; vi) to strengthen its position in the in background. Strategy 2021 is based on assumptions of the Lebanese Pound Private Banking and Wealth Management locally and through encourage continual year. Ethics and Profit per exchange rate stability, mainly supported by the significant its foreign branches and subsidiaries; and vii) to improve the dialogue across all units employee are key measures for and levels. Bank performance. foreign currency and gold reserves held by BDL. diversity and profitability of its products and services with increased contribution to the Bank’s bottom line.

Annual Report 2018 Credit Libanais Group 10 11 Facts and Figures Corporate Governance

CL Group Corporate Governance Framework business ethics and values, as well as the size of business to ensure the promotion of the long-term strategy of the Bank Credit Libanais Group is committed to safeguarding the in a competitive market. interests of all stakeholders and recognizes the importance No deferrals or clawbacks arrangements are being made for of good Corporate Governance for its sustainable success. the moment, except for legally required matters. In this respect, CL Group continuously reviews its Code of Corporate Governance in accordance with changing local 3. Remuneration is based on measurable performance and international standards. The Code is circulated to all as well as goal achievements and results, translated into staff and made available on the Bank’s website. various schemes and incentive programs, taking into account all matters associated with the Bank financial status and The Board of Directors oversees the implementation of the interests. Linking reward to performance has a direct impact Bank’s governance framework and periodically reviews its on the overall results of the Bank, and plays an important relevance in the light of any material changes occurring to role in motivating employees. In fact, staff participation rate the Bank’s size, complexity, geographical footprint, business in the e-appraisal system process is increasing on a yearly Credit Libanais Group strategy, markets and regulatory requirements. basis, and has reached 85% in 2018. IT, E-Banking Total amount of remuneration is based on a combination and E-Commerce Companies One Financial Institution Board of Directors’ Own Structure and Practices 4. . Credit Card Management sal Credilease sal of factors: assessment of the employee performance and . International Payment Network sal The Board defines appropriate governance structures and the business unit concerned, the employee’ professional . Net Commerce sal One Insurance Company Real Estate Company experience and academic qualifications as well as their . Soft Management sal practices for its own work, and puts in place the means for Credit Libanais Cedars Real Estate sal organizational responsibility, and the overall results of the d’Assurances et de Reassurances such practices to be followed and periodically reviewed for (CLA) sal ongoing effectiveness. The Board structures itself in terms Bank. This process contributes to motivating, developing Four Banks of leadership, size, frequency of meetings and the use of its and retaining talent within the Bank, despite the fierce . Credit Libanais sal . Credit Libanais Investment Bank sal committees to effectively carry out its oversight role and other competition. Noteworthy that remuneration is governed by . Lebanese Islamic Bank sal responsibilities. The Board performs a yearly Self-Assessment the principles of non-discrimination and equitable treatment. . Credit International S.A. Senegal through a structured Self-Assessment Questionnaire that is facilitated by the Corporate Governance, Nominations, 5. Remuneration comprises the fixed and variable elements Human Resources and Remuneration (CGNHRR) Committee. such as the basic salary and the performance-based bonuses in addition to the legal benefits and allocations, taking into account the suitability standards with regards to employees Remuneration Policy and System selling products and services to customers. Employees performing internal control functions are remunerated in 1. The Board established a Board Remuneration Committee accordance with the achievement of the objectives linked as an integral part of its governance structure and to their functions, independent of the performance of the organization, to recommend and oversee the Remuneration business areas they control. System’s design and operation. Large Network Extensive E-Outreach 6 Countries of Geographical Outreach 6. As reported in the Bank’s Financial Statements, Key 2. CL has developed a remuneration policy and system, management personnel compensation for the year 2018 approved by the Board upon the recommendation of consisting of short-term benefits amounted to LBP 9.8 th the CGNHRR committee. It is a coherent and transparent . 8 largest network in . 10,500 electronic POS . Lebanon billion. More details are further elaborated in the “Financial Lebanon . 160,000 banking cards . Bahrain system, translating the Bank’s objectives for good Results” section of this Report. . 79 total branches distributed . Canada corporate governance, and is consistent with the Banks’ . 97 ATMs . Cyprus culture, business strategy, objectives, values, control and . A state-of-the-art customer . Iraq performance environments, as well as the long-term interests Assets and Liabilities Management (ALM) service . Senegal of the Bank, taking into account the legal and regulatory . 24/7 online banking requirements. The performance management process aims ALM function supports the capital and liquidity management services at creating opportunities to motivate and engage people process, governed by the Group Asset and Liability by linking reward to performance on a fair, suitable and Committee (ALCO). ALM is responsible for the development equitable manner. Open communication is the cornerstone of the Group’s investment policies, market risk, interest rate of the performance appraisal, where managers discuss with risk and liquidity risk, in addition to the hedging of foreign their employees’ future aspirations. It is a future oriented exchange exposures of capital investments abroad, managing feedback system, focused on building careers, retaining and capital ratios, and the Group-wide capital requirements. developing talent while observing the rules of compliance, www.creditlibanais.com Lebanon:1518 International: +961 1 607 100

Annual Report 2018 Credit Libanais Group 12 13 Capital and Liquidity Adequacy as per Basel III The Foreign Account Tax Compliance Act (FATCA) b. Periodic Economic and Sector-Specific Publications Credit Libanais Group, a Corporate and Responsible requirements and CRS Compliance Citizen A considerable number of internal publications reach our CL Group abides by national and international requirements FATCA was enacted into United States (US) law on March 18, staff on a daily, weekly and monthly basis. Those aim at Cognizant of its important role in society CL Group has in terms of capital adequacy regulatory framework, internal 2010 and the related regulations were issued on January 17, delivering macro and micro economic updates, latest market embarked on a strategic Corporate Responsibility (CR) Project capital adequacy assessment process, Basel III, liquidity 2013. FATCA requires Foreign Financial Institutions (FFIs) to news, ratios and indicators. Sector-Specific publications to ensure that sustainability is embedded in all aspects of our coverage ratio, loan impairment, related specific and report to the US Internal Revenue Services (IRS) information by Credit Libanais’ Corporate Finance and Economic business. CR initiatives are reported in the internal newsletter collective provisions as well as general reserve for the loan about financial accounts held by U.S. taxpayers, or by Research Department include: Real Estate, Gold, Oil and as well as in the Annual Report publication. portfolio. CL Group abides by the quantitative and qualitative foreign entities in which U.S. taxpayers hold a substantial Gas, Remittances, Public Debt, Beirut Stock Exchange, Arab requirements of the third pillar of the Basel accord and its ownership interest. Lebanese banks like all FFIs worldwide Spring Economic Cost, Capital Investment Program, Country Composition of the Board of Directors subsequent updates. comply with FATCA since July 1, 2014. Therefore, CL Group Report on Lebanon, Public Private Partnership, to name but has the responsibility of identifying US tax payers among its a few. CL Group is governed by a board consisting of twelve members, who are leading bankers and businessmen Audit, Risk Management, Compliance and other clients and for reporting to the US Internal Revenue Services Private Banking and Wealth Management News enjoying wide and diverse expertise in Lebanon and the Internal Controls (IRS) names and accounts’ information and CL Group only c. undertakes business relations with FATCA compliant FFIs. region. Board Members are elected by the General Assembly The Bank’s Audit, Risk Management, Compliance and other The Bank is also in compliance with the Decree no. 1022 Daily publications are disseminated to CL Group staff members of shareholders for a term of three years. The Board is of an Internal Control functions have the necessary authority, which outlined the Common Reporting Standard’s (CRS) and encompass updates on local and international market appropriate size to oversee the Group’s businesses, with a stature, independence, resources and access to the Board implementation requirements. It is related to point 3 of conditions, economic indicators, currencies, commodities, suitable diversity of backgrounds and a mix of experience to carry out their duties, in an independent and transparent Article 6 of Law No. 55 dated 27 October 2016 related to securities, indices and much more. and expertise to maximize efficiency. manner. Those functions keep pace with changes related to the automatic exchange of information and the commitment the Bank’s risk profile, including its organic and international of Lebanon to join the Common Reporting Standard. d. CL Group Employee Handbook * During 2018, the General Assembly re-elected with no growth. An open and timely internal communication within changes the members of the Board of Directors for a term The handbook elaborates on the rights and duties of of 3 years, ending upon the convening of the General the Bank concerning risk, audit and compliance is ensured, CL Group Reporting both across the organization and through reporting to the employees. It also incorporates CL Code of Conduct for Assembly in 2021 that examines the accounts of the financial Board and SEM. Three Board committees: Audit Committee, CL Group reporting is made in accordance with International Directors and Employees and CL code of Conduct and Ethics year 2020. Risk Committee and AML/CFT Committee are constituted at Financial Reporting Standards (IFRS), providing for a high for the Treasury and Capital Markets Division, business ethics level of each CL entity with at least quarterly meetings and degree of transparency and facilitating comparability with and requirements to ensure that activities are conducted ** In May, 2019, Mr. Efstratios Georgios Arapoglou moved reports issued / reviewed and sent to the Board. international peers. Complying with regulatory requirements, with integrity and honesty and is made available to all staff from his membership at the Board of Directors of Credit CL Group’s Annual Report has become richer in terms of on the Bank’s intranet portal. In case of breaches to CL core Libanais sal following his appointment as Chairman of the principles and values, a disciplinary council takes corrective Bank of Cyprus during the latter Annual General Assembly Anti-Money Laundering and Counter Financing of disclosures and information. action to ensure that CL culture of trust is well preserved and Meeting held on Tuesday, May 14, 2019. Terrorism (AML/CFT) respected by all staff. Internal Communications On November 24, 2015, the Lebanese Parliament ratified the Law 42 on the declaration of amounts of carried cash To optimize top-down and bottom-up channels of at the border, Law 43 on the exchange of tax information, communication between staff and management the internal Law 53 on the International Convention for the Suppression communication platform informs, educates and encourages of the Financing of Terrorism, Law 44 on AML/CFT, and CL staff to share views across the Group, sister companies consequently the BDL issued BDL Basic Circular No. 136 and entities abroad. This plethora of information is related to the implementation of FATF Recommendation 6 communicated via various internal and external e-channels. concerning UN Security Council Resolutions 1267 (1999), 1988 (2011), 1989 (2011), and any related successor resolutions. a. CL on the Internet and social media channels In the increasing interconnected and risky business world, CL banking group provides particular attention to AML/CFT The Bank’s website discloses all CL activities, services, and complies with all the national and international laws and latest news as well as products and their related key facts regulations issued, across all entities of the group, financial statements, in a very transparent and clear manner. The institutions, correspondents and customers, especially corporate website is continuously updated with pertinent those seeking to engage in cross-border transactions or to information relevant to all stakeholders. In parallel, CL social utilize correspondent banks. For this purpose, CL Group media platforms rapidly gained ground among various created at the level of the Parent Bank and each of the segments of customers and cater to their ever evolving Banking and Financial Institution Subsidiaries, Board AML/ needs and requests. CFT Committees, to ensure adequate AML/CFT practices throughout the Group.

Annual Report 2018 Credit Libanais Group 14 15 Biographies of the Board of Directors

Chairman General Manager

Dr. Joseph Torbey is the Chairman General Manager of Credit Libanais Group since 1988. After graduating from university, he held numerous public functions, including Controller at the Lebanese Audit Court and the Ministry of Finance, where he headed the Income Tax Department. Very active on the professional level, he serves as Chairman of the World Union of Arab Bankers (WUAB) since 2006, which is the premier Arab professional organization for Arab bankers and finance professionals. He is also Chairman of the Executive Committee of the Union of Arab Banks (UAB) since 2007, a Union which Board he chaired for two consecutive mandates from 2001-2007, and which is the regional organization that comprises more than 320 Arab financial and banking institutions. Dr. Torbey served as Chairman of the Association of Banks in Lebanon (ABL) for many mandates (2001-2003; 2009-2013 and 2015-2019). He is also H.E. Mr. Marwan Hamade currently serves as Member of Parliament. He previously held various public responsibilities under numerous a founding Member of the Union Bancaire Francophone (UBF) through his position at the UAB and ABL. He served as Chairman of Credit Card cabinets and served as Minister of Education, Minister of Telecommunications, Minister of Economy and Trade, Minister of Tourism, Minister Management (1994 -2009) and Chairman of the International Payment Network (1997- 2008). of Health and Minister of the Displaced. He started his career as an economic and political columnist in an-Nahar and L’Orient-Le-Jour daily On the Academic front he is Member of the Executive Committee and Member of the Board of Trustees of the Arab Academy for Banking and newspapers before serving as an-Nahar Group President and Director. He also served as member of the Higher Council of the Lebanese Press; Financial Sciences (Jordan) since 2001. He is the co-founder and first Chairman of the Institut Supérieur d’Etudes Bancaires (ISEB) at St Joseph Consultant for the World Organization of Health for the Middle East; member of the International Committee of Bioethics at UNESCO and is University (Beirut); Member of the Board of Trustees of the Arab Centre for the Development of the Rule of Law and Integrity (ACRLI) and Member currently member of the Strategic Council at St Joseph University in Beirut. of the Board of Trustees at Louaizeh University, Lebanon. He was awarded the Honorary Professor at the University of Vienna, and has lectured at major universities in Lebanon. Dr. Torbey is very active in developing strategies at the national and Arab levels through the ABL, UAB and WUAB. Seminars and conferences organized with the participation of leading private and public international institutions and regulators aim at spreading the banking best practices across the Arab Banking communities operating in a very complex global market. Mr. Efstratios Georgios Arapoglou** is a Corporate Advisor with a long international executive career in Corporate and Investment He published numerous publications on various banking, financial and taxation issues. He has won many regional and international accolades for banking, International Capital Markets and in managing, restructuring and advising Financial Institutions. He has been the CEO of his accomplishments in the banking industry; the latest being the “Lifetime Achievement Award” in March 2019 awarded by Visa International Inc., Commercial Banking at EFG Hermes Holding SAE Group, operating in the Middle East and Africa, and served as Chairman and CEO of “In appreciation for his long and historical contribution in setting up and growing Visa business in Lebanon, electronic payments industry and the the National Bank of Greece Group, Chairman of the Hellenic Banks Association and Managing Director and Global Head of the Banks banking sector in general”. and Securities Industry for Citigroup. Mr. Arapoglou served on several Boards of publicly listed companies in Europe, the Middle East and Africa, as well as on Boards of Educational Foundations, including the Institute of Corporate Culture affairs in Frankfurt as Chairman. He is Members the Chairman of the International Advisory Board of Tufts University in Boston, Ma. and member of the Business Advisory Council for the CIH Bahrain International Holding sal Represented by Mr. Abdulla Alsaudi International MBA program of Athens University of Economics and Business. Mr. Abdulla Alsaudi, a world-renowned and respected international banker. Founder of the Libyan Arab Foreign Bank, where he served as Executive Chairman establishing branches of the Bank worldwide. Founder of the Arab Banking Corporation, Bahrain where he served Mr. Mohamad Wajih El-Bizri is an influential Lebanese businessman. He is the President of SIPES Group, one of the largest paint as President and Chief Executive. In November 2018, Mr. Abdulla Alsaudi was awarded the prestigious “Arab Banker of the Year” Award manufacturers in the Middle East, having production facilities in six Arab countries. Mr. El-Bizri serves as the Honorary Consul of the by the Union of Arab Banks for his outstanding achievement in the banking industry. Republic of South Africa in Lebanon. He is also President of the International Chamber of Commerce in Lebanon, Vice President of In addition to being voted as one of the most Innovative Bankers by the representatives of governments and international commercial the Association of Lebanese Industrialists and Vice President of Business in the Community Association in Lebanon. bankers attending the IMF and World Bank meetings in 1980, Mr. Saudi has won many international accolades, including an Award at Georgetown University and the Award of Best Banker from the Association of Arab American Banks in New York in 1991. He was also the first to receive the Arab Banker of the Year Award in 1993 from the Union of Arab Banks. In recognition of his role in the development of banking relationships between Arab and European countries, Mr. Alsaudi received several awards, amongst which are those awarded in 1977 by the King of Spain and the President of Italy and the Award given to him by the President of Tunisia in 1996. He is currently the Executive Chairman of ASA Consultants W.L.L., Bahrain. Mr. Sarkis Demerdjian is a civil engineer and a prominent Lebanese businessman. He is the Chairman of Demco Group, Lebanon’s leading Dar Al-Handasah Consultants Shair and Partners Holdings Ltd Represented by Mr. Talal Shair steel supplier, trading and servicing company established in 1922, which has also ventured in the real estate industry, engaging various construction projects while preserving and respecting the environment. Mr. Demerdjian is member of the Council of Trustees of AGBU Mr. Talal Shair is the Chairman and CEO of Dar Al-Handasah Consultants (Shair and Partners) and of the Dar Group. Under Mr. Shair’s (Armenian General Benevolent Union) established in 1906 and present in many countries around the world. leadership, Dar has grown into a multinational corporation that provides world-class services on equal footing with the best international consultancy firms. Dar Al-Handasah Consultants has built a tradition of excellence in offering high-performance planning and providing customers with innovative designs transforming customers’ ambition into reality. The Group has become today one of the world’s top international professional services firms, with over 18,000+ staff in 200 offices spanning the Americas, Europe, Australasia, the Middle East, Africa and Asia. In October 2018, Hyperloop Transportation Technologies (HyperloopTT) announced Dar Al-Handasah Consultants (Shair and Partners) as the design lead on a project that will forever redefine the transportation sector in the Middle East region and

beyond. With this achievement, Dar al-Handasah forever cements its place as the Middle East’s go-to company for any visionary and Mr. Rabah Idriss is a well-known Lebanese businessman enjoying a wide expertise in the fields of finance, trade and manufacture of food transformational project. products, and is very active in professional organizations, such as the Chamber of Commerce and Agriculture of Beirut, among many Mr. Shair is a member of the Board of Trustees of the American University of Beirut since 2010, International College, and the King’s others. Academy in Jordan; a member of the MIT SA+P Dean’s Advisory Council, USA; a founding member of the Young Presidents’ Organization, Cairo Chapter; and a board member of the Queen Rania Foundation and the Chief Executives Organization, Jordan. Mr. Shair is also a founding member of the BADER Young Entrepreneurs Program, and Chairman of the Building Block Fund. In recognition of his unwavering commitment and dedication, Mr. Shair received in 2018 the “Lifetime Achievement Award” by René Moawad Foundation and was selected among the Top 35 Influential Lebanese Business Personalities by Forbes Middle East.

Annual Report 2018 Credit Libanais Group 16 17 Mr. Rabah Jaber is an influential Lebanese businessman. A prominent investor in Lebanon and overseas, he is active in various sectors Shareholding structure encompassing real estate development and investment, industry, construction as well as hotels and tourism. The following table sets out the composition of the holders of the Common Shares, as at June 29, 2019.

Shareholders / Country Percentage Ownership(1) Group of Shareholders

CIH Bahrain International Holding sal( 2 ) L e b a n o n 35.06% Mr. Abdulelah Abdu Mukred Ali is a world-renowned and respected international banker. He currently serves as Director for different companies, namely: Arab Asian Holding Company (Bahrain); Capital International Holding Company (Bahrain); LPC Government securities EFG Hermes CL Holding sal(3) L e b a n o n 8.81% Trading Company (USA) and Ceravision Limited (U.K). He also holds the position of Head of Treasury & Investments at Al Murjan Group (Saudi Others(4) Majority Lebanese 56.13% Arabia). He previously served as General Manager and Investment Division Head at Samba (Saudi Arabia) and as CEO of Al Murjan Trading and Industry Group (Saudi Arabia). Mr. Abdulelah Abdu Mukred Ali was also the Chairman of Board and Audit Committee of Prime Commercial To t a l S h a r e h o l d i n g 100% Bank (Pakistan) and Chairman of Audit Committee and member of the board of Credit Libanais (2001-2009) and currently serves as CL board member and Audit Committee member.

(1) Percentage ownership figures represent both Common Shares owned by the named Shareholders and are expressed as a Dr. Michel Khadige is a prominent and well-known Lebanese banker, who has been serving Credit Libanais since 1988. He currently heads the Corporate Banking and Financial Institutions Division and sits on a number of Senior Executive Committees at the Bank. Dr. Khadige is a percentage of the total number of Common Shares issued and outstanding. member of the General Rules and Banking Regulations Committee at the Association of Banks in Lebanon. (2) CIH Bahrain International Holding sal is the major shareholder, 35.06% majority owned by “C.I.H – CAPITAL INTERNATIONAL HOLDING COMPANY” (3) EFG Hermes CL Holding sal, (8.81%) owned by EFG Hermes CB Holding LTD (4) No shareholder among this percentage holds more than 5% of the capital of the Bank.

Dividend Policy and corporate values, including the Code of Conduct; (ii) Me. Joe Issa El-Khoury is a renowned Lebanese lawyer enjoying a wide expertise in different areas of legal advisory, corporate governance, provide recommendations to the Board for the nomination litigation, banking and insurance laws among other fields. Me. Joe Issa El-Khoury is member of the Beirut Bar Association and served on many Upon recommendation of the Board and approval of the of new Directors and members of Senior Executive international committees, among which the Committee for the modernization of laws established by the Central Bank of Lebanon and the General Assembly, Credit Libanais Group has enjoyed a Management; (iii) oversee the Human Resource Policies; (iv) Committee of the Lebanese Center of Arbitration. He also served as an editorialist at the Lebanese daily, L’Orient. constant track record of dividend payments on Common prepare and review periodically the Bank’s Remuneration Shares for the past 21 years, demonstrating the Bank’s Policy and System ensuring their alignment with the Bank’s sustainability and value creation to shareholders. strategy and the development of its operations; (v) set a Performance Evaluation System to evaluate the performance Board Committees of all-level employees in an objective and transparent manner; and (vi) ensure that the compensation is effectively The Board is supported by the Corporate Governance, Secretary of the Board of Directors aligned with prudent risk-taking, consistent with the Bank’s Nominations, Human Resources and Remuneration long-term strategy adjusted for all types of risk. The Me. Adel Macaron currently serves as the Head of the Legal Department at Credit Libanais sal. He is member of the Beirut Bar Association since Committee (CGNHRR Committee), the Audit Committee, CGNHRR Committee Charter complies with the BDL Basic 1973 and serves as Credit Libanais sal Secretary of the Board of Directors. the Risk Committee, the Anti-Money Laundering and Circular No.106 and BDL Basic Circular No. 133. It meets at Combatting the Financing of Terrorism Committee (AML/ least twice a year, or more frequently as needed. CFT Committee) and the Credit Policy Committee. Each Committee has an approved charter that sets out its Audit Committee mandate, scope and working procedures in order to support The Audit Committee is composed of two Non-Executive the Board in its duties. Directors and two Independent Directors, one of whom acts as its Chairman. The Audit Committee’s main mission Corporate Governance, Nominations, Human Resources is to assist the Board in its responsibilities, in terms of: and Remuneration Committee adequacy of accounting, financial reporting policies, internal control and compliance system. The Audit Committee also The CGNHRR Committee is composed of one Non-Executive recommends the appointment, compensation, effectiveness Director and two Independent Directors, one of whom acts as and dismissal of external auditors; ensures the independence its Chairman. The CGNHRR Committee’s main mission is to: and effectiveness of the internal audit function; reviews and (i) oversee Senior Executive Management’s implementation approves the scope and frequency of audits; and ensures that of the Bank’s Corporate Governance Framework, principles

Annual Report 2018 Credit Libanais Group 18 19 Senior Executive Management is taking the necessary detailed in Law No. 44 dated November 24, 2015, and all Management Committee corrective actions in a timely manner to address control the circulars and regulations issued or to be issued by the The Management Committee regularly reviews the growth and performance of the Bank and ensures the execution of the weaknesses, non-compliance with policies, laws and Central Bank of Lebanon, the Banking Control Commission Bank’s medium-term strategy, policies and procedures as approved by the Board. The Management Committee plays a key regulations and other problems identified by internal and of Lebanon, the Special Investigation Commission and the external auditors. In addition, the Audit Committee oversees Capital Markets Authority, and all International Regulations role in ensuring the participation of key employees in managerial decision-making through regular communication and liaison the establishment of accounting policies and practices by related to AML and CFT. This Committee meets on with all regional managers. This Committee meets at least quarterly or more frequently as needed. the Bank. The Audit Committee Charter complies with BDL semiannual basis or as deemed necessary. Basic Circular No. 118 dated July 21, 2008. External auditors are appointed for a renewable period of three years, with Credit Policy Committee the partner rotation principle applying for a maximum period The Credit Policy Committee is headed by the Chairman of five years in line with BDL Basic Circular No. 122 dated General Manager, and includes one Non-Executive Director, CL Management Committee August 13, 2009. The Audit Committee meets at least once one Executive Director - the Group Head of Corporate quarterly, or more frequently as needed. Banking and Financial Institutions Division, the Group Head of Retail Banking and Branches Division, the Group Head Chairman Risk Committee of Risk Management and Strategy Division and the Group Dr. Joseph Torbey Chairman General Manager The Risk Committee is composed of two Non-Executive Head of Finance Division. The General Controller - Group Directors and two Independent Directors, one of whom acts Head of Internal Audit Division participates as an observer. as its Chairman. The Risk Committee’s main mission is to Dr. Michel Khadige BOD Member and Deputy General Manager - advise the Board on the Bank’s overall current and future risk The Credit Policy Committee’s main mission is to set the Corporate Banking and Financial Institutions tolerance/appetite and strategy, and provides oversight of Bank’s lending policies at the level of Group CL, in line with Senior Executive Management’s activities in implementing the Board’s objectives. The Credit Policy Committee defines Mr. Michele Cherenti Deputy General Manager - Retail Banking and Branches group-wide risk management policies for capital and credit risk strategies, policies and limits for the efficient liquidity management, as well as credit, market, operational, management of the various counterparty risk exposures, Mr. Georges Gerios Deputy General Manager - Operations and Support Services compliance, reputational and other risks of Group CL. The industries, aggregate exposures by product, segment effectiveness of the Risk Committee is further enhanced of activity and country exposure on a stand-alone and Mr. Elie Abimrad General Controller - Internal Audit by receiving formal and informal communication from the consolidated basis. The Committee meets at least once a Bank’s Risk Management and Chief Risk Officer (CRO). The year, or more frequently as needed. Mr. Alexandre Salem Deputy General Manager - Treasury, Global Markets and Wealth Management Risk Committee Charter complies with the BDL Basic Circular N°118. The Risk Committee meets at least once quarterly, or CL Committees at Management level Mrs. Nada Awad Rizkallah Deputy General Manager - Risk Management and Strategy more frequently as needed. Each Committee has an approved charter that sets out its Members mandate, scope and working procedures in order to support Mr. Georges Karkabi Deputy General Manager - Investment Banking AML/CFT Board Committee the Chairman General Manager in its duties. The Committees’ The Committee has to remain abreast of the new related laws respective authorities are of decisive and consultative nature, Mrs. Randa Bdeir Deputy General Manager - E-Payment Solutions and Cards Technology and regulations in effect, and provide the Board periodically where all recommendations that require Board approval are with the latest developments and propose any needed submitted through the Chairman - General Manager for Mr. Johnny Torbey Deputy General Manager - Electronic Banking amendments to the policies and procedures applied in the review, decision-making or ratification. The Board is kept Bank in line with such changes. Moreover, the Committee informed of all the major decisions governing the Bank’s H.E. Dr. Alain Hakim Assistant General Manager - Marketing and Business Development oversees the development of AML and CFT policies and the overall activities as submitted and recommended by the Mr. Badih Azzi Assistant General Manager - Human Resources proper implementation of the AML and CFT principles, as various committees. Mr. Nagib Ghanem Assistant General Manager - Information Technology

SENIOR COMMITTEES AT MANAGEMENT LEVEL Mr. Charbel Mourad Assistant General Manager – Finance

Management Committee Mr. Ghassan Mouzawak Head of Group Compliance

Foreign Entities Committee Asset and Liability Committee

Human Resources and Training Committee Credit Committees Secretary Mrs. Nina Elhajj Srour Central Manager - Consumer Financial Protection

Sales and Business Development Committee Financial Institutions and Country Credit Committee and Corporate Publishing - CEO Office

Information Technology Steering Committee Anti-Money Laundering and Counter-Financing of Terrorism Committee

Business Continuity Planning Committee Information Security Committee

Recommendations made by any committees that require the Board of Directors’ approval are The Bank’s various committees are established with clear submitted through the Chairman General Manager for review, decision-making or ratification. missions, authorities and responsibilities.

Annual Report 2018 Credit Libanais Group 20 21 Foreign Entities Committee Business Continuity Planning Committee Financial Institutions and Country Credit Committee Information Security Committee The Foreign Entities Committee approves the medium- The Business Continuity Planning (BCP) Committee ensures The Financial Institutions and Country Credit Committee CL Group Information Security Committee reviews and term strategy and annual business plans of foreign entities, continuity of service to the Bank’s customers and stakeholders approves the banks and financial institutions whom the Bank approves CL Group’s information security strategy, sets reviews their business performance and evaluates their risk in an efficient and timely manner in case of an eventual event deals with or intends to deal with. The Committee defines security policies and procedures and submits them for exposure. The Foreign Entities Committee also ensures that might disrupt the Bank’s regular activities. The BCP the credit lines to be granted for each banking and financial the approval of the Risk Committee and the Board. This institution counterparty in compliance with applicable the compliance of foreign entities with applicable laws Committee proposes policies, recommend priorities, and Committee also reviews and approves the scope of security laws and regulations, and in line with the Board’s strategic and regulations. The Committee places emphasis on the establishes plans to meet business continuity requirements programs and related budgets; oversees the implementation objectives and the Group’s financial institutions credit policy. ongoing monitoring of regulatory compliance in the hosting and ensures adequate communication and training is of the security programs and the compliance of Payment Risk Management is an integral part of the approval process country, risk management, anti-money laundering & terrorism maintained at Bank. The BCP Committee meets at least Card Industry Data Security Standard (PCI-DSS) for the Bank of the banks and financial institutions, and the monitoring financing, fraudulent activities and information security in quarterly or more frequently as needed. of the Committee’s decisions. This Committee meets on a and its affiliates; and provides solutions on how to deal with foreign entities, and convenes at least quarterly or more monthly basis or more frequently as need be. security breaches or control overrides. This Committee also frequently as needed. Asset and Liability Committee recommends security-training programs for the Bank’s staff The Group Asset and Liability Committee (ALCO) is Anti-Money Laundering and Counter-Financing of and convenes at least once quarterly. Human Resources and Training Committee responsible for managing and controlling the Bank’s balance The Human Resources (HR) and Training Committee is Terrorism Committee sheet and income statements, and formulating the general The role of the Group Anti-Money Laundering and Counter- responsible for establishing the policies and procedures pertaining to human resources management and overseeing financial strategy of each business unit. ALCO reviews all Financing of Terrorism Committee (AMLC) is to provide an the execution of HR plans. The Committee also supervises activities of the Bank which impact balance sheet and income opinion on the various issues related to the fight against orientation and training programs to existing and new statement items. It focuses on risks and strategic issues money laundering and the financing of terrorism. It also staff. It reviews the Remuneration Policy and System, the related to interest rate monitoring, liquidity management provides advice to the AML/CFT department on the Performance Evaluation System and the annual budget for and market risks, as well as their control and mitigation. control measures to be adopted in order to combat money training and development then submit them for the CGNHRR The ALCO reviews and validates all relevant policies and laundering and the financing of terrorism. This committee Committee approval. This Committee convenes quarterly or procedures and ensures their compliance with regulatory meets on monthly basis, or as deemed necessary. more frequently as needed. guidelines pertaining to liquidity risks, investment portfolio risks, interest rate and foreign exchange risks, market risks, Sales and Business Development Committee political and country risks, risks relating to the pricing of The Sales and Business Development Committee ensures loans and deposits, profitability risks, and risks of unrealized the introduction, maintenance and promotion of the Bank’s gains and losses resulting from long-term positions, prior various products and services to the market. Moreover, it to submitting such policies and procedures to the Risk introduces new and profitable products and services and Committee and the Board for final approval. This committee ensures adequate funding and analysis of the risk-adjusted- meets weekly. return on capital of such products and services. The Committee coordinates and implements the Bank’s overall Credit Committees advertising strategy, and monitors results and feedback. The Bank has a number of Credit Committees with different The Sales and Business Development Committee meets levels of lending authority, depending on the business quarterly or more frequently as needed. segments concerned and the exposure. Credit Committees are responsible for ensuring the adequacy of the Bank’s Information Technology Steering Committee lending policies and compliance of lending activities with The banking Group Information Technology Steering the Bank’s credit policy and applicable laws and regulations. Committee sets the general strategies and policies for The Credit Committees meet regularly and ensure the developments relating to banking information technology, implementation and monitoring of their decisions by the in accordance with the Bank’s master strategic plan. The business owners under the supervision and control of the Committee’s main objectives are to ensure the adequate Credit Administration and Control departments that report functioning and development of information technology systems in line with the continuous development of systems, to the Credit Risk Management Department. The presence applications and services to support the Bank’s expansion of a member of the Risk Management Division is an integral plans. This Committee convenes quarterly or more frequently part of the credit approval process and the monitoring of the as needed. Credit Committees’ decisions.

Annual Report 2018 Credit Libanais Group 22 23 Organizational Structure

Board of Directors Chairman General Manager Business Lines

Retail Banking and Branches Corporate Banking and Treasury, Global Markets Financial Institutions and Asset Management Corporate Governance, Nominations, HR & Remuneration and Private Banking Committee Legal - Regional Branch Management: - Corporate and Medium Business Unit: - Treasury Management - Riad EL Solh - Adlieh - Foreign Exchange Management Consumer Financial Protection and Corporate Publishing - Hamra - Haret Sakher - Global Markets - Kaslik - Financial Institutions and Correspondent - Private Banking and Asset Management Audit Committee Bancassurance Advisor - Chtaura Banking - Middle Office Treasury and Global Markets - North - Domestic Business Development Government & Public Institutions Relations Coordinator - Consumer Banking and Retail Products - Global Business Development - Marketing and Business Development - Recovery Risk Committee - Commercial Retail Lending and Kafalat - Public Relations - Information Department - Insurance Services

Credit Policy Committee Electronic Banking E-Payment Solutions & Cards Foreign Entities Technology - E-Banking Card Systems, Applications and - Cyprus Development - Cards Business Technology - Bahrain AML/CFT Committee - Card Acquiring and Operations - Operations (CL & Member Banks) - Senegal - Card Issuing Operations - Product & Marketing - Iraq - Fraud Management and Control - Sales & Relationship Management - Canada - E-Channels and Customer Service - Merchant Relationship - Merchant Relationship - Business Development - Cards and Payment Business Development - Customer Relationship Management (CRM)

Control Functions Support Functions

Finance Information Technology Human Resources

- Financial Control - IT infrastructure & Operation - Recruitment and Evaluation - Financial Management - Application Administration & Support - Compensation and Benefits Internal Audit Risk Management and Strategy Compliance - Reconciliation - Software Development - Training and Development - BDL Subsidies - MIS & Regulatory Reporting - Branch Audit - Strategy & Risk Analytics - AML / CFT / FATCA /CRS Dept - Performance and Budget Control - Projects - Head Office Audit - Risk Mgt Project Office / Credit Portfolio - Correspondent Banking - Cards Business Accounting - Back Office Audit Mgt / Credit Risk Models - Financial Crimes Investigation - Central Accounting - IT Audit - Credit Risk Management - Regulatory Compliance - Credit and E-Banking Audit - Operational Risk Management - Subsidiaries Audit (LIB&CLIB) - Information Security Risk Management Operations and Support Services - Affiliated Companies Audit - Business Continuity Planning - Overseas Audit - Administration and Support Services - Operations Internal Control - Quality Assurance and Improvement - Engineering - Project Developments and Loans Central Processing - Trade Finance - Quality Management - Central Operations - Treasury and Global Markets Back Office - Methods and Procedures - Head Office and Management - Branch System Implementation and Support - Control Room

Annual Report 2018 Credit Libanais Group 24 25 High Level Structure Group Entities

Chairman General Manager

Banking Shareholders Credit Libanais Investment Bank sal 99.86% Lebanese Islamic Bank sal Banking 99.84% External Auditors Credit International sa - Senegal Banking 89.13% Cedar’s Real Estate sal Real Estate 99.92%

Societe Hermes Tourism and Travel sal Tourism and Ticketing 99.99% Legal Soft Management sal IT Solutions Board of Directors 47.00% Consumer Financial Protection and Corporate Publishing Credit Libanais d’Assurances et de Réassurances sal Insurance 66.97% CGNHRR* Committee Bancassurance Advisor Audit Committee Business Development Center sarl Advertising 98.62% Risk Committee Government & Public Institutions Relations Coordinator Credit Policy Committee Capital Real Estate sal Real Estate 99.00% AML / CFT Committee Credilease sal Leasing Services 99.26% * Corporate Governance, Nominations, Human Resources and Remuneration Committee Collect sal Collection Services of Receivables 44.94%

Control Functions

Internal Audit Risk Management and Strategy Geographical Presence Compliance

Business Lines Senior Committees at Management Level Credit Libanais sal Credit Libanais Investment Bank sal Retail Banking and Branches Management Committee Credilease sal Treasury, Global Markets, Asset Management Foreign Entities Committee Lebanese Islamic Bank sal and Private Banking Human Resources and Training Committee LEBANON Credit Libanais d’Assurances et de Réassurances sal CYPRUS Electronic Banking Sales and Business Development Committee Credit Libanais sal Corporate Banking and Financial Institutions Information Technology Steering Committee (Limassol Branch) E-Payment Solutions and Cards Technology Business Continuity Planning Committee Foreign Entities Asset and Liability Committee Credit International sa - CISA (2 branches in Dakar) Credit Committees Financial Institutions and Country Credit Committee SENEGAL Support Functions Anti-Money Laundering and Counter-Financing of Credit Libanais sal Terrorism Committee (Manama Branch) Finance Information Security Committee BAHRAIN Human Resources Banking Information Technology CANADA Operations and Support Services Credit Libanais sal Representative Office (Baghdad and Erbil Branches) (Montreal) IRAQ

Credit Libanais Group

Annual Report 2018 Credit Libanais Group 26 27 Macroeconomic Operating Environment

In Lebanon

The year 2018 has been dithering between periods of Concurrently, the surface area of construction permits in As far as the banking sector is concerned, the latter prolonged its historically acclaimed performance despite the swelling local encouraging prospects and episodes of worrisome lethargy, Lebanon dwindled by 23.49% during that same year, while uncertainties, registering a healthy 13.48% annual expansion in the combined balance sheet of resident commercial banks to over with the first half of the year adorned with accomplishments cement deliveries fell by 8.67%. From another standpoint, $249 billion by December notwithstanding the 0.50% drop in loans to the private sector to $59 billion. Customer deposits also such as the successful completion of the Parliamentary tourism activity limped during the year 2018, with the grew by 3.23% in 2018 to around $179 billion, with the deposit dollarization rate increasing to 70.62%, from 68.72% in 2017. It elections, the passing of the proposed budget law for 2018, number of tourists visiting Lebanon increasing by just 5.77%, is worth highlighting that Lebanon has been witnessing an upward trend in its interest rate environment dating back to the short- the official inking of the petroleum contract between the compared to double-digit growth rates in the past years. On lived resignation of PM Hariri in November 2017, which prompted banks to introduce term saving plans at attractive interest rates government and the consortium of Total, ENI, and Novatek the public finance front, Lebanon’s fiscal deficit (budgetary to continue growing their deposit base and benefit from the swap transactions with BDL, not to mention the successive interest for the exploration and production of oil and gas from two & treasury) widened to around $5.81 billion during the first rate hikes in the United States. In figures, the Beirut Reference Rate on lending in Lebanese Pound was sequentially raised to reach offshore blocks, and other breakthroughs in the electricity eleven months of 2018, on the back of some 21.41% annual 11.50% in December 2018, from 8.68% in October 2017 before the rescinded resignation of PM Hariri, with that on lending in U.S. and telecommunications sectors. In parallel, the CEDRE hike in government expenditures (including debt service) to Dollar also increasing to 8.20% from 6.82%. conference held in Paris succeeded in raising more than $11 just over $16.55 billion, which outweighed the 4.74% y-o-y billion in support for Lebanon, and mainly tackles the Capital uptick in government revenues to nearly $10.75 billion. Investment Program (CIP) recently adopted by the Lebanese This hike in government expenditures was mainly triggered Recap of Lebanon’s Major Economic and Banking Sector Indicators government, which focuses on the development and by some 41.44% yearly expansion in transfers to EDL by rehabilitation of major infrastructure projects in the country. November as oil prices sustained their upturn, coupled with Nonetheless, these positive events were later overshadowed a 25.33% annual surge in public sector personnel costs by by the delayed formation of a new government, which is September in light of the newly enacted salary scale bill. vital for the country’s decision-making processes, the proper Consequently, Lebanon’s gross public debt continued to pile (USD Billion) 2018 2017 functioning of its institutions, the restoration of consumer up, adding $5.60 billion in 2018 to attain $85.13 billion. This and investor confidence, and the implementation of the has further swelled the country’s debt-to-GDP ratio to about necessary reform measures, many of which are tightly 151% according to IMF estimations, up from around 149%

related to the disbursement of the pledged funds during the in 2017. Lebanon’s ballooning public debt burden remains Key Macroeconomic Indicators CEDRE conference. Lebanon remained as well plagued by nonetheless tamed by BDL’s solid foreign assets and gold Real GDP Growth Rate 0.25% 0.55% the spillover of the sustained regional political instabilities, reserves, which ended the year at $39.67 billion and $11.77 Annual Inflation Rate 3.98% 5.01% especially in neighboring Syria, in addition to the large billion respectively. It is worth noting that the Central Bank Trade Balance (17.03) (16.74) number of Syrian refugees on its territories. However, the year resorted to additional rounds of financial engineering and Current Account Deficit/GDP 27.01% 25.68% 2018 witnessed the start of a slow yet steady voluntary return swap operations to boost its foreign assets and improve the Balance of Payments (4.82) (0.16) of Syrian refugees to their mother country. The Lebanese country’s balance of payments. Nevertheless, the impact of Foreign Assets at BDL 39.67 41.99 Parliament also passed several key laws notwithstanding the these schemes on the balance of payments quickly wore aforementioned delay in the formation of a new government, off, with the latter registering a $4.82 billion deficit at end Gold Reserves 11.77 11.96 including laws related to e-government, the combatting of 2018, compared to a $156 million deficit a year before. Foreign Assets & Gold Reserves/Gross Public Debt 60.42% 67.83% of cybercrime, decentralized solid waste management, On the current account side of the balance of payments, Total Primary Surplus/(Deficit) (Nov. 2018) (0.49) 1.43 transparency in the oil and gas sector, and the protection Lebanon’s balance of trade deficit also widened by $289.01 Budget Deficit (Nov. 2018) (5.81) (3.76) of whistleblowers that will aid in combatting corruption. In million in 2018 to $17.03 billion, triggered by a $397.30 General Gov. Structural Balance/GDP -10.54% -12.82% this vein, the Lebanese economy continued to wade through million annual hike in imports to $19.98 billion, which Gross Public Debt 85.13 79.53 a plethora of challenges, with the IMF estimating a modest outweighed the $108.29 million expansion in exports to Gross Public Debt/GDP 150.92% 148.96% growth of 0.2% for the country in 2018, compared to 0.6% just over $2.95 billion. This bleak picture prompted Moody’s in 2017. Investors Service and Fitch Ratings to downwardly revise Lebanon’s sovereign outlook from “Stable” to “Negative” Resident Banking Sector Indicators In the midst of such a pale economic situation, real estate while affirming the country’s rating at “B3” and “B-” ona Total Assets 249.48 219.86 activity significantly watered down and was further clawed respective basis. Later in early 2019, Moody’s downgraded Loans to the Private Sector 59.39 59.69 by recent challenges after the funds injected by BDL Lebanon’s rating to “Caa1” while revising its outlook to Customer Deposits (Public & Private Sector) 178.56 172.97 under the umbrella of its stimulus package for 2018 were “Stable” before the formation of the new government. S&P Private Sector Loans/Deposits 33.26% 34.51% fully consumed earlier throughout the year and the Public also opted in early 2019 to keep Lebanon’s long-term and Corporation for Housing halted its acceptance of new short-term foreign and local currency ratings at “B-” and Deposit Dollarization Rate 70.62% 68.72% application forms. More specifically, the number of real “B” respectively, yet changed its outlook from “Stable” to estate transactions plunged by 17.44% in 2018, with the “Negative”. value of said transactions sinking by 18.28% to $8.13 billion. Source: IMF, CAS, BDL, ABL, MOF, Higher Customs Council, Credit Libanais Economic Research Unit

Annual Report 2018 Credit Libanais Group 28 29 Overview of Credit Libanais Group In International Markets where Credit Libanais has a foothold

Cyprus Branch Credit International SA – CISA Senegal In 2018, the European Commission expected the Cypriot Crédit International SA (CISA) the only Lebanese bank Credit Libanais is one of the top ten banks in Lebanon that remains deeply rooted in the country. With economy to maintain its sturdy growth rates in the next currently present in the West African Monetary Union a landmark reference Head Office Tower in the banking sector, the Bank has a network outreach of couple of years (estimated between 3.6% and 4% by the (“WAMU”) inaugurated its first branch in Dakar in 2011 and 79 branches including local and international presence in Cyprus, Bahrain and Iraq, a representative IMF). This is likely to support sustained budget surpluses opened its second branch in 2015 in the industrial zone office in Canada and a subsidiary bank in Senegal. The latter, Credit International sa (CISA) is the only and a decline in public debt from 2018 onwards. Economic in the capital as well. The subsidiary Bank mainly targets Lebanese bank currently present in the West African Monetary Union (“WAMU”) which inaugurated activity is forecasted to remain strong, driven by domestic commercial customers as well as SMEs that currently account its first branch in Dakar in 2011 and opened its second branch in 2015. CL Group encompasses an demand. Unemployment is expected to continue its rapid for some 80 to 90% of the economic fabric and represent investment bank, an Islamic bank, a financial institution, a leasing company, an insurance company, decline, while headline inflation is projected to pick up only around 30% of jobs in Senegal. and a real estate company and a travel and tourism company, and reaps the benefits of a large moderately. In 2018, overall banking activity continued to grow in Senegal network of international correspondents around the globe. Credit Libanais Cyprus branch continues to work in in an environment characterized by increased competition accordance with the Central Bank of Cyprus and the with the launch of new banks. At the current growth rate Credit Libanais SAL was established in 1961 as a Lebanese joint stock company; it is registered on the European Central Bank requirements, where many new AML, in the sector, Senegal is estimated to become the banking Lebanese list of banks under number 53 and in the Beirut Commercial Registry under number 10742. liquidity and many other regulations are constantly issued crossroad of the West African Economic and Monetary Union Credit Libanais’ head office address is at Corniche El Nahr, Adlieh Roundabout, P.O Box: 16-6729, to ensure a healthier and less risky banking environment (UEMOA). Beirut, Lebanon. on the island. The Bank’s long-term presence on the island remains focused on a defined strategy: to identify and serve Representative Office in Montreal, Canada Leveraging on the extensive branch network outreach, the Bank’s principal activities include retail banking services (consumer lending, credit cards and lending to small businesses and sole Lebanese and Arab communities primarily to provide them Our Representative Office promotes Credit Libanais’ products proprietorships), corporate banking services (including various forms of credit facilities, loans and with prime operational banking services. and services in Lebanon and provides information related overdrafts to medium-size and large corporations), trade finance services (letters of credit and letters to investment processes for companies interested in doing of guarantee), capital markets services (trading and sales of various types of financial instruments Bahrain Branch business with Lebanon. Our staff also provides needed and products) and private banking and asset management services (covering portfolio management, Credit Libanais remains the only Lebanese bank in the information for companies wishing to export to the Middle securities trading, mutual funds, alternative investments and structured products). The Bank also Kingdom of Bahrain through its full-fledged branch which has East and/or set up business in the region. holds a dominant position in e-banking and e-commerce through several of its affiliates. The Bank become a reference over the years to most Lebanese expats provides systems, logistics and marketing for ATM and POS networks and payment gateway solutions in the Kingdom or those living or working across in AlKhobar for e-commerce. Through its majority owned subsidiary, Credit Libanais Investment Bank SAL, the and Dammam regions in the KSA. The personalized customer Bank offers its customers medium and long-term financing and investment banking services (including service culture that prevails at the branch helped to cultivate funding for project finance, housing loans and direct equity participation) and other complementary a sense of belonging amongst the majority of customers and services (including equipment leasing and bancassurance products through its subsidiaries). Through corporations, resulting in strong banking relationships. The its seat on the Beirut Stock Exchange, the Bank offers its customers trading in local stocks. branch will soon be offering new retail loan products which will further boost lending portfolio in the local market across In addition, CL e-outreach on the national scale includes 10,500 electronic point-of-sale, 97 ATMs, more economic sectors. 160,000 banking cards distributed backed by an innovative loyalty program, 24/7 secure online Noteworthy that Bahrain maintains a stable sovereign credit banking services, a sophisticated customer service center and CL e-bank applications, to name but outlook. Its financial sector continues to observe the highest a few. standards of banking practices in the region. In 2018, the regulatory authority began implementing more stringent The discussion and analysis that follows covers the consolidated performance of Credit Libanais measures, to ensure full compliance by the banks of rules Group in 2018. It was prepared based on the audited consolidated financial statements of the Group and directives, in what seems to be an attempt by the as at and for the year ended 31 December 2018. The consolidated financial statements are prepared government to improve Bahrain standing. in accordance with the International Financial Reporting System (IFRS). KPMG and DFK Fiduciaire du Iraq Branches (Cities of Baghdad and Erbil) Moyen-Orient have jointly audited the annual financial accounts.

CL branches in Iraq (Baghdad and Erbil) remain well Main development pillars mentioned in the discussion and analysis refer to the following: Credit positioned in the market with stronger capital resources that Libanais SAL together with its wholly owned subsidiaries, Credit Libanais Investment Bank SAL (CLIB), allow for engagement in various banking activities. Looking Lebanese Islamic Bank SAL (LIB) and Credit International SA – Senegal (CISA) and other companies forward, we see further opportunities in the market in vital directly or indirectly owned by Credit Libanais SAL. sectors of the economy, with expected GDP growth rates of over 6% in 2019 that will bring along lucrative banking prospects. OVERVIEW

Annual Report 2018 Credit Libanais Group 30 31 Business Segments 01Activities and Analysis

We provide an improved customer experience across online touchpoints and digital channels, allowing customers to transact more safely and securely online. Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 34 35 and Analysis and Analysis and Analysis and Correspondent Banks Retail Commercial Lending Retail Commercial The year 2018 was characterized by a thin economic growth of 0.25%. Most businesses, especially those that rely on the local market, reported a drop in turnover and thus limited business expansion opportunities. The performance of the related other most on impact spillover a had sector estate real businesses, while the tourism activity grew but at a slower pace than previous years. Faced coupled with by an these increasing interest challenges, rate environment, lower less to leading identified, were opportunities lending eligible appetite to match the repayment of previous loans by new see”. ones, in a political period of “wait and In this environment, outstanding Retail Commercial facilities focused Lending Commercial 2018. in 5% roughly by dropped on unfunded business activity, which trading the supporting on focusing 2018, in 38.4% of growth saw an impressive for market local the on just not relying customers of activities expansion but on regional markets as well, whereby Credit Libanais leveraged on its extensive correspondent banking network to successfully intermediate these foreign transactions. trade In parallel, Credit Libanais continued to promote financial inclusion through its several products segment. designed In the for last quarter this of 2018, a the Bank new launched product in partnership and with Development the Fund (ESFD) Economic to provide Social loans to rates. interest at affordable micro businesses in unbanked areas As for the Housing loans portfolio, a decrease of 1.40% was recorded at year end 2018. Housing loans make up 33% of the consolidated retail loan portfolio, while SMEs amount to 16%, retail commercial stands at 16% and personal loans at retail lending 7%. 42% represents of Total the Bank lending portfolio. In 2018, the Bank continued to offer flexible products that facilitate customer savings plans and encourage acquire them the to discipline of savings and term investments, in the currency and maturity of their own plans choices. covered Savings child education, retirement, variety travel, of plans and depending a on the customers’ view choices. of In complementing the Bank’s array of services, products CL and Group includes Bancassurance products services and to customers through an easy access via the 24/7 call center and the revamped Direct Internet and alternative distribution channels all based on state-of-the-art sound and secure technology infrastructure. In 2018, a large number of every in available made were services and products insurance segment covering retirement, educational plans, safe home insurance, car insurance, life accident, personal plan, savings fire insurance and traderelated services. New products on “Retirement Plan”, “Education results. “Personal Accident” continued to give the robust Plan”, “Safehome” and Credit Libanais Group Deposit volume in 2018 reached LBP showing a y-o-y 14.079.683 growth of 0.41 million %. note To that the Bank’s appropriate deposit composition individual customer deposits is in the 71 domestic attributed branches, a to factor that the diversifies riskflexibility in and funding its lending activities and provides provides room the Bank with resources. for maneuvering in efficient utilization of We continued to operate in line with the Group’s conservative conservative Group’s the with line in operate to continued We lending strategy amidst the regulatory developments and the absence of stimulus for consumption in the prevailing banking conditions. Nevertheless, we persistently focused on customer-centricity and personalized banking relations to ensure a great customer experience. return good achieve Asset us allow to indicators key quality were efficiency and on equity and capital adequacy ratios. In 2018, Credit Libanais continued to deliver high quality retail retail quality high deliver to continued Libanais Credit 2018, In its network of 79 branches throughout services and products in Lebanon and abroad, as well as through its 97 network ATMs that operate of 24/7 and provide multicurrency cash withdrawal options, as well as capabilities. cash Over the elapsed and year, in line with check the Bank’s deposits ATMs were a selective number of financial inclusion strategy, upgraded to cater to service customers with special needs as well. Retail Banking Activities Retail Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 36 37 and Analysis and Analysis and Analysis and Correspondent Banks In 2018, amid stagnation in the economy and a competitive a and economy the in stagnation amid 2018, In market, the sales force team continued to domicile public entities’ salaries. Over the elapsed year, Credit of refurbishment and renovation the to contributed proudly Libanais dedicated Aramoun in buildings Forces Security Internal two to the ISF sports rooms in addition to sponsoring the ISF year. annual Marathon for the fourth consecutive Communication Strategy In 2018, the Bank’s brand strategy played an important image role in advancing the and Bank’s communication business performance. In this context, we continued market to the Bank’s products and services through various online channels including social corporate website, media mobile applications, newsletters, networks, SMS the above and below the line channels. and e-mails, and other The Public Sector Throughout Throughout 2018, the e-survey tool Net Promoter Score (NPS) used to evaluate customer satisfaction levels across business units, covered all CL online banking and mobile shed application light on the Bank’s strengths platforms and weaknesses and allowing us to better address customer suggestions and complaints. The Marketing Intelligence Unit The Marketing Intelligence communications and revised reports to support management Unit were processes and tools advanced prepares numerous 2018, In decisions. informative adopted to accomplish this mission. Business communications and reports included: Deposit to Loan Shopper, Mystery Daily Reports, Quarterly Intelligence Media Monitoring, Cross Selling Ratio, in addition to Ratio, the Equipment Marketing Ratio, MI quarterly reports and Ad-hoc reports on latest marketing campaigns, KPIs, industry innovation and technology (bank etc.). payment instruments, marketing, cybersecurity, These cards targeted a large segment of customers among whom among customers of segment large a targeted cards These were depositors, retail customers, public sector employees and much more. The Mystery Shopper Program successfully was program this year, consecutive twelfth the For program The IPSOS-Lebanon. with coordination in out carried has been a valuable and effective staff tool and for touch points evaluating in CL terms of quality knowledge, and service, overall product performance. In 2018, the updated MS program became more user friendly, as its features and benefits were better defined and recognized. and technologies updated on based mainly program Mystery” This “Smart supported by an interactive online platform “ShopMetrics”, integrates top-notch quality control and Results provide competitive scoring clear and feedback regarding processes. the Bank’s customer service and satisfaction levels. retention. and loyalty customer increase to effort our It supports also

Credit Libanais Group Corporate Banking Corporate Each staff member holds himself to the highest standards of integrity, focus and professionalism under our core values built on team on built values core our under professionalism and focus integrity, of standards highest the to himself holds member staff Each environment business a preserve We customers. our with interact we how and make we decisions the guiding thus quality, and unity that leads to pride in the organization, confirm the value of long-termrelationships, and give each individual the opportunity to goals. their professional better reach In the journey of delivering a great customer experience based on Development excellence consistently in and sales, predictably services supports and the solutions, corporate Marketing and and retail sales and of customer satisfaction. the highest degree to provide servicing efforts profit goalsthrough efficient sales and 2018 in Review Marketing and Business Development Marketing and Business Development The continuous marketing campaigns initiated through the CRM/CMS system contributed to the increase of sales of portfolio all cards credit the For services. and products Bank’s the for instance, more than 1000 cards of various types ranging from classic to gold, platinum, infinite, titanium, co-branded issued. titanium and vantage were Customer Relation Management (CRM) In 2018, the sales force team structure at the branches level, with Leaders dedicated Team implemented a new sales in various regions. In addition, special focus was product knowledge seminars and sales orientation training given in to order to evaluate and appraise the selected according basis customer quarterly a sales on rewarded then were who officers to their productivity and sales results. Over the elapsed year, Customer Sales Officers and Sales Team leaders increased customers. with interaction dynamic more a of means by sales The Sales Force Team The Sales Force Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 38 39 and Analysis and Analysis and Analysis and Correspondent Banks www.ebml.gov.lb General Directorate General of Directorate Land Registry and Cadaster: for viewing and printing the title and register paying fees related on www.lrc.gov.lb taxes on www.finance.gov.lb of built property Ministry of Finance: for the online settlement l subscription fees on annual subscription fees onwww.bba.org.lb for the online settlement of lawyers’ Beirut Bar Association: Order of Engineers and Architects in Beirut: for the online settlement of annual subscription and insurance fees on www.oea.org.lb Pharmacists of online settlement of annual subscription fees on www.opl.org.lb in Lebanon: for the Order on bills water of settlement online the for Lebanon: Mount and Beirut of Water the of Establishment Pioneering Initiatives towards the Modernization of Lebanon and the E-government Modernization of Lebanon and the towards Pioneering Initiatives of launching the pioneering modernization, by country’s the to leading initiatives of number a undertake to continues CL to the following bodies: related the e-payment services In addition, Credit Libanais further optimized the online on the go. banking service to better serve customers An updated version of CL e-bank Mobile App on the stores (Android, Apple, etc.) was by reinforced a new biometric access (facial recognition) for safer and e-banking services. more secure A new hosted email application with advanced features was implemented for a more secure customers interaction in with Lebanon and across the considerable Bank’s Moreover, efforts were entities. deployed on social ads and videos posts, designed through platforms media and yielded high engagement levels with our growing digital community. The new designs implemented on social media platforms all aim at keeping Libanais Credit channels. social the on hype maintaining and mind of top

During 2018, the Bank further enhanced the Customer digital experience, in line with the Digital Transformation Strategy to provide a distinctive customer experience across all digital channels. In this respect, Contact Credit Center continued Libanais’ to state-of-the-art provide interactive communicating means of with customers and prospects. skilled Our agents provided professional multi- customer services, with the emphasis on improving the first call and touchpoint with the Bank. On the other hand, the more collection efforts team to decrease exerted the unpaid amounts of total loans granted. In 2018, 85% of branches were equipped with queuing and digital signage solutions to ensure experience at the counter. an ultimate customer Compliance with (PCI DSS) Payment Card Industry (PCI DSS) Payment Card Compliance with Requirements Certification Data Security Standard In 2018, Credit Libanais once again met all the requirements of the Payment Card Attestation documented its of scope Industry applicable the in defined Data Security Standard as of Compliance and achieved certification together with all its International sal, Management Card (Credit companies affiliate sal). Payment Network sal, Netcommerce E-Channels and Customer Service Credit Libanais Group Keen on making digital transactions more secure and easier to handle, namely for e-commerce and mobile-commerce experiences, experiences, mobile-commerce and e-commerce for namely handle, to easier and secure more transactions digital making on Keen Credit Libanais dedicates ongoing efforts to adapt to customers’ today’s lifestyles and provide them with convenient and secure a top priority for the Bank. Customer centricity remains payment solutions. Several tactical campaigns were offered to CL cardholders, whereby they had the opportunity to occasions special on launched were benefitThese rewards. and fromoffers special such 2018 Day, as Mother’s Day, FIFA Valentine’s World Cup and much more. In addition, CL introduced SMS card card alert additional provide to cardholders branch Iraq for services usage security. Launching of Several Tactical Campaigns Launching of Several Tactical In view of rewarding by program loyalty the improves continuously Credit Bank the loyalty, Libanais customers for their introducing better services. Redemption requests increased from 41% in 2017 to 45% in 2018. In addition, the Bank took the part in a series of tactical campaigns granting cardholders points. and accumulate more opportunity to win rewards Enhancing the Bank’s Loyalty Program Enhancing the Bank’s In 2018, the Bank further enhanced the current 3D authentication service secure (by adding an extra layer of security using a static passcode) with the use of a one-time passcode complete to SMS via cardholder the by received instantly (OTP) every online transaction. Introducing OTP One-time Passcode on CL 3D Secure 3D Secure OTP One-time Passcode on CL Introducing Authentication Service In 2018, Credit Libanais payment technology on debit as cards, a first step it before is launched the NFC contactless rolled over to all other cards by Q2 2019. Customers will be able to pay for their daily purchases with a simple tap on the contactless-enabled POS terminal instead of machines POS inserting CCM all upgrading their is Bank the parallel, In cards. a for technology payment contactless NFC latest the accept to convenient way to pay. and secure more faster, Introducing the Latest Contactless Payment Technology Payment Technology the Latest Contactless Introducing on CL Cards Electronic Banking Electronic Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 40 41 and Analysis and Analysis and Analysis and Correspondent Banks By joining the United committed to Nations incorporate the Global ten principles in Compact, its operations daily and CL all its strategic decisions and is annually publishing the Communication on Progress (COP) Report to international guidelines. according In parallel on the international level and based on the Bank’s determination to create United the 2015 in joined officially sustainable Group Libanais Credit business, Nations Global Compact (UNGC), the business 9000 over with initiative world’s responsibility corporate largest and 3000 non-business participants in 161 During that countries. year, all 193 member states of the United Nations adopted 17 new Goals (SDGs) as Sustainable a plan to Development tackle the economic, social, environmental and governance-related challenges by 2030. Compact Global the of member a became also Group CL Network in Lebanon. that businesses for initiative policy strategic a is Compact The United strategies and operations their aligning to committed Nations are Global with ten universally accepted principles in the areas of and anti-corruption. environment human rights, labor, Corporate Corporate Responsibility Libanais’ Strategy Part of Credit an Integral Corporate Responsibility, At Credit Libanais, we are committed to our Corporate Responsibility towards the customers, environment, and employees, aim to communities remain one of and the best corporate accountable citizens and a source of major wealth creation wherever we operate. Our Core Values are defined by high standards of ethics andrespect integrity, of human and labor best practices. and and internationalrights, as well as national banking regulations On the national level, in 2018, the Bank took part in the Public Communication and Public Consultation with stakeholders to related the National Strategy for Violent Preventing (PVE), Extremism an initiative lead by the Office of the Prime Minister of Lebanon. The PVE Strategy was established in 2016 in collaboration with the UN and the Embassy of Switzerland, which aims at regaining social trust, promoting citizenship, achieving social justice and monitoring social transformations. Its main between citizens and the Governmentpurpose of the Public Consultation is to engage in a two-way communication process to increase the Awareness of Citizens’ Rights and Duties towards the Government and vice-versa, and ensure that Lebanon officially adheres to a National Strategy to Terrorism Fight and pillars are: The main strategic international standards. Prevent Violent Extremism, according acknowledged to • Dialogue and Conflict Prevention. of Good Governance. • The Promotion Law. • Justice, Human Rights and the Rule of Local Communities. • Urban, Rural Development and Engaging • Gender Equality and Empowering Women. and Skill Development. • Education, Training • Economic Development and Job Creation. • Strategic Communications. • Empowering Youth. In 2018, we also qualifications as added a trusted to partner Credit provide us help will that agreement new a signing institutions, multilateral for financial Libanais’ extensive further support for Lebanese the Bank companies. entered In into another November, International Loan Agreement Finance with Corporation the (IFC), available some USD which 50 million with will a hedged fixed make interest rate, to boost the social and economic growth of the private sector in Lebanon, while also seeking new agreements with the European Bank for PROPARCO. institution financial Reconstruction development the and (EBRD), and Development While in the midst of the hunt to maintain the highest quality portfolio and increase profitability anddid not market lose sight value, of the we social responsibility initiatives of and the full compliance to AML regulations and to corporate governance guidelines. The validity of our conservative approach was again in 2018, proven and even though we follow yet the best practices that protect our market share and preserve our asset quality, we remain adamant about further supporting our customers in coping with new challenges to help them plan for favorable times ahead. more Credit Libanais Group Corporate Banking customized a tailor-made lending strategy lending tailor-made a customized Banking Corporate reflecting the Bank’s strategydynamics. In within this context, the year ended current the with around 800 market group files for total net facilities of USD 2.0 billion as at end- December 2018, with a slight contraction largely driven by a tightening of while the keeping real estate thorough industry, warningsigns early detect to portfolio overall the over control measures. and mitigate them with appropriate During this delicate period, we our customers strived to to respond to stay their needs close while conducting proactively to due diligence on activities Our flows. cash on as well as covenants, compliance national and international centered on securing proper sources customers, of while staying close to repayment them in the difficult from times. quality the enhancing towards put also were efforts Moreover, of guarantees Risk and Based collateral in line with the Bank’s Pricing methodology that responds of to Basel III the capital adequacy requirements ratios and IFRS9 internationalstandards. 2018 was the year of high potential yet less realizations Libanais on Credit circumstances, difficult Amidst scene. local the continued to be a major contributor to the development of Lebanon’s highly resilient private sector, which always finds a way to emerge from a crisis corporate banking division leveraged stronger the strength of its core than before. The relationships strategic key maintaining towards directed values with top tier corporates and supporting local businesses, thus reinforcing customer loyalty while maintaining the portfolio highest quality and maximizing shareholders’ differentiated ourselves value. with the We design of several financing solutions to secure long-term business customers and ensure they relationships have the needed tools to with handle adverse circumstances. We back our services with teams of specialized professionals whose long experience in particular areas – including key sectors such as manufacturing, trade, real estate, construction, and project finance – makes them very valuable for our business. Corporate Banking Corporate Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 42 43 and Analysis and Analysis and Analysis and Correspondent Banks the Educational and Academic Events: Academic and Educational we constantly contribute to university and school events that offering aim professional at guidance and presenting different employers to students. CL was this present year at major events held at various Lebanese universities such as job 4. fairs and forums – SDG Conferences: Professional to encourage the exchange of new developments among peer industries, various in communication of channels reinforce professionals and a we considerable sponsored number and of conferences 4. SDG – year the of course the over seminars professional events: Sports and Recreational we contributed to marathons, rallies, as well as tournaments – SDG 11. basketball and football Festivals: and Heritage Cultural CL supports music and cultural festivals organized all over Lebanese cities and towns throughout the seasons, in view heritage unique our of preserving and encouraging traditions reviving arts, – SDG 11. Supporting financial inclusion for all customers: Bank undertook special measures and make procedures the to branches and ATMs more to easily customers accessible with special needs including the – SDG 8. impaired visually In 2018, our areas for socially responsible investments for socially responsible our areas In 2018, initiatives: activities and the following covered CL and Community Development Credit Libanais believes in its fundamental role in creating long-term value for all culture stakeholders. and protecting Safeguarding our heritage our and vital to family maintaining our unique identity. In this values perspective, is Credit Libanais further reached out to an increasing number Lebanon. across areas of Lebanese in towns and remote CL and Corporate Governance CL and Corporate Credit Libanais complies members, Board (i.e. members its with all expects and regulations all applicable laws Senior and Executive members and Staff) to conduct business in accordance with all relevant laws and to refrain from any unethical conduct. illegal, dishonest or Furthermore, our most fundamental contribution to society is the robust business model and the sustainable revenues ensure accountability and Transparency generates. Bank the organization. our of layers all across growth and sustainability corporate of importance paramount the recognizes Bank The governance for its functioning and exercises its duties and authorities through Board committees. communities The the on impact Board corporate the on importance places high Bank operates. the where Transparency and Ethics Our permeate Principles of all Conducting Business Recruitment our with Policies, activities. Customers, Purchases, Procurement, conducted based on etc. transparent policies are and procedures and accountability. that allow for responsibility Early in 2019, Credit Libanais became a signatory “Investors for Governance & Integrity - IGI” Declaration, of the a declaration signed by a considerable number banks and of large corporations in Lebanon, as alpha a commitment to maintaining and governance practices to continuously mitigate financial risks and protect improving SDG8 - rights stakeholders’ external and internal corporate Group’s the Goal 11 Sustainable Cities and Communities Goal 13 Climate Action

Goal 4 Quality Education Goal 8 and Economic Growth Decent Work Credit Libanais Group CL Sustainable Development Goals (SDGs) CL Sustainable Development responsibility corporate have thus and stakeholders all of interests the safeguarding to committed are we Libanais, Credit At the for As 1961. in back operations of beginning the since ever work, our of part greater the in embedded sustainability and years. in the coming three the following four goals to focus on SDGs, we have adopted To materialize our sustainability strategy, we support: strategy, materialize our sustainability To we do business. communities where in growth • Economic capacity. wealth and that help build well-being, • Initiatives economic self-sufficiency. • Promoting Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 44 45 and Analysis and Analysis and Analysis and Correspondent Banks An additional 350-m2 space hosts the sister company Credit Credit the sister company 350-m2 space hosts An additional room server dedicated a has which (CCM), Management Card within CL data The center. main data center environment is water cooled at relatively high temperatures, which greatly increases efficiencycarbon and Bank’s the reduce to reduces plan a implemented also Libanais cost. Internally, Credit footprint. In fact, CL departments and branches greener with became reduced paper consumption and responsible others. consumables and of electronic recycling Additionally, the monthly “E-statement” implemented for this year cards in line was with our environmental mission friendly of by being moving toward digital paperless processing. and Special care is also given to eliminate the printing of unnecessary various parties. In addition, the e-mails majority of the printers have exchanged among been upgraded to print on both carbon footprint. CL’s consumption, and therefore sides to reduce paper recycling local a to sent were papers of tons 55 some year, Last factory. In this material perspective, recycled the from Credit benefit who NGOs local Libanais to support is extending to finance awareness campaigns or acquire medical support equipment for patients across Lebanon. These contribute towards initiatives cultivating a greener culture throughout some 416 IT equipment (PCs, Screens, Moreover, CL Group. Scanners, Printers, and Servers) were sent to a local NGO that uses them to finance awareness campaigns safety programs. road on Year after year, our Bank for all stakeholders a sustainable future contributing towards reaffirms its commitment it operates. in the markets where to Reducing the intensity of our environmental footprint. Reducing the intensity of our environmental activities. business responsible environmentally Promoting and services. products environmental Offering In 2018, CL staff ran for the NGO “Rouh Zouron Bi Bayton” during the “BDL Beirut Marathon“. This NGO was poverty fighting initially in believe who members staff CL by founded and alleviating the sorrows of the elderly and children by visiting them in their homes and providing them with food, clothing and care. CL and the Environment Credit Libanais weighs the importance of regularly reviewing reviewing regularly of importance the weighs Libanais Credit industry with them align to strategies lending its updating and standards in terms of Social and Responsible (SRI). Investment In conformity with the SDG 13 calling for climate action, our priorities: three strategy centers around In this context, Environmental the Management System (SEMS) Bank with the basic developed objective the of Social ensuring that and the implications environmental and of social a potential customer assessed early in are the Bank’s planning identified and decision-making and process and that these environmental considerations incorporated are into the preparation and approval of facilities. Moreover, the Bank is directed by its agreement with IFC to adhere to sound banking principles and promote the full range of activities in environmentally and socially reliable developments. In parallel, our landmark 32-story Head Adlieh complies Office with Tower the latest in trends in construction and utilization sustainability. At CL Group Head Office Tower, special attention has been given to using environmentally friendly construction materials, taking into account the use of renewable energy sources for Considerations future such as daily efficiently using energy, water, utilization. and other natural resources, reducing environmental degradation were also given waste, broad attention pollution commissioning. to design from project, and the of phases the all in main data Likewise, center CL is Group’s about 450 m2 with 120 kW of net IT load and is designed functions of the Bank. to handle all the A culture of transparency, responsibility, accountability and fairness is implemented across all functions of the Bank. CL child prohibits which Law, Labor Lebanese the by abides fully labor and employment before the age of 18. We strive to support diversity at the banking Group and ensure equal opportunities for all staff. This policy governs of all aspects employment and career advancement: assignment, selection, job compensation, discipline, access termination, to benefits and and training. line In we with further this strategy, built on the performance management system as well as the learning and development programs to help our employees acquire new competencies to address proactively customers’ needs for solutions and advice. In fact, Credit Libanais was the first bank in Lebanon to apply years back, the e-learning Mobile App known as Mobile Learning (M-Learning). All CL staff can install Android or IOS and start learning the and watching videos from mobile app on their devices at their own pace. In the same environment is an important scope, part of our efforts to create maintaining a performance a culture. The Bank has set healthy the good example working by making the premises smoke-free. The safety of our staff is also of paramount importance to us. Therefore, regular fire drill simulations are conducted for staff across disseminated is prevention extensive and injury and safety in training the with Bank, a in specialized close accredited coordination company. Similarly, this year our Bank organized a first aid training course for its employees in cooperation with Lebanese the Red Cross. In addition, all allowance tuition and our coverage insurance health from benefit employees also for their children. Our community projects give employees opportunities to engage in volunteer work. For the fifth year in a Credit row, Libanais hosted a Blood Drive in partnership with “Donner organization non-governmental Lebanese a Compter”, Sang and the Lebanese Red Cross. This campaign at took the Bank’s place Headquarters and involved its staff from branches, all departments and sister companies and aimed at encouraging employees to give blood and join forces for a good cause. In one 47 day, liters were collected and 150 in participation staff encourage to Similarly, saved. were lives marathons, including events many sponsors CL events, sports various in tournaments of variety a as well as rallies, triathlons, Lebanese regions. Credit Libanais Group Restoration of two buildings in Bchamoun dedicated to sports events at the Institute of Internal Security Forces Internalthe Forces for Security motorcycles of Acquisition Sponsoring the ISF Annual Marathon Sponsoring of ISF anti-drugs campaigns helicopter Co-funding a fire-fighting ArmyFunding a dental clinic for the Lebanese recruits Funding a training center for the ISF women In view of supporting the families of the Army and the ISF martyrs of Lebanon, special co-branded Army cards the funds were scheme sharing profit a whereby designed, and Families Martyrs ISF the Foundation, Families Martyrs the ISF anti-drugs operations respectively. CL’s CL’s commitment to SDG 8 capability consists and commitment of of improving our the employees, strongest to assets, drive our sustainable high performance, helping them thrive and achieve their goals as well. while CL and People Capital Optimization conduct of Code the reviews periodically department HR The and the latest version is communicated to all joining the Bank employees and made available on the intranet. Credit Libanais makes sure that the Human Resources Committee governing policies the all of implementation the on up follows human rights. Throughout Throughout the years, we launched many CR initiatives, as part of our commitment to SDG 11 targeting the Lebanese these included: Army and Special Forces; CL and Responsible Inclusive Financing Inclusive CL and Responsible Credit Libanais Group always seeks sustainable investments in view of maximizing financialreturns while achieving social committed to remain good. and regularly We environmental reviewing our credit facilities granting processes in view of securing profitable incentives for the Bank while alleviating communities. and/or customers our of that and footprint our Credit Libanais public continues sector and further to build on the endeavors strongly financial in inclusion this respect. support In 2018, the domiciliations number the of continued salary to increase despite the economic adverse conjuncture. Credit Libanais mainly targeted the ISF, Lebanese Army, General Security and the Lebanese territory. Institutions all across other military Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 46 47 and Analysis and Analysis and Analysis and Correspondent Banks E-mail: [email protected] Soft Management General Inquiries: + 961 1 429 462 Soft Management Website: www.softmanagement.com Soft Management Website: 1. An online payment system for the settlement of Mechanic fees for Credit Libanais customers throughout its branches. Vehicle Management a Authority) online server through Truck and (Traffic, The system is fully integrated with the TTVMA’s connection. secure the in and branches the in employees Libanais Credit reward to (CMIS) System Incentive and Management Campaign A 2. and services. Libanais products selling and up selling Credit marketing and sales departments for cross 3. A new service for the settlement of Port of Beirut invoices to the Ministry of Finance (MOF) Libanais mobile application. Credit through branches and also through Credit Libanais branches Libanais Credit through online payments handle to (MOF) Finance of Ministry the for service payment tax new A 4. connection. a secure through Libanais mobile application. Integration was established with the MOF and also Credit design. model new a with security of layers two providing employees Libanais Credit for portal Resources Human new A 5. The HR portal centralizes all available employee services among which: employee attendance, appraisal forms, online leave requests with approval process, training course assessments, Pin codes update / reset, consolidation of employee and also salary services. profiles 6. A Stock management system that has new to features further manage the existing terminals in the market and provide assists system This cycle. stock full the covering workflow a with embedded is It movement. stock the of tracking detailed items. insight of all stock comprehensive and provides organization in the warehouse 7. Enhanced functionalities to the CCM assistance help to desk the phone caller system and for detailed logging, prompt optimization of the phone call duration. Soft Management sal Soft Management www.softmanagement.com Established in 1983, Soft Management is specialized in business Information solutions Technology and delivers tailor made in the financial and corporate sector. systems to its customers Through its various products and services and its professional team, Soft Management continues to implement innovative in the market. steadily solutions and to grow by Soft Management in 2018: completed Some of the projects E-mail: [email protected] CCM Website: www.ccm.com.lb CCM Website: CCM Help Desk: + 961 1 61 19 61 CCM General Inquiries: + 961 1 608 600 Credit Libanais Group 1. A new solution to further automate the card production process was acquired continue by delivering quality CCM service to so banks the and institutions existing in addition system to having will more flexibility in processing multiple types of chip dual interface cards. the POS banks can grant their customers an added value was from developed where project 2. A new loyalty redemption their points for goods at the designed point of sales. terminal to redeem monitor and missions manage to is objective main its developed; was application mobile Android tracking technician A 3. technicians’ daily tasks, visits and assignments. Each technician uses his tablet to communicate efficiently with the back- office team thus instantlyreporting cases and providing prompt support and assistance to customers until capabilities. its GPS, imaging and e-signature satisfactorily closed. Also among its benefits are the case is 4. Developing a solution that fully integrates CCM Points of Sale with cash register systems thus facilitating the payment process. Affiliated Companies Affiliated In 2018, CCM further enhanced its service to its customers by implementing new initiatives: In 2018, CCM further enhanced its service In 2018, CCM had: Number of customers: 13,000 Number of active POS: 10,500 Number of Banks: 36 In line with the market strategy set by Understanding the (MOU) with banks with the mutual objective to their better and satisfaction. serve ensure Through merchants banks in 2017, CCM continued the and services POS their promoting to continued banks the benefits: mutual received grow merchants and banks both MOUs, and these signed 14 Memorandums of granted were advantages merchants such as transaction Furthermore, improved processing. said MOUs merchant improved (CCM). payment processor with both the banks and the card relations In addition, and through its advanced card personalization services, CCM continues to offer card contact/contactless chip personalization, card encoding, embossing and indenting and is fully certified by EMV cards. issuing secure Visa and MasterCard corporations for CCM offers a holistic card solution including the acceptance of international contact/contactless chip cards for Visa, MasterCard MasterCard Visa, for cards chip contact/contactless international of acceptance the including solution card holistic a offers CCM card petroleum and loyalty gift, of development the also and terminals POS its of upgrade continuous Express, American and multiple industries and sectors. segmented among number of merchants include a large Our Business partners programs. Founded in 1994, CCM is a dynamic leader in the payment card industry in Lebanon. Throughout the years, CCM has built and profitability. revenues and other institutions to drive mutual partnerships with banks strong Credit Card Management sal (CCM) Card Credit www.ccm.com.lb Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 48 49 and Analysis and Analysis and Analysis and Correspondent Banks Help desk: + 961 1 878470 E-mail: [email protected] E-mail: [email protected] Website: www.creditlibanais.com Website: IPN General inquiries: + 961 1 871 248 Credilease General Inquiries: +961 1 425760/1/2/3/4 Credilease Leasing operations such as rent to own: machinery, transport equipment, industrial equipment, hospital equipment, etc. transport to own: machinery, Leasing operations such as rent facilities such as car loans, personal loans, housing loans, subsidized loans. Credit facilities to household and consumer appliances sectors. Consumer finance loans as well as credit Credilease is also ready to extend investment and private banking activities including equity and wealth management services. The International (IPN) Network SAL Payment International banks, Lebanese major other 5 of participation the with and Libanais Credit of initiative the at 1996 in Established owned by Network 5 Switch. leading Currently banks, it leading ATM Payment to Network become sal Lebanon’s (IPN) grew and services 15 member banks. ATMs network in the country with 1070 manages the most extensive the of state in reinvests continuously IPN Machines, Teller Automated termsof in customers to service excellent an ensure To art technology and has finalized the main part of its software solution from Base 24 to Base 24 EPS, known to be the most Availability System NS series. the Non-Stop High runs under services solution worldwide, which currently innovative finance From the security perspective, following the EMV compliance rightfully acquired several years ago, IPN has been certified to the norms international. of Visa according since 2011 as PCI compliant MasterCard and IPN services Mini Services in Statement, include termsMobile Cash Account Recharge, Withdrawal, of ATM Balance Inquiry, more. Pin Change, BNA (band and envelop deposit), Bill Payments and much Transfers, Receipts, and Screens Customized supplier, ATM of Choice ATMs, of Installation include: Solutions ATM of terms in services IPN Management of ATM Cash Positions, Control of Consumables, Control of Captured Cards, Encryption Key Management, 24/7 Service Desk Support, Anti-Skimming Detector System, Assistance in Applying for all Visa/MasterCard/Amex Mandate Certifications, and Host-to-Host connections. SAL Credilease Credilease is a financial institution affiliated toCredit Libanais sal. Financial solutionsbrought are efficient, confidential and of each customer. specifically designed to meet the individual and corporate needs competitive and are specializes in the following financial services: Credilease fairness, ensure equitability transparency, To a and Consumer suitability, Protection Unit was established and a subpage on the corporate website was launched. CPU periodically reports to the Chairman GM, the Board of Directors and the Banking Charter and Action Plan. to the implementation of the Policy, Commission of Lebanon (BCCL) on matters related Control trained and Credilease’s skilled team develops the best personalized services needed. Employees are knowledgeable and and confidential service. a fast, reliable equipped with the latest technological tools to provide ferent options that best suit the different merchants’ needs. merchants’ that best suit the different options ferent E-mail: [email protected] Help desk: + 961 1 879 709 (ext: 11) Website: www.netcommercepay.com Website: NetCommerce General Inquiries: + 961 1 879 709 NetCommerce Credit Libanais Group - NetCommerce uses VeriSign Authentication Services and solutions that allow companies and consumers to engage in transactions securely. e-commerce - NetCommerce is PCI-DSS (Payment Card Industry Data Security Standard) compliant since March 2010. This program applies the latest security implementations derived from Visa and MasterCard for the protection of cardholder data and payment services. - NetCommerce also implements the Verified by Visa and MasterCard Secure Code protocols. These protocols provide 3D-Secure payment authentication between the merchant, cardholder, issuing bank, and the acquiring payment online. transaction to better authenticate each bank on each NetCommerce’s forecast and expectations for the years to come is to continue gaining a significant market share by acquiring acquiring by share market significant a gaining continue to is come to years the for expectations and forecast NetCommerce’s new markets, remaining in line with technology and E-Government projects, and providing mobile technologies. payment In this respect solutions and in addition for to the previous success high in governmental tech emerging projects, businesses, NetCommerce continues to address new governmental services, ministries, and syndicates to further a successful e-government.move online payment services in Lebanon towards the Ease of Integration NetCommerce has self-developed its payment platform to respond to the needs different of the Lebanese market, with the ability to develop custom and vertical solutions that are tailored for both market and customer needs. NetCommerce has interface, with dif facilitated the integration into its payment The Most Secure and Reliable Solution for Payment Online The Most Secure NetCommerce adopts the latest world technology and security implementations to deliver innovative, reliable, and secure online with confidence. to trade and purchase cardholders and solutions, and allows both merchants payment processing A Reputation of Trust With a growing portfolio of 1370 merchants who trust NetCommerce to process their payment transactions securely NetCommerce has and become the reliably, largest payment service provider in Lebanon, processing hundreds of thousands of operating industries. various from transactions each year NetCommerce NetCommerce SAL has been a leading provider of internet payment services and e-business solutions since 1999, enabling Lebanese merchants to access worldwide markets and sell their products and services online in real-time, using Visa types. card MasterCard and NetCommerce SAL NetCommerce Processing Card for Internet Credit Service Provider The Payment www.netcommercepay.com Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 50 51 and Analysis and Analysis and Analysis and Correspondent Banks Legal Credit Credit Consumer Financial Protection Internal Audit Chairman Manager General Information Technologies Corporate Finance, Advisory and Research Deputy General Manager (CPD) Office Services and Strategy Audit Committee Risk Management Information Technology - Administration and Support - Operations and Support Services - Treasury and Global Markets Back - Treasury Marketing and Business Development Group Head of Internal Audit Committee Remuneration Legal Risk Finance and Accounting Committee Credit Administration and Control Credit Finance Securitization and Structured Finance Securitization and Structured Compliance Internal Audit Human Resources Services Level Agreement with Credit Libanais Group with Credit Services Level Agreement Group Chief Risk Officer Board of Directors CLIB of Directors Board AML/CFT Committee Treasury, Global Markets Asset Global Treasury, Management and Private Banking Investment Banking (CLIB) Banking Investment Credit Libanais Group Credit Credit Libanais’ Global Treasury, Markets, Asset Management and Private Banking Division financial covers services a in in wide the range areas of treasury and global cash management, foreign range of personalized advisory services to its high net-worth customers. a broad Bank offers our Lebanon. exchange, Moreover, brokerage. in capitalactivities markets markets,capital structuredquality of financeexpansion and and development the in participate and support to aims Libanais Credit The Division’s performance is driven by the Bank’s leading position in an array of to risk management practices. and by full adherence products, treasury and capital market services and Private Banking allocation asset optimized achieve customers help to solutions innovative and products tailor-made offers team Banking Private Our 2018, In expectations. return and objectives liquidity profile, risk customers’ on based is approach Our diversification. adequate and markets new to out reaching by sheet, off-balance and on assets client bolstering of strategy general Bank’s the supported staff our systems and processes internal improve to hard worked also team The relationships. and customers new acquiring and region the in compliance and customer management. to stay at the helm of the best practices of regulatory Equity Markets experienced teams able were to identify several appealing market opportunities In that 2018, attracted CL new Group’s customers and further developed existing business relationships. We succeeded in branching out our coverage and developing our offering terms to increase our market share. Credit Locally, Libanais holds a member seat at the Beirut Stock Libanais Investment Bank. subsidiary Credit Exchange (BSE) through its Trading activity focuses on fixed income trading where Credit Libanais acts as a Market-Marker in Lebanese domestic and international and domestic Lebanese in Market-Marker Fixed Income Markets a as acts Libanais Credit where trading income fixed on focuses activity Trading securities, which increases our capacity to satisfy both institutional and private customers’ transaction needs at competitive terms and conditions. our developing further of objective the with markets income fixed international major covers extensively Libanais Credit addition, In services. securities and brokerage CL Group’s Global Markets arm comprises the sales, trading and CL structuring Group’s of a wide range of financial including products bonds, commodities and securitized instruments. equities, equity-linked products, Global Markets Treasury and Foreign Exchange and Foreign Treasury The Group continues Treasury to further build its capabilities by diversifying funding sources and effectively managing risks. The synergies throughout the Banking Group enable us to closely select investment opportunities in various markets and optimize our Asset/Liability management model. Exchange and desk Foreign supports various activities of branch our network, growing subsidiaries and affiliates both The Treasury domestically and internationally. It continues to serve the Bank’s broad customer base through by a offering well-diversifieda productvariety range of services related to interest rates and foreign exchange markets. Exchange and Our Money Markets activities, activities as well as encompass tailored FX and plain Interest Rates hedging solutions Foreign and structured products. Our services supported by efficient channels of execution. a combination of praised financial trading desk offers professional At level the FX Bank’s and IRR exposures are proactively managed through ongoing market analysis and book simulations and by balance sheet market positioning. from to mitigate risks inherent order conducting all sorts of financial tests in As the trusted advisor of customers in Lebanon and the region, CL Group grew on Ethics and the deontology creativity. principles are highly respected by solid our team of experts values who contribute towards building a of strong excellence, integrity and and reputable image for the Global Treasury, Markets, Asset Management markets. player in local and regional becoming a leading and Private Banking Division with the objective of and growth. team of choice in terms aim to be viewed as the satisfaction, employee engagement, profitability of customer We services brokerage and trading as well as solutions, management portfolio and investment of range broad a offers Division Bank The on major asset classes, including equities, fixed income, and foreign exchange.We also offer access to a large universe of multi- asset class investment funds, exchange traded funds (ETFs), hedge with funds, products various structured underlying instruments, of safekeeping and services custody for caters Division The products. investment Sharia’a-compliant and products protected capital instruments. various types of financial Treasury, Global Markets, Asset Management and Private Banking Banking and Private Management Asset Global Markets, Treasury, Annual Report 2018 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 52 53

and Analysis and Analysis and Analysis and Correspondent Banks 31-Dec-18

Low 09-Nov-18

836.11 864.82 365.66 All Time 18-Sep-18

7.97% 28-Jul-18 High

All Time

1,801.01 1,666.64 1,948.82 CLCI 06-Jun-18

CLCI

15-Apr-18 Performance Yearly 22-Feb-18

907.48 365.66

Year Low Year 1,233.59 01-Jan-18 Credit Libanais Construction Sector Stock Index 550 500 450 400 350 300 505.85 1,133.98 1,549.87

Year High Year

31-Dec-18 09-Nov-18

since 18-Sep-18 -6.90% 25.17% Inception -57.25% % Change

16.17% 28-Jul-18

CLFI 06-Jun-18 -7.97% in 2018 -14.72% -16.17%

Yearly Performance Yearly % Change CLFI 15-Apr-18

Index Value 22-Feb-18 Indices Performance

Credit Libanais Financial Sector Stock Index 930.97 427.52 01-Jan-18 Value on Value 31, 2018 1,251.68 December 900 700 500

1,700 1,500 1,300 1,100

31-Dec-18 464.57

1, 2018

January 1,091.63 1,493.14 Value on Value

09-Nov-18 18-Sep-18 1,000 1,000 1,000

Value

14.72% 28-Jul-18 Inception

CLASI 06-Jun-18

Yearly Performance Yearly

Date CLASI 15-Apr-18

Oct-06 Oct-06 Oct-06

Inception 22-Feb-18

Credit Libanais Aggregate Stock Index Credit Libanais 01-Jan-18 Preparation of the sale transaction documents of the sale transaction Preparation Determination of the strategy Company valuation with Determination financing structure of the best units to acquire/merge for potential business Search Negotiation of the contract Due diligence… Mergers and Acquisitions Mergers This includes offering in-depth assistance to clients with an eye to merging with or acquiring other private or public business the transaction, including: covers every step of assistance units. CLIB’s Strategic Advisory Recapitalization and This service mainly consists of reshuffling a capital company’s structure in a way that improves therelated debt/ company’s sustainable. equity mix to make it more CLASI CLFI CLCI 500 900 800 700 600 1,300 1,200 1,100 1,000 Evaluate the financial performance of their business alternative investment / expansion an of viability the Assess reengineering / turnaround a financial Undergo investors Open their capital to prospective another business unit with / acquire Merge transactions partnering and alliances strategic from Benefit Moreover, Moreover, CLIB expanded its economy ties for with yet in another invest the that and compliant BDL are that funds equity private year, knowledge venturing into Lebanese Lebanese startup companies. The year 2018 was marked by several accomplishments the for Corporate Finance and Advisory arm of Credit Libanais Investment Bank despite the various surrounding geopolitical challenges. and economic The department maintained its role as to investment the advisor Credit Libanais Group, new screening business for ventures, and and evaluating studying lucrative investment the globe. country and around opportunities in the numerous in engaged and assessed department the Moreover, structured finance transactions, in addition to contemplating various acquisition opportunities in the banking sector and due diligence for that purpose. executing intensive More on the advisory front, Advisory function the inked a number Corporate of advisory Finance mandates for and corporate customers. renowned Debt and Equity Placements wish who customers to services advisory provides actively CL to make a better-informed decision regarding their choice of capital structure, financing means andsources, and the positioning of their business. Services The Corporate Finance and Advisory Department equipped to is provide private well and institutional customers in Lebanon, the region, and the world with an inclusive set of conceived specifically are that solutions and services financial to satisfy their needs. These services include: Financial Advisory This entails the engineering of financial solutionsneeds organizational and strategic the to respond to tailored that are of institutional clients. This includes financial assistance to clients seeking to: Credit Libanais Group A comprehensive bouquet of investment plans medium and long-term Medium and long-term loans Financial advisory services to the institutional clients Group as well as Corporate advisory services to Asset management 2018 at a Glance The Lebanese economy stumbled mainly affected during by the long governmental the void following the year 2018, parliamentary elections, casting its shadows on fragile In market light activity. of an such a mixed context, CLIB’s already operations were affected by the prevailing economic woes, with its conservative to approach lending being byreflected a 1.78 % in increase loans commercial (SME & Corporate) and a in housing loans. 1.06% decrease Concurrently, Concurrently, CLIB has advised corporate clients context, this on In sectors. economic several different in transactions M&A net profits stemming from constituted around 6.03% of investment the Group’s consolidated 2018 banking activities net profits. Credit Credit Libanais Investment Bank provides its customers with a wide panoply of financing and advisory solutions ranging from term lending to highly structured 2018, year the During spectrum. banking and investment the across specialized products CLIB studied and participated in several securitizations backed asset which of opportunities, local investment and regional and private equity investments in Lebanon operating in the knowledge economy sector. venture capital funds in CLIB’s strategy CLIB’s mainly revolves around reinforcing its position in equity project financing and advisoryservices, banking investment of selection extensive an offering services while still of which: Strategy CLIB is also on a relentless quest for new business ventures, for and Group the for opportunities growth inorganic grasping its local, regional, and international private and institutional clientele. In fact, CLIB always has an eye to improve its strong domestic peers. market standing among Credit Libanais Investment Bank (CLIB), a fully owned (99.86%) (99.86%) owned fully a (CLIB), Bank Investment Libanais Credit subsidiary of Credit Libanais, was established in 1996 as the operating its Throughout Bank. the of arm banking investment Libanais Credit Investment Bank has constantly strived history, to cater for the ever-changing customers needs through and the continuous preferences launching of products of and innovative services in accordance with legislative decree 1983. number 50, dated July Annual Report 2018 We embrace change. We continuously seek better solutions to problems for the Customer and the Bank. Control Functions Activities and Analysis Functions Control 02 Business Segments Activities Control Functions Activities Support Functions Activities Financial Statements Branch Network CL Milestones 56 57 and Analysis and Analysis and Analysis and Correspondent Banks 10% 13% 15% 31/12/2018 9% 12% 14.5% 31/12/2017 11% 14% 8.5% 31/12/2016 Tier 1 Ratio Tier Total Capital Ratio Total All ratios include the Capital Conservation buffer equal to 4.5% of Risk Weighted Assets. equal to 4.5% of Risk Weighted All ratios include the Capital Conservation buffer Common Equity Tier 1 Ratio Tier Common Equity The Capital Conservation Buffer* will be phased in and the minimum capital adequacy ratios will be as follows: will be phased in and the minimum capital adequacy ratios The Capital Conservation Buffer* * Enterprise-wide Risk Management Framework (ERM) Enterprise-wide Risk Management The Bank follows a comprehensive ERM Framework, appropriately scaled to its size, complexity and risk profile. Under ERM, for confirming management the risk appetite, and monitoring compliance to risk is responsible the Board on risk exposures. mitigating and reporting for identifying, evaluating, Management is responsible processes. Capital and liquidity requirements issued and reviewed by the Basel Committee on Banking Supervision (BCBS), covering capital capital buffers, adequacy, and liquidity risk management are applied on a cross-border level across local and foreign CL subsidiaries. Group Moreover, fully complies with home (i.e. BDL and BCC) and host regulatory requirements to comply with the Basel II/III framework. stringent more where III, Basel for timetable implementation accelerated an adopted previously Lebanon of Bank Central The ratios have been required. Lebanese Banks apply a Capital Conservation Buffer made up of Common Equity Tier One Capital amounting to a minimum of minimum ratio of 2.5%. the previous from 2018. This is an Increase Assets starting Year-End 4.5% of Risk Weighted Chief Risk Officer Risk Management and Strategy Risk Management and Chairman General Manager balancing risk and reward; organization; the of levels all at shared is risk of management understanding strong a on based is decision-making effective of risk; risking not of view a with conducted are activities business all reputation; the Bank’s ensuring that provided customers; and understood by the Bank’s services are suitable the throughout mandate a as judgment appropriate applying for and for the management of risk. organization SEM and Business Lines; (3) an independent compliance and function, effective which routinely monitors compliance with laws, corporate governance rules, regulations, codes and policies to which the Bank is consumer function that ensures that banking and subject. operations (4) a financial with customers are conducted according to regulations in vigor. The third line of defense consists of an effective independent Internal and Audit Function which conducts risk-based and general audits and reviews c. Risk Appetite Framework CL applies Group the following six principles overarching in the risk identification, monitoring and management throughout the organization: Strategy & Risk Analytics Office/ Credit Portfolio Management / Credit Risk Models Risk Management Project Credit Risk Management Operational Risk Management Information Security Risk Management Business Continuity Planning Risk Committee Board of Directors Board Credit Libanais Group The first line of defense isBusiness the Lines, which take risks and are responsible and accountable for the ongoing management of such risks. Risk independent an (1) includes: defense of line second The Management Function, which complements the Business Lines’ risk activities through its monitoring and reporting (2) the Finance responsibilities; Function plays a critical role in ensuring that business performance and profit and loss to the Board, and reported captured accurately are results The Bank’s risk governance framework includes well defined organizational responsibilities for risk management, typically lines of defense: three to as the referred Risk Governance Framework b. a. The Risk Management independent from the commercial lines of business reporting and Strategy to the function Chairman General Manager is and the the Board fully Board through Risk Committee. In addition SAL, its scope covers to local and foreign banking Credit and financial Libanais institutions subsidiaries of CL Group. Duties are carried out through an integrated strategic risk planning review, supported by and sound risk process management practices and effective framework. The cornerstone of this strong risk management culture supported function by a robust set of is a and professionals by managed limits, and procedures policies, other functional teams. Risk Management and Strategy Risk Management and Strategy Risk Management Annual Report 2018 Business Segments Activities Segments Business and Analysis and The Bank started preparations to abide by the newly issued Basel As per regulatory requirements, CL Group refined its risk Regulatory Capital Structure III post crisis reforms in December 2017 due for implementation methodologies and included more sensitive risk measures for beginning year 2022. The new framework is a central element the evaluation of the Internal Capital Adequacy Assessment C/V millions of LBP of the Basel Committee’s response to the global financial crisis. Processes (ICAAP), to ensure that the Bank holds adequate 2018 2017 It addresses a number of shortcomings with the pre-crisis capital to maintain ready access to funding, continue operations regulatory framework and provides a regulatory foundation for and meet its obligations to creditors and counterparties, and Common Equity Tier 1 Capital resources Control Functions Activities Activities Functions Control a resilient banking system that supports the real economy. continues to serve as credit intermediaries, even under adverse Share capital 257,400 257,400

conditions. Analysis and Share premium account Strategy & Risk Analytics Recovery Plan Legal reserves 135,651 120,551 Capital Management The Bank established a Recovery Plan that is based on the Capital Management’s fundamental elements include the General & unspecified banking risks Reserves 154,566 133,875 “Key Attributes of Effective Resolution Regimes for Financial implementation of a policy that addresses the quantity, Other reserves 234,319 266,471 Institutions” issued by the Financial Stability Board. The quality and composition of capital needed; the distribution Recovery Plan was already approved by the ALCO and by Reserves for Assets under Liquidation 20,004 18,293 of dividends and redemptions of capital instruments to

the Board of Directors in order to restore the Bank’s financial Reserves for irrecoverable bad debts as per BDL Circular No. 73 3,867 3,867 Activities Functions Support shareholders; and monitoring and reporting requirements. strength and viability in times of severe stress and is subject Retained earnings 318,624 205,195 Market Risk Management to annual review and regular monitoring. The plan takes into Analysis and Profit and loss account (taking into account interim net losses) 125,531 122,682 Market Risk Management’s fundamental parts include account the specific circumstances of the Bank and reflect its implementing a policy that addresses the authorized types, nature, complexity, interconnectedness, foreign operations Minority Interest 1,682 1,447 limits and concentration of investments, other financial and size. Revaluation of fixed assets 65,584 65,584 instruments, and assets; the defined and prudent levels of Net unrealized Profit / Loss on Financial Assets held at FVOCI 356 52,411 decision-making authority; identifying, measuring, providing Risk Profile Foreign Currency Position (414) (368) for and recording market impairments; and monitoring and Based on the detailed analysis of the different types of the Board reporting requirements. Bank’s risks, the Bank considers that there is a low risk of the Common Equity Tier 1 1,317,170 1,247,408 Financial Statements Bank encountering difficulties in the future, considering its Asset and Liability Risk Management overall medium-low inherent risk, its good internal governance, CL Group Asset and Liability Risk Management’s fundamental adequate risk management and control that are appropriate to basics include implementing a policy that addresses the limits its activities. Based on the review of all types of risk, the Bank’s on the balance sheet mix and maturities of capital, deposits, overall risk profile is ranked medium-low with some increasing loans and investments; criteria for pricing of deposits and trend, due to the economic challenges despite the improving loans; limits on the exposure to Foreign Currency Risk; operating environment as a result of the presidential elections and the unity government formation. Noting that, the quality

limits on the exposure to changes in interest rates; use of Banks Correspondent and of capital, the approved capital targets including the buffers

appropriate techniques for measuring the Bank’s Asset and Network Branch and the capital planning, reflect appropriate levels. Therefore, Liability Risk and evaluating the potential impact under the assessment of the capital adequacy is ranked well. current and reasonably foreseeable scenarios.

Internal Capital Adequacy Assessment Process Capital Structure and Regulatory Capital Ratios CL Group maintains an actively managed capital base to cover The Bank operates with capital positions well above the risks inherent to the business. The adequacy of the Bank’s minimum regulatory capital ratios, with an amount of capital capital is monitored using, amongst other measures, the rules that is commensurate with its risk profile on stand-alone and and ratios established by the BDL and the BCC amongst other consolidated basis. In addition, the Bank has robust, forward- Milestones CL measures. looking capital planning processes and governance, which account for its inherent risks and that permit continued operations during times of economic and financial stress.

Annual Report 2018 Credit Libanais Group 58 59 Business Segments Activities Segments Business and Analysis and C/V millions of LBP 2018 2017 Pillar 1 Capital Requirements The tables below set out Pillar 1 Capital Requirements and associated risk weighted assets for CL Group with separate disclosures

Common Equity Tier 1 Regulatory Adjustments for the credit risk, market risk and operational risk requirements.

Profit and loss account (125,531) (122,682)

Gross unrealized Profit on Financial Assets held at FVOCI (9,133) (55,556) C/V millions of LBP 2018 2017 Activities Functions Control Revaluation of fixed assets (65,584) (65,584) and Analysis and Reserves for Assets under Liquidation (20,004) (18,293) Pillar 1 Capital Requirements for:

Reserves for irrecoverable bad debts as per BDL Circular No. 73 (3,867) (3,867) Credit risk 634,665 621,342

Intangible assets including goodwill (9,288) (10,760) Market risk 4,627 16,319

Foreign Currency Position - - Operational risk 53,772 51,800

Excess over limits of articles 152 and 153 of the Code of Money and Credit - - Total Pillar 1 Capital Requirements 689,461 689,461

Other Common Equity Deductions - - Activities Functions Support

Common Equity Tier 1 After Deductions 1,083,763 970,666 Credit Risk: Standardized Approach by Exposure Class Analysis and Share Capital - Non-cumulative perpetual preferred shares 11,000 11,000 Disclosure of the amount of exposures subject to the Standardized Approach of Credit Risk and their related risk Share premium - Non-cumulative preferred shares 139,750 139,750 weighted assets and capital requirements. Minority Interest 505 482

Additional Tier 1 Capital 151,255 151,232 2018 2017 Additional Tier 1 Capital Regulatory Adjustments

Exposure Risk Weighted Capital Exposure Risk Weighted Capital Financial Statements Total Tier 1 Capital 1,235,018 1,121,898 C/V millions of LBP value Assets Requirements value Assets Requirements Tier 2 Capital Resources Central governments and central banks 11,997,343 3,543,550 283,484 10,179,571 3,125,621 250,050 Medium to long-term subordinated debt instruments 150,750 150,750 Public Sector Entities (PSEs) 15,979 - - 6,086 - - Minority Interest 336 402 Banks 897,404 222,324 17,786 966,414 238,166 19,053 Real estate revaluation approved by the BDL and qualifying under Tier 2 Capital 7,828 7,828 Corporates 1,726,976 1,756,866 140,549 1,870,316 1,868,993 149,519 50% of the Foreign Currency Position - - Small and Medium Enterprises (SMEs) 1,115,351 760,152 60,812 1,165,473 767,692 61,415 50% of the gross unrealized profit on Financial Assets held at FVOCI 4,567 27,778 Retail 415,394 328,851 26,308 428,645 337,500 27,000 Banks Correspondent and

(Other Tier 2 Capital Deductions) - (113,063) Network Branch Residential Mortgage Loan 1,612,181 562,124 44,970 1,651,412 575,855 46,068 Total Tier 2 Capital 202,115 186,758 Claims secured by Commercial Real Estate 196,863 196,916 15,753 229,163 228,731 18,298 Total Capital 1,437,132 1,308,656 Securitization positions standardized approach 3,965 2,974 238 4,231 3,173 254 Total Risk Weighted Assets 8,663,294 8,618,250 Non-performing loans 172,104 115,977 9,278 164,032 112,945 9,036 Net Common Equity Tier 1 Ratio 12.51% 11.27% Other Assets 645,197 443,588 35,487 719,925 508,092 40,647 Net Tier 1 Capital Ratio 14.26% 13.02% Total for Credit Risk 18,798,757 7,933,322 634,665 17,385,268 7,766,769 621,342 Total Capital Ratio 16.59% 15.18% Milestones CL

The above three ratios are higher than Basel Ill regulatory requirements, so the Bank is considered as well capitalized.

Annual Report 2018 Credit Libanais Group 60 61 Business Segments Activities Segments Business and Analysis and Market risk: Standardized Approach Foreign Exchange Risk (Currency Risk) Country Risk Management Disclosure of the level of Market Risk in terms of capital requirements and risk weighted assets as per the Standardized Approach, Credit Libanais does not maintain material non-trading open To effectively control the level of risk associated with which is detailed in the BCC Circular No. 256 dated September 26, 2007. currency positions, other than the structural foreign currency international activities, CL Group has a Risk Management translation exposures arising from its investments in foreign process that focuses on the broadly defined concept of Country subsidiaries and associated undertakings and their related and Cross border risks. A sound Country Risk Management C/V millions of LBP 2018 2017 currency funding. process includes oversight by ALCO and Country exposure Control Functions Activities Activities Functions Control Credit Libanais applies various hedging strategies to manage limits. Limits reflect several considerations, including the Equity Position Risk - - and minimize adverse effects arising from these exposures. country’s risk rating and the Bank’s appetite for risk. The Analysis and Interest Rate Risk (FVTP&L): Financial Institutions & Country Risk Management Unit has Equity Position Risk Specific Risk 570 1,371 the responsibility of proposing and controlling country risk The Bank has established a comprehensive transaction limits and monitoring the exposure of CL Group in different General Market Risk 196 1,864 and position based limits framework against which regular countries. Sovereign Exposures that include all Sovereign monitoring is performed. Equities Risk (FVTP&L): debt instruments issued by the Lebanese Government or any

Specific Risk 605 304 Liquidity Risk and Funding Management other foreign government in addition to all exposures to the BDL as well as other foreign Central Banks are loaded in the Activities Functions Support General Market Risk 605 304 The Bank’s Liquidity Risk Management Policy establishes IFRS9 calculation tool for ECL Calculation purposes. Foreign Exchange Risk 2,650 12,476 specific liquidity gap limits and includes cash flow projections Analysis and and emergency funding mechanisms. The monitoring and Total Capital Requirements for Market Risk 4,627 16,319 Credit Portfolio Management control of liquidity risk is established on an ongoing basis and The Bank’s approach to controlling various risks begins Total Risk Weighted Assets for Market Risk 57,827 203,981 involves balance sheet ratio analysis and the measurement with optimizing the diversification of its commitments. of the cash flow gaps and stress positions. In addition, the The management criteria set out in its internal policies Bank is abiding with the Liquidity Coverage Ratio (LCR) and Operational Risk: Basic Indicator Approach include measures designed to maintain a healthy degree of Net Stable Funding Ratio (NSFR) as required by the Basel III Disclosure of the level of Operational Risk in terms of capital requirements and risk weighted assets as per the Basic Indicator diversification of credit risk in its portfolios. framework. As per BCC Circular no. 295 dated April 26, 2018, Financial Statements Approach, which is detailed in the BCC Circular No. 257 dated October 08, 2007. The criteria established for portfolio diversification and related the Bank reports to the BCC monthly LCR ratios for all CL limits, which are set by type of business segments, products, Group entities. Monitoring and management is performed entities, credit risk mitigants, economic sector, regional and through a state-of-the-art ALM solution acquired at Group C/V millions of LBP country exposures, are based on the findings of sector-based 2018 2017 level allowing static and dynamic ALM management and studies and analyses conducted by the Risk Management and functional reporting. Capital Requirements for Operational Risk 53,772 51,800 Strategy Division at Group level, and are approved by the Credit Policy Committee and by the Board Risk Committee. Risk Weighted Assets for Operational Risk 672,145 647,499 Financial Institutions Risk Management Continuous portfolio analyses are performed to anticipate

The Bank defined a framework and an action plan for activities Banks Correspondent and problems with any sector or borrower before they materialize

with Banks and Financial Institutions in which credit risk is Network Branch as defaulted payments. Capital Planning inherent and has set the criteria for risk acceptance and the In light of the Basel III requirements and CL Group’s expansion plans locally and abroad, a semi-annual 5-year capital planning guidelines followed in the FI Risk Management process. exercise is prepared, on a stand-alone and consolidated basis, which is presented to the Board after being approved by the The Financial Institutions & Country Risk Management Unit ALCO and the Board Risk Committee. has the responsibility of following-up and monitoring the relationships of the Bank with its financial counterparties. Market Risk Management This is being implemented through an automated workflow The overall objective of managing market risk is to avoid unexpected losses due to changes in market prices and to optimize the recently acquired alongside a modern internal FI risk rating CL Milestones CL use of market risk capital. system based on which limits are being assigned and exposures monitored. Exposures to the Financial Sector and Interest Rate Risk Exposures to Financial Instruments issued by non-sovereign The interest rate risk the Bank is exposed to in its banking book is assessed from both, the net interest income (NII) and the counterparties whether domestic or abroad are loaded in the economic value of equity (EVE) perspectives using interest rate re-pricing gap analysis. IFRS9 calculation tool for ECL Calculation purposes.

Annual Report 2018 Credit Libanais Group 62 63 Business Segments Activities Segments Business and Analysis and Credit Risk Management and explicitly delegates credit sanctioning authority to As per IFRS 9 guidelines and local regulatory requirements, in CL Group completed the reclassification of its Financial Our credit risk management principles are guided by the Senior Executive Management and the Credit Committees. line with BDL Basic Circulars No. 81 revised December 24, 2014 Assets which are now being reported in compliance with following six overall risk management principles: Lending authority assigned to officers is commensurate with and No. 143 issued in November 7, 2017, and BCC Circular the Standard. ensuring that credit quality is not compromised for growth; the experience, ability and personal character. The Bank No. 293 dated December 28, 2017, the Bank successfully Phase II: A forward-looking expected credit loss (ECL) diversifying credit risks in transactions, relationships and develops risk-based authority structures where lending power migrated from the IAS 39 incurred loss methodology into the model that will result in more timely recognition of loan portfolios; is tied to the risk ratings of the obligor and the type of the IFRS 9 expected credit loss (ECL) methodology in accounting losses. Deadline for completion of Phase II is January 1, Control Functions Activities Activities Functions Control using our credit risk rating and scoring systems, policies lending product and collateral types in line with the bank for credit losses and assigning ECL provisions against loans, 2018, and CL Group confirms its readiness to implement

and tools; lending policy. based on specific staging criteria. the second Phase of the IFRS9 Standard at Group level, Analysis and appropriate pricing of the credit risks taken; applying including all its domestic and foreign branches and Managing Collection of Delinquent Loans consistent credit risk exposure measurements; and IFRS 9 Requirements subsidiaries. A loan is delinquent if any of its scheduled payments are mitigating credit risk through prevention and early In line with the Central Bank of Lebanon Basic Circular no. 143 Phase III: Improved hedge accounting model to better in arrears for a period greater than three days. Retail loans detection and warning signals’ controls. dated November 7, 2017 and its applied BCC Circular no. 293 link the economics of risk management with its accounting which are in arrears are actively managed by the Collection our business activities are conducted in such a way as issued by the Banking Control Commission of Lebanon dated treatment. Department and the Regional Management with the intent of to avoid any reputational risks. The Bank has selective December 28, 2017, the regulatory authorities in Lebanon

avoiding losses, or mitigating it to the greatest extent possible. Activities Functions Support lending criteria in this respect approved at level of the Risk have implemented a comprehensive framework for the IFRS9 In order to address the delayed recognition of credit losses Management makes general provisions for delinquent loans Committee and Board of Directors. implementation to be adopted by all Banks operating in on loans which until there is evidence of a trigger event, the and Analysis and on a monthly basis. the country including their local and foreign branches and IFRS9 requirements put in place a forward looking impairment Credit Risk Rating System For commercial facilities, delinquent loans or excesses subsidiaries. As such, CL Group is fully compliant with all model which ensures more useful information about an entity’s over limits are regularly communicated to the Senior The corporate and SME Credit Risk Rating System is designed requirements of the IFRS9 standards effective January 1, 2018. expected credit losses on financial instruments. The model Executive Management and pertinent credit committees to measure and identify the risks inherent in our credit requires an entity to recognize expected credit losses at all for close monitoring and decisions accordingly. Decisions In addition, the Bank has successfully implemented a activities in an accurate and consistent manner. Each obligor times and to update the amount of expected credit losses of downgrade and classification of the Borrowers are taken comprehensive and integrated IFRS 9 solution offered by a is assigned a borrower rating (BR), reflecting the probability recognized at each reporting date to reflect changes in the at the level of the respective Credit Committee including an prominent international vendor, which provides the Bank with of default (PD), after an assessment of the credit quality of credit risk of financial instruments. IFRS9 requires an entity to impairment study. a solid framework to; manage credit events and transactions / Financial Statements the obligor. Generally, the key risk factors assessed include base its measurement of expected credit losses on reasonable facilities, IFRS9 calculations and accounting generation. industry, markets, firm competitiveness, company’s qualitative and supportable information that is available without undue Managing Problem Credits The successful implementation of the IFRS9 tool is part of assessment, management quality and financial performance cost or effort, and that includes historical, current and The Bank establishes strict systems and policies to identify the Bank’s strategy and commitment to comply with all local indicators. forecast information. Moreover, banks are required to provide and follow up on problem loans. Once the loan is identified and international regulatory requirements and other financial information that explains the basis for their expected credit as problematic, it is managed under a dedicated remedial reporting obligations. Credit Risk Monitoring and Control loss (ECL) calculations and how they measure ECLs and assess function independent of the originating Business Lines. changes in credit risk. Credit risk monitoring refers to continuous monitoring of The final version of the International Financial Reporting individual credits inclusive of off-balance sheet exposures to

Policy and Tools for the Monitoring and Recovery of Standard (IFRS9) was issued by the International Accounting Banks Correspondent and Environmental and Social Risks obligors, as well as the overall credit portfolio of the Bank. Impaired Assets Standards Board (IASB) during July 2014, and includes the Branch Network Branch The Bank continuously endeavors to ensure effective Social The Bank enunciates a system that enables it monitor the The BDL Basic Circular No. 58 requires, inter alias, banks to following three main phases: and Environmental Management practices in all its lending quality of the credit portfolio on a day-to-day basis and takes classify loans into six regulatory categories as follows: A single classification and measurement approach activities and seeks to effectively manage and mitigate remedial measures as and when any deterioration occurs. 1. “Normal”; 2. “Follow Up”; 3. “Watch and Settlement”; Phase I: for financial assets that reflects the business model in which environmental and social risks in the projects they finance. 4. “Substandard”; 5. “Doubtful”; and 6. “Loss”. Delegation of Authority they are managed and the cash flow characteristics of those The Bank establishes responsibility for credit sanctions and Consequently, the Bank believes that it has satisfied all the assets. Financial Assets are classified as either Amortized International Finance Corporation (IFC) delegates authority to approve credits or changes in credit related regulatory requirements. cost, Fair value through profit or loss, or Fair Value through CL Group is directed by its agreement with the IFC, which

terms in line with the Bank’s lending policies and procedures. other comprehensive income. was signed in September 2018 to adhere to sound banking Milestones CL The Board approves the overall lending authority structure, principles and promote the full range of its activities in environmentally and socially reliable developments.

Annual Report 2018 Credit Libanais Group 64 65 Business Segments Activities Segments Business and Analysis and Social and Environmental Management System The Operational Risk Framework encompasses the With this respect, the Information Security Team devised a Our business continuity plan is updated based on changes in (SEMS) identification and assessment of operational risks inherent roadmap to comply with the new regulation and initiated business processes, technological advancements that allow The Credit Risk Management has developed the SEMS with in all the Bank’s products, activities, processes and systems, promptly the needed activities with the concerned Divisions/ faster and more efficient processing, audit recommendations the basic objective of ensuring that the environmental and implementing a process to regularly monitor operational Departments. Furthermore, during the course of the year, the and lessons learned from testing. During 2018, the Bank security team maintained the continuous security program and social implications of a potential customer are identified and risk profiles and material exposures to losses, control and has expended significant additional resources to improve its enhanced Group CL security posture by adding processes, assessed early in the Bank’s planning and decision-making mitigation of Operational Risk, and appropriate disclosures. business continuity planning accordingly. knowledge and security tools. This continuous monitoring Activities Functions Control process and that these environmental considerations are In line with the BCC Circular No.252 dated September program provided better visibility into Group CL information

incorporated into the preparation and approval of facilities. 14, 2006, the Bank developed procedures, under which it Many comprehensive business continuity testing involving Analysis and assets, awareness of threats and vulnerabilities, and visibility In this context, the Bank trained concerned staff to identify launched the collection process on operational loss events many critical activities of the Bank were performed this year; into the effectiveness of deployed security controls. In fact, / probable events / near misses and provided the Business they enabled us determining the reliability and compatibility and focus on green lending opportunities. the continuous monitoring helped the Information Security Lines with supporting guidance and a standardised Team to protect the Bank from numerous cyber-attacks of our backup facilities, verifying the completeness and Operational Risk Management template to ensure a consistent approach. such as ransomware, phishing attacks, social engineering accuracy of our plans, identifying the areas that need RCSA is a structured approach that helps line management and others type of malicious activities or codes. Moreover, enhancement, training our teams and preparing them for any Operational Risk Governance Framework to identify and assess inherent risks in their existing or Credit Libanais achieved PCI-DSS compliance since 2016 eventuality. As part of the Bank business continuity program, The Bank has established the roles and responsibilities of the new products, processes, activities or systems and take and continued to maintain its certificate as the sole Bank in emergency evacuation drills were also conducted to assure Activities Functions Support below three lines of defense: mitigating actions for identified risks. RCSA missions Lebanon with the PCI-DSS certification. that staff understands how the evacuation is to occur. All the and Analysis and The first line of defence is Business Line management, planned on a Risk-Based Approach, consisting of previous was done under the close oversight of the Bank Business Continuity Planning responsible for identifying and managing the risks inherent questionnaires and workshop sessions, typically evaluate Senior Executive Management to ensure the Bank business Our business continuity program is committed to safeguard in the products, activities, processes and systems for which inherent risks (the risks before controls are considered), the the Bank’s assets and all stakeholders’ interests, to protect continuity program a) stays in compliance with regulatory it is accountable. effectiveness of the control environment and residual risks employees, and to instill a culture of preparedness and action requirements increasingly extensive; b) is able to face the wide The second line of defence consists of a Group Internal (the risk exposure after controls are considered). Scorecards for whenever a drastic event occurs. At Credit Libanais, variety of new emerging risks and threats on the business; Control Functions comprising of the Group Risk build on RCSAs by weighting residual risks to provide a business continuity is an ongoing process submitted to and c) is maintained aligned with the corporate strategy. Management, Group Compliance, Group Finance and means of translating the RCSA output into metrics that give regular evaluation, revision and practice. Financial Statements other Internal Control Units, responsible for managing a relative ranking of the control environment. The ORMF the Operational Risk in their own areas and providing identifies and develops appropriate Key Risk Indicators support to other parties within the governance structure (KRIs) that provide management with early warning signals for Operational Risk Management. of Operational Risk issues. The third line of defence is Group Audit, responsible for As per the BDL Basic Circular No.104 and the BCC independently assessing the adequacy and effectiveness Circular No.257, the capital charge required to cover of the Operational Risk Management Function (ORMF) the Operational Risk is calculated using the Basel II Basic and ensuring compliance with CL Group policies and Indicator Approach (BIA). and Correspondent Banks Correspondent and procedures. Information Security Risks Network Branch Operational Risk Management Function Data Protection standards are becoming increasingly high The ORMF has a reporting structure independent of and companies are facing more and more complex task to the risk generating Business Lines and is responsible for evaluate whether their data processing activities are legally the design, maintenance and on-going development of compliant. In 2018, the European Union (EU) “General the Operational Risk Framework within the Bank. This Data Protection Regulation” (GDPR) entered into force and function includes the operational risk measurement and brought with it several challenges to organizations including

reporting processes, risk committees and responsibility Group CL. Milestones CL for Board reporting.

Annual Report 2018 Credit Libanais Group 66 67 Business Segments Activities Segments Business

Internal Audit Analysis and Appraise management actions regarding: They report hierarchically to the Head of IAD (Chief Audit Effectiveness of measures taken to assess and manage Executive) who in turn reports to the Board of Directors, Board of Directors risks. through the Audit Committee. Reliability, consistency and integrity of data. IAD Knowledge Management Audit Committee Head of Group Internal Audit Measures taken to safeguard assets, documents and The IAD is adequately structured and staffed with qualified records. internal auditors to carry out their duties and responsibilities Activities Functions Control Performance Measurement Compliance with policies, laws and regulations. Overseas Audit in a professional manner. They have full knowledge and Respect of code of conduct and the Bank’s values. Analysis and Quality Assurance and Improvement expertise over the business areas they examine, and are The internal audit function strives to increase the value added considered experts in their field of specialization, capable of to Credit Libanais Group structures, systems and processes delivering high quality services to auditees, whether the latter Branch Audit Head Office Audit Back Office Audit Credit Audit E-Banking Audit IT Audit LIB Audit CLIB Audit and to improve operational effectiveness and efficiency by: are branches, centralized activities or affiliated companies.

Establishing robust risk assessment methodology and IAD Audit Methodology and Approach Mission Statement IAD Main Objectives annual planning process to focus on existing and emerging The division follows a risk-based approach when auditing Support Functions Activities Functions Support The Internal Audit Division (IAD) is responsible for Align the audit activities with the Bank’s strategy. risky areas such as strategic, technology and business risks. business units. This consists of identifying and assessing the

strengthening Credit Libanais’ business risk/control Address risky activities and processes by providing tailored Aligning the audit work plans and other oversight activities inherent risks to the business, the effectiveness of controls Analysis and environment by providing comprehensive and independent recommendations and implementing best practices. with the Bank’s strategic goals, objectives and plans. that mitigate those risks, and the residual risks remaining professional audit and consulting services to all divisions Add value to the business risk control environment. Coordinating oversight activities between internal audit after these controls are in place. Based on this approach and and entities operating within the Group, and by assisting Ensure adequate implementation of risk management function as a third line of defense and other assurance related risk assessment, emphasis and priority are placed on management in maintaining proper controls over the assets procedures and methodologies and the efficient providers within the group, including risk management, the business areas where the highest risks are identified. and operations, thus adding value to the overall business functioning of the internal control framework. compliance and information security functions. performance. The mission of the internal audit function is Complete a full coverage of the audit areas mentioned in Regularly reviewing and improving the quality of audit IAD Continuous Enhancement of Staff Skills Sufficient technical and on-the-job training is delivered to to ensure that management establishes and consistently the audit year plan. reports by increasing the use of available information Financial Statements allow our audit team to excel in their missions. Personal maintains a sound internal control and governance framework Assign a risk control grade for each business unit and technology tools to gather, analyze and present factual development plans are performed for every auditor and within the Bank. monitor its improvement over time. data to further enhance the accuracy, completeness and include training and education in order to maintain proficiency. timeliness of audit reports. The Internal Audit Division strives to provide best quality Auditors are encouraged to enroll for the CIA (Certified IAD Other Objectives Attracting and retaining internal audit staff with the internal audit services with the highest standards of Internal Auditors) certification to enhance their professional Provide consultancy services regarding the improvement right balance of education, technical experience and governance and professional excellence, while adding knowledge and skills. In that respect, some members have of the risk control framework. professional skills and competencies. value to all business units, based on the values of integrity, Stimulate objectivity, uniformity, comparability, already started attending the CIA courses, in addition to objectivity, confidentiality and competency. The ultimate confidentiality and transparency. the E-learning courses that were made available to all audit IAD Organizational Structure Banks Correspondent and goal of the internal audit function is to independently serve staff to enhance their technical knowledge and continuously Accelerate and promote improvements in the control The IAD is business-centric, and is composed of specialized Branch Network Branch the bank and its key stakeholders by contributing to the improve their professional skills and capabilities. environment. audit departments that have gained sufficient experience in achievement of the Bank’s strategic goals and objectives in a Fulfill and properly handle all management requests and the business and can provide quality services and pertinent changing business environment. Branch Audit special assignments in a timely manner. recommendations to improve the activities of business All branches are assigned an overall audit rating according Conduct independent and objective audit reviews and units. These departments include Branch Audit, Centralized IAD Role to the level of internal controls exercised by branch evaluations, while meeting the auditees’ expectations. management and to residual operational risks inherent to The Internal Audit Division provides assurance to the Board Activities Audit, Credit Audit, E-banking & Cards Audit, IT Conduct adequate tests and reviews of information their activities. Based on the overall audit rating, corrective through its Audit Committee that: Audit, Continuous Control Audit, Overseas Audit (Limassol, measures are taken in branches to enhance their risk profiles systems and applications. Bahrain, Senegal, Iraq), other affiliated banks (Credit Libanais The tone of control set by the Board is properly applied by and to address the observations and deficiencies raised in Milestones CL Maintain quality services and audit documentation Investment Bank and Lebanese Islamic Bank) and subsidiaries management throughout the Bank. the audit reports. according to standards. The deployed internal controls are adequate to mitigate (Credilease, CLA, etc.). Audit department heads enjoy risks. sufficient expertise to manage a team composed of senior The governance processes are effective and efficient. and junior auditors, and to deliver high quality audit and The organizational goals and objectives are met. consulting services.

Annual Report 2018 Credit Libanais Group 68 69 Business Segments Activities Segments Business and Analysis and In 2018, Branch Audit Department contributed to the IT Audit Review reports are being submitted to management and to Quality reviews are also conducted by this department over issuance of several new procedural notes that improved Several audit assignments were performed on the IT functions the Board Audit Committee on a quarterly basis showing the audit files and documentation to ensure that quality the internal control framework and enhanced management which covered various systems, applications and processes the major audit findings that were identified and that might services are consistently delivered throughout all the audit oversight applied at the Bank level. An IT General Control review was affect the realization of the Bank’s objectives, in addition to a assignments and in accordance with the set standards and also conducted to enhance physical and logical security of briefing showing the compliance of auditees with the audit policies. over branch operations and activities. Moreover, Branch the IT environment. recommendations and their current status.

Audit performed regular follow-ups with branches to ensure Activities Functions Control that reported audit deficiencies were properly addressed

and timely regularized. Audit assignments in branches were Special Assignments 2018 in Review Analysis and conducted according to the annual audit plan approved by Special assignments were conducted by the IA Division at the the Board Audit Committee for the year under review. request of the General Management and different issues that Introduction of new tools and techniques to better manage and properly allocate the audit resources and to enhance the needed additional investigation and proper follow-up were internal audit function within the Group. Centralized Activities Audit tackled. Transfer of knowledge and competencies through assignment of audit resources to vacant management positions. This department covered all centralized (non-credit related) Standardization of the audit reports, including the introduction of a systematic rating methodology of audit observations and activities as scheduled in the year plan of 2018 and conducted Affiliated Banks/Subsidiaries the assignment of an overall audit rating for all audited units.

on-site missions among the different business divisions and Activities Functions Support Resident auditors are assigned to review the operations Greater audit coverage included all branches and central departments within the last 2 years (Audit Cycle). support functions. and activities of the affiliated banks (CLIB and LIB). Internal Several training hours were invested in our people through attending internal and external workshops and training sessions and Analysis and Credit Audit audit reports issued based on an approved year plan for pertaining to relevant business and banking topics. In addition, many auditors are preparing for the CIA certification (Certified Periodic risk-based audits over credit processes and 2018 were duly submitted to their respective Board Audit Internal Auditors). portfolios are undertaken by the Credit Audit Dept. and Committees. Furthermore, an audit field visit was performed The Board Audit Committee of the parent bank (Credit Libanais) met on a regular basis (4 meetings in 2018 attended by all include consideration of the adequacy and clarity of credit at Credit International SA (Senegal) covering all activities and members) to discuss the major activities and findings that occurred during the internal audit assignments, out of which: policies and procedures, and in-depth analysis of selection operations of this affiliated bank. two meetings were dedicated to discuss financial reporting and accounting issues with the external auditors. of loan accounts for commercial facilities and retail products. This department also covered the non-banking subsidiaries meetings with other senior management officers to discuss the major challenges facing their duties, and the wayto The department conducts regular reviews of the adequacy during 2018, in which the parent bank Credit Libanais

overcome them. Financial Statements of provisions to cover any potential impairment of the loan maintains controlling interest, in accordance with regulatory Separate meetings were also dedicated to the Audit Committees of the affiliated banks (4 meetings for each of CLIB and LIB portfolio. requirements. and 2 meetings for CISA during the year 2018), in which financial reporting and accounting issues were discussed with the This department covered credit assignments as scheduled external auditors. in the year plan of 2018 which encompassed retail products, Quality Assurance & Improvement retail and corporate commercial facilities and credit risk The Quality Assurance and Improvement Department within management processes. the IAD covers all aspects of internal audit activities and Overseas Audit continuously monitors its effectiveness through developing This department covered the audit of operations and activities quality assurance techniques. It helps the Head of IAD in and Correspondent Banks Correspondent and pertaining to foreign branches and entities (Limassol, Bahrain, adding value through improving the Bank’s operations and Branch Network Branch Baghdad and Erbil branches, and the affiliated bank (Credit providing assurance to the Board that the internal audit International S.A. in Senegal) during 2018. Reports issued function is in conformity with the set standards and the Code were discussed with local management and communicated of Ethics. to the regulatory authorities.

A timely follow-up is being conducted by this department on Continuous Control This unit exercises an off-site control over specific MIS and all audited businesses to ensure that all observations raised exception reports issued for branches, and initiates inquiries in the internal audit reports are well implemented within the CL Milestones CL with branch management for particular deficiencies, while timeframe agreed-upon, which was reflected in a significant maintaining close coordination with the branch audit team improvement in the control framework during the year 2018. in charge of performing on-site visits to branches, thus complementing the oversight function exercised by the IA Division over branch operations and activities in such a way as to improve the role of internal audit function.

Annual Report 2018 Credit Libanais Group 70 71 Business Segments Activities Segments Business

Compliance and AML/CFT Analysis and

Reporting lines FATCA/CRS (rules, regulations, updates, due diligence). SIC (tasks, rules and regulations). Board of Directors The Chief Compliance Officer reports functionally to the Board of Directors through the AML/CFT Board Committee Awareness of International Standards (ex: FATF recommendations). AML/CFT Board Committee and administratively to Senior Management through the

Awareness and proper Implementation of the CTS, KYC, Activities Functions Control Head of Group Compliance AML Committee. He also has a direct relationship with the local Financial Intelligence Unit (The Special Investigation and the customer Due Diligence at the branch level.

AMLC (AML/CFT Committee) Analysis and Commission of the Central Bank of Lebanon) and undertakes BCO’s monthly reports and monthly appraisal (procedures to file and report Suspicious Transactions Reports (STRs) as AML Screening. AML / CFT Correspondent Banking Financial Crimes Investigation AML / CFT / FATCA / CRS Department Risk Based Approach in action/ case studies. Department Department Regulatory Compliance Department well as to respond to inquiries on a timely basis. Technical Implications, AML Reporter, Alerts. Authority Trends in AML. Research & Regulatory & AML/CFT AML/CFT Unit AML/CFT Unit AML/CFT AML/CFT FATCA & CRS Investigations Compliance Regulatory Regulatory The Compliance Division derives its authority from the Board Interactive Sessions hosting internal and/or external Communication Screening Unit Unit - Bekaa & - Kaslik & North - Hamra & Riad Foreign Entities & Centralized Unit Unit Business Testing / Framework Unit Unit South Regions Regions El Solh Subsidiaries Unit Activities Unit Development Verification Unit of Directors. It has unrestricted access to all areas of the Bank Guest Speakers that fully engage attendees in a dynamic Support Functions Activities Functions Support and to any documents and records considered necessary for learning environment to foster their AML analytical and the performance of its responsibilities and has the authority

critical thinking. Analysis and * Early in 2019, the Compliance Division upgraded the Financial Crimes Investigation into a separate section, the main role of which to request any data or report from any member of staff at any consists of conducting investigations on bribery, corruption, fraud and other financial crimes resulting from misconduct and unethical In parallel, training seminars were conducted under the level of the organization, as may be needed. behaviors, etc. auspices of many national and international leading From a functional perspective, the 18 permanent staff members of the AML/CFT Department are supported by 71 independent organizations and covered subjects such as: Training and Development Branch Compliance Officers, designated at each branch of the Bank and reporting directly to the AML/CFT Department, following a Overview of applicable AML/CFT, FATCA laws and Credit Libanais considerately promotes awareness of the 6 months on-the-job training period at the Compliance Division. regulations. compliance culture among employees. In this respect, The Bank’s respective AML/CFT Policies and Procedures. AML/CFT’s ongoing staff training is given at various levels Financial Statements The following briefing sets out the composition of the Procedures for verifying customer identity. Objectives of the Compliance Function of the organization, both in the head office and branches, Compliance Division: Guidance on how to identify suspicious activities and The main objectives of the Compliance Division are to support including branch compliance officers and staff at various unusual transactions. the Board of Directors and Executive Senior Management in levels. Continuous learning includes mandatory in-house and The Compliance Division Head Guidance on how to identify the Ultimate Beneficial ensuring that CL Group acts in line with relevant laws, rules external training seminars, on-the-job training, e-learning directly assisted by the Research and Communication unit Owners. and regulatory requirements in order to prevent, manage and AML/CFT programs covering a broad range of topics. mitigate compliance risks. Therefore, CL Group has embedded The AML/CFT/FATCA/CRS Department comprises: Record keeping and reporting requirements. The Regulatory and Screening Unit Trade-based money laundering. compliance culture across all entities, locally and abroad, to The AML Training Academy The AML/CFT Central Unit for the Bekaa and the South Customer due-diligence and enhanced due-diligence. ensure the application of sound banking practices in a safe The AML training academy program at Credit Libanais Regions Monitoring of financial transactions. Banks Correspondent and financial environment, while abiding by highly recognized ethics provides staff with hands-on methods and skills that can be The AML/CFT Central Unit for Kaslik and the North Regions Reporting of suspicious transactions. Network Branch and code of conduct. directly applied at work. The AML/CFT Central Unit for Hamra and Riad El Solh Regions Tipping-off The program covers: AML/CFT Board Committee The AML/CFT Central Unit for Foreign Entities and Subsidiaries Etc. General introduction and history pertaining to AML. The AML/CFT Committee supports the Board of Directors in The AML/CFT Unit for Centralized Activities Risks of Money Laundering on the institution. its functions and supervisory role with respect to the AML/CFT The FATCA and CRS Unit AML/CFT Policies And Procedures The Bank’s three lines of defense and their roles. function and assists it in fulfilling its oversight responsibilities The Compliance Division has established the required AML/ The AML/CFT Correspondent Banking Department Correspondent Banking (awareness, queries, policies, etc.) and taking the appropriate decisions with respect to reviewing, CFT Policies and Procedures for each entity of CL that are Regulatory Compliance (documentation, retention, etc.)

from a risk-based approach, the reports submitted by the foundational to a successful AML/CFT program. These Milestones CL The Financial Crimes Investigation Department comprises: Anti-Bribery and Corruption (policy and healthy AML/CFT Dept., Internal Audit Division, Special Investigation The Investigations Unit procedures are modified and updated, as needed, to reflect implementation), KYE program. Commission, Banking Control Commission, External Auditors The Compliance Business Development Unit changes in laws and regulations, products, and organizational Suspicious Transaction Reports (STRs). and other regulatory bodies. It also ensures that the bank’s changes. The Regulatory Compliance Department comprises: Sanctions check (OFAC, EU, etc.) management understands the related risks to which the The Regulatory Testing/Verification Unit Real-life money laundering schemes (cases that have bank may be exposed and has the appropriate policies and The Regulatory Framework Unit occurred at the bank or at similar institutions). procedures in place to manage/mitigate such risks.

Annual Report 2018 Credit Libanais Group 72 73 Business Segments Activities Segments Business and Analysis and Compliance AML/CFT Program If the case is considered suspicious, it is reported to the FATCA Implementation Partnerships with International Bodies Main tasks performed by the Central AML/CFT Department “Special Investigation Commission” (SIC) of the Central Bank The Compliance Division follows practical measures to ensure The Bank also maintains a considerable number of o Review of the “Cash Transaction Slip” (CTS) and the Bank’s “Anti Money Laundering Board Committee.” the timely and efficient application of FATCA procedural partnerships with international bodies and benefits from o Review of the KYC requirements. long-term financing and risk sharing schemes with institutions o Review of Wire Transfers Risk Based Approach (RBA) Methodology such as: FATCA Reporting o Review of Checks Credit Libanais applies the Risk Based Approach when The International Finance Corporation (IFC), The Compliance Division developed a FATCA Program Activities Functions Control assessing the risks of its customers and operations from a ML/ The European Bank for Reconstruction and Development Numerous control and compliance tasks are also performed supported by FATCA timeline for each FATCA scheduled FT perspective according to a matrix incorporating a set of (EBRD), Analysis and requirement, while endorsing the responsibility of applying by the Branch Compliance Officers (BCOs) at the branches, parameters mainly related to the customer and the nature The European Investment Bank (EIB), a Compliant FATCA procedural framework and a FATCA according to a rigorous program. of his business, products and services as well as country of The Arab Trade Financing Program (ATFP), Action Plan abiding by the IRS requirements. The first FATCA operation. RBA is used to classify the Bank’s customers into 3 The Economic and Social Fund for Development (ESFD), Systems, Software and Sanctions Lists reporting was done on 30/6/2015. categories of risks (High, Medium and Low). The Cooperative Housing and Finance International (CHF The control and monitoring processes include: CRS Reporting International) and AML Model Validation The United States Agency for International Development Screening of names against Local and International Sanctions The first Common Reporting Standard (CRS) reporting was Credit Libanais conducts periodic review of each model to (USAID). Activities Functions Support Lists done during 2018 for CL according to CRS calendar, following determine if it is working as intended and if existent procedures Those international bodies regularly exercise due

the signature by the Lebanese Authorities of the Multilateral Analysis and This process is performed based on an automated filtering and processes are sufficient. Continuous improvement and Competent Authority Agreement for the automatic exchange diligence practices on Credit Libanais prior to entering into tool called the Designated Name Filtering System (DNFS), enhancement are always performed to maximize effectiveness of Financial Information on Financial Accounts operating in partnerships and granting facilities. used to compare onboarding and existing customers against while reducing operational inefficiencies. In this respect, blacklisted names provided locally by the Special Investigation Lebanon, in order to automatically exchange such information models are integrated into the Bank’s broader AML program; Correspondent Banks Awards in Recognition of Commission of the Central Bank, and internationally by with other CRS reportable jurisdictions on an annual basis. and based on many systems and databases in place, such as Credit Libanais’ Excellence the World Compliance search tools. Major International In this respect, the Bank has developed a procedural the sophisticated CRM (Customer Relationship Management) JP Morgan recognizes Credit Libanais with the Elite Quality Sanctions Lists used for screening include but are not limited framework and acquired IT Software that meet the regulatory system of records and data warehouse, the AML reporter, the Recognition Award for Outstanding Achievement of Best- to: OFAC, EU, HMT, Interpol, FBI, etc.… requirements worldwide. Financial Statements DNFS, sanctions lists, etc. that feed business reports and are in-Class MT 103 Straight Through Processing (STP) Rate used to make appropriate decisions. Transaction Monitoring AML/CFT – Correspondent Banking Relationship 99.06%”. (2017-2015-2013) The Bank has correspondent banking relations with a network Citibank recognizes Credit Libanais with the Straight The “AML Reporter” is an automated system that uses a Early in 2019, based on the continuous Model Validation, the of international correspondent banks and applies global through Processing (STP) Award, in recognition of the dynamic method to calculate account activity profiles and Bank’s Compliance Division upgraded the Financial Crimes correspondent banking requirements, policies and procedures Bank’s excellent quality and accuracy in delivering detect suspicious account activities. It is a powerful database Investigation into a separate section, the main role of which in each jurisdiction where it is present. As such, ongoing due commercial payments and processing transactions. engine which manages the data flow to enhance detection consists of conducting investigations on bribery, corruption, diligence of the existing and new correspondent banking (2016-2015-2014) capabilities, and provides exportable reports facilitating fraud and other financial crimes resulting from misconduct the documentation and verification of AML, KYC and EDD relationships is conducted to ensure that an appropriate level Deutsche Bank recognizes Credit Libanais with the Euro

and unethical behavior, etc. Banks Correspondent and (Enhanced Due Diligence) compliance efforts. of transparency between both parties is applied to protect Straight through Processing (STP) Excellence Award, in Branch Network Branch In addition to the reports generated, the AML Reporter FATCA and CRS the Bank’s reputation. recognition of the Bank’s excellent quality and accuracy determines profiles and activity expectations to effectively FATCA Integration The Bank has completed its membership in the KYC Registry in delivering commercial payments and processing detect trend breaks and abnormal transactional behavior, by The Compliance Division has completed the Foreign Account through the SWIFT platform, which allows the automatic transactions. (2017-2014) means of automatic generation of “Alerts”. Taxation Compliance Act (FATCA) online registration of Credit exchange of basic or enhanced KYC due diligence information Standard Chartered grants Credit Libanais the Straight Libanais on 7/4/2014 and accordingly obtained the Global among banks. KYC Registry is fully aligned with the new 2018 through Processing (STP) USD Clearing Excellence Award, Reporting of Suspicious Cases Intermediary Identification Number (GIIN), in conformity with Wolfsberg Due Diligence questionnaire. in recognition of the Bank’s excellent quality and accuracy Clients’ accounts are subject to continuous monitoring FATCA provisions and regulatory requirements. in delivering commercial payments and processing

Auditors Milestones CL through the “AML Reporter” system, which generates The Bank has acquired an IT software for FATCA transactions. (2014-2013) “Alerts” and “Exception Reports” based on the scenarios implementation (Turnkey System) aiming at identifying and Two international auditing firms - KPMG and DFK Fiduciaire and frequencies set. Unusual or irregular transactions are tracking US customers, monitor transactions and accounts du Moyen-Orient - jointly audit the Bank’s financial accounts, investigated and in case doubts persist, they are reported falling under FATCA provisions and performing FATCA prepared in accordance with the International Financial to the “AML Committee” created at Executive/Senior reporting processes to the Internal Revenue Service (IRS). Reporting System (IFRS). Management level for discussion.

Annual Report 2018 Credit Libanais Group 74 75 Business Segments Activities Segments Business

Consumer Financial Protection Analysis and Principles of Banking and Financial Operations with Customers

Principles of Banking and Financial Operations with In 2018, within the framework of the Bank’s “Financial Customers

and Disabled Inclusion” strategy, we sustained our efforts Activities Functions Control The Consumer Financial Protection is a fully independent Reviewing advertisements, brochures, contract samples, The National Framework to make the vast majority of our branches inclusive to all In February 2015 in Lebanon, Banque du Liban (BDL) issued

function of the operations and business lines of the Bank. In account statements and other documents provided to Analysis and customers. Special measures were adopted at branches for circular No. 134 related to the Principles of Banking and accordance with BDL Circular 134 and related BCC Circular 281, customers; and submitting the necessary suggestions that banking processes to make them more easily accessible to Financial Operations with Customers, following which the Consumer Financial Protection covers all branches of the Bank guarantee their clarity and transparency. people with special needs, including the visually impaired. Bank established a new Consumer Financial Protection in Lebanon, directly reports to the Chairman General Manager, Continuously monitoring the updating of the Key Facts Function directly reporting to the Chairman General Manager, and sends its reports to Senior Executive Management and the independent from the operations execution. Statement (KFS) related to services and products in an ever- Infrastructure and operational preparations are underway Board of Directors in matters related to the implementation of changing business environment, and ensuring their timely to install a considerable number of ITMs (Interactive Teller the Policy, Charter and Action Plan, and puts forth suggestions Major Local Regulatory Requirements publication on the Bank’s various communication channels Machines) at selected branches, to cater to the needs of the for improvements of the Principles of Banking and Financial BDL Basic Circular No. 134, related to the Principles of Activities Functions Support and touchpoints. visually impaired customers. Operations with customers as per regulatory requirements in Banking and Financial Operations with Customers.

BCCL (Banking Control Commission of Lebanon) Circular Analysis and place, to promote a better customer experience. Continuously contributing to the development of customer Moreover, access ramps have been made available at a No. 281 complementing BDL Circular No. 134 awareness and education programs. Moreover, Consumer Financial Protection is entrusted with large number of our branches for the physically challenged BDL Basic Circular No. 124, spreading awareness among staff and customers in matters of BCCL Circular No. 273 complementing BDL Circular 124. Ensuring the ultimate compliance ratio of branches in people in view of facilitating their access to conduct banking customer Rights and Duties, as well as standards of suitability, BDL Intermediary Circular No. 458, related to banking terms of obtaining all customers’ signatures on the List of transactions with the Bank. transparency, fairness and equitability. To ensure direct access of services offered to people with special needs in general and “Rights and Duties”. In this perspective, the Bank reached those with visual disability in particular. customers to the Bank in matters of suggestions or complaints. At Credit Libanais, we support BDL efforts in spreading a relatively high ratio of compliance that nears 70% in BCCL Memos no. 24-25/2015, 14/2016, 5/2018 and 1/2019 Consumer Financial Protection established a clear complaints financial inclusion among various categories of customers, Financial Statements obtaining the signature of existing customers on their List that complement previous BDL circulars issued. handling mechanism across CL branches, website and social of Rights and Duties. including those with special needs. The CMA (Capital Markets Authority) of Lebanon regulations, media channels, and continuously ensures awareness spreading namely (Series 3000) related to Business Conduct. through training, capacity building and enhancement of Continuously monitoring the update and publishing of the professional experience including the implementation of the “List of Fees and Charges”. Principles of Banking Operations and Transparency The International Framework provision of the Basic Circular #103 dated March 9, 2006. Training to CL Group Staff Members The global financial crisis that started in 2007 highlighted Ensuring that staff who deal with customers conduct the need for more effective Consumer Financial Protection Pursuant to BDL134, namely Article 3 (paragraph 2), which In 2018, more efforts were geared towards financial inclusion business in a suitable and transparent manner, and protect measures as consumers face more sophisticated and difficult of people with special needs, by refurbishing branches and customers’ personal and financial information, without states that Banks and financial institutions operating in Lebanon markets. The availability of information has grown both in and Correspondent Banks Correspondent and reengineering processes. prejudice to the legislation in force, particularly the Banking shall spread among their employees the culture of a transparent quantity and complexity, and the pace of change in terms Branch Network Branch Secrecy and Anti-Money Laundering Laws. and fair relationship with customers, the Consumer Financial of new product developments, disruptive innovations and The Consumer Financial Protection - Framework of Protection Department conducted Bank-wide training sessions technological advances, has increased dramatically according Action Suggesting and participating in the development of for more than 700 employees from all branches and Head to the OECD. In 2018, the Consumer Financial Protection continued to ensure training programs that educate employees on how to deal/ Office divisions. The training covered the main topics related In February 2011, the G20 called on the OECD, the Financial Stability Board (FSB) and other international bodies to develop the sound principles of conducting banking operations with interact with customers, and how to explain to them the to the Principles of Banking and Financial Operations with common principles on Consumer Protection in the field of customers according to the policy approved by the Chairman features, risks and suitability of products and services with Customers, including background information on the concept financial services. These principles were endorsed at the G20 General Manager and the Board of Directors on July 30, 2015. the customer’s situation and needs. of consumer financial protection in the world, awareness and meeting on 14-15 October 2011.

Responsibilities covered the following tasks: Milestones CL education, marketing campaigns, complaints handling and The Consumer Financial Protection principles set clear and Following-up on customer claims received electronically reporting, secrecy and data protection, standards of suitability, transparent rules of conduct for financial institutions in the Directly reporting customer claims to the General Manager, or via the various communication channels implemented equitability, fairness and transparency, key facts statements, daily conduct of business. The aim of the principles is to ensure at least on a quarterly basis, detailing their nature, handling in the branches, examining them and giving an opinion contracts, applications and statements of accounts, annual that consumers receive the transparent information required, and outcome as well as the measures proposed to improve in this regard. Informing the customer about the outcome percentage rate (APR),etc. allowing them to make informed decisions and shielding them the policy relating to the Consumer Financial Protection of the claim. All aforementioned claims are consolidated from unfair or deceptive practices. function. and reported to BCC on a quarterly basis through the CP1 report. Annual Report 2018 Credit Libanais Group 76 77 Support Functions 03 Activities and Analysis

We value each others’ ideas. We treat colleagues fairly, sincerely and courteously regardless of differences in background. Business Segments Activities Segments Business

Corporate Banking Analysis and Control Functions Activities Activities Functions Control and Analysis and

Banking Information Technologies Support Functions Activities Functions Support

Tier III Certified Data Center Analysis and

In an industry that has seen huge innovations in recent years amongst ever-evolving corporate and consumer demands for a swifter The Tier III Certified Data Center of CL Group is one of the best in the region. It is spread over some 450 m2 with 120 kW of net IT user-experience, Credit Libanais’ information technologies division continued to deliver strategic advantages to the Bank by adopting load and is designed to handle all the functions of the Bank. innovative, secure and highly reliable technology infrastructure to meet the ever-changing customer and employee needs. The main data center environment is water cooled at relatively high temperatures. Normally water-cooled systems for the building’s During 2018, major enhancements to the IT infrastructure were undertaken and covered the following areas: supply water is at around 6°C; CL data center uses a 10°C chilled water temperature, which greatly increases the efficiency and Upgrade of the Group IT systems (core, Swift and Trade Finance) to ensure on-going compliance with requirements of the Swift. reduces cost. Moreover, there is no need to provide large-scale humidification because water will not condense as much as when Financial Statements Exploration of Big Data/Analytics for improved decision-making. the chilled water temperature is lower, which substantially saves on energy. The chillers also have variable speed compressors and Completion of the online Mechanic payment system. variable chilled water pumps that can adjust as per the needed capacity. Implementation of the IFRS9 system as per national and international regulatory bodies’ regulations. CL Tier III data center features are as follows: Enhancements to the Omega Trading software including data warehouse integration. Chilled water-cooled white space. The chilled water system significantly increases efficiency and running costs. Supporting the upgrade of all banking card systems. The chiller compressors and pumps optimize energy consumption based on actual demand. Implementation of a middleware solution in line with the Digital transformation strategy, to integrate all existing systems and A special variable primary chilled water system further reduces energy expenditures. applications at the Bank. Computer room air conditioning units reduce energy consumption. Integration of Digital contact center based on the middleware. Cold air containment enhances the overall system efficiency. Banks Correspondent and In addition to the ongoing support to all the Bank’s infrastructure, 2018 witnessed many project upgrades that led to the unification The fresh air for the data center is centrally pre-treated with an energy recovery unit. Network Branch of the core banking platform across all the entities of the Group. Those included: Associated office space is air conditioned by a VRV (variable refrigerant flow) system for high efficiency and lowerenergy o Upgrade of the Trade Finance system to the latest TI web version expenditures. The system interfaces with the BMS (building management system) for scheduling and centralized parameterization o Upgrade of the GPI (Global Payments Innovation) and LAU (local authentication Unit) for SWIFT compliance requirements. to avoid operation during unoccupied periods. The latest VRV system technology provides cooling to the office space. While implementing above projects, IT division closely monitored the security technology infrastructure in an increasingly hostile Re-circulated air from offices ventilates the UPS/battery room through transfer fans, which reduces the amount of treated fresh air. cybersecurity environment and implemented the needed security equipment such as data center firewalls and sandboxing to protect Modular UPS systems adjust capacity to actual IT loads. The lighting is switched on by a lighting control system that includes the Bank from any potential cyber-threat.

automatic motion sensors and centralized parameterization and scheduling to avoid operation during unoccupied periods. Milestones CL In addition, business continuity tests are regularly conducted with the business units and the BCP department to ensure proper The BMS (Building Management System) integrates all subsystems, either directly or via SNMP (Simple Network Management replication of the critical business units to the disaster site to be used in case of disaster. Protocol), KNX, and data center infrastructure (DCIM) controls. The system allows an overall insight on the operations of the data center, monitoring all energy expenditures, faults, and alerts. DCIM optimizes operations and increases overall efficiency.

Annual Report 2018 Credit Libanais Group 80 81 Business Segments Activities Segments Business

Human Resources Analysis and Training Activity per Category of Courses Job-Specific-Schools CRA/CSO School 26.9% Credit Libanais recognizes the importance of having a talented, experienced and ambitious workforce at the level of the 26.9% Banking Operations The purpose of this school is to shed light on the sales 16.6% Leadership & Management individual and the organization. In this perspective, the year 2018 witnessed a considerable challenge for HR to ensure jobs that 13.6% 15.3% Auditing & Finance approaches, understanding customer behavior, attitudes and

are richer in learning experiences and offer career growth and exposure to our workforce in a difficult economic environment. 13.6% Compliance requirements, in view of giving CL branch staff the necessary 2.4% 12.1% Marketing & Sales

tools and techniques to perform their job, in a highly Activities Functions Control 1.8% 3.7% 7.5% Risk Management Recruitment 15.3% competitive market characterized by more stringent and strict 12.1% 3.7% Others

7.5% Analysis and Digital banking had its part in changing the nature of E-Library (a learning channel where all training material is 2.4% E-Learning Behavioral regulations. 1.8% Information Technology banking services and our search for the needed proper 16.6% uploaded) ABM/BS School talent continued in 2018. Priority was yet again given to the Energizing Hour Channel (a one-hour energizing session The purpose of this school is to equip CL Assistant Branch internal redeployment of employees in view of retaining given to HO staff. Training material made available on the Summer Internships for The Year 2018 Managers and Branch Supervisors with a concrete banking and advancing the Bank’s talents. The Bank gave interested portal) The Bank strives to provide a positive culture while expertise based on the latest trends in the industry. employees the opportunity to perform jobs other than their Knowledge Transfer (staff who attend external trainings cultivating the ultimate learning experience for interns. Overseeing employees and providing higher customer own, which led to more enriching experiences within a transfer the knowledge acquired to other staff members). The “Intern Orientation Sessions” are regularly organized service is equally an important milestone in this School to Activities Functions Support dynamic corporate environment. The opening of two new Schools Programs (a blended interactive approach to facilitate orientation into the banking environment for get the edge over competitors in a challenging market. Legal

branches in Tannourine and in Dbayeh, and our expansion Analysis and between instructors and staff) accepted applicants. Aspects of Banking Operations, Transparency Requirements strategy in the West Africa region also called for specific 3AAA Challenge (3 competition assessment tests related and AML are also important subjects in this School. recruitments throughout the year. to branch operations) AML Training Academy Learning Initiative (the blended portal of product Interns in Head Office and Regions As financial crimes continue to hinder economic progress and Performance Appraisal knowledge and teller operations is tailored to branch staff cause huge harm to communities, CL deploys continuous The yearly performance appraisal exercise allows employees on the e-learning portal) 41 42 efforts to promote awareness to staff, through its recently to make their aspirations and concerns heard, through Mobile Learning (the first-of-a-kind e-learning mobile app Head Office

27 Regional Management Riad El Solh established AML Training Academy which aims at educating dynamic, one-to-one discussions with their direct supervisors 22 M-Learning that allows CL staff to continue learning on 21 Financial Statements 19 Regional Management Kaslik who in turn, align employees’ objectives with the Bank’s all members on matters related to potential money laundering their mobiles). In 2018, 55% of CL staff were active on the Regional Management Hamra schemes. Seminars explain ways to deal with said schemes, overall culture and values. e-Learning curriculum program Regional Management Bekaa & South Regional Management North increase staff knowledge and skills in the mitigation of possible money laundering risks, in view of maintaining Banking Financial Qualifications (BFQ) “Banking Operations” totaled 321 training hours, with a healthy and solid compliance culture at the Bank. At the In 2018, added numbers of CL staff enrolled in the Banking emphasis on topics such as “Legal Aspects of Banking end of the AML Academy, successful candidates receive a Financial Qualifications courses ensuring abidance by BDL Operations” and “Legal Aspects in Lending Procedures”, Branch Visits Continuous branch visits allow for direct communication with staff “Certificate of Completion”. Circulars 470 and 103 requirements, the CMA requirements in addition to a customized training in LC titled “LC across the network throughout Lebanon, solving of problems and and international best practices in this field. recognition of talents and high performers. Applications and International Commercial Terms”. Our Principles of Banking Operations and Transparency Training Banks Correspondent and BFQ were also complemented by technical certifications programs included Induction Training, On-the-job Training Seminars Network Branch 33 33 such as the CIA, CAMS, Combating Financial Crime, Financial and External Training. 32 In 2018, the Consumer Financial Protection Department Regional Management Riad El Solh Derivatives, Global Securities, International Introduction conducted Bank-wide training sessions for more than 700 Regional Management Kaslik to Investment, Investments and Risks, and Risk in Financial 28 28 Training Activity per Category of Employees Regional Management Hamra employees from all branches and Head Office divisions. Services. Said certifications ensure that staff acquire more Regional Management Bekaa & South The training material covered the main topics related to - Internal/External & Overseas Seminars: 1163 Hrs. technical skills to ensure better deliverables and outcomes Regional Management North the Principles of Banking and Financial Operations with - Total Trainees by course session: 316 in their daily conduct of business. Customers, including background information on the concept 53% of consumer financial protection in the world, awareness and CL Milestones CL Learning and Development 53% Others Career Management Program education, marketing campaigns, complaints handling and In 2018, several e-learning initiatives were undertaken such In 2018, 25 qualified employees were chosen under set reporting, secrecy and data protection, standards of suitability, 46% Middle as: criteria for enrolment in the Career Management Program. equitability, fairness and transparency, key facts statements, 46% The Banking Operations Test (an e-test targeting new 1% 1% Executive Customized programs were prepared for each candidate contracts, applications and statements of accounts, annual recruits to increase their banking knowledge) to sharpen leadership skills and professional knowledge in percentage rate (APR),etc. For more training efficiency and preparation for their growth within the Bank. clearer KPIs, pre and post-session tests were conducted.

Annual Report 2018 Credit Libanais Group 82 83 We function as a team. Cooperation among individuals and units is fundamental in delivering the whole Bank to the Financial Statements customers. 04 Business Segments Activities Segments Business

Management’s Discussion and Analysis of Financial Condition Analysis and and Results of Operations of Credit Libanais Group

Basis of Presentation Control Functions Activities Activities Functions Control The following discussion and analysis have been prepared based on the audited consolidated financial statements of the Group as at and for the years ended 31 December 2018 and 2017 and on selected financial information. Analysis and

The consolidated financial statements of the Group as at 31 December 2018 represent the financial position of Credit Libanais Group which incorporates the activities of Credit Libanais SAL together with its wholly owned subsidiaries, Credit Libanais Investment Bank SAL (CLIB), Lebanese Islamic Bank SAL (LIB) and Credit International SA – Senegal (CISA) and other companies directly or indirectly owned by Credit Libanais SAL. All material inter- company transactions incurred during the years 2018 and 2017 were eliminated when preparing the consolidated financial statements in accordance with regulations and standards agreed upon for consolidation purposes. Support Functions Activities Functions Support Lebanese Banking Sector and Analysis and CL Group Financial Results Total Lebanese banking sector assets reached LBP 376,097 billion (or US$ 249.48 billion) as at 31 December 2018, compared to LBP 331,433 billion as at 31 December 2017 (or US$ 219.86 billion), reflecting an annual increase of LBP 44,664 billion or 13.48% year-on-year. Total loans to private sector made by the Lebanese banks decreased by 0.5% in 2018 to LBP 89,524 billion (or US$ 59.39 billion) as at 31 December 2018 down from LBP Management’s Discussion and Analysis of Financial Condition and Results of 89,976 billion as at 31 December 2017. Total customer deposits, including non-resident private deposits, held by the Lebanese banking sector increased by 3.23% in 2018 to LBP 269,174 billion (or US$ 178.56 billion) as at Operations of Credit Libanais Group 87 31 December 2018 from LBP 260,746 billion as at 31 December 2017. In addition, the deposit dollarization rate increased to 68.93% as at 31 December 2018, compared to 67.01% as at year-end 2017. Financial Statements Independent auditors’ report 101 Analysis of Financial Position

Total Assets Consolidated statement of financial position 108 As at 31 December 2018, the Group had total assets of LBP 18,773.29 billion, compared to LBP 17,419.16 billion as at 31 December 2017, reflecting a year-on-year increase of LBP 1,354.13 billion or 7.77%. This increase in total assets, particularly in liquid assets, was substantially matched by increases in funding, which consisted primarily of Consolidated statement of profit or loss and other comprehensive income 110 loans from Central Bank of Lebanon and financial institutions. The average growth in total assets of the Lebanese banking sector stood at 13.48% during the year 2018. The Group’s share of total assets of the Lebanese banking sector reached 4.99% at year-end 2018, compared to

Consolidated statement of changes in equity 112 5.26% at year-end 2017. Banks Correspondent and Branch Network Branch

Consolidated statement of cash flows 116

Notes to the consolidated financial statements 118 CL Milestones CL

Annual Report 2018 Credit Libanais Group 86 87 Business Segments Activities Segments Business and Analysis and Sources of Funding Year-on-year, foreign currency deposits were 5.31% higher as at 31 December 2018, compared to 31 December The following table sets out a breakdown of the Group’s sources of funding as at 31 December 2018 and 2017, 2017, while LBP deposits decreased by 5.86% over the year 2018, compared to a decrease of 2.95% in LBP respectively: deposits for the Lebanese banking sector. As at 31 December 2018, customer deposits held in foreign currencies, principally US Dollars, represented 58.92% of total customer deposits as at such date, compared to 56.18% as at 31 December 2017, while the banking sector’s deposits dollarization increased to 68.93% as at year-end 2018 31/12/2018 31/12/2017 Percentage change from 67.01% as at year-end 2017. The Group’s deposits in foreign currency were lower than the sector’s average LBP millions LBP millions primarily because of the Group’s retail activities in rural areas (Bekaa region) where customers traditionally use

Lebanese Pound as the functional currency. Activities Functions Control Loans from Central Bank of Lebanon and Financial Institutions 2,628,606 1,351,151 94.55% Foreign currency deposits are primarily comprised of time deposits and savings accounts. Analysis and Demand deposits 78,593 35,716 120.05%

Time deposits 2,550,013 1,315,435 93.85% Loans Portfolio Customer Deposits 14,079,683 14,021,735 0.41% As at 31 December 2018, loans and advances to customers (net of provisions for doubtful debts and reserved interest) amounted to LBP 4,981.19 billion, compared to LBP 5,215.16 billion as at 31 December 2017, reflecting Demand deposits 1,307,884 1,411,696 -7.35% a year-on-year decrease of 4.49%. Over the same period, aggregate loans to private sector made by Lebanese Time deposits 5,559,755 5,265,607 5.59% banks decreased by 0.5%. Support Functions Activities Functions Support Sight saving accounts 223,956 231,852 -3.41% The ratio of the Group’s total loans to total assets was 26.53% as at 31 December 2018, compared to 29.94% as at 31 December 2017.The Group’s loans-to-deposits ratio improved to 35.38% as at 31 December 2018 compared Time saving accounts 6,988,088 7,112,580 -1.75% Analysis and to 37.19% as at 31 December 2017 and compared to the average of 34.07% for the Lebanese banking sector. Total 16,708,289 15,372,886 8.69% The table below sets out the composition of the Group’s loans portfolio, by currency, as at 31 December 2018 and 2017, respectively: Customer deposits Total customer deposits of the Group increased by 0.41% to LBP 14,079.68 billion as at 31 December 2018 from LBP 14,021.73 billion as at 31 December 2017, while the average growth rate in total deposits of the Lebanese banking sector stood at 3.23% during the year 2018. Customer deposits represent the principal source of the Loans by Currency

Group’s funding and comprised 75.0% and 80.5% of the Group’s total assets as at 31 December 2018 and 2017, Financial Statements respectively.

Loans Loans Percentage change Decrease As at 31 December 2018, savings accounts, which are mostly held by individuals and have, average maturities of 31/12/2018 31/12/2017 Group Sector approximately 3 to 6 months, represented the largest portion of the Group’s customer deposits 49.63%. Demand deposits, which earn the minimum balance rate offered by the Group, represented 10.88% of total deposits; and time deposits, which are mostly held by businesses, represented 39.49% of total deposits. In LBP (LBP billion) 2,177.98 2,297.26 -119.28 -5.19% -5.87% In foreign currency (converted into USD million) 1,859.50 1,935.59 -76.09 -3.93% 1.73% The following table sets out the compositions of the Group’s customer deposits, by currency, as at 31 December 2018 and 2017, respectively: Total (LBP billion) 4,981.19 5,215.16 -233.97 -4.49% -0.50% and Correspondent Banks Correspondent and Branch Network Branch Deposits by Currency Of the Group’s total loans portfolio, LBP 2,177.98 billion or 43.72% were denominated in Lebanese Pounds, with Percentage change the remaining 56.28% denominated in foreign currencies, principally in US Dollars, as at 31 December 2018. Deposits Deposits Increase/ Loans in foreign currencies represented 33.79% of total foreign currency customer deposits as at 31 December 31/12/2018 31/12/2017 Decrease Group Sector 2018, compared to 37.04% of total foreign currency customer deposits as at 31 December 2017, and compared to the average of 34.86% for the Lebanese banking sector as at 31 December 2018. In LBP (LBP billion) 5,783.81 6,144.13 (360.32) -5.86% -2.95%

In foreign currency (converted into USD million) 5,503.06 5,225.61 277.45 5.31% 6.19% During the year ended 31 December 2018, the Group has implemented International Financial Reporting Standard 9 which requires management to determine and recognise expected credit losses (ECL) as opposed to Milestones CL Total (LBP billion) 14,079.68 14,021.73 57.95 0.41% 3.23% the incurred credit loss model under IAS 39.

Annual Report 2018 Credit Libanais Group 88 89 Business Segments Activities Segments Business and Analysis and The following table sets out the composition of the Group’s loans portfolio by the borrower’s economic activity, Lebanese government securities after accounting for specified loan loss provisions as at 31 December 2018 and 2017: The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills and Eurobonds as at 31 December 2018:

As at 31 December 2018 Loans by Industry In LBP In FC Total LBP Billions USD Millions LBP Billions Control Functions Activities Activities Functions Control

31/12/2018 31/12/2017 Percentage change and Analysis and LBP millions LBP millions Ordinary treasury bills 1,549.41 934.44 2,958.08 Plus: Accrued interest on treasury bills 25.89 12.35 44.51 Retail (personal, consumer and housing loans) 2,142,276 2,219,839 -3.49% Additions 7.28 1.04 8.85 Trade and Services 1,680,438 1,431,044 17.43% Deductions (1.98) (10.34) (17.57) Industries 627,579 644,861 -2.68% Expected Credit Loss (7.63) (8.09) (19.82) Construction and Real Estate 450,004 822,227 -45.27%

Total 1,572.97 929.40 2,974.05 Activities Functions Support Brokerage 23,030 28,732 -19.85%

Agriculture 55,680 65,066 -14.43% Analysis and

Government 2,183 3,396 -35.72% The average rate of return on Lebanese Pounds ordinary treasury bills subscribed by Credit Libanais SAL and Total 4,981,190 5,215,165 -4.49% amounting to LBP 1,488.27 billion stood at 7.10%. The overall yield on the Group’s portfolio of treasury bills held in Lebanese Pounds aggregated to 7.13% at 31 December 2018, compared to 6.81% at the end of the preceding year.The average yield on Lebanese Government treasury bills issued in foreign currencies was 6.77% at 31 December 2018, compared to 6.53% at the end of the preceding year.

Personal, consumer and housing loans increased to 43.01 % of total loans as at 31 December 2018, compared The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills, by maturity, as to 42.57% as at 31 December 2017, while trade and services loans increased to 33.74% of total loans as at 31 at 31 December 2018: Financial Statements December 2018, compared to 27.44% as at 31 December 2017. The Group’s industrial loans, construction loans, brokerage loans, agriculture and Government loans comprised 12.60%, 9.03%, 0.46%, 1.12 and 0.04% of total loans, respectively, as at 31 December 2018, compared to 12.37%, 15.77%, 0.55%, 1.25 and 0.05% of total loans, As at 31 December 2018 respectively, as at 31 December 2017. In LBP In FC Total LBP Billions USD Millions LBP Billions Liquidity As at 31 December 2018, Credit Libanais Group maintained high liquidity levels which represented 93.21% Less than 6 months 145 36.98 200 of total customer deposits and other liabilities and 69.87% of total assets, compared to 82.16% and 66.08% respectively, as at 31 December 2017. Liquidity was distributed on the basis of 50.20% in Lebanese Pounds Between 7 and 12 months 134 49.60 209 and 49.80% in foreign currencies at 31 December 2018, compared to 48.23% and 51.77% respectively as at 31 Banks Correspondent and Between 13 and 18 months 139 30.84 185 December 2017. Network Branch Between 19 and 24 months 155 1.23 157 As a result of the international financial crisis that almost affected the majority of banks operating all over the world, the Group reconsidered the risk exposures maintained with its bank correspondents and accordingly Between 2 and 5 years 455 243.87 823 redistributed the liquidity held and the credit limits granted to them in a way to avoid high concentration of Over 5 years 521 571.92 1,384 liquidity with a single correspondent and to deal with prime banks that can benefit from their government’s financial support. Total Lebanese treasury bills 1,549 934.44 2,958 CL Milestones CL

Annual Report 2018 Credit Libanais Group 90 91 Business Segments Activities Segments Business and Analysis and Investments and Marketable Securities 31/12/2018 31/12/2017 Percentage change The Group held investments and marketable securities amounting to LBP 1,818.09 billion as at year-end 2018 LBP millions LBP millions compared to LBP 1,655.10 billion as at year-end 2017, reflecting an increase of LBP 162.99 billion or 9.85%. All investments consisted of instruments and papers issued by Lebanese banks and prime local and international companies and are quoted in regulated financial markets. Shareholders’ equity Share capital - common shares 257,400 257,400 0.00% The following table sets out the composition of the Group’s portfolio of investments and marketable securities, Activities Functions Control by type of instrument, as at 31 December 2018: Share capital - preferred shares 11,000 11,000 0.00% and Analysis and Share premium - preferred shares 139,750 139,750 0.00%

Capital reserves 147,254 260,455 -43.46%

As at 31 December 2018 Retained earnings 239,363 130,284 83.72% In LBP In FC Total LBP Billions USD Millions LBP Billions Fair value reserve 356 52,411 -99.32%

Other reserves 388,464 272,187 42.72% Corporate Bonds & Other Sovereign Bonds — 31.192 47.021

Profit for the year 118,334 116,249 1.79% Activities Functions Support Debts Securities — 7.968 12.012 Subordinated debt issued 160,545 120,376 33.37% Unquoted & quoted Equity Securities & Preferred Shares 4.425 31.403 51.765 Analysis and Total equity attributable to equity holders of the Bank 1,462,466 1,360,112 7.53% Certificates of deposits issues by the Central Bank 1,165.119 359.651 1,707.293 Non-controlling interest 36,683 33,327 10.07% Total investment and marketable securities 1,169.544 430.214 1,818.091 Total equity 1,499,150 1,393,439 7.59%

Average rate of return on bonds and certificates of deposit held in foreign currencies stood at 6.04% for the year At 31 December 2014, the authorised and issued share capital comprised 23,400,000 ordinary shares with a

ended 31 December 2018, compared to 5.59% for the year ended 31 December 2017. nominal value of LBP 11,000. All shares rank equally with regards to the Bank’s residual assets. The holders of Financial Statements ordinary shares are entitled to receive dividends as declared from time to time. All issued shares are fully paid.

In July 2013, the extraordinary general assembly of shareholders approved the issue of 1,000,000 perpetual non- Shareholders’ Equity cumulative preferred shares with a nominal value of LBP 11,000; increasing the share capital of the Bank from LBP Shareholders’ equity is divided into core capital (Tier I) and supplementary capital (Tier II). Tier I capital comprises 257,400 million to LBP 268,400 million, thus an increase of LBP 11,000 million. The share premium amounted to paid-up common share capital, reserves, retained earnings, and reserves for unspecified banking risks, less any LBP 139,750 per share. unfavorable change in fair value of available-for-sale securities. Holders of these shares receive a non-cumulative dividend at the Bank’s discretion, or whenever dividends to The following table sets out the composition of the Group’s shareholders’ equity as at 31 December 2018 and ordinary shareholders are declared. They do not have the right to participate in any additional dividends declared 2017, respectively: for ordinary shareholders. These shares do not have voting rights. Banks Correspondent and Branch Network Branch Equity to assets ratio reached 7.99% as at 31 December 2018, compared to 8.00% at year-end 2017.

Capital Adequacy During 2018, the Group conducted a quantitative impact study to assess the implications of the Basel III Accord on the shareholders’ equity of the Group. The capital adequacy ratio stood at 16.60%, compared to 15.20% at year-end 2018 (minimum required 15% in 2018), CL Milestones CL

Annual Report 2018 Credit Libanais Group 92 93 Business Segments Activities Segments Business and Analysis and Asset / Liability Management The overall yield on the portfolio of Lebanese treasury bills held by the Group in Lebanese Pounds was 7.13% as The Group’s consolidated balance sheet is structured in terms of percentage of total assets as shown in the table at 31 December 2018, compared to 6.81% as at year-end 2017, and the average yield on Lebanese government below at 31 December 2018 and 2017: Eurobonds issued in foreign currencies was 6.77% as at 31 December 2018 and 6.53% as at 31 December 2017.

Interest income on the Group’s loans portfolio increased by 4.85% during the year 2018 primarily due to the market increase of interest rate on loans. Assets as at 31 Dec. 2018 2017 Liabilities & Equity as at 31 Dec. 2018 2017 Accordingly, total interest income for the year ended 31 December 2018 increased by 14.97% compared to total Activities Functions Control interest income for the year ended 31 December 2017.

Cash and banks 44% 37% Due to banks 14% 8% Analysis and

Treasury bills and Eurobonds 16% 20% Customer deposits 75% 80% Interest Expense The following table sets out the principal components of the Group’s interest expense, by amount and as a Marketable securities 10% 9% Long-term liabilities - - percentage change therein, for each of the years ended 31 December 2018 and 2017, respectively:

Net loans and advances 26% 30% Other creditors and payables 3% 4%

Fixed assets 2% 2% Shareholders’ equity 8% 8% 31/12/2018 31/12/2017 Percentage change Other debtors and receivables 2% 2% LBP millions LBP millions Support Functions Activities Functions Support Total Assets 100% 100% Total Liabilities and Equity 100% 100%

Loan from Central Bank of Lebanon 24,598 9,744 152.44% Analysis and

Customer deposits 744,783 621,198 19.89%

RESULTS OF OPERATIONS Deposits from other banks and financial institutions 7,692 6,637 15.90%

Subordinated Debt Issued 10,112 7,632 32.49% Interest Income The following table sets out the principal components of the Group’s interest income, by amount and as a Subordinated notes 865 - 100.00% percentage change therein, for each of the years ended 31 December 2018 and 2017, respectively: Total 788,050 645,211 22.14% Financial Statements

The Group’s interest expense is principally comprised of interest paid on customer deposits, as these constitute 31/12/2018 31/12/2017 Percentage change the primary source of funding for the Group and aggregate to 75.00% of total assets at 31 December 2018. The LBP millions LBP millions total amount of interest paid on customer deposits increased in 2018, compared to 2017, by 19.89% despite the modest increase in total Group’s customer deposits by 0.41% as at 31 December 2018 due to the volatile market Financial Assets at amortised cost (including Lebanese government conditions and upward pressure on deposit returns brought on by the fierce competition among banks.

securities) 340,035 355,334 -4.31% Net Interest Income Deposits with banks 416,266 247,916 67.91% The following table sets out the Group’s net interest income and net interest margin for each of the years ended 31 December 2018 and 2017, respectively: Banks Correspondent and Loans and Advances to Customers 336,907 321,324 4.85% Branch Network Branch

Financial Assets at Fair Value through OCI 10,213 - 100.00%

Tax on interest income (40,406) - -100.00% 31/12/2018 31/12/2017 Percentage change Total 1,063,015 924,574 14.97% LBP millions LBP millions

Interest earned 1,063,015 924,574 14.97%

Interest on Financial Assets at amortized cost represents interest earned primarily on Lebanese treasury bills Interest paid (788,050) (645,211) 22.14% CL Milestones CL denominated in Lebanese Pounds and Government and corporate Eurobonds issued in foreign currencies (including principally US Dollars and Euro) Lebanese treasury bills continued to comprise the substantial majority of the Group’s portfolio of Financial Assets classified at amortized cost in 2018 and 2017, reflecting the Group’s Net interest income 274,965 279,363 -1.57% significant portfolio of liquid assets that is largely financed by customer deposits gathered through the Group’s Net interest margin (%) 1.58% 1.73% branch network.

Annual Report 2018 Credit Libanais Group 94 95 Business Segments Activities Segments Business and Analysis and The Group’s net interest income decreased by 1.57% in 2018 to LBP 274.96 billion for the year ended 31 Net Operating Income December 2018 from LBP 279.36 billion for the year ended 31 December 2017 overcoming the diminishing The group decreased the provisions allocated for loan losses by 56.67% at 2018. Allowances for loan losses returns of sovereign investments amidst the global economic downturn and the regional turmoil as well as the amounted to LBP 17.36 billion for the year ended 31 December 2018, compared to LBP 40.07 billion for the competitive market in terms of attracting deposits. preceding year. In 2017 it represented the collective provisions reserved by the bank for IFRS9 Compliance. A study conducted by management shows that these provisions were sufficient to cover the expected credit loss on Non-interest income our portfolio after adopting IFRS9 at the beginning of 2018. The following table sets out the Group’s non-interest income deriving from commissions, fees and other operating income for each of the years ended 31 December 2018 and 2017, respectively: Provisions written-back on loans increased to an amount of LBP 12.83 billion for the year ended 31 December Activities Functions Control 2018, compared to LBP 2.04 billion for the year ended 31 December 2017. and Analysis and As a result of the combined effects of the foregoing, the Group’s net financial income for the year ended 31 December 2018 amounted to LBP 353.04 billion, compared to LBP 352.35 billion for the year ended 31 December 31/12/2018 31/12/2017 Percentage change LBP millions LBP millions 2017, reflecting a year-on-year increase of 0.20%.

Other operating income is the result of activities and operations incurred by the Group outside the normal course Fees and Commissions income 128,519 129,272 -0.58% of banking business. It is constituted of Income received on sale of assets held in recovery of bad debts, rental income and other income. It increased to an amount of LBP 2.19 billion for the year ended 31 December 2018, Fees and Commissions expense (63,974) (63,222) 1.19%

compared to LBP 3.47 billion for the year ended 31 December 2017. Activities Functions Support Net Commissions 64,545 66,050 -2.28%

Staff Expenses and Related Charges Analysis and The following table sets out the principal components of the Group’s staff expenses and related charges for each Net gain on financial assets at fair value 14,592 20,276 -28.03% of the years ended 31 December 2018 and 2017, respectively:

Net gain on financial assets at amortised cost 1,282 21,227 -93.96%

Other operating income 2,189 3,467 -36.86%

Share of profit of investments in equity accounted investees 1,906 2,188 -12.89% 31/12/2018 31/12/2017 Percentage change Total Non-interest Income 84,514 113,208 -25.35% LBP millions LBP millions Financial Statements

Wages and salaries 88,814 84,540 5.06%

Allowances to the Board of Directors 2,697 3,178 -15.14% Total net commissions, decreased by 2.28% to LBP 64.54 billion for the year ended 31 December 2018, compared to LBP 66.05 billion for the year ended 31 December 2017. Net commissions, consisting primarily of commissions Compulsory social security obligations 12,719 12,010 5.90% and fees on accounts, fees for issuances of letters of credit and letters of guarantee, origination and commitment Employee benefits obligation 5,310 6,215 -14.56% fees on loans and transaction-processing, development of retail services, electronic banking products and other non-interest generated revenues such as fees from its plastic card businesses, including the sponsoring and Other personnel expenses 16,257 15,730 3.35% processing of debit and charge cards such as Visa, MasterCard and Amex, the processing of transactions made

through its network of point-of-sale (“POS”) terminals installed at different locations throughout the country and Banks Correspondent and the cross-selling of related financial services, including bancassurance products through the Group’s insurance

Total staff expenses and related charges 125,797 121,673 3.39% Network Branch subsidiary Credit Libanais d’Assurances (CLA).

Net gain on Trading and Financial Investments amounted to LBP 15.87 billion in 2018, compared to LBP 41.50 billion in the preceding year.

The Group’s non-interest income decreased by 25.35% to LBP 84.51 billion at 31 December 2018, from LBP Total staff expenses and related charges amounted to LBP 125.80 billion for the year ended 31 December 2018, 113.21 billion at the end of the preceding year. It contributed to 23.81% of the Group’s net financial income at compared to LBP 121.67 billion for the year ended 31 December 2017, reflecting a year-on-year increase of 31 December 2018, compared to 31.93% at 31 December 2017. 3.39%. In line with the contractual 3% in the collective agreement. CL Milestones CL

Annual Report 2018 Credit Libanais Group 96 97 Business Segments Activities Segments Business and Analysis and General Operating Expenses Profit before Tax The following table sets out the principal components of the Group’s general operating expenses for the years The following table sets out the Group’s pre-tax profit for the years ended 31 December 2018 and 2017, ended 31 December 2018 and 2017, respectively: respectively:

31/12/2018 31/12/2017 Percentage change LBP millions LBP millions Percentage change 31/12/2018 31/12/2017 Activities Functions Control LBP millions LBP millions Profit before income tax 147,573 149,662 -1.40% and Analysis and

Taxes 7,251 7,599 -4.58% Income tax (21,906) (26,962) -18.75%

Premiums for the guarantee of deposits 6,797 6,641 2.35% Net profit for the year 125,667 122,700 2.42%

Rental charges and related expenses 6,516 6,642 -1.90%

Lawyers, audit and consultancy fees 5,693 5,598 1.70% The Group’s pre-tax profits for the year 2018 amounted to LBP 147.57 billion (or the equivalent of US$ 97.89 million), compared to LBP 149.66 (or the equivalent of US$ 99.28 million) for the year 2017, a year-on-year Data processing services 4,800 4,400 9.09% decrease of 1.40%. Support Functions Activities Functions Support Mail and telecommunication (PTT, Swift) 2,451 2,478 -1.09% This is brought on by the sharp rise in interest expenses on customer deposits due to the adverse market and Analysis and Maintenance and repairs 4,240 4,448 -4.68% conditions. Electricity, water and heating 3,848 4,931 -21.96% Return on shareholders’ equity (before tax) stood at 12.02% at year-end 2018, compared to 12.96% at year-end Travel and entertainment 2,459 2,503 -1.76% 2017. Return on average assets stood at 0.81% at year-end 2018, compared to 0.89% at year-end 2017. Transportation charges 2,342 2,350 -0.34%

Insurance premiums 3,072 2,879 6.70% Profit Appropriation Advertising and public relations expenses 7,810 8,054 -3.03% The Group’s consolidated profits for the year ended 31 December 2018 are generated from the following entities: Financial Statements Computer maintenance and charges 3,730 2,787 33.84%

Office stationery and printing 1,411 1,366 3.29% Profits Before Tax Income Tax Net Profits As at 31 December 2018 LBP millions LBP millions LBP millions Board of directors attendance allowances 2,770 2,668 3.82%

Training, documentation and services fees 649 663 -2.11% Profit from Credit Libanais SAL 127,543 (20,639) 106,904 Impairment losses on financial investments 500 - 100.00% Profit from Credit Libanais Investment Bank SAL 8,284 (700) 7,584 Other expenses 1,874 3,343 -43.94% Profit from Credit International (Senegal) 1,208 (13) 1,195 Total general operating expenses 68,213 69,350 -1.64% Banks Correspondent and Profit from Credilease SAL 292 (51) 241 Branch Network Branch

Profit from Lebanese Islamic Bank SAL 154 (19) 135

Eliminations of the inter-group dividend distributions (5,969) — (5,969)

General operating expenses decreased by 1.64% to LBP 68.21 billion for the year ended 31 December 2018, Profits deriving from the Group’s banking activities 131,512 (21,422) 110,090 compared to LBP 69.35 billion for the year ended 31 December 2017. Group’s share in profits of subsidiaries and affiliated companies 16,055 (478) 15,577 The Group’s overall cost-to-income ratio increased to 57.55% as at 31 December 2018 from 52.07% as at 31 Net profit for the year 147,567 (21,900) 125,667 December 2017. CL Milestones CL

Annual Report 2018 Credit Libanais Group 98 99 Business Segments Activities Segments Business

Beirut Central District DFK Fiduciaire du Moyen Orient Lazarieh Building Block 01 - 6th Floor Sin El Fil - Fouad Chehab Blvd P.O.Box: 11-8270 Geahchan Bldg - 1st Floor Analysis and Beirut - Lebanon P.O.Box: 110-167 Tel: 961 1 985 501 / 502 Beirut - Lebanon Fax: 961 1 985 503 Tel: 961 1 480917 / 723 Fax: 961 1 496682

The General Assembly of Shareholders of Credit Libanais SAL met on the 2nd of May 2019 and approved Independent Auditors’ Report the consolidated financial statements of Credit Libanais Group as at 31 December 2018, showing net profits (after tax) amounting to LBP 125.67 billion, and resolved the appropriation of the profits for the year 2018 To the shareholders of Credit Libanais S.A.L Control Functions Activities Activities Functions Control deriving from Credit Libanais SAL and amounting to LBP 106.9 billion as follows: Report on the Audit of the Consolidated Financial Statements and Analysis and

Opinion i. To transfer an amount of LBP 10.19 billion representing 10% of these profits to a legal reserve account as We have audited the consolidated financial statements of Credit Libanais S.A.L. (the “Bank” or “Group”), per the requirements of article 132 of the Code of Money and Credit. which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. ii. To allocate an amount of LBP 1.05 billion in reserves for Real Estate acquired in recovery of bad debts In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the

not yet disposed of, at the rate of 5% of their book value as per BCC memo 4/2008 dated 14/01/2008. consolidated financial position of the Bank as at 31 December 2018, and its consolidated financial performance Activities Functions Support and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

iii. To allocate an amount of LBP 10 million representing unrealized profit on revaluation of financial Analysis and instruments classified as FVTPL as per BCC circular No 270 dated September 19, 2011. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities iv. To allocate an amount of LBP 10.55 billion representing dividends on preferred shares for the period under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated between 01/01/2018 and 31/12/2018, at an annual return of 7% of the USD 100 million preferred shares Financial Statements section of our report. We are independent of the Bank in accordance with International issued; and to deduct the amount of tax charged by the bank as a result of the distribution of these Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together dividends amounting to LBP 527.63 million. with the ethical requirements that are relevant to our audit of the consolidated financial statements in Lebanon, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. v. To allocate an amount of LBP 371 million representing profits on sale of Properties acquired in We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

settlement of debts assigned for capital increase. opinion. Financial Statements

vi. To allocate an amount of LBP 252 million representing released provisions on doubtful debts assigned for capital increase. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not vii. To transfer the remaining profits, after the allocations and distributions listed above, to the retained provide a separate opinion on these matters. earnings which will aggregate an amount of LBP 83.95 billion and to distribute out of these retained earnings an amount of LBP 35.10 billion to common shareholders of Credit Libanais SAL.

Key audit matter Why considered most significant How our audit addressed the Banks Correspondent and

key audit matter Network Branch In closing, the Board of Directors of Credit Libanais SAL would like to express its gratitude for the continuous Impairment for credit As at 31 December 2018, the Our audit procedures in response to enthusiasm, confidence and support of our Shareholders and customers, and for the efforts and devotion of losses of loans and Group’s gross loans and advances the significant risk associated with the Group’s senior management and employees. advances to customers to customers amounted to LBP the impairment of Group’s loans 5,233,409 million (2017: LBP and advances to customers covered 5,326,428 million), against which a assessing the appropriateness and net impairment charge of LBP 2,724 adequacy of the corresponding million (2017: LBP 36,603 million) impairment allowances. was recognised during the year Based on our understanding of and the total allowance for credit the process and key controls, we Milestones CL Yours Sincerely, losses including maintained as at focused on the determination the reporting date amounts to LBP of expected credit loss and 269,222 million (2017: LBP 126,767 the governance controls over Dr. Joseph Torbey million). the impairment process and Chairman General Manager determination of staging criteria

Annual Report 2018 Credit Libanais Group 100 101 Business Segments Activities Segments Business and Analysis and Key audit matter Why considered most significant How our audit addressed the Key audit matter Why considered most significant How our audit addressed the key audit matter key audit matter

Due to the subjectivity inherent established by the Group, including credit losses, note 4 for ECL impact to the Group and the controls and in the process of identifying and continuous re-assessment by due to implementation of IFRS 9, governance over input of such data. computing impairment charge for management. We have performed note 3 (i), 5 (b) and 9 for significant For a sample of exposures:

credit losses, it requires significant walkthroughs and testing of relevant accounting policies pertaining to - We checked the appropriateness Activities Functions Control management judgment. key controls to determine whether ECL, for movement in ECL during of determining Exposure at Default

Moreover, during the year ended they were designed, implemented the year ended 31 December 2018, (EAD) including the consideration of Analysis and 31 December 2018, the Group has and operated effectively throughout for credit risk management strategy repayment in the cash flows and the implemented International Financial the year. and for credit quality analysis in resultant arithmetical calculations. Reporting Standard 9 (‘IFRS 9 2014’) Also, we tested the entity and respect of loans and advances to - We checked the appropriateness which requires management to business unit level controls over customers. of Probability of Default (PD) and determine and recognise expected the impairment model process Loss Given Default (LGD) used by credit losses (‘ECL’). Significant in relation to model build (with the Group’s management in the judgments, estimates and specific focus on quantitative and ECL calculations.

assumptions have been made by qualitative attributes), and model For selected sample of loans and Activities Functions Support the management in the application monitoring. advances to customers, we checked of IFRS 9, especially in the areas We obtained an understanding the: and Analysis and of classifying loans and advances of the Group’s credit monitoring i. computation of PD and LGD into stages as stipulated in IFRS process comprising identifying, ii. appropriateness of cash flows 9, determination of significant measuring and recording ECL and iii. appropriateness of discount rate increase in credit risk, establishing tested the operating effectiveness We checked the completeness of curing periods and computing of key controls implemented over loans and advances to customers probability of defaults (PD) and loss this process. and credit related contingent items given default (LGD) percentages for We obtained the Group’s included in the ECL calculation as of counterparties. impairment allowance policy and 31 December 2018. In accordance with the compared it with the requirements Where relevant, we used specialists Financial Statements requirements of IFRS 9, the Group of IFRS 9. including IT specialists and financial measures ECL based on the credit We obtained an understanding risk modelling experts to gain losses expected to arise over the of the Group’s internal rating comfort on model built, resultant next twelve months (‘12 month model for the loans and advances ECL calculations and data integrity. ECL’), unless there has been a to customers and for a selected We also assessed the financial significant increase in credit risk sample of customers verified the statements’ disclosures to ensure since origination or default, in which internal rating determined by the compliance with IFRS 9 and IFRS 7 case, the allowance is based on management. We checked the requirements. the ECL expected to arise over the appropriateness of the policy for

tenure of the loans and advances to identifying significant increase Banks Correspondent and customers (‘Lifetime ECL’). in credit risk and the resultant Branch Network Branch Since, loans and advances to classification of exposures into the customers forms a significant stages stipulated in IFRS 9. component of the Group’s For a selected sample of exposures, consolidated assets, and on account we checked the appropriateness of of the significance of judgments, the staging in line with the Group’s estimates and assumptions policy. applied by management, we have For forward looking assumptions considered impairment charge for used by the Group in ECL credit losses on loans and advances calculations, we had discussions to customers to be a key audit with management and corroborated Milestones CL matter. the assumptions using publicly Refer to notes 2 (d) to the available information. consolidated financial statements For data from external sources, we for significant judgments applied in understood the process of selecting the determination of expected such data, its relevance

Annual Report 2018 Credit Libanais Group 102 103 Business Segments Activities Segments Business and Analysis and Key audit matter Why considered most significant How our audit addressed the Key audit matter Why considered most significant How our audit addressed the key audit matter key audit matter

Impairment for credit As at 31 December 2018, the Our audit procedures in response to debt issuance, the probability losses on debt investments Group had gross investments in the significant risk associated with of being debt restructured, the held at amortised cost debt instruments held at amortised the impairment charge for credit international support mechanisms

cost amounting to LBP 4,639,836 losses on Group’s debt investments in place to provide the necessary Activities Functions Control million (2017: LBP 4,959,281 million), held at amortised cost covered support to that country, as well as

against which an impairment assessing the appropriateness and the intention reflected in public Analysis and allowance of LBP 23,097 million adequacy of the corresponding statements of governments and (2017: LBP nil) has been maintained impairment allowances. agencies to use those mechanisms. as at 31 December 2018. These We read the Group’s impairment Since debt investments form a include certificates of deposits, provisioning policy against significant component of the Group’s treasury bills, eurobonds, debt investments at amortised cost and consolidated assets, and on account securities, other sovereign bonds compared it with the requirements of the significance of judgments and other debt investments. of IFRS 9. applied by management in the Due to the subjectivity inherent We assessed the design and aforementioned aspects, in the process of identifying and implementation and tested the we have considered impairment Activities Functions Support computing impairment charge operating effectiveness of the charge for credit losses on for credit losses, it requires key controls over management’s investments at amortised cost to be Analysis and significant management judgment. processes for determining a key audit risk. As per the requirements of IFRS impairment allowance against Refer to notes 2 (d) to the 9, management is required to investment in debt instruments held consolidated financial statements determine and recognise expected at amortised cost. for significant judgments applied credit losses (‘ECL’). This entails We checked the appropriateness in the determination of expected the exercise of considerable of the Group’s determination of credit losses, note 3 (i) for significant judgment, especially in the areas of significant increase in credit risk and accounting policies pertaining to classifying investments into stages as the resultant basis for classification ECL, note 4 for ECL impact due to stipulated in IFRS 9, determination of exposures into various stages. implementation of IFRS 9, note 5 Financial Statements of significant increase in credit risk, For provision against debt (b) for movement in ECL during the establishing curing periods and instruments, we obtained an year ended 31 December 2018, for computing probability of defaults understanding of the Group’s credit risk management strategy and (PD) and loss given default (LGD) provisioning methodology, for credit quality analysis in respect percentages for counterparties. assessed the reasonableness of the of investments. In accordance with the requirements underlying assumptions and the of IFRS 9, the Group measures ECL sufficiency of the data used. based on the credit losses expected For a sample of investments in to arise over the next twelve months debt instruments, we checked the (’12 month ECL’), unless there has appropriateness of determining Banks Correspondent and

been a significant increase in credit exposure at default probability Network Branch risk since origination or default, in of default, and loss given default which case, the allowance is based used in the expected credit losses on the ECL expected to arise over calculations. the life of the investments (‘Lifetime There were no exposures ECL’). determined to be individually Moreover, in making an assessment impaired classified as stage 3 as at of whether an investment in 31 December 2018. a sovereign debt is credit-

impaired, the Group considers Milestones CL creditworthiness as reflected in the bond yields and assessed by the rating agencies, the country’s ability to access the capital markets for new

Annual Report 2018 Credit Libanais Group 104 105 Business Segments Activities Segments Business and Analysis and

Independent Auditors’ Report (continued) Independent Auditors’ Report (continued) Auditors’ Responsibilities for the Audit of the Consolidated Financial Statement (Continued)

Other Information Activities Functions Control Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are

Management is responsible for the other information. The other information comprises the information included appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Analysis and in the Annual Report other than the consolidated financial statements and our auditors’ eportr thereon. The the Bank’s internal control. Annual Report is expected to be made available to us after the date of this auditors’ report. Our opinion on the consolidated financial statements does not cover the other information and we do not and Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates will not express any form of assurance conclusion thereon. and related disclosures made by management. In connection with our audit of the consolidated financial statements, our esponsibilityr is to read the other information identified above when it becomes available and, in doing so, consider whether the other Conclude on the appropriateness of management’s use of the going concern basis of accounting and, information is materially inconsistent with the consolidated financial statements or our knowledge obtained in based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions the audit, or otherwise appears to be materially misstated. that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a Activities Functions Support When we read the other information, if we conclude that there is a material misstatement therein, we are material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures required to communicate the matter to those charged with governance. in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our Analysis and conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future Responsibilities of Management and Those Charged with Governance for the Consolidated events or conditions may cause the Bank to cease to continue as a going concern. Financial Statements Evaluate the overall presentation, structure and content of the consolidated financial statements, including Management is responsible for the preparation and fair presentation of the consolidated financial statements the disclosures, and whether the consolidated financial statements represent the underlying transactions and in accordance with IFRS, and for such internal control as management determines is necessary to enable the events in a manner that achieves fair presentation. preparation of consolidated financial statements that are free from material misstatement, whether due to fraud

or error. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business Financial Statements In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability activities within the Group to express an opinion on the consolidated financial statements. We are to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going responsible for the direction, supervision and performance of the group audit. We remain solely responsible concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or for our audit opinion. has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s financial reporting process. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a requirements regarding independence, and communicate with them all relationships and other matters that Banks Correspondent and whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that

may reasonably be thought to bear on our independence, and where applicable, related safeguards. Network Branch includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit From the matters communicated with those charged with governance, we determine those matters that were conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can of most significance in the audit of the consolidated financial statements of the current period and are therefore arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes be expected to influence the economic decisions of users taken on the basis of these consolidated financial public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should statements. not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional The engagement partners on the audit resulting in this independent auditors’ report are Mr. Wissam Safwan for skepticism throughout the audit. We also: KPMG and Mr. Alfred Nehme for DFK Fiduciaire du Moyen-Orient. CL Milestones CL

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence KPMG that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material 16 April 2019 misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, Beirut, Lebanon forgery, intentional omissions, misrepresentations, or the override of internal control.

Annual Report 2018 Credit Libanais Group 106 107 Business Segments Activities Segments Business

Consolidated statement of financial position Analysis and as at 31 December

In Millions of Lebanese Pound Note 2018 2017 In Millions of Lebanese Pound Note 2018 2017 Control Functions Activities Activities Functions Control

Assets Shareholders’ equity and Analysis and

Cash and balances with Central Banks 7 7,409,329 5,364,829 Share capital - common shares 25 257,400 257,400

Balances with other banks and financial institutions 8 922,368 1,013,148 Share capital - preferred shares 25 11,000 11,000

Loans and advances to customers 9 4,964,187 5,199,661 Share premium - preferred shares 25 139,750 139,750

Loans and advances to related parties 41 17,003 15,504 Capital reserves 26 147,254 260,455

Debtors by acceptances 238,958 252,288 Retained earnings 239,363 130,284 Support Functions Activities Functions Support Financial assets at fair value through other comprehensive income 10 161,104 109,013 Fair value reserve 27 356 52,411

Financial assets at fair value through profit or loss 11 12,117 67,772 Other reserves 28 388,464 272,187 Analysis and

Financial assets at amortised cost 12 4,616,739 4,959,281 Profit for the year 118,334 116,249

Investments in equity-accounted investees 13 16,849 16,972 Total equity attributable to equity holders of the Bank 1,301,921 1,239,736

Property and equipment 14 236,570 237,629 Non-controlling interest 36,683 33,327

Intangible assets 15 9,288 10,761 Total equity 1,338,604 1,273,063

Assets held for sale 16 55,680 55,171 Total liabilities and equity 18,773,294 17,419,164 Financial Statements Other assets 17 113,102 117,135

Total assets 18,773,294 17,419,164 The notes on pages 118 to 201 are an integral part of these consolidated financial statements.

Liabilities The consolidated financial statements were approved on behalf of the Board of Directors on 14 March 2019. Loans and deposits from Central Banks 18 2,304,615 1,167,098

Deposits from other banks and financial institutions 19 323,991 184,053

Deposits from customers 20 13,744,831 13,684,189

Deposits from related parties 41 334,852 337,546 Banks Correspondent and Branch Network Branch Engagements by acceptances 238,981 252,288

Subordinated debt issued 21 160,545 120,376

Tax liabilities 22 46,519 33,759

Other liabilities 23 223,727 316,941

Provisions for risks and charges 24 56,629 49,851

Total liabilities 17,434,690 16,146,101 CL Milestones CL

Annual Report 2018 Credit Libanais Group 108 109 Business Segments Activities Segments Business

Consolidated statement Analysis and of profit or loss and other comprehensive income as at 31 December

In Millions of Lebanese Pound Note 2018 2017 In Millions of Lebanese Pound 2018 2017 Control Functions Activities Activities Functions Control

Interest income, net of tax 29 1,063,015 924,574 Profit attributable to: Analysis and Interest expense 29 (788,050) (645,211) Equity holders of the Bank 118,334 116,249 Net interest income 274,965 279,363 Non-controlling interest 7,333 6,451 Fee and commission income 30 128,519 129,272 Profit for the year 125,667 122,700 Fee and commission expense 30 (63,974) (63,222) Total comprehensive income attributable to: Net fee and commission income 64,545 66,050 Equity holders of the Bank 138,433 134,752 Support Functions Activities Functions Support Net trading income 31 14,592 20,276 Non-controlling interest 7,333 6,451

Net gain on financial assets at amortised cost 32 1,282 21,227 Analysis and Total comprehensive income for the year 145,766 141,203 Other income 2,189 3,467

Total operating income 357,573 390,383 The notes on pages 118 to 201 are an integral part of these consolidated financial statements.

Net impairment on financial assets 33 (4,530) (38,036) The consolidated financial statements were approved on behalf of the Board of Directors on 14 March 2019. Net operating income 353,043 352,347

Personnel expenses 34 (125,797) (121,673) Financial Statements Depreciation and amortisation 14, 15 (13,073) (13,054)

Other provision (293) (796)

Other expenses 35 (68,213) (69,350)

Total operating expenses (207,376) (204,873)

Share of profit of investments in equity-accounted investees 13 1,906 2,188

Profit before income tax 147,573 149,662

Tax expense 36 (21,906) (26,962) Banks Correspondent and Branch Network Branch Profit for the year 125,667 122,700

Other comprehensive income, net of tax

Items that will not be reclassified to profit or loss

Fair value reserve (financial assets at fair value through other

comprehensive income)

Net change in fair value 27 20,099 18,503 CL Milestones CL

Other comprehensive income for the year, net of tax 20,099 18,503

Total comprehensive income for the year 145,766 141,203

Annual Report 2018 Credit Libanais Group 110 111 Business Segments Activities Segments Business

Consolidated Statement of Changes in Equity Analysis and as at 31 December 2018

Share capital- Share capital- Share Premium- Capital Retained Fair Value Non-controlling Total Activities Functions Control In Millions of Lebanese Pound Note common Shares preferred Shares preferred Shares Reserves Earnings Reserve Other Reserves Profit for the Year Interest Total Equity and Analysis and Balance at 1 January 2018 257,400 11,000 139,750 260,455 130,284 52,411 272,187 116,249 1,239,736 33,327 1,273,063

Adjustment on initial application of IFRS 9, net of tax 4 – – – – – (9,184) (9,045) – (18,229) – (18,229)

Restated balance at 1 January 2018 257,400 11,000 139,750 260,455 130,284 43,227 263,142 116,249 1,221,507 33,327 1,254,834

Total comprehensive income for the year

Profit for the year – – – – – – – 118,334 118,334 7,333 125,667

Other comprehensive income, net of tax Activities Functions Support

Net change in fair value of financial assets at fair value through other- and Analysis and

comprehensive income 27 – – – – – 20,099 – – 20,099 – 20,099

Total other comprehensive income – – – – – 20,099 – – 20,099 – 20,099

Total comprehensive income for the year – – – – – 20,099 – 118,334 138,433 7,333 145,766

Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank

Transfer to retained earnings – – – (798) 116,249 – 798 (116,249) – – – Financial Statements

Transfer to reserves – – – (112,426) (10,443) – 122,872 – 3 (3) –

Profit from sale of shares in SWIFT – – – 23 – – – – 23 – 23

Sale of Visa Class “C” 27 – – – – 62,970 (62,970) – – – – –

Dividend to preferred shareholders 25 – – – – (11,080) – – – (11,080) – (11,080)

Tax on dividends – – – – (920) – – – (920) – (920)

Dividends to common shareholders – – – – (44,351) – 8,346 – (36,005) (3,799) (39,804) 25 Banks Correspondent and

Other movements – – – – (806) – – – (806) – (806) Network Branch

Investment of Credit Libanais D’Assurances et de Reassurance SAL

in Credit Libanais SAL

Share of profit related to the participation of the Group in equity- – – – – – – (7,462) – (7,462) – (7,462)

accounted investees – – – – – – 813 – 813 – 813

Allowances to directors – – – – (2,540) – – – (2,540) (175) (2,715) CL Milestones CL Translation difference – – – – – – (45) – (45) – (45)

Total contributions by and distributions to owners of the Bank – – – (113,201) 109,079 (62,970) 125,322 (116,249) (58,019) (3,977) (61,996)

Total transactions with owners recorded directly in equity – – – (113,201) 109,079 (62,970) 125,322 (116,249) (58,019) (3,977) (61,996)

Balance at 31 December 2018 257,400 11,000 139,750 147,254 239,363 356 388,464 118,334 1,301,921 36,683 1,338,604

The notes on pages 118 to 201 are an integral part of these consolidated financial statements.

Annual Report 2018 Credit Libanais Group 112 113 Business Segments Activities Segments Business

Consolidated Statement of Changes in Equity Analysis and as at 31 December 2017

Share capital- Share capital- Share Premium- Capital Retained Fair Value Non-controlling Total Activities Functions Control In Millions of Lebanese Pound Note common Shares preferred Shares preferred Shares Reserves Earnings Reserve Other Reserves Profit for the Year Interest Total Equity and Analysis and Balance at 1 January 2017 257,400 11,000 139,750 233,310 126,961 33,908 257,455 99,711 1,159,495 30,678 1,190,173

Total comprehensive income for the year

Profit for the year – – – – – – – 116,249 116,249 6,451 122,700

Other comprehensive income, net of tax

Net change in fair value of financial assets at fair value through other

comprehensive income 27 – – – – – 18,503 – – 18,503 – 18,503 Activities Functions Support

Total other comprehensive income – – – – – 18,503 – – 18,503 – 18,503 and Analysis and

Total comprehensive income for the year – – – – – 18,503 – 116,249 134,752 6,451 141,203

Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank

Transfer to retained earnings – – – – 99,711 – – (99,711) – – –

Transfer to reserves – – – 27,200 (38,821) – 11,603 – (18) 18 –

Dividend to preferred shareholders 25 – – – – (11,080) – – – (11,080) – (11,080) Financial Statements

Dividends to common shareholders 25 – – – – (43,010) – 7,187 – (35,823) (3,798) (39,621)

Other movements – – – – (9) – – – (9) – (9)

Participation CLA in CL – – – – – – (3,015) – (3,015) – (3,015)

Increase in participation in CISA – – – – – – 54 – 54 152 206

Tax on previous year inter group dividends – – – – (929) – – – (929) – (929)

Allowances to directors – – – – (2,539) – – – (2,539) (174) (2,713) and Correspondent Banks Correspondent and

Translation difference – – – (55) – – (1,097) – (1,152) – (1,152) Network Branch

Total contributions by and distributions to owners of the Bank – – – 27,145 3,323 – 14,732 (99,711) (54,511) (3,802) (58,313)

Total transactions with owners recorded directly in equity – – – 27,145 3,323 – 14,732 (99,711) (54,511) (3,802) (58,313)

Balance at 31 December 2017 257,400 11,000 139,750 260,455 130,284 52,411 272,187 116,249 1,239,736 33,327 1,273,063

The notes on pages 118 to 201 are an integral part of these consolidated financial statements. CL Milestones CL

Annual Report 2018 Credit Libanais Group 114 115 Business Segments Activities Segments Business

Consolidated Statement of Cash Flows Analysis and as at 31 December

In Millions of Lebanese Pound Note 2018 2017 In Millions of Lebanese Pound Note 2018 2017

Cash flows from operating activities Cash flows from investing activities Activities Functions Control

Profit for the year 125,667 122,700 Net change in investment securities 278,355 441,652 and Analysis and

Adjustments for: Proceeds from sale of Visa Class “C”, net of tax 68,795 –

- Depreciation and amortisation 13,073 13,054 Sale of Visa Class “C” (5,823) –

- Net impairment loss on loans and advances to customers 33 – 38,036 Acquisition of property and equipment (8,299) (7,326)

- Net impairment loss on financial assets 33 4,530 – Proceeds from the sale of property and equipment 8 113

- Net interest income. Net of tax 29 (274,965) (279,363) Acquisition of intangible assets (2,242) (5,861) Support Functions Activities Functions Support - Impairment losses on equity unquoted securities at fair value through profit or loss 11 1,044 – Proceeds from the sale of intangible assets – 142

- Net (gain) loss on sale of property and equipment (8) (15) Increase in participation in CISA – 206 Analysis and

- Net gain on assets held for sale (140) (2,736) Investment of Credit Libanais D’Assurances et de Reassurance SAL (7,462) (3,015)

- Tax expense 36 21,906 26,962 in Credit Libanais SAL

- Share of profit of investments in equity-accounted investees 123 (598) Share of profit related to the participation of the Group in equity- 813 –

- Other movements (806) (9) accounted investees

(109,576) (81,969) Acquisition of assets held for sale (1,662) (20,145) Financial Statements Changes in: Proceeds from sale of assets held for sale 1,293 4,404

- Cash and balances with Central Banks (2,059,075) (1,325,635) Net cash from investing activities 323,776 410,170

- Balances with other banks and financial institutions 11,092 (11,198)

- Loans and advances to customers 89,096 (416,856) Cash flows from financing activities

- Loans and advances to related parties (2,133) 620 Dividends paid and allowance to directors (54,519) (54,343)

- Other assets 4,033 6,141 Issuance of subordinated debt 21 150,750 –

- Deposits from other banks and financial institutions 103,250 68,382 Net cash from / (used in) financing activities 96,231 (54,343) Banks Correspondent and Branch Network Branch - Loans and deposits from Central banks 1,131,328 424,328

- Deposits from customers 34,506 838,706 Net decrease in cash and cash equivalents (193,011) (119,307)

- Subordinated debts (113,063) – Cash and cash equivalents at 1 January 1,624,264 1,744,723

- Deposits from related parties (2,068) (251,186) Effect of exchange rate fluctuations on cash and cash equivalents (45) (1,152)

- Other liabilities (93,214) 3,840 held

- Provisions for risks and charges 185,039 1,249 Cash and cash equivalents at 31 December 37 1,431,208 1,624,264 CL Milestones CL

(820,785) (743,578)

Interest received 969,415 929,563 The notes on pages 118 to 201 are an integral part of these consolidated financial statements.

Interest paid (752,502) (636,584)

Income taxes paid (9,146) (24,535)

Net cash used in operating activities (613,018) (475,134)

Annual Report 2018 Credit Libanais Group 116 117 Business Segments Activities Segments Business

Notes to the Consolidated Financial statements Analysis and as at 31 December 2018

1. Reporting entity Applicable to 2018 only Note 5 (b) - establishing the criteria for determining whether credit risk on the financial asset has increased Activities Functions Control Credit Libanais S.A.L. (the “Bank” or the “Group”) is a Lebanese joint stock Company registered since 1961 in significantly since initial recognition, determining methodology for incorporating forward-looking information and Analysis and Lebanon under no. 10742 in the Beirut register of Commerce, and under no. 53 on the Bank’s list at the Central into measurement of ECL and selection and approval of models used to measure ECL. Bank of Lebanon. The address of the Bank’s registered office is Achrafieh, Cornich Nahr-Adlieh, Credit Libanais Headquarter Building, Beirut, Lebanon. The consolidated financial statements of the Bank as at and for the Applicable to 2018 and 2017: year ended 31 December 2018 comprise the Bank and its subsidiaries (together referred to as the Group and Note 3 (a) – determination of control over investee. individually as Group entities). The Group primarily is involved in retail, commercial and investment banking Note 3(i) (ii): classification of financial assets: assessment of the business model within which the assets ear activities through their headquarters as well as their branches and subsidiaries located in Lebanon, Cyprus, held and assessment of whether the contractual terms of the financial asset are SPPI on the principal amount Bahrain, Iraq and Senegal. outstanding. Support Functions Activities Functions Support 2. Basis of preparation (ii) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material Analysis and (a) Basis of accounting adjustment in the year ended 31 December 2018 is included in the following notes. These consolidated financial statements have been prepared in accordance with IFRS. This is the first set of the Group’s annual financial statements in which IFRS 9 Financial Instruments and IFRS Applicable to 2018 only 15 Revenue from Contracts with Customers have been applied noting that the Group has early adopted Note 5 (b) - impairment of financial instruments: determining inputs into the ECL measurement model, classification and measurement requirements as issued in IFRS 9 (2009) and IFRS 9 (2010). Changes to including incorporation of forward-looking information. significant accounting policies are described in Note 4. Applicable to 2018 and 2017: (b) Basis of measurement Note 6: determination of the fair value of financial instruments with significant unobservable inputs. Financial Statements Note 3 (h) (ii): recognition of deferred tax assets: availability of future taxable profit against which carry-forward The consolidated financial statements have been prepared on the historical cost basis except for the following tax losses can be used. material items in the consolidated statement of financial position: Note 38: recognition and measurement of contingencies: key assumptions about the likelihood and magnitude • financial instruments at fair value through other comprehensive income are measured at fair value; and of an outflow of resources. • financial instruments at fair value through profit and loss are measured at fair value. Note 3 (i) (vii) - impairment of financial instruments: key assumptions used in estimating recoverable cash flows.

(c) Functional and presentation currency 3. Significant accounting policies

These consolidated financial statements are presented in Lebanese Pounds (LBP), which is the Bank’s functional Except for the changes explained in Note 4, the Group has consistently applied the following accounting Banks Correspondent and

currency. All amounts have been rounded to the nearest million, except when otherwise indicated. policies to all years presented in these consolidated financial statements. Network Branch

(d) Use of judgements and estimates (a) Basis of consolidation In preparing these consolidated financial statements, management has made judgments, estimates and (i) Non-controlling interests assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at liabilities, income and expenses. Actual results may differ from these estimates. the acquisition date. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity prospectively. transactions. CL Milestones CL

(i) Judgments (ii) Subsidiaries Information about judgments made in applying accounting policies that have the most significant effects on the Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights amounts recognised in the consolidated financial statements is included in the following notes. to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Annual Report 2018 Credit Libanais Group 118 119 Business Segments Activities Segments Business and Analysis and The Group reassesses whether it has control if there are changes to one or more of the elements of control. This When calculating the effective interest rate for financial instruments other than purchased or originated includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial substantive and lead to the Group having power over an investee. instrument, but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective The financial statements of subsidiaries are included in the consolidated financial statements from the date on interest rate is calculated using estimated future cash flows including ECL. which control commences until the date on which control ceases. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability. (iii) Transactions eliminated on consolidation Activities Functions Control Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency

transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated Amortised cost and gross carrying amount Analysis and financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial extent that there is no evidence of impairment. liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity (b) Foreign currency amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018). (i) Foreign currency transactions The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any Transactions in foreign currencies are translated into the respective functional currencies of the operations at expected credit loss allowance.

the spot exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign Activities Functions Support currencies are translated to the functional currency at the spot exchange rate at the reporting date. Calculation of interest income and expense The foreign currency gain or loss on monetary items is the difference between the amortised cost in the The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial Analysis and functional currency at the beginning of the year, adjusted for effective interest and payments during the year, asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year. the gross carrying amount of the asset (when the asset is not credit impaired) or to the amortised cost of the Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary instruments to reflect movements in market rates of interest. items that are measured based on historical cost in a foreign currency are translated using the spot exchange However, for financial assets that have become credit-impaired subsequent to initial recognition, interest rate at the date of the transaction. income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the Foreign currency differences arising on translation are generally recognised in profit or loss. However, foreign asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

currency differences arising from the translation of financial assets at fair value through other comprehensive For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the Financial Statements income are recognised in other comprehensive income (see Note 10). credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves. (ii) Foreign operations For information on when financial assets are credit-impaired, see Note 3 (i) (vii). The assets and liabilities of foreign operations are translated into LBP at the spot exchange rates at the reporting date. The income and expenses of foreign operations are translated into LBP at the spot exchange Presentation rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive Interest income calculated using the effective interest method presented in the statement of profit or loss and income, and accumulated in the foreign currency translation reserve (translation reserve), except to the extent OCI includes: that the translation difference is allocated to NCI.

When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation • interest on financial assets and financial liabilities measured at amortised cost; Banks Correspondent and reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If • interest on debt instruments measured at FVOCI. Branch Network Branch the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, then the relevant proportion of the cumulative amount is reattributed to NCI. Interest expense presented in the statement of profit or loss and OCI includes financial liabilities measured at amortised cost. (c) Interest Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and Policy applicable from 1 January 2018 liabilities in net trading income (see Note 3 (e)).

Effective interest rate Policy applicable before 1 January 2018 Interest income and expense are recognised in profit or loss using the effective interest method. Milestones CL The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through Effective interest rate the expected life of the financial instrument to: Interest income and expense were recognised in profit or loss using the effective interest method. The effective interest rate was the rate that exactly discounted the estimated future cash payments and receipts through the • the gross carrying amount of the financial asset; or expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of • the amortised cost of the financial liability. the financial asset or liability.

Annual Report 2018 Credit Libanais Group 120 121 Business Segments Activities Segments Business and Analysis and When calculating the effective interest rate, the Group estimated future cash flows considering all contractual (h) Income tax terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate included all transaction costs and fees paid or received that were Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent an integral part of the effective interest rate. Transaction costs included incremental costs that were directly that it relates to items recognised directly in equity or in other comprehensive income. attributable to the acquisition or issue of a financial asset or liability. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year

Presentation Activities Functions Control Interest income calculated using the effective interest method presented in the statement of profit or loss and and any adjustment to tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. OCI includes: Analysis and interest on financial assets and financial liabilities measured at amortised cost; interest on debt instruments measured at FVOCI. (ii) Deferred tax Interest expense presented in the statement of profit or loss and OCI includes financial liabilities measured at Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and amortised cost. liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not Interest income and expense on all trading assets and liabilities were considered to be incidental to the Group’s recognised for: trading operations and were presented together with all other changes in the fair value of trading assets and liabilities in net trading income (see Note 3 (e)). temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business

combination and that affects neither accounting nor taxable profit or loss; and Activities Functions Support (d) Fee and commission temporary differences related to investments in subsidiaries to the extent that the Group is able to control

the timing of the reversal of the temporary differences and it is probable that they will not reverse in the Analysis and Fee and commission income and expense that are integral to the effective interest rate on a financial asset or foreseeable future. financial liability are included in the measurement of the effective interest rate (see Note 3 (c)). Other fee and commission income - including account servicing fees, investment management fees, sales Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary commission and placement fees- are recognised as the related services are performed. If a loan commitment differences to the extent that it is probable that future taxable profits will be available against which they can be is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer straight-line basis over the commitment period. probable that the related tax benefit will be realised. A contract with a customer that results in a recognised financial instrument in the Group’s financial statements Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group

reverse, using tax rates enacted or substantively enacted at the reporting date. Financial Statements first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then The measurement of deferred tax reflects the tax consequences that would follow the manner in which the applies IFRS 15 to the residual. Group expects, at the reporting period, to recover or settle the carrying amount of its assets and liabilities. Other fee and commission expense relate mainly to transaction and service fees, which are expensed as the Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities services are received. and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and (e) Net trading income liabilities will be realised simultaneously. Additional taxes that arise from the distribution of dividends by the Group are recognised at the same time as Net trading income comprises gains less losses related to trading assets and liabilities, and includes all fair the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss value changes, interest, dividends and foreign exchange differences. because they generally relate to income arising from transactions that were originally in profit or loss. and Correspondent Banks Correspondent and Branch Network Branch (f) Dividend income (i) Financial assets and financial liabilities Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend (i) Recognition and initial measurement date for quoted equity securities. Dividends are presented in net trading income. The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities From 1 January 2018, dividends on equity instruments designated as at FVOCI that clearly represent a recovery on the date on which they are originated. All other financial instruments (including regular-way purchases and of part of the cost of the investment are presented in OCI. sales of financial assets) are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument. (g) Leases A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through

profit or loss, transaction costs that are directly attributable to its acquisition or issue. Milestones CL Group acting as a lessee - Operating leases Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Annual Report 2018 Credit Libanais Group 122 123 Business Segments Activities Segments Business and Analysis and (ii) Classification Assessment of whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial Financial assets recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL. with the principal amount outstanding during a particular period of time and for other basic lending risks and A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated costs (e.g. liquidity risk and administrative costs), as well as profit margin. as at FVTPL: In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change Control Functions Activities Activities Functions Control the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; the timing or amount of contractual cash flows such that it would not meet this condition. In making the

and assessment, the Group considers: Analysis and the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI. A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not contingent events that would change the amount and timing of cash flows; designated as at FVTPL: leverage features; the asset is held within a business model whose objective is achieved by both collecting contractual cash prepayment and extension terms; flows and selling financial assets; and terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse loans); and the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI. features that modify consideration of the time value of money (e.g. periodical reset of interest rates).

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to Reclassifications Activities Functions Support present subsequent changes in fair value in OCI - see Note 3 (m). This election is made on an investment-by- Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group investment basis. changes its business model for managing financial assets. Analysis and

All other financial assets are classified as measured at FVTPL. Financial liabilities The Group classifies its financial liabilities as measured at amortised cost. See Note 3(k), (r) and (t). In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or (iii) Derecognition significantly reduces an accounting mismatch that would otherwise arise. Financial assets

Business model assessment The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset Financial Statements The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio expire (see also iv), or it transfers the rights to receive the contractual cash flows in a transaction in which level because this best reflects the way the business is managed and information is provided to management. substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group The information considered includes: neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. the stated policies and objectives for the portfolio and the operation of those policies in practice. In On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying particular, whether management’s strategy focuses on earning contractual interest revenue, maintaining a amount allocated to the portion of the asset derecognised), and the sum of (i) the consideration received particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had that are funding those assets or realising cash flows through the sale of the assets; been recognised in other comprehensive income is recognised in profit or loss.

how the performance of the portfolio is evaluated and reported to the Group’s management; From 1 January 2018, any cumulative gain/loss recognised in OCI in respect of equity investment securities Banks Correspondent and the risks that affect the performance of the business model (and the financial assets held within that business designated as at FVOCI is not recognised in profit or loss on derecognition of such securities as explained in Branch Network Branch model) and its strategy for how those risks are managed; Note 3 (m). Any interest in transferred financial assets that qualify for derecognition that is created or retained how managers of the business are compensated (e.g. whether compensation is based on the fair value of the by the Group is recognised as a separate asset or liability. assets managed or the contractual cash flows collected); and The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. about future sales activity. However, information about sales activity is not considered in isolation, but as part In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending of an overall assessment of how the Group’s stated objective for managing the financial assets is achieved and sale-and-repurchase transactions. and how cash flows are realised. When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the Financial assets that are held for trading or managed and whose performance is evaluated on a fair value transaction is accounted for as a secured financing transaction similar to sale-and-repurchase transactions, basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to because the Group retains all or substantially all of the risks and rewards of ownership of such assets. Milestones CL collect contractual cash flows and to sell financial assets. In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

Annual Report 2018 Credit Libanais Group 124 125 Business Segments Activities Segments Business and Analysis and In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the original effective transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than time of the modification. Any costs and fees incurred are recognised as an adjustment to the carrying amount adequate (liability) for performing the servicing. of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument. Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or Policy applicable before 1 January 2018 Activities Functions Control expired.

Financial assets Analysis and (iv) Modifications of financial assets and financial liabilities If the terms of a financial asset were modified, then the Group evaluated whether the cash flows of the modified asset were substantially different. If the cash flows were substantially different, then the contractual rights to Policy applicable from 1 January 2018 cash flows from the original financial asset were deemed to have expired. In this case, the original financial asset was derecognised (see (iii)) and a new financial asset was recognised at fair value. Financial assets If the terms of a financial asset were modified because of financial difficulties of the borrower and the asset was If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified not derecognised, then impairment of the asset was measured using the pre modification interest rate (see (vii)). asset are substantially different.

If the cash flows are substantially different, then the contractual rights to cash flows from the original financial Financial liabilities Activities Functions Support asset are deemed to have expired. In this case, the original financial asset is derecognised (see (iii)) and a new The Group derecognised a financial liability when its terms were modified and the cash flows of the modified

financial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the liability were substantially different. In this case, a new financial liability based on the modified terms was Analysis and modification are accounted for as follows: recognised at fair value. The difference between the carrying amount of the financial liability extinguished and consideration paid was recognised in profit or loss. fees that are considered in determining the fair value of the new asset and fees that represent reimbursement Consideration paid included non-financial assets transferred, if any, and the assumption of liabilities, including of eligible transaction costs are included in the initial measurement of the asset; and the new modified financial liability. other fees are included in profit or loss as part of the gain or loss on derecognition. If the modification of a financial liability was not accounted for as derecognition, then any costs and fees incurred were recognised as an adjustment to the carrying amount of the liability and amortised over the If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.

is usually to maximise recovery of the original contractual terms rather than to originate a new asset with Financial Statements substantially different terms. If the Group plans to modify a financial asset in a way that would result in (v) Offsetting forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the Financial assets and liabilities are offset and the net amount presented in the statement of financial position modification takes place (see below for write-off policy). This approach impacts the result of the quantitative when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends evaluation and means that the derecognition criteria are not usually met in such cases. either to settle them on a net basis or to realise the asset and settle the liability simultaneously. If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using arising from a group of similar transactions such as in the Group’s trading activity. the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the (vi) Fair value measurement

modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly Banks Correspondent and or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified transaction between market participants at the measurement date in the principal or, in its absence, the most Branch Network Branch financial asset and are amortised over the remaining term of the modified financial asset. advantageous market to which the Group has access at that date. The fair value of a liability reflects its non- If such a modification is carried out because of financial difficulties of the borrower (see Note 3 (vii)), then the performance risk. gain or loss is presented together with impairment losses. In other cases, it is presented as interest income When one is available, the Group measures the fair value of an instrument using the quoted price in an active calculated using the effective interest rate method (see Note 3 (c)). market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Financial liabilities If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use The Group derecognises a financial liability when its terms are modified and the cash flows of the modified of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique liability are substantially different. In this case, a new financial liability based on the modified terms is incorporates all of the factors that market participants would take into account in pricing a transaction. recognised at fair value. The difference between the carrying amount of the financial liability derecognised and The best evidence of the fair value of a financial instrument on initial ecognitionr is normally the transaction Milestones CL consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value on any, and the assumption of liabilities, including the new modified financial liability. initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the

Annual Report 2018 Credit Libanais Group 126 127 Business Segments Activities Segments Business and Analysis and inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the amount and the present value of estimated future cash flows; transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the undrawn loan commitments: as the present value of the difference between the contractual cash flows that life of the instrument but no later than when the valuation is wholly supported by observable market data or the are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; transaction is closed out. and If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the and long positions at a bid price and liabilities and short positions at an ask price. Group expects to recover. Control Functions Activities Activities Functions Control Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are See also Note 5 (b).

managed by the Group on the basis of the net exposure to either market or credit risk are measured on the Analysis and basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for Restructured financial assets the particular risk exposure. Portfolio-level adjustments - e.g. bid-ask adjustment or credit risk adjustments that If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a reflect the measurement on the basis of the net exposure - are allocated to the individual assets and liabilities new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. should be derecognised (see (iv)) and ECL are measured as follows. The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. If the expected restructuring will not result in derecognition of the existing asset, then the expected cash The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing

during which the change has occurred. asset (see Note 5). Activities Functions Support If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of

(vii) Impairment the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. Analysis and See also Note 5 (b). This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the Policy applicable from 1 January 2018 existing financial asset.

The Group recognises loss allowances for ECL on the following financial instruments that are not measured at Credit-impaired financial assets FVTPL: At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-

financial assets that are debt instruments; impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the Financial Statements lease receivables; financial asset have occurred. financial guarantee contracts issued; and Evidence that a financial asset is credit-impaired includes the following observable data: loan commitments issued. No impairment loss is recognised on equity investments. days past due greater than 90 days (mortgage); The Group measures loss allowances at an amount equal to lifetime ECL except for the following, for which days past due greater than 120 days (non-mortgage); they are measured as 12-month ECL: exposures default due to isIMpDefault flag; debt investment securities that are determined to have low credit risk at the reporting date; and other financial instruments (other than lease receivables) on which credit risk has not increased significantly A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to

since their initial recognition. be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced Banks Correspondent and The Group considers a debt investment security to have low credit risk when its credit risk rating is equivalent significantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days Branch Network Branch to the globally understood definition of investment grade. The Group does not apply the low credit risk (mortgage) and 120 (non-mortgage) or more is considered credit-impaired even when the regulatory definition exemption to any other financial instruments. of default is different. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are In making an assessment of whether an investment in sovereign debt is credit-impaired, the Group considers possible within the 12 months after the reporting date Financial instruments for which a 12-month ECL is the following factors. recognised are referred to as ‘Stage 1 financial instruments’. Life-time ECL are the ECL that result from all possible default events over the expected life of the financial - when payments on obligation is a virtual certainty; instrument- Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are - when payments on an obligation are not made on the due date referred to as ‘Stage 2 financial instruments’. - downgrade of mapped external rating credit rating to CC or below; or - the issuer files a bankruptcy petition or takes a similar action. Milestones CL Measurement of ECL ECL are a probability-weighted estimate of credit losses. They are measured as follows: financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

Annual Report 2018 Credit Libanais Group 128 129 Business Segments Activities Segments Business and Analysis and Presentation of allowance for ECL in the statement of financial position The Group considered evidence of impairment for loans and advances and investment securities measured at Loss allowances for ECL are presented in the statement of financial position as follows: amortised cost at both a specific asset and a collective level. All individually significant loans and advances and investment securities measured at amortised cost were assessed for specific impairment. Those found not to financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; be specifically impaired were then collectively assessed for any impairment that had been incurred but not yet loan commitments and financial guarantee contracts: generally, as a provision; identified (IBNR). Loans and advances and investment securities at amortised cost that were not individually where a financial instrument includes both a drawn and an undrawn component, and the Group cannot significant were collectively assessed for impairment by grouping together loans and advances and investment securities at amortised cost with similar credit risk characteristics. identify the ECL on the loan commitment component separately from those on the drawn component: the Activities Functions Control Group presents a combined loss allowance for both components. The combined amount is presented as a In making an assessment of whether an investment in sovereign debt was impaired, the Group considered the

deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over following factors. Analysis and the gross amount of the drawn component is presented as a provision; and debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position The market’s assessment of creditworthiness as reflected in the bond yields. because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is The rating agencies’ assessments of creditworthiness. recognised in the fair value reserve. The country’s ability to access the capital markets for new debt issuance. The probability of debt being restructured, resulting in holders suffering losses through voluntary or Write-off mandatory debt forgiveness. Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to

of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group that country, as well as the intention, reflected in public statements, of governments and agencies to use Activities Functions Support determines that the borrower does not have assets or sources of income that could generate sufficient cash those mechanisms. This included an assessment of the depth of those mechanisms and, irrespective of the flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level. political intent, whether there was the capacity to fulfil the required criteria. Analysis and Recoveries of amounts previously written off are included in ‘Net impairment on financial assets’ in the statement of profit or loss and OCI. Individual or collective assessment Financial assets that are written off could still be subject to enforcement activities in order to comply with the An individual measurement of impairment was based on management’s best estimate of the present value Group’s procedures for recovery of amounts due. of the cash flows that were expected to be received. In estimating these cash flows, management made judgments about a debtor’s financial situation and the net realisable value of any underlying collateral. Each Policy applicable before 1 January 2018 impaired asset was assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable were independently approved by the Credit Risk function.

Objective evidence of impairment Financial Statements At each reporting date, the Group assessed whether there was objective evidence that financial assets not In assessing collective impairment, the Group uses statistical modelling of historical trends of the probability of carried at FVTPL were impaired. A financial asset or a group of financial assets was ‘impaired’ when objective default, the timing of recoveries and the amount of loss incurred, and makes a judgment if current economic evidence demonstrated that the loss event had occurred after the initial recognition of the asset(s) and that the and credit conditions are such that the actual losses are likely to be greater or lesser than is suggested loss event had an impact on the future cash flows of the asset(s) that could be estimated reliably. by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly In addition, a retail loan that was overdue for 90 days or more was considered impaired. benchmarked against actual outcomes to ensure that they remain appropriate. The IBNR allowance covered credit losses inherent in portfolios of loans and advances, and investment Objective evidence that financial assets were impaired included: securities at amortised cost with similar credit risk characteristics when there was objective evidence to suggest that they contained impaired items but the individual impaired items could not yet be identified.

significant financial difficulty of a borrower or issuer; Banks Correspondent and default or delinquency by a borrower; In assessing the need for collective loss allowance, management considered factors such as credit quality, Branch Network Branch the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; portfolio size, concentrations and economic factors. To estimate the required allowance, and assumptions were indications that a borrower or issuer would enter bankruptcy; made to define how inherent losses were modelled and to determine the required input parameters, based on the disappearance of an active market for a security; or historical experience and current economic conditions. observable data relating to a group of assets, such as adverse changes in the payment status of borrowers or The accuracy of the allowance depended on the model assumptions and parameters used in determining the issuers in the group, or economic conditions that correlated with defaults in the group. collective allowance. Loans that were subject to a collective IBNR provision wore not considered impaired.

A loan that was renegotiated due to a deterioration in the borrower’s condition was usually considered to Measurement of impairment be impaired unless there was evidence that the risk of not receiving contractual cash flows had reduced Impairment losses on assets measured at amortised cost were calculated as the difference between the carrying significantly and there were no other indicators of impairment. amount and the present value of estimated future cash flows discounted at the asset’s original effective interest Milestones CL In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below rate. its cost was objective evidence of impairment. In general, the Group considered a decline of 20% to be ‘significant’ and a period of nine months to be ‘prolonged’. However, in specific circumstances a smaller decline Reversal of impairment or a shorter period may have been appropriate. If an event occurring after the impairment was recognised caused the amount of impairment loss to decrease, then the decrease in impairment loss was reversed through profit or loss.

Annual Report 2018 Credit Libanais Group 130 131 Business Segments Activities Segments Business and Analysis and Presentation Policy applicable before 1 January 2018 Impairment losses were recognised in profit or loss and reflected in an allowance account against loans and ‘Loans and advances’ were non-derivative financial assets with fixed or determinable payments that were not receivables or investment securities at amortised cost. quoted in an active market and that the Group did not intend to sell immediately or in the near term. Loans and advances to banks were classified as amortised cost. Loans and advances to customers included: Write-off The Group wrote off a loan or an investment debt security, either partially or in full, and any related allowance • those classified as amortised cost; and • those designated as at FVTPL.

for impairment losses, when Group Credit determined that there was no realistic prospect of recovery. Activities Functions Control Loans and advances were initially measured at fair value plus incremental direct transaction costs, and

(viii) Designation at fair value through profit or loss subsequently measured at their amortised cost using the effective interest method. When the Group chose to Analysis and designate the loans and advances as measured at FVTPL as described in (i) (viii), they were measured at fair Financial assets value with face value changes recognised immediately in profit or loss. At initial recognition, the Group has designated certain financial assets as at FVTPL because this designation When the Group purchased a financial asset and simultaneously entered into an agreement to resell the eliminates or significantly reduces an accounting mismatch, which would otherwise arise. asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the Before 1 January 2018, the Group also designated certain financial assets as at FVTPL because the assets were arrangement was accounted for as a loan or advance, and the underlying asset was not recognised in the managed, evaluated and reported internally on a fair value basis. Group’s financial statements. Note 6 sets out the amount of each class of financial asset that has been designated as at FVTPL. A description of the basis for each designation is set out in the note for the relevant asset or liability class. (m) Investment securities Activities Functions Support

(j) Cash and cash equivalents Policy applicable from 1 January 2018 Analysis and The investment securities caption in the statement of financial position includes: Cash and cash equivalents include cash on hand, unrestricted balances held with central banks and highly liquid debt investment securities measured at amortised cost (see Note 3 (i) (ii)); these are initially measured at fair financial assets with original maturities of three months or less from the date of acquisition that are subject to an value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term interest method; commitments. debt and equity investment securities mandatorily measured at FVTPL or designated as at FVTPL (see Note 3 Cash and cash equivalents are carried at amortised cost in the statement of financial position. (i) (ii)); these are at fair value with changes recognised immediately in profit or loss; debt securities measured at FVOCI; and (k) Trading assets and liabilities equity investment securities designated as at FVOCI. Financial Statements For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the which are recognised in profit or loss in the same manner as for financial assets measured at amortised cost: purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for interest revenue using the effective interest method; short-term profit or position taking. ECL and reversals; and Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of foreign exchange gains and losses. financial position, with transaction costs recognised in profit or loss. All changes in fair value are recognised as When debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in part of net trading income in profit or loss. OCI is reclassified from equity to profit or loss. The Group elects to present in OCl changes in the fair value of certain investments in equity instruments that (l) Loans and advances are not held for trading. The election is made on an instrument-by-instrument basis on initial recognition and Banks Correspondent and

is irrevocable. Network Branch Policy applicable from 1 January 2018 Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised in profit or loss. Dividends are recognised in profit or loss (see Note 3 i (ii)) unless they clearly Loans and advances captions in the statement of financial position include: represent a recovery of part of the cost of the investment, in which case they are recognised in OCI. loans and advances measured at amortised cost (see Note3 (i) (ii)); they are initially measured at fair value Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal of an plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest investment. method; and loans and advances mandatorily measured at FVTPL or designated as at FVTPL (see Note 3 (i) (ii)); these are Policy applicable before 1 January 2018 measured at fair value with changes recognised immediately in profit or loss. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the Investment securities were initially measured at fair value plus, in the case of investment securities not at FVTPL, Milestones CL asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the incremental direct transaction costs, and subsequently accounted for depending on their classification as either arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Group’s amortised cost, FVOCI or FVTPL. financial statements.

Annual Report 2018 Credit Libanais Group 132 133 Business Segments Activities Segments Business and Analysis and (n) Property and equipment (q) Impairment of non-financial assets

(i) Recognition and measurement At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the Items of property and equipment are measured at cost less accumulated depreciation and any accumulated asset’s recoverable amount is estimated. impairment losses. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that Impairment losses are recognised in profit or loss. Activities Functions Control equipment. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying

If significant parts of an item of property or equipment have different useful lives, then they are accounted for as amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been Analysis and separate items (major components) of property and equipment. recognised. Any gain or loss on disposal of an item of property and equipment is recognised within other income/other expenses in profit or loss. (r) Deposits, debt securities issued and subordinated debt issued

(ii) Subsequent costs Deposits, debt securities issued and subordinated debt issued are the Group’s sources of debt funding. The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the substance of the contractual terms of the instruments. The Group’s redeemable preference shares bear non-

expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred. discretionary coupons and are redeemable at the option of the holder, and are therefore included within Activities Functions Support subordinated liabilities. (iii) Depreciation Analysis and Deposits, debt securities issued and subordinated debt issued are initially measured at fair value minus Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual incremental direct transaction costs, and subsequently measured at their amortised cost using the effective values using the straight-line basis over their estimated useful lives, and is generally recognised in profit or loss. interest method. The estimated useful lives of significant items of property and equipment are as follows: (s) Provisions • buildings 50 years • • installations and improvements 16.67 years • A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation

• furniture and equipment 12.5 years • that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle Financial Statements • vehicles 10 years • the obligation. Provisions are determined using management’s best estimates to the risk specific to the liability. • power generators 12.5 years • (t) Financial guarantees and loan commitments Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the (o) Intangible assets terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions.

Software Banks Correspondent and Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially Branch Network Branch impairment losses. measured at fair value. Subsequently, they are measured as follows: Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. from 1 January 2018: at the higher of the loss allowance determined in accordance with IFRS 9 (see i (vii)) Software is amortised on a straight line basis in profit or loss over its estimated useful life, from the date on and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in which it is available for use. The estimated useful life of software for the current and comparative periods is accordance with the principles of IFRS 15; and three to ten years. Amortisation methods, useful lives and residual values are reviewed at each reporting date before 1 January 2018: at the higher of the amount representing the initial fair value amortised over the life and adjusted if appropriate. of the guarantee or the commitment and the present value of any expected payment to settle the liability when a payment under the contract has become probable. (p) Assets held for sale The Group has issued no loan commitments that are measured at FVTPL. Milestones CL For other loan commitments: Properties acquired through the enforcement of security over loans and advances to customers are accounted from 1 January 2018: the Group recognises a loss allowance (see Note 3 i (vii)); for in accordance with the directives issued by the banking regulators. before 1 January 2018: the Group recognised a provision in accordance with IAS 37 if the contract was These assets are initially measured at fair value at the date of enforcement of the security. A reserve is considered to be onerous. constituted for assets not disposed of within two years of the date of enforcement at a rate of 20% or 5%. Liabilities arising from financial guarantees and loan commitments are included within provisions. The accumulated reserve is classified under “Other reserves” in equity.

Annual Report 2018 Credit Libanais Group 134 135 Business Segments Activities Segments Business and Analysis and (u) Share capital and reserves The Group will recognise new assets and liabilities for its operating leases of branch and office premises. The nature of expenses related to these leases will now change because IFRS 16 replaces the straight-line operating (i) Preference shares lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Group classifies instruments issued as financial liabilities or equity instruments in accordance with the Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, substance of the contractual terms of the instruments. The Group’s preference shares are not redeemable by and recognised assets and liabilities only to the extent that there was a timing difference between actual lease holders and bear an entitlement to distributions that is non-cumulative and at the discretion of the board of payments and the expense recognised.

directors. Accordingly, they are presented as a component of issued capital within equity. Distributions thereon Activities Functions Control are recognised in equity. ii. Transition

The Group plans to apply IFRS 16 initially on 1 January 2019, using a modified retrospective approach. Analysis and (ii) Share issue costs Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial balance of retained earnings at 1 January 2019, with no restatement of comparative information. measurement of the equity instruments. The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in (iii) Dividends on ordinary shares accordance with IAS 17 and IFRIC 4. Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Group’s shareholders. B. Other standards

Dividends for the year that are declared after the date of the balance sheet are dealt with in the subsequent The following amended standards are not expected to have a significant impact on the Group’s consolidated Activities Functions Support events note. financial statements.

Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards Analysis and (v) Deferred restricted contributions Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) Restricted contributions derived from special and non-conventional deals arrangement with the regulator are IFRIC 23 Uncertainty over Income Tax Treatments deferred until designated conditions for recognition are met. At the time income is received, it is deferred Amendments to References to Conceptual Framework in IFRS Standards under “Deferred surplus” and applied to the designated purpose according to the regulator’s requirements. IFRS 17 Insurance Contracts.

(w) Standards issued but not yet adopted 4. Changes in accounting policies

A number of new standards and amendments to standards are effective for annual periods beginning after 1 Financial Statements January 2018 and earlier application is permitted; however, the Group has not early adopted them in preparing The Group has initially adopted IFRS 9 Financial Instruments (see (i)) except for the classification and these consolidated financial statements. measurement requirements as issued in IFRS 9 (2009) and IFRS 9 (2010) which were early adopted, and IFRS 15 Of the standards that are not yet effective, IFRS 16 is expected to have a significant impact on the Group’s Revenue from Contracts with Customers (see (ii)) from 1 January 2018. A number of other new standards are consolidated financial statements in the period of initial application. effective from 1 January 2018 but they do not have a material effect on the Groups’ financial statements. Due to the transition method chosen by the Group in applying IFRS 9, comparative information throughout these financial statements has not generally been restated to reflect its requirements. A. IFRS 16 Leases The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group is currently in the process The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts of assessing the estimated impact that the initial application of IFRS 16 will have on its consolidated financial with customers and the related assets and liabilities recognised by the Group.

statements. The effect of initially applying these standards is mainly attributed to the following: Banks Correspondent and an increase in impairment losses recognised on financial assets (see Note 33); IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right- Network Branch of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to additional disclosures related to IFRS 9 (see Note 5). make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 3 Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or to all years presented in these consolidated financial statements. operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an (i) IFRS 9 Financial Instruments Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some Transactions Involving the Legal Form of a Lease. contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The requirements of IFRS 9 represent a significant change from IAS 39. CL Milestones CL i. Leases in which the Group is a lessee The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of The Group has not yet completed the initial assessment of the potential impact on its consolidated financial the accounting for financial liabilities. statements. The actual impact of applying IFRS 16 on the financial statements in the period of initial application Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures will depend on future economic conditions, the development of the Group’s lease portfolio, the Group’s that are applied to disclosures about 2018, but have not been applied to the comparative information. assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to The key changes to the Group’s accounting policies resulting from its adoption of IFRS 9 are summarised below. use practical expedients and recognition exemptions.

Annual Report 2018 Credit Libanais Group 136 137 Business Segments Activities Segments Business and Analysis and Classification of financial assets and financial liabilities Impairment of financial assets The Bank has early adopted classification and measurement requirements as issued in IFRS 9 (2009) and IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. The new impairment IFRS 9 (2010). In the July 2014 publication of IFRS 9, the new measurement category FVOCI was introduced model also applies to certain loan commitments and financial guarantee contracts but not to equity for financial assets that satisfy the contractual cash flow characteristics (SPPI test). This category is aimed at investments. portfolio of debt instruments for which amortised cost information, as well as fair value information is relevant Under IFRS 9, credit losses are recognised earlier than under IAS 39. For an explanation of how the Bank and useful. This will be the case if these assets are held within a business model whose objective is achieved by applies the impairment requirements of IFRS 9, see Note 3 (i) (vii).

both collecting contractual cash flows and selling the financial assets. Activities Functions Control The following table reconciles the aggregate opening loan loss provision allowances under IAS 39 and

As the date of application of IFRS 9 (2014), the Bank reassessed the classification and measurement for all provisions for loan commitments and financial guarantee contracts in accordance with IAS 37 Provision Analysis and financial assets debt instruments that satisfy the contractual cash flow characteristic (SPPI test) and classified Contingent Liabilities and Contingent Assets to the ECL allowance under IFRS 9 them within the category that it is consistent with the business model for managing these financial assets in the bases of facts and circumstances that existed at that date. The classification and measurement requirements for financial assets that are equity instruments or debt instruments that do not meet the contractual cash flow characteristics (SPPI test) and financial liabilitiesemain r Impairment allowance Impact of adopting ECLs under IFRS unchanged from previous versions of IFRS 9. under IAS 39/IAS 37 IFRS 9 as at at 1 January 2018 The classification of financial liabilities under IFRS 9 remained the same. In Millions of Lebanese Pound at 31 December 2017 1 January 2018 Support Functions Activities Functions Support Impairment allowance for The following table shows the new classification of financial assets under IFRS 9 July 2014:

Cash and balances with Central Banks - 14,952 14,952 Analysis and

Loans and advances to customers 126,767 153,575 26,808

Classification under IFRS 9 (2014) Impact of IFRS 9 Classification under IFRS 9 (2014) Balances with other banks and financial institutions 9,235 11,430 2,195 at 31 December 2017 adoption at 1 January 2018 In Millions of Lebanese Pound Category Amount Re-classification Category Amount Loans and advances to related parties 3,800 4,122 322

Financial assets Dept investment securities at amortised cost - 21,652 21,652

Cash and balances with Central Banks Amortised cost 5,364,829 - Amortised cost 5,364,829 Debtors by acceptances - 29 29 Financial Statements Balances with other banks Amortised cost 1,013,148 - Amortised cost 1,013,148 Loan commitments and financial guarantee contract - 1,048 1,048

and Financial institutions 139,802 206,808 67,006

Loans and advances to customers Amortised cost 5,199,661 - Amortised cost 5,199,661

loans and advances to related parties Amortised cost 15,504 - Amortised cost 15,504 The following table summarise the movement of impact of adopting IFRS 9 as at 1 January 2018. Debtors by acceptances Amortised cost 252,288 - Amortised cost 252,288

Financial assets at fair value through OCI 109,013 - OCI 109,013 Impact of adopting and Correspondent Banks Correspondent and other comprehensive income IFRS 9 as at

Note 1 January 2018 Network Branch Financial assets at fair value through FVTPL 67,772 - FVTPL 67,772 In Millions of Lebanese Pound

profit or loss Total impact of adopting IFRS 9 206,808

Financial assets at amortised cost Amortised cost 4,755,406 - Amortised cost 4,755,406 Specific provision 72,257

Financial assets at fair value through Amortised cost 203,875 9,184 OCI 213,059 Collective provision 67,545

other comprehensive income Deffered surplus 23 57,961

Other comprehensive income Adjustment on initial application of IFRS 9 in equity* 9,045 CL Milestones CL

Fair value reserve 9,184 206,808

Net impact on opening equity 9.184

* Credit Libanais Investment Bank had a deficit in provisions. An amount of LBP 9,045 million was appropriated from reserves.

Annual Report 2018 Credit Libanais Group 138 139 Business Segments Activities Segments Business and Analysis and Transition (b) Credit risk Changes in accounting policies resulting from the adoption of IFRS 9 have been applied as follows: Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s loans and advances to customers and Comparative periods generally have not been restated. Differences in the carrying amounts of financial assets other banks, and investment debt securities. For risk management reporting purposes the Group considers and and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves consolidates all elements of credit risk exposure. as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of For risk management purposes, credit risk arising on trading assets is managed independently by the market IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.

risk management function. The overall objective of managing market risk is to avoid unexpected losses due to Activities Functions Control The following assessments have been made on the basis of the facts and circumstances that existed at the changes in market prices and to optimise the use of market risk capital. The Group manages these potential date of initial application. exposures on a daily basis within predefined limits for each of the major types of market risk established within Analysis and the Group’s policies and commensurate with the risk appetite defined by the Board of Directors. - The determination of the business model within which a financial asset is held. - The designation and revocation of previous designations of certain financial assets and financial liabilities as Settlement risk measured at FVTPL. The Bank is also exposed to settlement risk in its dealings with other financial institutions. This risk arises when - The designation of certain investments in equity instruments not held for trading as at FVOCI. the Bank pays its side of the transaction to the other bank or counterparty before receiving payment from If a debt security had low credit risk at the date of initial application of IFRS 9, then the Group has assumed the third party. The risk is that the third party may not pay its obligation. While these exposures are short in that credit risk on the asset had not increased significantly since its initial recognition. duration but they can be significant. The risk is mitigated by dealing with highly rated counterparties, holding

collateral and limiting the size of the exposures according to the risk rating of the counterparty. Activities Functions Support (ii) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is Management of credit risk Analysis and The Board of Directors has delegated responsibility for the oversight of credit risk to its Risk Management recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Committee, Credit Policy Committee and allocated Credit Committees. An independent Credit Risk The Bank initially applied IFRS 15 on 1 January 2018 retrospectively in accordance with IAS 8 without any Management function, reporting to the Chief Risk Officer (CRO), is responsible for management of the Group’s practical expedients. The timing or amount of the Bank’s fee and commission income from contracts with credit risk, including: customers was not impacted by the adoption of IFRS 15. Formulating credit policies covering collateral requirements, credit assessment, risk grading and reporting, 5. Financial risk management documentary and legal procedures, and compliance with regulatory and statutory requirements. (a) Introduction and overview Establishing the authorisation structure for the approval and renewal of credit facilities. Reviewing and assessing credit risk. The Credit Committee assesses all credit exposures in excess of Financial Statements The Group has exposure to the following risks from financial instruments: designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals credit risk and reviews of facilities are subject to the same review process. liquidity risk Limiting concentrations of exposure to counterparties, geographies and sectors. The Group’s approach to market risks controlling this concentration of exposure is by the diversification of its commitments and by setting limits at operational risks. level of aggregate of products, economic sectors, region and segments. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, Developing and maintaining the Group’s credit risk rating system. This system is a summary indicator of the policies and processes for measuring and managing risk, and the Group’s management of capital. Group’s individual credit exposure. An internal rating system categorises all credits into various classes on the basis of underlying credit quality. A well-structured credit rating framework is an important tool for monitoring

Risk management framework and controlling risk inherent in individual credits as well as in credit portfolios of the Group or a business line. Banks Correspondent and

The Group’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk The importance of internal credit rating framework becomes more eminent due to the fact that historically Network Branch management framework. The Board of Directors has established the Board Risk Committee, the Board Credit major losses to banks stemmed from default in loan portfolios. While the Group already has a system for Policy Committee and at the management level, the Asset and Liability Management Committee (ALCO), which rating individual credits in addition to the risk categories prescribed by the Central Bank of Lebanon, the are responsible for developing and monitoring Bank risk management policies. Group established an internal rating framework. The internal rating framework benefits the Group in a The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to number of ways such as: credit selection, amount of exposure, tenure and price of facility, frequency or set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies intensity of monitoring, analysis of migration of deteriorating credits and more accurate computation of and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The future loan loss provision; and deciding the level of approving authority of loan. Group, through its training and management standards and procedures, aims to develop a disciplined and Reviewing compliance with agreed exposure limits, including those for selected sectors, geography and constructive control environment in which all employees understand their roles and obligations. product types. Regular reports on the credit quality of portfolios are provided to the Credit Policy Committee CL Milestones CL The Board Risk Committee, the Credit Policy Committee and the Asset Liability Management Committee who may require appropriate corrective action to be taken. (ALCO) oversee how management monitors compliance with the Group’s risk management policies and Providing advice, guidance and specialist skills to promote best practice throughout the Group in the procedures, and review the adequacy of the risk management framework in relation to the risks faced by the management of credit risk. Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both Conduct, approve and monitor the appropriate staging of the Bank’s financial assets (including any upgrades regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to or downgrades between stages) and compute the Expected Credit Losses (ECLs) of the Bank’s Sovereign, the Audit Committee. Financial Sector, Lending and Financial Instruments portfolios, in line with IFRS 9 Requirements and local regulatory requirements.

Annual Report 2018 Credit Libanais Group 140 141 Business Segments Activities Segments Business and Analysis and Each Credit Officer is required to implement Group credit policies and procedures, with credit approval authorities delegated from the Group Credit Committee. Each Credit Officer reports on all credit related matters to management and the Group Credit Committee. 2018 2017 Each Credit Officer is responsible for the quality and performance of his/her credit portfolio and for monitoring In Millions of Lebanese Pound Stage 1 Stage 2 Stage 3 Total Total and controlling all credit risks in his/her portfolios, including those subject to central approval. Regular audits of Group Credit processes are undertaken by Internal Audit. Loans and advances to related

parties Activities Functions Control Credit quality analysis Grade 1-2: low fair risk 18,369 - - 18,369 14,770

The following table sets out information about the credit quality of financial assets measured at amortised cost. Analysis and Unless specifically indicated, for financial assets, the amounts in the tableepresent r gross carrying amounts. Grade 3: Low fair risk - 831 - 831 725 For lending commitments and financial guarantee contracts, the amounts in the table epresentr the amounts Grade 6: Impaired - committed or guaranteed, respectively. - 2,237 2,237 3,809 Explanation of the terms: “Stage 1”, “Stage 2” and “Stage 3” is included in Note 3 i (vii). 18,369 831 2,237 21,437 19,304

Less allowance (2,079) (118) (2,237) (4,434) (3,800)

Carrying amount 16,290 713 - 17,003 15,504

2018 2017 Activities Functions Support

In Millions of Lebanese Pound Stage 1 Stage 2 Stage 3 Total Total Debt investment securities at amor- Analysis and

Balances with Central Banks tised cost Grade 1-2: Low fair risk 7,345,377 - - 7,345,377 5,294,127 Grade 1-2: Low fair risk 4,639,836 - - 4,639,836 4,959,281 7,345,377 - - 7,345,377 5,294,127 4,639,836 - - 4,639,836 4,959,281 Less allowance (11,225) - - (11,225) - Less allowance (23,097) - - (23,097) - Carrying amount 7,334,152 - - 7,334,152 5,294,127 Carrying amount 4,616,739 - - 4,616,739 4,959,281

Loans and advances to customers Financial Statements

Grade 1-2: low fair risk 4,282,923 268,275 - 4,551,198 4,751,783 Debtors by acceptances Grade 3: Low fair risk - 306,946 - 306,946 351,446 Grade 1-2-3: Low fair risk 238,981 - - 238,981 252,288 Grade 4: Substandard - - 173,443 173,443 118,141

Grade 5: Impaired - - 150,323 150,323 80,619 Less allowance (23) - - (23) - Grade 6: Impaired - - 51,499 51,499 24,439 Carrying amount 238,958 - - 238,958 252,288

4,282,923 575,221 375,265 5,233,409 5,326,428 Banks Correspondent and Branch Network Branch Less allowance (8,543) (50,802) (209,877) (269,222) (126,767) Other assets Carrying amount 4,274,380 524,419 165,388 4,964,187 5,199,661 Grade 1-2-3: Low fair risk 113,473 - - 113,473 117,135

Balances with other banks and financial institutions Less allowance (371) - - (371) - 922,777 - - 922,777 1,013,148 Grade 1-2: Low fair risk Carrying amount 113,102 - - 113,102 117,135

Grade 4: Substandard - 418 - 418 - Loan Commitments and financial CL Milestones CL Grade 6: Impaired - - 12,444 12,444 9,235 guarantee contract 922,777 418 12,444 935,639 1,022,383 Grade 1-2-3: Low fair risk 1,071,712 33,964 241 1,105,917 888,613 (709) (118) (12,444) (13,271) (9,235) Less allowance Less allowance (980) (814) (15) (1,809) - 922,068 300 - 922,368 1,013,148 Carrying amount Carrying amount 1,070,732 33,150 226 1,104,108 888,613

Annual Report 2018 Credit Libanais Group 142 143 Business Segments Activities Segments Business and Analysis and Amounts arising from ECL Corporate exposures Retail exposures All exposures Inputs, assumptions and techniques used for estimating impairment See accounting policy in Note 3 i (vii). Information obtained during Internally collected data on Payment record - this includes Significant increase in credit risk periodic review of customer customer behaviour; e.g. overdue status as well as Under IFRS 9, when determining whether the credit risk (i.e. risk of default) on a financial instrument has files; e.g. audited financial utilisation of credit card facilities a range of variables about statements, management payment ratios

increased significantly since initial recognition, the Group will consider reasonable and supportable information Activities Functions Control that is relevant and available without undue cost or effort, including both quantitative and qualitative accounts, budgets and External data from credit

information and analysis based on the Bank historical experience, expert credit assessment and forward-looking projections. Examples of areas reference agencies, including Utilisation of the granted limit Analysis and information. of particular focus are: gross industry-standard credit scores profit margins, financial leverage Requests for and granting of The Bank primarily identity whether a significant increase in credit risk has occurred for an exposure by ratios, debt service coverage, forbearance comparing: compliance with covenants, quality of management, senior Existing and forecast changes in the remaining lifetime probability of default (PD) as at the reporting date; with management changes business, financial and economic the remaining lifetime PD for this point time that was estimated on initial recognition of the exposure. conditions

Data from credit reference Activities Functions Support Assessing whether credit risk has increased significantly since initial recognition of a financial instruments agencies, press articles, changes requires identifying the date of initial recognition of the instrument. For certain revolving facilities, (e.g. credit in external credit ratings Analysis and cards and overdrafts), the date when the facility was first entered into could be a long time ago. Modifying the contractual terms of a financial instrument may also affect this assessment, which is discussed below. Actual and expected significant changes in the political, Credit risk grades regulatory and technological The Bank will allocate each exposure to a credit risk grade based on a variety of data that determined to be environment of the borrower or predictive of the risk of default and applying experienced credit judgment. The Bank will use these grades in in its business activities identifying significant increase in credit risk under IFRS 9. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default. These factors may vary depending on the nature of the exposure and the type of borrower. Financial Statements

Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3.

Each exposure will be allocated to credit risk grade on initial recognition based on available information about the borrower. Exposures will be subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically involves use of the following data. and Correspondent Banks Correspondent and Branch Network Branch CL Milestones CL

Annual Report 2018 Credit Libanais Group 144 145 Business Segments Activities Segments Business and Analysis and Generating the term structure of PD For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are considered: Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by jurisdiction, Days past due greater than 90 (mortgage); by type of product and borrower and by credit risk grading. For some portfolios information purchased from Days past due greater than 120 (non-mortgage); and external credit reference agencies may also be used. Exposures in default due to isIMpDefault flag. The Group employs statistical models to analyse the data collected and generate estimates of the remaining

lifetime PD of exposures and how these are expected to change as a result of the passage of time. For the sovereigns, a significant increase in credit risk of an exposure, which would prompt a transition from Activities Functions Control This analysis will include the identification and calibration of elationshipsr between changes in default rates Stage 1 to Stage 2, is defined using the following criteria: and changes in key macro-economic factors. For most exposures, key macro-economic indicators are likely to Analysis and include GDP growth, benchmark interest rates and unemployment. Significant financial difficulty of the sovereign; The Bank’s approach to incorporating forward-looking information into this assessment is discussed below. A breach of contract, such as a default or delinquency in interest or principal payments; Restructured facilities; Determining whether credit risk has increased significantly Evident deterioration in the sovereign’s debt servicing capacity; A mapped rating downgrade to CCC+ (mapped ratings are determined as per Basel II directives i.e. second The Group assesses whether credit risk has increased significantly since initial recognition at each reporting best rating). date. Determining whether an increase in credit risk is significant depends on the characteristics of the financial

instrument and the borrower. What is considered significant differs for different types of lending. Such factors Activities Functions Support are based on its expert judgment and relevant historical experiences. For the financial sector portfolios, a significant increase in credit risk of an exposure, which would prompt a

transition from Stage 1 to Stage 2, is defined using the following criteria: Analysis and i. For the retail portfolio, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria: Significant financial difficulty of the financial institution; A breach of contract, such as a default or delinquency in interest or principal payments; Days past due between 60 and 90 (non-mortgage); Restructured facilities; Days past due between 60 and 120 (mortgage); Material and persistent decrease in the financial institution’s income / future cash flows; Rescheduled facility; Evident deterioration in the financial institution’s debt servicing capacity; and BDL flag – isIMpDefault in (300, 305, 310, 320, 330); Multiple rating downgrades from rating agencies. For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are

Probability of default assigned by the model at the calculation date is significantly higher than the one Financial Statements determined at origination; considered DTI value greater than 1.5 (non-mortgage); and Downgrade of mapped External Credit Rating to CC or below; LTV value greater than 1 (mortgage). When payments on an obligation are not made on the due date; For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are The financial institution files a bankruptcy petition or takes a similar action; and considered: When the default on an obligation is a virtual certainty. Days past due greater than 90 (mortgage); Days past due greater than 120 (non-mortgage); and For the financial instruments portfolios, a significant increase in credit risk of an exposure, which would Exposures in default due to isIMpDefault flag. prompt a transition from Stage 1 to Stage 2, is defined using the following criteria: and Correspondent Banks Correspondent and ii. For the corporate portfolio, a significant increase in credit risk of an exposure, which would prompt a Significant financial difficulty of the issuer; Branch Network Branch transition from Stage 1 to Stage 2, is defined using the following criteria: A breach of contract, such as a default or delinquency in interest or principal payments; Restructured facilities; Days past due between 60 and 90; Material and persistent decrease in the issuer’s income / future cash flows; Rescheduled facility; Evident deterioration in the issuer’s debt servicing capacity; and BDL flag – isIMpDefault in (300, 305, 310, 320, 330); Multiple rating downgrades from rating agencies at the level of the issuer or the issue. A loan is assessed negatively by the Bank’s early warning system; The transition of financial instruments exposures from stage 2 to stage 3 takes place when any default on the A loan is on the Bank’s watch list; and payments of these financial instruments occurs or is not made on the date due. An exposure’s rating at calculation date is worse than the rating at origination date by corresponding number CL Milestones CL of notches given by following table. A staging upgrade may only occur after a cooling period of 1 year, during which the borrower has proven its ability of settlement by paying back his installments without any delinquencies. Moodys 1 2+ 2 2- 3+ 3 3- 4+ 4 4- 5+ 5 5- 6+ 6 6- 7+ 7 7- Any decisions related to the upgrade of financial assets should be documented in detailed minutes of meetings along with the upgrade rationale attaching the supportive documentation. Any update from Stage 3 (i.e. BDL 4, 5 and 6) to Stage 2 requires BCC approval as per clause 4.2 of the BCC 15 13 13 12 11 10 9 8 7 6 5 5 4 3 3 3 1 1 1 Notches Circular no 293.

Annual Report 2018 Credit Libanais Group 146 147 Business Segments Activities Segments Business and Analysis and The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that: 2019 2020 2021 2022 2023

the criteria are capable of identifying significant increases in credit risk before an exposure is in default; Gross fixed Base 4.71% Base 5.27% Base 5.83% Base 6.39% Base 6.95% the criteria do not align with the point in time when an asset becomes 60 days past due; capital formation Range between Range between Range between Range between Range between the average time between the identification of a significant increase in credit risk and default appears (annual % growth) 3.44% and 5.98% 3.13% and 7.40% 2.68% and 8.97% 2.07% and 10.70% 1.32% and 12.57% reasonable; Control Functions Activities Activities Functions Control exposures are not generally transferred directly from 12-month ECL measurement to credit-impaired; and Base 2.31% Base 2.59% Base 2.86% Base 3.14% Base 3.42%

there is no unwarranted volatility in loss allowance from transfers between 12-month PD (Stage 1) and GDP growth Analysis and Range between Range between Range between Range between Range between lifetime PD (Stage 2). (annual % ) 1.69% and 2.94% 1.54% and 3.64% 1.32% and 4.41% 1.02% and 5.26% 0.65% and 6.18% Definition of default The definition of default adopted is the one mentioned in BDL Basic Circular No. 115 stipulating that the Unemployment Base 7.19% Base 7.40% Base 7.61% Base 7.81% Base 8.02% debtor is considered as defaulting in any of the following cases: rates (% of total Range between Range between Range between Range between Range between labor force) 7.51% and 6.88% 7.89% and 6.91% 8.28% and 6.93% 8.68% and 6.94% 9.08% and 6.95% if it appears that the debtor has become unable to fulfill any of his obligations towards the bank, even if the

latter, in order to sue the client, does not resort to its legal right in acquiring or liquidating or executing the Activities Functions Support guarantees, collateral or commitments submitted by the debtor upon obtaining the loan; and Analysis and if more than 90 days have elapsed since the debtor has failed to settle his/her/its liabilities to the bank; Modified financial assets In addition to the abovementioned cases, the overdraft debtor is considered as defaulting, if 90 days have The contractual terms of a loan may be modified for a number of reasons, including changing market elapsed after he exceeded the ceiling of facilities obtained under the original debit account contract or conditions, customer retention and other factors not related to a current or potential credit deterioration of the under the renewed and duly documented debit account contract. This shall also apply to credit accounts that customer. An existing loan whose terms have been modified may be derecognised and the renegotiated loan become debit accounts by chance and that are not settled after 90 days; and recognised as a new loan at fair value. Any exposure set under stage 3 will trigger a contagion effect to all facilities under same client i.e. Stage 3 is applied to all exposures under same client (Cross-Default). Under IFRS 9, when the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether the asset’s credit risk has increased significantly reflects

Incorporation of forward-looking information comparison of: Financial Statements The Bank incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. the remaining lifetime PD at the reporting date based on the modified terms: with Based on a variety of external actual and forecast information, the Bank formulates a ‘base case’ view of the the remaining lifetime PD estimated based on data on initial recognition and the original contractual terms. future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. This process involves developing two additional economic scenarios and considering the relative The Bank renegotiates loans to customers financial difficulties (referred to as ‘forbearance activities’ to maximise probabilities of each outcome. collection opportunities and minimise the risk of default). External information includes economic data and forecasts published by “The World Bank”. The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Both retail and corporate loans are subject to the forbearance policy. The base case represents a most-likely outcome and is aligned with information used by the Bank for other The Bank Credit Committee regularly reviews reports on forbearance activities. and Correspondent Banks Correspondent and purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more For financial assets modified as part of the Banks’ forbearance policy, the estimate of PD will reflect whether the pessimistic outcomes. Periodically, the Bank carries out stress testing of more extreme shocks to calibrate its modification has improved or restored the Bank’s ability to collect interest and principle and the Bank’s previous Network Branch determination of these other representative scenarios. experience of similar forbearance action.

The Bank has identified and documented key drivers of credit risk and credit losses for each portfolio of Generally, forbearance is a qualitative indicator of default and credit impairment and expectations of financial instruments and, using an analysis of historical data, has estimated elationshipsr between macro- forbearance are relevant to assessing whether there is a significant increase in credit risk. Following forbearance, economic variables and credit risk and credit losses. a customer needs to demonstrate consistently good payment behaviour over a period at time before the exposure is no longer considered to be in default/credit-impaired or the PD is considered to have decreased The economic scenarios used as at 31 December 2018 included the following ranges of key indicators for such that the loss allowance reverts to being measured at an amount equal to 12-month ECLs. Lebanon for the years ending 31 December 2019 to 2023. CL Milestones CL

Annual Report 2018 Credit Libanais Group 148 149 Business Segments Activities Segments Business and Analysis and

Measurement of ECLs 2018 The key inputs into the measurement of ECLs are likely to be the term structures of the following variables: In Millions of Lebanese Pound Stage 1 Stage 2 Stage 3 Total

PD Loans and advances to customers at amortised cost - loss given default (LGD); and retail customers * exposure at default (EAD). Balance at 1 January 5,976 25,757 41,304 73,037

These parameters will be derived from internally developed statistical models and other historical data that Activities Functions Control Transfer to Stage 1 639 (606) (33) – leverage regulatory models. Transfer to Stage 2 (1,118) 1,874 (756) – PD estimates are estimates at a certain date, which will be calculated based on statistical rating models and Analysis and assessed using rating tools tailored to the various categories of counterparties and exposures. Transfer to Stage 3 (44) (4,813) 4,857 – LGD the magnitude of the likely loss if there is a default. Net remeasurement of loss allowance (372) (663) 14,643 13,608 EAD represents the expected exposure in the event of default. The EAD of a financial asset will be the gross New financial assets originated or purchased 768 613 126 1,507 carrying amount at default. For lending commitments and financial guarantees, the EAD will consider the Transfer from unrealised interest to ECL Stage 3 – – 64,445 64,445 amount drawn. Recoveries and releases (120) (42) (2,434) (2,596) Where modelling of a parameter is carried out on a collective basis, the financial instruments will be grouped on Balance at 31 December the basis of shared risk characteristics that include: 5,729 22,120 122,152 150,001

Loans and advances to customers at amortised cost - Activities Functions Support instrument type, corporate customers * credit risk grading’s, Balance at 1 January 6,177 34,212 40,149 80,538 Analysis and industry; Transfer to Stage 1 657 (657) – – geographic location of the borrower. Transfer to Stage 2 (77) 179 (102) – Loss allowance Transfer to Stage 3 (96) (1,137) 1,233 – The following tables show reconciliations from the opening to the closing balance of the loss allowance by class Net remeasurement of loss allowance (3,749) (3,875) 4,119 (3,505) of financial instrument. Comparative amounts for 2017 represent impairment allowance for credit losses and New financial assets originated or purchased 144 62 14 220 unrealised interest and reflect measurement basis under IAS 39. Transfer from unrealised interest to ECL Stage 3 – – 48,478 48,478

2018 2017 Recoveries and releases (242) (102) (6,166) (6,510) Financial Statements Balance at 31 December 2,814 28,682 87,725 119,221 In Millions of Lebanese Pound Stage 1 Stage 2 Stage 3 Total Total

Balances with Central Banks * Movement of loss allowance by type of customer is above. Balance at 1 January 14,952 – – 14,952 – Recoveries and releases (3,727) – – (3,727) – Balance at 31 December 11,225 – – 11,225 – Loans and advances to customers

Balance at 1 January 12,153 59,969 81,453 153,575 90,398 Banks Correspondent and

Transfer to Stage 1 1,296 (1,263) (33) – – Network Branch Transfer to Stage 2 (1,195) 2,053 (858) – – Transfer to Stage 3 (140) (5,950) 6,090 – – Net remeasurement of loss allowance (4,121) (4,538) 18,762 10,103 38,641 New financial assets originated or

purchased 912 675 140 1,727 – Recoveries and releases (362) (144) (8,600) (9,106) (2,038) Transfer from unrealised interest to CL Milestones CL ECL Stage 3 – – 112,923 112,923 – Write-offs – – – – (371) Foreign exchange and other move-

ments – – – – 137 Balance at 31 December 8,543 50,802 209,877 269,222 126,767

Annual Report 2018 Credit Libanais Group 150 151 Business Segments Activities Segments Business

2018 2017 and Analysis and

In Millions of Lebanese Pound Stage 1 Stage 2 Stage 3 Total Total

Balances with other banks and financial institutions Balance at 1 January 292 35 11,103 11,430 – Net remeasurement of loss allowance 417 83 1,341 1,841 –

Balance at 31 December 709 118 12,444 13,271 – Activities Functions Control Loans and advances to related and Analysis and parties Balance at 1 January 1,767 118 2,237 4,122 (3,800) Net remeasurement of loss allowance 312 – – 312 – Balance at 31 December 2,079 118 2,237 4,434 (3,800) Debt investment securities at amortised cost Balance at 1 January 21,652 – – 21,652 – Support Functions Activities Functions Support Net remeasurement of loss allowance 1,445 – – 1,445 –

Balance at 31 December 23,097 – – 23,097 – Analysis and Debtors by acceptances Balance at 1 January 29 – – 29 – Net remeasurement of loss allowance (6) – – (6) – Balance at 31 December 23 – – 23 – Other assets Balance at 1 January – – – – –

Net remeasurement of loss allowance 371 – – 371 – Financial Statements Balance at 31 December 371 – – 371 – Loan commitments and financial guarantee contract Balance at 1 January 828 215 5 1,048 – Net remeasurement of loss allowance 152 599 10 761 – Balance at 31 December 980 814 15 1,809 –

The following table provides a reconciliation between: Banks Correspondent and

amounts shown in the above tables reconciling opening and closing balances of loss allowance per class of Network Branch financial instrument; and the impairment losses on financial instruments line item in the consolidated statement of profit or loss and other comprehensive income.

Balances with other Loan commitments and Cash and balances Loans and advances banks and financial Loans and advanc- Debt investment securi- Debtors financial In Millions of Lebanese Pound with Central Banks to customers institutions es to related parties ties at amortised cost by acceptances Other assets guarantee contract Total CL Milestones CL Net remeasurement of loss allowance – 10,103 1,841 312 1,445 (6) 371 761 14,827

New financial assets originated or purchased – 1,727 – – – – – – 1,727

Recoveries and releases (3,727) (9,106) – – – – – – (12,833)

Total (3,727) 2,724 1,841 312 1,445 (6) 371 761 3,721

Annual Report 2018 Credit Libanais Group 152 153 Business Segments Activities Segments Business and Analysis and Impaired financial assets - Comparative information under IAS 39 The Group typically does not hold collateral against balances with other banks and financial institutions and against investment securities, and no such collateral was held at 31 December 2018 or 2017. The Group did not obtain non-financial assets during the year by taking possession of collateral held as security Loans and advances to customers against loans and advances. The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Group generally does In Millions of Lebanese Pound 2017 not use the non-cash collateral for its own operations.

Neither past due nor impaired Activities Functions Control Grade 1-3: Low fair risk 5,103,229 Concentration of credit risk

The Group monitors concentrations of credit risk by sector and by geographic location. An analysis of Analysis and 5,103,229 concentrations of credit risk from loans and advances and investment securities is shown below: Individually impaired Grade 4: Substandard 118,141 Grade 5: Doubtful 80,619 Grade 6: Loss 24,439 Loans and advances Loans and advances Balances with Central Investment to customers to related parties banks, banks debt securities 223,199 and financial institutions Allowance for impairment In Millions of Lebanese Pound 2018 2017 2018 2017 2018 2017 2018 2017 Activities Functions Support Individual (59,222) Collective (67,545) Carrying amount 4,964,187 5,199,661 17,003 15,504 8,256,520 6,307,275 4,735,807 5,024,736 Analysis and Total allowance for impairment (126,767)

Concentration by sector Retail 2,140,566 2,217,824 1,710 2,015 – – – – Collateral held Trade and services 1,674,726 1,426,872 5,712 4,172 – – – – Type of credit exposure Industries 627,579 644,861 – – – – – – The Group holds collateral against certain of its credit exposures. The table below sets out the principal types Construction and real estate 440,423 812,910 9,581 9,317 – – – –

of collateral held against loans and advances to customers and related parties. Brokerage 23,030 28,732 – – – – – – Financial Statements Agriculture 55,680 65,066 – – – – – – Banks and financial institutions – – – 922,368 1,013,148 54,737 43,646 Corporate – – – – – – 3,965 4,244 In Millions of Lebanese Pound 2018 2017 Government 2,183 3,396 – – 7,334,152 5,294,127 4,677,105 4,976,846 4,964,187 5,199,661 17,003 15,504 8,256,520 6,307,275 4,735,807 5,024,736

Principal type of collateral held for secured lending Concentration by location Lebanon 4,735,647 4,991,468 17,003 15,496 7,271,165 5,249,793 4,657,313 4,958,552 Engagement by signature received 38,484 46,437

Middle East and Africa 128,327 155,303 – 8 210,441 236,130 66,813 66,184 Banks Correspondent and Personal guarantees received 4,279,106 4,352,852 Europe 86,905 41,733 – – 628,316 686,248 11,681 – Network Branch Mortgages and real securities received 4,722,679 4,586,290 Other 13,308 11,157 – – 146,598 135,104 – –

Mobilisation bills received as guarantee 31,173 38,885 4,964,187 5,199,661 17,003 15,504 8,256,520 6,307,275 4,735,807 5,024,736

Bills received as guarantee 13,211 3,332 Concentration by location for loans and advances to customers, related parties and banks and financial Commitment and contingencies received 695,205 805,980 institutions are based on the country of domicile. Concentration by location for investment securities is based on the country of domicile of the issuer of the security. 9,779,858 9,833,776 CL Milestones CL

Annual Report 2018 Credit Libanais Group 154 155 Business Segments Activities Segments Business and Analysis and Trading assets The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress An analysis of the credit quality of the maximum credit exposure, based on the median rating of the three factors relating to both the market in general and specifically to the Group. The Group maintains a solid ratio of eligible rating agencies as per Basel II (Moody’s, Standard & Poor’s and Fitch) where applicable, is as follows: highly liquid net assets in foreign currencies to deposits and commitments in foreign currencies taking market conditions into consideration. In accordance, with the Central Bank of Lebanon circulars, the ratio of net liquid assets to deposits and commitments in foreign currencies and Lebanese Pounds should not be less than 10% From CCC+ and 40% respectively. The highly liquid net assets consist of cash and balances with Central Banks, balances From A+ From BBB+ From BB+ From B+ to CCC- with other banks and financial institutions less deposits from banks and financial institutions and deposits that Control Functions Activities Activities Functions Control In Millions of Lebanese Pound to A- to BBB- to BB- to B- or NR Total mature within one year. Deposits and commitments are composed of total deposits from customers in addition

31 December 2018 to acceptances and loans that mature within one year. Analysis and Financial assets at fair value through When a branch is subject to a liquidity limit imposed by its local regulator, the branch is responsible for profit or loss - - - 7,259 4,858 12,117 managing its overall liquidity within the regulatory limit in co-ordination with Central Treasury. Central Treasury 31 December 2017 monitors compliance of all foreign branches with local regulatory limits on a daily basis. Financial assets at fair value through The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits profit or loss - - - 65,455 2,317 67,772 from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment debt securities for which there is an active and liquid market less any deposits from banks and

financial institutions, other borrowings and commitments maturing within the next month. A similar, but not Activities Functions Support (c) Liquidity risk identical, calculation is used to measure the Group’s compliance with the liquidity limit established by the Central Bank of Lebanon and the Banking Control Commission. Details of the reported Group ratio of net liquid Analysis and Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its assets to deposits from customers at the reporting date was as follows: financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity risk 2018 2017 The Group’s Board of Directors sets the Group’s strategy for managing liquidity risk and delegates the responsibility for the oversight of the implementation of this policy to the Risk Committee and ALCO. ALCO At 31 December approves the Group’s liquidity policies and procedures. Central Treasury manages the Bank’s liquidity position 34.87% 36.81%

on a day-to-day basis and reviews daily reports covering the liquidity position of both the Bank and foreign Financial Statements branches.

The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The key elements of the Group’s liquidity strategy are as follows:

Maintaining a diversified funding base consisting of customer deposits (both etailr and corporate) and

maintaining contingency facilities; Banks Correspondent and

Carrying a portfolio of highly liquid assets, diversified by currency and maturity; Network Branch Monitoring liquidity ratios, maturity mismatches, behavioural characteristics of the Group’s financial assets and liabilities, and the extent to which the Group’s assets are encumbered and so not available as potential collateral for obtaining funding.

In addition, the Group maintains statutory deposits with Central Banks. As per Lebanese banking regulations, the Group must retain non-interest bearing balances with the Central Bank of Lebanon equivalent to 25% of the sight deposits and 15% of term deposits denominated in Lebanese Pounds. As for foreign currencies, the Group must retain with the Central Bank of Lebanon interest bearing statutory investments equivalent to 15% of all deposits regardless of their nature. Milestones CL

Annual Report 2018 Credit Libanais Group 156 157 Business Segments Activities Segments Business and Analysis and Maturity analysis for assets and liabilities

The tables below set out the remaining contractual maturities of the Bank’s assets and liabilities.

Amount 1-3 3-6 6 months 1-5 More than Activities Functions Control In Millions of Lebanese Pound without maturity months months to 1 year years 5 years Total and Analysis and

31 December 2018 Assets Cash and balances with Central Banks 935,709 191,453 241,200 171,855 1,215,794 4,653,318 7,409,329 Balances with other banks and financial institutions 920,293 2,000 – – 75 – 922,368 Loans and advances to customers 1,745,270 62,372 85,753 159,823 849,951 2,061,018 4,964,187 Support Functions Activities Functions Support Loans and advances to related parties 13,279 289 247 103 1,128 1,957 17,003

Debtors by acceptances 238,958 – – – – – 238,958 Analysis and Financial assets at fair value through other comprehensive income 58,918 – – – 92,636 9,550 161,104 Financial assets at fair value through profit or loss 6,087 – 537 – 3,448 2,045 12,117 Financial assets at amortised cost 83,695 131,773 129,005 206,696 1,336,158 2,729,412 4,616,739 Investments in equity-accounted investees 16,849 – – – – – 16,849 Property and equipment 236,570 – – – – – 236,570 Intangible assets 9,288 – – – – – 9,288

Assets held for sale 55,680 – – – – – 55,680 Financial Statements Other assets 113,102 – – – – – 113,102 Total assets 4,433,698 387,887 456,742 538,477 3,499,190 9,457,300 18,773,294

Liabilities Loans and deposits from Central Banks (379,137) (339,825) (789,998) (16,520) (52,857) (726,278) (2,304,615) Balances from other banks and financial institutions (110,241) (26,112) (182,558) (5,080) – – (323,991) Deposits from customers (7,646,345) (1,968,698) (1,794,559) (1,764,151) (569,578) (1,500) (13,744,831)

Deposits form related parties (141,950) (17,651) (69,717) (100,452) (5,082) – (334,852) Banks Correspondent and

Engagement by acceptances (238,981) – – – – – (238,981) Network Branch Subordinated debt issued (9,795) – – – – (150,750) (160,545) Tax liabilities (46,519) – – – – – (46,519) Other liabilities (223,727) – – – – – (223,727) Provisions for risks and charges (56,629) – – – – – (56,629) Shareholders’ equity (1,338,604) – – – – – (1,338,604) Total liabilities and shareholders’ equity (10,191,928) (2,352,286) (2,836,832) (1,886,203) (627,517) (878,528) (18,773,294) CL Milestones CL Liquidity gap (5,758,230) (1,964,399) (2,380,090) (1,347,726) 2,871,673 8,578,772 –

Cumulative gap (5,758,230) (7,722,629) (10,102,719) (11,450,445) (8,578,772) – –

Annual Report 2018 Credit Libanais Group 158 159 Business Segments Activities Segments Business and Analysis and

Amount 1-3 3-6 6 months 1-5 More than In Millions of Lebanese Pound without maturity months months to 1 year years 5 years Total Control Functions Activities Activities Functions Control and Analysis and 31 December 2017 Assets Cash and balances with Central Banks 133,854 884,228 150,751 341,774 1,033,263 2,820,959 5,364,829 Balances with other banks and financial institutions 455 1,012,693 – – – – 1,013,148 Loans and advances to customers 114,281 1,838,547 108,728 140,497 825,946 2,171,662 5,199,661 Loans and advances to related parties 3 13,254 208 – 1,130 909 15,504 Debtors by acceptances – 185,427 58,634 8,227 – – 252,288 Support Functions Activities Functions Support Financial assets at fair value through other comprehensive income 83,390 – – – – 25,623 109,013

Financial assets at fair value through profit or loss 3,373 – – 3,402 32,787 28,210 67,772 Analysis and Financial assets at amortised cost 63,568 273,695 267,956 260,673 1,537,762 2,555,627 4,959,281 Investments in equity-accounted investees 16,972 – – – – – 16,972 Property and equipment 237,629 – – – – – 237,629 Intangible assets 10,761 – – – – – 10,761 Assets held for sale 55,171 – – – – – 55,171 Other assets 117,135 – – – – – 117,135

Total assets 836,592 4,207,844 586,277 754,573 3,430,888 7,602,990 17,419,164 Financial Statements

Liabilities Loans and deposits from Central Banks (1,666) (88,171) (199,954) (125,054) (272,002) (480,251) (1,167,098) Balances from other banks and financial institutions (927) (101,800) (80,160) (288) (878) – (184,053) Deposits from customers (83,110) (10,595,401) (1,268,936) (1,124,661) (611,024) (1,057) (13,684,189) Deposits form related parties (3,023) (321,172) (10,897) (2,454) – – (337,546) Engagement by acceptances – (185,427) (58,634) (8,227) – – (252,288)

Subordinated debt issued (7,313) – – – (113,063) – (120,376) Banks Correspondent and

Tax liabilities (9,624) (12,835) (11,300) – – – (33,759) Network Branch Other liabilities (259,632) (57,309) – – – – (316,941) Provisions for risks and charges (49,851) – – – – – (49,851) Shareholders’ equity (1,273,063) – – – – (1,273,063) Total liabilities and shareholders’ equity (1,688,209) (11,362,115) (1,629,881) (1,260,684) (996,967) (481,308) (17,419,164)

Liquidity gap (851,617) (7,154,271) (1,043,604) (506,111) 2,433,921 7,121,682 – CL Milestones CL Cumulative gap (851,617) (8,005,888) (9,049,492) (9,555,603) (7,121,682) – –

Annual Report 2018 Credit Libanais Group 160 161 Business Segments Activities Segments Business and Analysis and The above tables show the undiscounted cash flows on the Group’s assets and liabilities on the basis of their earliest possible contractual maturity.

The Group’s expected cash flows on some assets and liabilities vary significantly from the contractual cash flows. For example, demand deposits from customers are expected to maintain a stable or increasing balance. As part of the management of its liquidity risk arising from financial liabilities, the Group holds liquid assets comprising cash and cash equivalents, compulsory reserves with Central Banks and investment securities for which there is an active and liquid market so that they can be readily sold to meet liquidity requirements. In Activities Functions Control addition, the Bank maintains agreed lines of credit with banks. and Analysis and

Liquidity reserves

2018 2018 2017 2017 Support Functions Activities Functions Support Carrying amount Fair value Carrying amount Fair value In Millions of Lebanese Pound and Analysis and

Cash and balances with Central Banks 1,542,876 1,542,876 1,441,587 1,441,587

(d) Market risks Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates

will affect the Group’s income or the value of its holdings of financial instruments. The objective of the Group’s Financial Statements market risk management is to manage and control market risk exposures within acceptable parameters in order to ensure the Group’s solvency while optimising the return on risk.

Management of market risks Overall authority for market risk management is vested in ALCO. ALCO sets up limits for each type of risk in aggregate and for portfolios, with market liquidity being a primary factor in determining the level of limits set for trading portfolios. The Group Market Risk is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation.

The Group employs a range of tools to monitor and limit market risk exposures. Banks Correspondent and Branch Network Branch Exposure to interest rate risk The principal risk to which portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. A summary of the Group’s interest rate gap position is as follows. CL Milestones CL

Annual Report 2018 Credit Libanais Group 162 163 Business Segments Activities Segments Business and Analysis and

Carrying Less than 3-6 6-12 1-5 More than Non interest In Millions of Lebanese Pound amount 3 months months months years 5 years bearing Control Functions Activities Activities Functions Control and Analysis and 31 December 2018 Assets Cash and balances with Central Banks 7,409,329 380,079 241,200 171,855 1,215,794 4,653,318 747,083 Balances with other banks and financial institutions 922,368 690,086 – – 75 – 232,207 Loans and advances to customers 4,964,187 1,700,501 85,753 159,823 849,951 2,061,018 107,141 Loans and advances to related parties 17,003 13,622 247 103 1,128 1,903 – Debtors by acceptances 238,958 – – – – – 238,958 Support Functions Activities Functions Support Financial assets at fair value through other comprehensive income 161,104 – – – 92,380 9,550 59,174

Financial assets at fair value through profit or loss 12,117 – 537 – 3,448 3,276 4,856 Analysis and Financial assets at amortised cost 4,616,739 158,668 129,005 206,696 1,336,158 2,729,412 56,800 Investments in equity-accounted investees 16,849 – – – – – 16,849 Property and equipment 236,570 – – – – – 236,570 Intangible assets 9,288 – – – – – 9,288 Assets held for sale 55,680 – – – – – 55,680 Other assets 113,102 – – – – – 113,102

Total assets 18,773,294 2,942,956 456,742 538,477 3,498,934 9,458,477 1,877,708 Financial Statements

Liabilities Deposits from other banks and financial institutions (2,304,615) (710,583) (789,998) (16,520) (52,857) (727,062) (7,595) Deposits from other banks and financial institutions (323,991) (73,597) (182,558) (5,080) – – (62,756) Deposits from customers (13,744,831) (8,160,283) (1,794,559) (1,764,151) (569,578) (1,500) (1,454,760) Deposits from related parties (334,852) (145,941) (69,717) (100,452) (5,082) – (13,660) Engagements by acceptances (238,981) – – – – – (238,981)

Subordinated debt issued (160,545) – – – – (150,750) (9,795) Banks Correspondent and

Tax liabilities (46,519) – – – – – (46,519) Network Branch Other liabilities (223,727) – – – – – (223,727) Provisions for risks and charges (56,629) – – – – – (56,629) Shareholders’ equity (1,338,604) – – – – – (1,338,604) Total liabilities and equity (18,773,294) (9,090,404) (2,836,832) (1,886,203) (627,517) (879,312) (3,453,026)

Interest rate sensitivity gap – (6,147,448) (2,380,090) (1,347,726) 2,871,417 8,579,165 (1,575,318) CL Milestones CL Cumulative gap – (6,147,448) (8,527,538) (9,875,264) (7,003,847) 1,575,318 –

Annual Report 2018 Credit Libanais Group 164 165 Business Segments Activities Segments Business and Analysis and

Carrying Less than 3-6 6-12 1-5 More than Non interest In Millions of Lebanese Pound amount 3 months months months years 5 years bearing Control Functions Activities Activities Functions Control and Analysis and 31 December 2017 Assets Cash and balances with Central Banks 5,364,829 1,178,190 88,943 233,235 555,385 2,753,122 555,954 Balances with other banks and financial institutions 1,013,148 722,380 290,768 Loans and advances to customers 5,199,661 1,838,547 108,728 140,497 825,946 2,171,662 114,281 Loans and advances to related parties 15,504 13,254 208 – 1,130 909 3 Debtors by acceptances 252,288 – – – – – 252,288 Support Functions Activities Functions Support Financial assets at fair value through other comprehensive income 109,013 – – – – – 109,013

Financial assets at fair value through profit or loss 67,772 – – – – – 67,772 Analysis and Financial assets at amortised cost 4,959,281 273,695 267,956 260,673 1,537,762 2,555,627 63,568 Investments in equity-accounted investees 16,972 – – – – – 16,972 Property and equipment 237,629 – – – – – 237,629 Intangible assets 10,761 – – – – – 10,761 Assets held for sale 55,171 – – – – – 55,171 Other assets 117,135 – – – – – 117,135

Total assets 17,419,164 4,026,066 465,835 634,405 2,920,223 7,481,320 1,891,315 Financial Statements

Liabilities Deposits from other banks and financial institutions (1,167,098) (80,188) (199,954) (125,054) (272,002) (480,251) (9,649) Deposits from other banks and financial institutions (184,053) (76,660) (80,160) (288) (878) – (26,067) Deposits from customers (13,684,189) (9,360,862) (1,268,936) (1,124,661) (611,024) (1,057) (1,317,649) Deposits from related parties (337,546) (304,145) (10,897) (2,454) – – (20,050) Engagements by acceptances (252,288) – – – – – (252,288)

Subordinated debt issued (120,376) – – – (113,063) – (7,313) Banks Correspondent and

Tax liabilities (33,759) – – – – – (33,759) Network Branch Other liabilities (316,941) – – – – – (316,941) Provisions for risks and charges (49,851) – – – – – (49,851) Shareholders’ equity (1,273,063) – – – – – (1,273,063) Total liabilities and equity (17,419,164) (9,821,855) (1,559,947) (1,252,457) (996,967) (481,308) (3,306,630)

Interest rate sensitivity gap – (5,795,789) (1,094,112) (618,052) 1,923,256 7,000,012 (1,415,315) CL Milestones CL Cumulative gap – (5,795,789) (6,889,901) (7,507,953) (5,584,697) 1,415,315 –

Annual Report 2018 Credit Libanais Group 166 167 Business Segments Activities Segments Business and Analysis and The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves. An analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows: Control Functions Activities Activities Functions Control and Analysis and

Change in bp Sensitivity of net interest income In Millions of Lebanese Pound

31 December 2018 +100 (102,365) LBP

+50 (25,845) Activities Functions Support USD +25 (256) EUR and Analysis and

In millions of Lebanese Pound Change in bp Sensitivity of net interest income

31 December 2017 LBP +100 (75,895) USD +50 (22,472) Financial Statements EUR +25 (259)

Overall interest rate risk positions are managed by Risk Management, which uses investment securities, advances to banks, deposits from banks to manage the overall position arising from the Group’s activities. and Correspondent Banks Correspondent and Branch Network Branch CL Milestones CL

Annual Report 2018 Credit Libanais Group 168 169 Business Segments Activities Segments Business and Analysis and Exposure to currency risk

The Group monitors any concentration risk in relation to any individual currency in regard to the translation of foreign currency transactions and monetary assets and liabilities into the functional currency of the Group, and with regard to the translation of foreign operations into the presentation currency of the Group.

The following table presents the breakdown of assets and liabilities by currency: Control Functions Activities Activities Functions Control

31 December 2018 31 December 2017 and Analysis and

In Millions of Lebanese Pound LBP Other Total LBP Other Total

Assets

Cash and balances with Central Banks 3,765,671 3,643,658 7,409,329 2,429,660 2,935,169 5,364,829

Balances with other banks and financial institutions 79,634 842,734 922,368 34,205 978,943 1,013,148 Activities Functions Support

Loans and advances to customers 2,175,817 2,788,370 4,964,187 2,296,059 2,903,602 5,199,661 and Analysis and Loans and advances to related parties 2,168 14,835 17,003 1,199 14,305 15,504

Debtors by acceptances – 238,958 238,958 – 252,288 252,288

Financial assets at fair value through other comprehensive income 31,387 129,717 161,104 4,660 104,353 109,013

Financial assets at fair value through profit or loss – 12,117 12,117 48,318 19,454 67,772

Financial assets at amortised cost 2,711,128 1,905,611 4,616,739 3,039,732 1,919,549 4,959,281

Investments in equity-accounted investees 6,325 10,524 16,849 13,910 3,062 16,972 Financial Statements Property and equipment 229,691 6,879 236,570 230,320 7,309 237,629

Intangible assets 8,843 445 9,288 10,383 378 10,761

Assets held for sale 6,436 49,244 55,680 6,436 48,735 55,171

Other assets 98,675 14,427 113,102 101,460 15,675 117,135

Total assets 9,115,775 9,657,519 18,773,294 8,216,342 9,202,822 17,419,164

Liabilities and Correspondent Banks Correspondent and Loans and deposits from Central Banks 2,282,027 22,588 2,304,615 1,167,098 – 1,167,098 Branch Network Branch Deposits from other banks and financial institutions 14,384 309,607 323,991 12,465 171,588 184,053

Deposits from customers 5,758,617 7,986,214 13,744,831 6,124,764 7,559,425 13,684,189

Deposits from related parties 25,191 309,661 334,852 19,362 318,184 337,546

Engagements by acceptances – 238,981 238,981 – 252,288 252,288

Subordinated debt issued – 160,545 160,545 – 120,376 120,376

Tax liabilities 46,519 – 46,519 19,231 14,528 33,759

Other liabilities 50,937 172,790 223,727 117,274 199,667 316,941 Milestones CL

Provisions for risks and charges 48,063 8,566 56,629 43,764 6,087 49,851

Shareholders’ equity 1,085,224 253,380 1,338,604 961,747 311,316 1,273,063

Total liabilities and equity 9,310,962 9,462,332 18,773,294 8,465,705 8,953,459 17,419,164

(195,187) 195,187 – (249,363) 249,363 –

Annual Report 2018 Credit Libanais Group 170 171 Business Segments Activities Segments Business and Analysis and The Group is subject to currency risk on financial assets and liabilities denominated in currencies other than the The Board of Directors has delegated responsibility for operational risks to management which is responsible Group’s functional currency, which is the Lebanese Pound (LBP). Most of these financial assets and liabilities are for the development and implementation of controls to address operational risk. This responsibility is supported denominated in US Dollars or Euros. by the development of overall Bank standards for the management of operational risk in the following areas: Since the LBP is pegged to the USD since 1999 in a band of LBP 1,500 and LBP 1,515, the net exposure is minimal. requirements for appropriate segregation of duties, including the independent authorisation of transactions; requirements for the reconciliation and monitoring of transactions; An analysis of the Group’s sensitivity to a change in currency rates, assuming all other variables remain constant, compliance with regulatory and other legal requirements; Control Functions Activities Activities Functions Control is as follows: documentation of controls and procedures;

requirements for the periodic assessment of operational risks faced, and the adequacy of controls and Analysis and procedures to address the risks identified; requirements for the reporting of operational losses and proposed remedial action; development of contingency plans; training and professional development; Increase in currency rate Effect on profit before tax Effect on equity In Millions of Lebanese Pound ethical and business standards; and risk mitigation, including insurance where this is cost effective. 31 December 2018 USD 1% (316) 8,250 Compliance with Group standards is supported by a program of periodic reviews undertaken by Internal Audit. Activities Functions Support EUR 1% (15) – The results of Internal Audit reviews are discussed with the management, with summaries submitted to the

BHD 1% 277 – Audit Committee and senior management of the Group. Analysis and XOF 1% – – (f) Capital management

In millions of Lebanese Pound Increase in currency rate Effect on profit before tax Effect on equity Regulatory capital The Group’s lead regulator, the Central Bank of Lebanon, sets and monitors capital requirements for the Group 31 December 2017 as a whole. The Group’s regulatory capital adequacy ratio at 31 December was as follows: USD 1% (443) 3,579 Financial Statements EUR 1% (8) – 2018 2017 BHD 1% 315 – Capital adequacy ratio - Tier 1 capital XOF 1% – – 14.26% 13.02%

Capital adequacy ratio - Total capital 16.59% 13.44%

(e) Operational risks To monitor the adequacy of its capital, the Group uses ratios established by the Bank for International Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Settlements (BIS). In line with Basel III and Central Bank of Lebanon Basic Circular no. 44 amended by Central Banks Correspondent and Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, Bank of Lebanon Intermediary Circular no. 282, the minimum requirements for capital adequacy ratios are set at Network Branch market and liquidity risks, such as those arising from legal and regulatory requirements and generally accepted 8% by the BIS and 15% by the Central Bank of Lebanon. These ratios measure capital adequacy by comparing standards of corporate behaviour. Operational risks arise from all of the Group’s operations. the Group’s eligible capital with its statement of financial position, off-balance-sheet commitments and market and other risk positions at weighted amounts to reflect their relative risk. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and The market risk approach covers the risk of open positions in currencies and debt and equity securities. Assets damage to the Group’s reputation with overall cost effectiveness and innovation. In all cases, the Group policy are weighted according to broad categories of notional risk, being assigned a risk weighting according to the requires compliance will all applicable legal and regulatory requirements. amount of capital deemed to be necessary to support them. Six categories of risk weights (0%, 20%, 35%, 50%, 75%, 100%) are applied; for example cash and LBP placements with the Central Bank have a 0% risk weighting

which means that no capital is required to support the holding of these assets. Milestones CL Off-balance-sheet credit instruments are taken into account by applying different categories of conversion factors, designed to convert these items into statement of financial position equivalents. The results of the capital adequacy computation exercise are presented to Senior Management and the Group’s Risk Committee for regular review and monitoring of the Group’s overall capitalisation levels. The resulting equivalent amounts are then weighted for risk using the same percentages as for on-balance- sheet assets.

Annual Report 2018 Credit Libanais Group 172 173 Business Segments Activities Segments Business and Analysis and The Group’s regulatory capital comprises two tiers: (a) Valuation models

• Tier 1 capital, which includes ordinary share capital, share premium, retained earnings and NCI after The Group measures fair values using the following fair value hierarchy, which reflects the significance of the deductions for intangible assets, and other regulatory adjustments relating to items that are included in equity inputs used in making the measurements. but are treated differently for capital adequacy purposes; and • Tier 2 capital, which includes qualifying subordinated liabilities, and the element of the fair value Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. reserve relating to unrealised gains and losses on equity instruments measured at fair value through other Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as Activities Functions Control comprehensive income and real estate revaluation reserve. prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market

prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets Analysis and The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market that are considered less than active; or other valuation techniques in which all significant inputs are directly or confidence and to sustain future development of the business. indirectly observable from market data. The Bank and its individually regulated operations have complied with all externally imposed capital Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique requirements. includes inputs that are not observable and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences In Millions of Lebanese Pound 2018 2017 between the instruments. Support Functions Activities Functions Support

Risk weighted assets Valuation techniques include net present value and discounted cash flow models, comparison with similar Credit risk 7,933,322 7,766,769 instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques Analysis and Market risk 57,827 203,981 include risk-free and benchmark interest rates, bond and equity prices and foreign currency exchange rates. Operational risk 672,145 647,499 The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants Total risk weighted assets 8,663,294 8,618,249 at the measurement date.

The Bank’s regulatory capital position under Basel III at 31 December was as follows: Financial Statements

In Millions of Lebanese Pound 2018 2017

Tier 1 capital 1,235,018 1,121,899 Tier 2 capital 202,115 36,007 Total regulatory capital 1,437,133 1,157,906 and Correspondent Banks Correspondent and Branch Network Branch

6. Fair values of financial instruments

The fair values of financial assets and financial liabilities that ear traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective,

and requires varying degrees of judgment depending on liquidity, concentration uncertainty of market factors, Milestones CL pricing assumptions and other risks affecting the specific instrument.

Annual Report 2018 Credit Libanais Group 174 175 Business Segments Activities Segments Business and Analysis and (b) Financial instruments measured at fair value – fair value hierarchy

The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position. Control Functions Activities Activities Functions Control

Carrying amount Fair Value and Analysis and Designated at Amortised Other financial Total Level 1 Level 2 Level 3 Total In Millions of Lebanese Pound fair value cost liabilities

31 December 2018

Financial assets measured at fair value

Financial assets at fair value through profit or loss Activities Functions Support

Lebanese government treasury bills and eurobonds 7,259 – – 7,259 7,259 – – 7,259 and Analysis and

Unquoted equity securities 4,858 – – 4,858 – – 4,858 4,858 Financial assets at fair value through other comprehensive income

Unquoted equity securities 5,924 – – 5,924 – – 5,924 5,924

Quoted equity securities 13,992 – – 13,992 13,992 – – 13,992

Debt securities 113,867 – – 113,867 87,527 26,340 – 113,867

Preferred shares 27,321 – – 27,321 – 27,321 – 27,321 Financial Statements 173,221 – – 173,221 108,778 53,661 10,782 173,221 Financial assets not measured at fair value

Cash and balances with Central Banks – 7,409,329 – 7,409,329 75,177 7,334,152 – 7,409,329

Balances with other banks and financial institutions – 922,368 – 922,368 – 922,368 – 922,368

Loans and advances to customers – 4,964,187 – 4,964,187 – 4,923,592 – 4,923,592

Loans and advances to related parties – 17,003 – 17,003 – 16,965 – 16,965

Financial assets at amortised cost – 4,616,739 – 4,616,739 1,615,074 2,730,358 – 4,345,432 and Correspondent Banks Correspondent and – 17,929,626 – 17,929,626 1,690,251 15,927,435 – 17,617,686 Branch Network Branch Financial liabilities not measured at fair value

Loans and deposits from Central Banks – – (2,304,615) (2,304,615) – (2,304,615) – (2,304,615)

Deposits from other banks and financial institutions – – (323,991) (323,991) – (323,991) – (323,991)

Deposits from customers – – (13,744,831) (13,744,831) – (13,739,810) – (13,739,810)

Deposits from related parties – – (334,852) (334,852) – (334,790) – (334,790)

Subordinated debt issued – – (160,545) (160,545) – (160,545) – (160,545)

Tax liabilities – – (46,519) (46,519) – (46,519) – (46,519) Milestones CL

Other liabilities – – (223,727) (223,727) – (223,727) – (223,727)

– – (17,139,080) (17,139,080) – (17,133,997) – (17,133,997)

Annual Report 2018 Credit Libanais Group 176 177 Business Segments Activities Segments Business and Analysis and Control Functions Activities Activities Functions Control and Analysis and Carrying amount Fair value

Designated at Amortised Other financial Total Level 1 Level 2 Level 3 Total In Millions of Lebanese Pound fair value cost liabilities

31 December 2017

Financial assets measured at fair value Activities Functions Support

Financial assets at fair value through profit or loss and Analysis and

Lebanese government treasury bills and eurobonds 65,455 – – 65,455 17,137 48,318 – 65,455

Unquoted equity securities 2,317 – – 2,317 – – 2,317 2,317 Financial assets at fair value through other comprehensive income

Unquoted equity securities 6,042 – – 6,042 – – 6,042 6,042

Quoted equity securities 75,691 – – 75,691 75,691 – – 75,691

Preferred shares 27,280 – – 27,280 – 27,280 – 27,280 Financial Statements 176,785 – – 176,785 92,828 75,598 8,359 176,785 Financial assets not measured at fair value

Cash and balances with Central Banks – 5,364,829 – 5,364,829 70,702 5,294,127 – 5,364,829

Balances with other banks and financial institutions – 1,013,148 – 1,013,148 – 1,013,148 – 1,013,148

Loans and advances to customers – 5,199,661 – 5,199,661 – 4,809,977 – 4,809,977

Loans and advances to related parties – 15,504 – 15,504 – 15,291 – 15,291

Financial assets at amortised cost – 4,959,281 – 4,959,281 1,781,895 3,189,232 – 4,971,127 and Correspondent Banks Correspondent and – 16,552,423 – 16,552,423 1,852,597 14,321,775 – 16,174,372 Branch Network Branch Financial liabilities not measured at fair value

Loans and deposits from Central Banks – – (1,167,098) (1,167,098) – (1,167,098) – (1,167,098)

Deposits from other banks and financial institutions – – (184,053) (184,053) – (184,053) – (184,053)

Deposits from customers – – (13,684,189) (13,684,189) – (13,684,147) – (13,684,147)

Deposits from related parties – – (337,546) (337,546) – (337,546) – (337,546)

Subordinated debt issued – – (120,376) (120,376) – (120,376) – (120,376)

Tax liabilities – – (33,759) (33,759) – (33,759) – (33,759) Milestones CL

Other liabilities – – (316,941) (316,941) – (316,941) – (316,941)

– – (15,843,962) (15,843,962) – (15,843,920) – (15,843,920)

Annual Report 2018 Credit Libanais Group 178 179 Business Segments Activities Segments Business and Analysis and 7. Cash and balances with Central Banks 9. Loans and advances to customers

In Millions of Lebanese Pound 2018 2017 2018 Cash 75,177 70,702 Unrestricted balances with Central Banks 5,664,151 3,789,388 Expected credit loss Control Functions Activities Activities Functions Control Mandatory reserves with the Central Bank of Lebanon 1,535,053 1,433,805 In Millions of Lebanese Pound Gross amount allowance Carrying amount Mandatory reserves with the Central Bank of Iraq 3,419 3,432 and Analysis and Mandatory reserves with the Central Bank of Cyprus 734 524 Regular retail customers: Mandatory reserves with the Central Bank of Bahrain 600 600 Normal Mandatory reserves with the Central Bank of Senegal 3,070 3,226 Cash collateral 130,139 (107) 130,032 Interest receivable 138,350 63,152 Mortgage 1,727,669 (7,133) 1,720,536 Expected credit loss allowance (11,225) – Personal 52,956 (325) 52,631 7,409,329 5,364,829 Credit cards 44,703 (92) 44,611

Other 310,169 (1,702) 308,467 Activities Functions Support In accordance with Central Bank of Lebanon regulations, the Bank is required to constitute mandatory reserves Watch 101,145 (26,691) 74,454 in Lebanese pounds (LBP) of 15% and 25% of the average weekly customers’ term and sight commitment Analysis and accounts denominated in Lebanese pounds respectively. The Bank is also required to constitute mandatory Regular corporate customers: reserves in foreign currency (FCY) calculated on the basis of 15% of total customers deposit accounts denominated in foreign currency, regardless of their nature. Normal 2,266,659 (3,332) 2,263,327 Watch 206,239 (30,427) 175,812 Foreign branches and subsidiaries with banking operations are also subject to mandatory reserve requirements

with varying percentages, according to the banking rules and regulations of the countries in which they are operating. Classified retail customers: Substandard 102,542 (38,501) 64,041 Mandatory reserve deposits are not available for use in the Group’s day-to-day operations. Cash on hand and Financial Statements LBP reserves are non-interest bearing, whereas FCY reserves are floating-rate assets. Doubtful 74,695 (54,005) 20,690 Cash and balances with Central Bank include assets under leverage arrangement amounting to LBP 999,349 Bad 23,670 (21,799) 1,871 million (2017: 94,544 million) in Lebanese Pounds originated from and are pledged against the corresponding leverage arrangements with the Central Bank of Lebanon for the same amount in Lebanese pounds (See note Classified corporate customers: 18), purpose of which is to provide yield adjustment on certain transactions related to either fresh deposits in Substandard 70,901 (17,596) 53,305 foreign currency or sale of foreign currency against Lebanese Pounds placed in term deposits at the Central Doubtful 75,628 (42,145) 33,483 Bank of Lebanon and/or Government securities. The leverage and related pledged assets mechanism resulted Bad in a yield enhancement on term placements with Central Bank of Lebanon and Lebanese treasury bills. 27,829 (25,367) 2,462

and Correspondent Banks Correspondent and 8. Balances with other banks and financial institutions Accrued interest receivable 18,465 – 18,465 5,233,409 (269,222) 4,964,187 Network Branch In Millions of Lebanese Pound 2018 2017

Current accounts 232,254 290,313 Term deposits 690,085 710,884 Loans and advances to banks 75 11,496 Impaired loans to banks and financial institutions 12,422 9,235 Expected credit loss allowance on impaired loans to banks CL Milestones CL and financial institutions (12,422) – Less specific allowance for impairment – (9,235) Interest receivable 781 455 Expected credit loss allowance (827) – 922,368 1,013,148

Annual Report 2018 Credit Libanais Group 180 181 Business Segments Activities Segments Business and Analysis and 2017 Below is movement of expected credit loss allowance (2017: impairment allowance) booked on loans and advances to customers. Gross amount (net of Impairment

In Millions of Lebanese Pound unrealised interest) allowance Carrying amount In Millions of Lebanese Pound Note 2018 2017 Regular retail customers:

Balance at 1 January 126,767 90,398 Activities Functions Control Normal Adjustment upon IFRS 9 application 5 (b) 26,808 – Cash collateral 137,247 – 137,247 Analysis and Expected credit loss allowance for the year: Mortgage 1,801,323 – 1,801,323 Charge for the year 5 (b) 11,830 – Personal 50,884 – 50,884 Recoveries and releases 5 (b) (9,106) – Credit cards 42,346 – 42,346 Impairment allowance for the year based on IAS 39: Other 298,555 – 298,555 Charge for the year 33 – 38,641 Watch 96,372 – 96,372 Recoveries and releases 33 – (2,038)

Transfer from unrealised interest to ECL stage 3 5 (b) 112,923 – Regular corporate customers: Activities Functions Support Provision transferred from to off balance sheet – 5 Normal 2,403,570 – 2,403,570

Transfer from provisions for risks and charges – 13 Analysis and Watch 255,074 – 255,074 Difference of exchange – 119

Provisions written off – (371) Classified retail customers: Balance at 31 December 269,222 126,767 Substandard 67,081 – 67,081 Doubtful 46,938 (19,329) 27,609 Bad 8,549 (8,549) – 10. Financial assets at fair value through other comprehensive income Classified corporate customers: Financial Statements Substandard 51,060 – 51,060 In Millions of Lebanese Pound 2018 2017 Doubtful 33,681 (15,454) 18,227 Bad 15,890 (15,890) – Unquoted equity securities 5,924 6,042 Collective allowance – (67,545) (67,545) Quoted equity securities * 13,992 75,691 Accrued interest receivable 17,858 – 17,858 Preferred shares 25,624 25,624 5,326,428 (126,767) 5,199,661 Debt securities 111,809 – Interest receivable 2,058 – and Correspondent Banks Correspondent and Accrued dividend receivable 1,697 1,656 Branch Network Branch 161,104 109,013

* During 2018, the Bank sold his shares in Visa class “C” (See Note 27). CL Milestones CL

Annual Report 2018 Credit Libanais Group 182 183 Business Segments Activities Segments Business and Analysis and 11. Financial assets at fair value through profit or loss 13. Investments in equity-accounted investees 2018 2017 In Millions of Lebanese Pound 2017 2018 Country of Ownership Ownership incorporation interest interest Lebanese government treasury bills and eurobonds 7,125 64,399 Interest receivable 134 1,056 Company Activities Functions Control 7,259 65,455 Agence Generale de Courtage d’Assurance S.A.L. Lebanon 25.86% 25.86% Credit Card Management S.A.L. Lebanon 28.96% 28.96% Analysis and Unquoted equity securities * 5,902 2,317 International Payment Network S.A.L. Lebanon 20.18% 20.18% Impairment losses on unquoted equity securities (1,044) – Net Commerce S.A.L. Lebanon 19.10% 19.10% 4,858 2,317 Hot Spot Properties S.A.L. Lebanon 48.13% 48.13% 12,117 67,772 Dourrat Loubnan Al Iqaria S.A.L. Lebanon 45.00% 45.00%

* Unquoted equity securities represent investments in start-up companies. During 2018, the Group recognised impairment losses amount-

ing to LBP 1,044 million as these companies are incurring losses. Activities Functions Support 2018 2017

Country of Analysis and In millions of Lebanese Pound 12. Financial assets at amortised cost incorporation

Company In Millions of Lebanese Pound 2017 2018 Agence Generale de Courtage d’Assurance S.A.L. Lebanon 7,285 6,786 Credit Card Management S.A.L. Lebanon 3,356 3,244 Lebanese government treasury bills and eurobonds 2,773,055 3,304,957 International Payment Network S.A.L. Lebanon 1,728 1,678 Other sovereign bonds 64,681 64,251 Net Commerce S.A.L. Lebanon 323 304 Interest receivable

44,505 49,251 Financial Statements Hot Spot Properties S.A.L. Lebanon 452 1,290 Expected credit loss allowance (19,816) – Dourrat Loubnan Al Iqaria S.A.L. Lebanon 3,705 3,670 2,862,425 3,418,459 16,849 16,972

Certificates of deposits issued by the Central Bank of Leba- 1,674,676 1,478,716 non 35,295 14,216 Interest receivable (2,678) – The Group’s share of its equity-accounted investees for the year was LBP 1,906 million (2017: LBP 2,188 million). Expected credit loss allowance 1,707,293 1,492,932 Summary financial information for equity-accounted investees is as follows.

Banks Correspondent and

Network Branch

Other debt instruments - Corporate bonds 47,532 47,798 Interest receivable 92 92 In Millions of Lebanese Pound 2018 2017 Expected credit loss allowance (603) –

47,021 47,890 Current assets 66,982 64,806 4,616,739 4,959,281 Non current assets 16,201 16,444 Current liabilities (14,623) (14,440) Non current liabilities (10,116) (10,430) Financial assets at amortised cost include assets under leverage arrangement amounting to LBP 483,673 Milestones CL million (2017: 245,226 million) in Lebanese Pounds originated from and are pledged against the corresponding Net assets 58,444 56,380 leverage arrangements with the Central Bank of Lebanon for the same amount in Lebanese pounds (See note 18), purpose of which is to provide yield adjustment on certain transactions related to either fresh deposits in Income 19,306 19,460 foreign currency or sale of foreign currency against Lebanese Pounds placed in term deposits at the Central Expenses Bank of Lebanon and/or Government securities. The leverage and related pledged assets mechanism resulted (11,442) (12,327) in a yield enhancement on term placements with Central Bank of Lebanon and Lebanese treasury bills. Profit 7,864 7,133

Annual Report 2018 Credit Libanais Group 184 185 Business Segments Activities Segments Business and Analysis and 14. Property and equipment 15. Intangible assets

Land and Installations Furniture Power Advances and and Vehicles generators on capital Total Key money Licenses Software Total In Millions of Lebanese Pound Buildings improvements equipment expenditures In Millions of Lebanese Pound

Cost Cost

Balance at 1 January 2017 224,246 56,622 59,903 2,107 2,394 5,880 351,152 Activities Functions Control Additions 90 502 3,518 42 – 3,174 7,326 Balance at 1 January 2017 1,883 11,800 20,673 34,356 and Analysis and Disposals – (3) (1,714) (23) (230) (60) (2,030) Additions 174 3,426 2,261 5,861 Transfers – 1,908 633 – – (2,541) – Disposals – (7) (142) (149) Balance at 31 December 2017 224,336 59,029 62,340 2,126 2,164 6,453 356,448 Balance at 31 December 2017 2,057 15,219 22,792 40,068

Balance at 1 January 2018 224,336 59,029 62,340 2,126 2,164 6,453 356,448 Balance at 1 January 2018 2,057 15,219 22,792 40,068 Additions 2,378 44 1,489 162 – 4,226 8,299 Additions 13 1,473 756 2,242

Disposals – (646) (1,140) (137) – – (1,923) Disposals – (12) (33) (45) Activities Functions Support Transfers – 1,203 451 – – (1,654) – Balance at 31 December 2018 2,070 16,680 23,515 42,265

Balance at 31 December 2018 226,714 59,630 63,140 2,151 2,164 9,025 362,824 Analysis and Accumulated amortisation Accumulated depreciation Balance at 1 January 2017 21,114 44,506 41,874 1,392 1,933 – 110,819 Balance at 1 January 2017 1,713 6,981 17,498 26,192 Depreciation for the year 4,148 1,265 4,242 157 120 – 9,932 Amortisation for the year 52 1,537 1,533 3,122 Disposals – (3) (1,676) (23) (230) – (1,932) Disposals – (7) – (7) Balance at 31 December 2017 25,262 45,768 44,440 1,526 1,823 – 118,819 Balance at 31 December 2017 1,765 8,511 19,031 29,307 Financial Statements

Balance at 1 January 2018 25,262 45,768 44,440 1,526 1,823 – 118,819 Balance at 1 January 2018 1,765 8,511 19,031 29,307 Depreciation for the year 4,163 1,067 3,922 130 76 – 9,358 Amortisation for the year 52 1,913 1,750 3,715 Disposals – (646) (1,140) (137) – (1,923) Disposals – (12) (33) (45) Balance at 31 December 2018 29,425 46,189 47,222 1,519 1,899 – 126,254 Balance at 31 December 2018 1,817 10,412 20,748 32,977

Carrying amounts Carrying amounts Balance at 1 January 2017 203,132 12,116 18,029 715 461 5,880 240,333 Balance at 1 January 2017 170 4,819 3,175 8,164

Balance at 31 December 2017 199,074 13,261 17,900 600 341 6,453 237,629 Balance at 31 December 2017 292 6,708 3,761 10,761 Banks Correspondent and

Balance at 31 December 2018 197,289 13,441 15,918 632 265 9,025 236,570 Balance at 31 December 2018 253 6,268 2,767 9,288 Network Branch

16. Assets held for sale

In Millions of Lebanese Pound 2018 2017 Milestones CL

Balance at 1 January 55,171 36,694 Additions 1,662 20,145 Disposals (1,153) (1,668) Balance at 31 December 55,680 55,171

Annual Report 2018 Credit Libanais Group 186 187 Business Segments Activities Segments Business and Analysis and 17. Other assets The first loan which is financed by Standard Chartered Bank amounts to LBP 25,881 million (2017: LBP 38,605 million). In Millions of Lebanese Pound 2018 2017 The second loan which is financed by Caixabank SA amounts to LBP 8,561 million (2017: LBP 30,621 million) Accounts receivable and prepayments 9,309 6,602 and the third loan is financed by First Abu Dhabi Bank amounts to LBP 28,530 million (2017: LBP 11,553 million). Loans are granted for periods not exceeding 182 days bearing an interest not exceeding 6 month Reinsurers’ share of technical reserves 16,098 18,453 Libor plus 1.8% for Standard Chartered Bank and First Abu Dhabi and 6 months Libor plus 0.55% for Caixabank Restricted deposits with the Central Treasury 7,033 6,015 Activities Functions Control SA. Additionally, a loan was granted by SMBC Dubai amounting to LBP 29,386 million bearing an interest not Deferred charges 2,550 3,091

exceeding 6 month Libor + 1.85%. Analysis and Expected credit loss allowance (371) – Other assets 78,483 82,974 During 2018, three new loans were granted. The first loan was granted by International Finance Corporation 113,102 117,135 amounting to LBP 75,375 million maturing in 2026 and bearing an average interest rate of 6.75%. A loan was granted by Banca UBAE S.P.A. amounting to LBP 43,118 million maturing in 2019 and bearing an interest of 3 month Euribor plus 1.8%. 18. Loans and deposits from Central Banks

In Millions of Lebanese Pound 2018 2017 Activities Functions Support

Current account 8,244 7,983 Analysis and Loans from Central Banks* 2,288,777 1,157,449 20. Deposits from customers Accrued interest payable 7,594 1,666 In Millions of Lebanese Pound 2018 2017 2,304,615 1,167,098 Term deposits 5,390,048 5,107,118 * Following the Central Bank of Lebanon basic decision no. 6116 related to basic circular no. 23 and Current deposits 1,132,855 1,256,694 intermediate circular no. 367 issued on 11 August 2014, the Central Bank of Lebanon offered the commercial Savings 7,060,504 7,185,196 banks facilities that are subject to an interest rate of 1% per annum payable on a yearly basis. These facilities

Other credit balances Financial Statements were given subject to granting mainly loans back to clients at an average interest rate of 4.22% (2017: 4.34%). 52,178 52,071 Accrued interest payable 109,246 83,110 During 2017 and 2018, the Bank made term placements in USD with the Central Bank of Lebanon amounting 13,744,831 13,684,189 to LBP 835,155 million (2017: LBP 273,913 million). In return the Central Bank of Lebanon granted a loan in LBP amounting to 125% of the amount invested in term placements in USD. The Central Bank of Lebanon would provide such return under one condition that the loaned amount is used to purchase Treasury Bills in LBP. The Bank placed LBP 1 trillion (2017: LBP 339,770 million) with BDL as part of the financial engineering. Loans from Central Banks include term loans amounting to LBP 1,483,022 million (2017: LBP 339,770 million) secured by term placements with the Central Bank of Lebanon and Lebanese Treasury bills (see Notes 7 and 12). 21. Subordinated debt issued

In Millions of Lebanese Pound 2018 2017 Banks Correspondent and

19. Deposits from other banks and financial institutions Network Branch Subordinated debt 150,750 113,063 In Millions of Lebanese Pound 2018 2017 Accrued interest payable 9,795 7,313 160,545 120,376 Current deposits 60,200 25,140 Term deposits 12,867 47,728 Loan from banks * 210,851 80,779 Financial institutions 37,518 29,479

Accrued interest payable 2,555 927 During 2010, the Bank issued subordinated bonds for an amount of USD 75 million bearing an interest rate of Milestones CL 6.75% payable annually which matured on 15 January 2018. The amount was settled by the Bank during the 323,991 184,053 current year. On 15 of March 2018, the Bank issued subordinated debt for the amount of USD 100 million bearing an interest * Loan from banks are loans granted by Standard Chartered Bank, Caixabank SA and First Abu Dhabi Bank rate of 7.75% and maturing in 2028. before being lent to corporate clients of the Bank with matching maturities. They are trade loans in nature These subordinated debts are included in Tier 2 capital as per local regulatory requirements. involving cross border transactions

Annual Report 2018 Credit Libanais Group 188 189 Business Segments Activities Segments Business and Analysis and 22. Tax liabilities 24. Provisions for risks and charges

In Millions of Lebanese Pound 2018 2017 In Millions of Lebanese Pound 2018 2017

Income tax 20,779 11,224 Provision for structural exchange position (a) 5,611 5,611 Taxes on interest 9,050 6,764 Provision for employee benefits obligations (b) 39,622 36,926 Control Functions Activities Activities Functions Control Taxes on salaries 2,771 4,536 Provision for risks and charges (c) 9,296 7,044

Deferred tax liabilities 1,860 9,624 Expected credit loss provisions for off-balance sheet items 1,809 – Analysis and Other taxes 12,059 1,611 Provision for loss on foreign currency position (d) 291 270 46,519 33,759 56,629 49,851

(a) Provision for structural exchange position

23. Other liabilities This provision is taken as per the requirement of Central Bank Circular number 32 related to foreign exchange

position. Activities Functions Support In Millions of Lebanese Pound 2018 2017 (b) Provision for employee benefits obligations Analysis and Margins held against documentary credits 33,922 57,309 The movement in the provision for employee benefits obligations during the year was as follows. Due to reinsurance 17,115 15,753 Technical reserves for insurance companies 97,738 108,716 Accrued expenses 6,404 6,004 In Millions of Lebanese Pound 2018 2017 Unearned revenue 6,435 7,749 Balance at 1 January Other creditors 22,746 22,008 36,926 36,271 Provision raised during the year 4,953 5,529 Deferred surplus* – 60,045 Financial Statements Provision used during the year Other payables 39,367 39,357 (2,257) (4,855) Provision written-off during the year 223,727 316,941 – (28) Difference of exchange – 9

* During 2016, the Bank entered into sales transactions of Lebanese Treasury Bills in Lebanese Pounds Balance at 31 December 39,622 36,926 designated at amortised cost securities and having a nominal value of LBP 198 billion concluded in conjunction with the acquisition of BDL CDs and Lebanese Republic Eurobonds in U.S. Dollars with longer maturity designated at amortised cost with a nominal value of USD 132 million. (c) Provision for risks and charges

An exceptional gain of LBP 60,045 million resulted from these special swaps which is largely considered as The movement in the provision for risks and charges during the year was as follows. Banks Correspondent and

government grant and was deferred within other liabilities and was reassessed at the year end to ensure its Network Branch alignment with: In Millions of Lebanese Pound Note 2018 2017

(i) BDL circular 446 requirements which attach certain conditions with respect to the utilisation of such gains; and Balance at 1 January 7,044 6,450 Provision transferred during the year 23 2,084 745 (ii) The accounting requirements of IAS 20 on government grants with respect to the timing of recognition of Provision used during the year (871) (340) such gains in the profit or loss, .i.e. when the conditions of such a grant have been fulfilled. Provision released 1,048 198 Transfer to collective allowance – (35)

During 2018 and upon the implementation of IFRS 9, the Group has allocated LBP 57,961 million to allowance Milestones CL for ECL (see note 4) and the remaining surplus which amounted to LBP 2,084 was transferred to provisions for Difference of exchange (9) 26 risks and charges (see note 24 (c) ). Balance at 31 December 9,296 7,044

Annual Report 2018 Credit Libanais Group 190 191 Business Segments Activities Segments Business and Analysis and (d) Provision for loss on foreign currency position (b) Legal reserve The Lebanese Commercial Law and the Group’s articles of association stipulate that 10% of the net annual As per local regulatory requirements the Group provides for an amount equivalent to 5 percent of its year-end profits be transferred to legal reserve. This reserve is not available for distribution. foreign exchange position.

(a) Reserve appropriated to capital increase 25. Share capital and share premium In compliance with Banking Control Commission circular no. 173, the gain realised on the sale of an asset Activities Functions Control At 31 December 2018 and 2017, the authorised and issued share capital comprised 23,400,000 ordinary shares acquired in settlement of debt (note 16) should be appropriated from retained earnings and recorded as with a nominal value of LBP 11,000. All shares rank equally with regards to the Bank’s residual assets. “Reserve for capital increase”. Analysis and The holders of ordinary shares are entitled to receive dividends as declared from time to time. All issued shares are fully paid.

Dividends 27. Fair value reserve The following dividends were declared and paid by the Group during the year:

In Millions of Lebanese Pound 2017 2018 In Millions of Lebanese Pound 2018 2017 Activities Functions Support

LBP 1,701.03 per ordinary share (2017: LBP 1,693.21)

39,804 39,621 Analysis and Fair value reserve 356 52,411 LBP 11,080 per preferred share (2017: 11,080) 11,080 11,080 50,884 50,701 The movement in fair value reserve is as follows:

Issue of preferred shares In Millions of Lebanese Pound 2018 2017 In July 2013, the extraordinary general assembly of shareholders approved the issue of 1,000,000 perpetual non-cumulative preferred shares with a nominal value of LBP 11,000; increasing the share capital of the Bank Balance at 1 January 52,411 33,908 Financial Statements from LBP 257,400 million to LBP 268,400 million, thus an increase of LBP 11,000 million. The share premium Impact of adopting IFRS 9 (9,184) – amounted to LBP 139,750 per share. Restated balance at 1 January 43,227 33,908 Holders of these shares receive a non-cumulative dividend at the Bank’s discretion, or whenever dividends Net change in fair of financial assets at fair value through to ordinary shareholders are declared. They do not have the right to participate in any additional dividends other comprehensive income 20,099 18,503 declared for ordinary shareholders. These shares do not have voting rights. Sale of VISA Class “C” (62,970) – Balance at 31 December 356 52,411

26. Capital reserves and Correspondent Banks Correspondent and

In Millions of Lebanese Pound 2018 2017 28. Other reserves Network Branch

General banking risks reserve (a) – 134,309 Legal reserve (b) 135,787 120,685 In Millions of Lebanese Pound 2018 2017 Reserve appropriated to capital increase (c) 11,467 5,461 Reserve for property acquired in settlement of debt 20,004 18,293 147,254 260,455 Other reserves 368,460 253,894 388,464 272,187 (a) General banking risks reserve Milestones CL The Group is required, according to the Central Bank regulations and commencing at 1998, to set-up a reserve for general banking risks at a minimum of 0.2% and a maximum rate of 0.3% of the risk weighted assets and off-balance sheet financial instruments in local and foreign currencies. This reserve should not be less than 1.25% and 2% by the end of the 10th and the 20th years, respectively. During 2018, LBP 134,309 million was transferred to other reserves (See Note 28).

Annual Report 2018 Credit Libanais Group 192 193 Business Segments Activities Control Functions Activities Support Functions Activities FinancialFinancial StatementsStatements Branch Network CL Milestones and Analysis and Analysis and Analysis and Correspondent Banks 194 195 – – – – 308 (55) 2,038 3,741 2,563 13,664 20,276 21,227 21,227 2017 2017 2017 (1,378) (38,036) (38,641) – – – (809) 43 12,833 (4,530) 2018 (23) (17) (16,554) 1,269 2,218 1,322 1,282 11,062 14,592 2018 2018 9 9 5(b) 5(b) Note to customers Net gain on trading portfolio quoted securities Dividend received on unquoted securities Dividend received on position Net gain on foreign currency amortised cost * Net gain on sale of investments securities at at amortised cost Net loss from exchange of financial assets Interest paid on islamic banking activities Expected credit loss allowance booked Allowance for impairment on loans and advances to customers Allowance for impairment on loans and advances to related parties Direct write-offs Write-back on expected credit loss allowance booked Release of allowance for impairment on loans and advances Net gain on sale of investment securities at amortised cost * Net gain on sale of investment securities gain on certificate of deposits swap deal the amortisation of the deferred The LBP 1,322 million represents performed in 2016 (2017: LBP 1,362 million). the Bank of Lebanon where with the Central Bank agreement into a repurchase During 2017, the Bank entered in LBP issued by the Central Bank of Lebanon with bills denominated sold certificates of deposits and treasury and maturing in January 2026 and 25,000 million maturing in June 2023 a nominal value of LBP 50,000 million 2047 million maturing in June 2037 and LBP 50,000 million maturing in June placed the amounts of LBP 33,000 gain on the transactions amounted to LBP 4,440 million and LBP 1,610 with the Central Bank of Lebanon. The respectively. the Bank of Lebanon where with the Central agreement into a repurchase During 2017, the Bank also entered notes denominated in LBP issued by the Central Bank of Lebanon with a nominal value of Bank sold treasury of LBP 25,000 million maturing in LBP 150,000 million maturing in September 2025 and placed the amounts million maturing in May 2047 with the June 2032, LBP 68,000 million maturing in June 2037 and LBP 75,000 13,815 million. Central Bank of Lebanon. The gain on the transactions amounted to LBP 33. Net impairment losses on financial assets In Millions of Lebanese Pound 31. Net trading income 31. Net Pound In Millions of Lebanese cost financial assets at amortised 32. Net gains on In Millions of Lebanese Pound – – – 517 7,394 6,937 32,560 30,576 58,742 66,050 2017 2017 (9,744) (6,637) (7,632) 924,574 129,272 240,979 320,807 355,334 279,363 (21,800) (33,223) (29,999) (63,222) (645,211) (645,211) (599,398) 648 (865) 7,926 36,959 27,731 55,903 64,545 16,535 10,213 (7,692) 2018 2018 128,519 399,731 336,259 340,035 274,965 (10,112) (10,112) (35,674) (28,300) (63,974) (40,406) (24,598) (20,421) (724,362) (788,050) 1,063,015 41 41 Note Note Credit Libanais GroupCredit Libanais Group Fee and commission income Fees on credit cards and ATM transactions Fees on transactions with customers Fees on various banking transactions Fees on letters of guarantee Total fee and commission income Fee and commission expense Fees on credit cards and ATM transactions Fees on various banking transactions Total fee and commission expense Net fee and commission income Net interest income Interest expense Loans and deposits from Central Banks Deposits from other banks and financial institutions Deposits from customers Deposits from related parties Subordinated debt issued Subordinated notes expense interest Total Interest income Central Banks Cash and balances with and financial institutions Balances with other banks customers Loans and advances to related parties Loans and advances to cost Financial assets at amortised value through other comprehensive income Financial assets at fair on interest Tax interest income Total In Millions of Lebanese Pound 30. Net fee and commission income In Millions of Lebanese Pound In Millions of Lebanese 29. Net interest income interest 29. Net Annual Report 2018Annual Report 2018 Business Segments Activities Segments Business and Analysis and 34. Personal expenses Reconciliation of tax expense on the Credit Libanais SAL (standalone)’s operations in Lebanon

In Millions of Lebanese Pound Note 2018 2017 In Millions of Lebanese Pound 2018 2017

Wages and salaries 88,814 84,540 Profit before income tax 147,573 149,662 Board of Directors attendance fees 41 2,697 3,178 Income tax expense (21,906) (26,962)

Compulsory social security obligations 12,719 12,010 Profit for the year 125,667 122,700 Activities Functions Control Employee benefits obligation 5,310 6,215 Current tax liability 20,000 9,500 Other personnel expenses 16,257 15,730 Less: profit of branches abroad and subsidiaries (23,752) (21,992) Analysis and 125,797 121,673 Non-deductible provisions 3,110 37,447 Release provision subjected to tax (7,978) – Add: non-deductible expenses 2,160 2,670 35. Other expenses Add: 5% tax on interest received – 11,598 Less: dividends received (14,448) (20,007) In Millions of Lebanese Pound 2018 2017 Less: tax exempt income (146) (162) Support Functions Activities Functions Support Taxable income Rental and building charges 6,516 6,642 104,613 141,754

Corporate income tax expense at 17% (2017: 15.4%) * Analysis and Taxes and similar disbursements 7,251 7,599 17,784 21,830 Less: tax paid on interest received ** Advertising expenses 7,810 8,054 – (12,328) Excess of corporate tax over tax paid on interest Electricity, water and heating charges 3,848 4,931 17,784 9,502 Tax on interest Insurance premiums 3,072 2,879 40,406 12,328 Information technology costs 4,800 4,400 58,190 21,830 Effective income tax rate Repairs and maintenance charges 4,240 4,448 39.43% 14.59% Postage and telecommunication charges 2,451 2,478

Professional fees 5,693 5,598 * During 2017, the Ministry of Finance increased the corporate income tax rate from 15% to 17%, 15% Financial Statements Premiums for the guarantee of deposits 6,797 6,641 applicable for the period ending 26 October 2017 inclusive, and 17% applicable starting 27 October 2017. Travel and entertainment fees 2,459 2,503 Computer maintenance charges 3,730 2,787 ** In addition, the Ministry of Finance published a new Decision no. 1504/1 dated 22 December 2017 regarding Transportation charges 2,342 2,350 the implementation of Article 51 of Law no. 497/2003 which states that interest income is subject to a tax rate Board of directors attendance allowance 2,770 2,668 of 7% (5% applicable for the period starting 1 January 2017 till 26 October 2017 inclusive, while 7% starting 27 Stationery and office supplies 1,411 1,366 October 2017) and Banks can no longer benefit from deducting the tax on interest received when calculating Training charges 649 663 the income tax.

Impairment losses on financial investments 500 – Banks Correspondent and

Other expenses 1,874 3,343 Network Branch 68,213 69,350

37. Cash and cash equivalents 36. Tax expense In Millions of Lebanese Pound 2018 2017

In Millions of Lebanese Pound 2018 2017 Cash and balances with Central Banks 577,284 655,832

Balances with other banks and financial institutions 922,368 1,001,555 Milestones CL Income tax expense on the Bank’s operations (20,639) (24,171) Loans and deposits from Central Banks (8,244) (7,983) Income tax expense on subsidiaries and branches (1,267) (2,791) Deposits from other banks and financial institutions (60,200) (25,140) (21,906) (26,962) 1,431,208 1,624,264

Annual Report 2018 Credit Libanais Group 196 197 Business Segments Activities Segments Business and Analysis and 38. Commitments and contingencies (b) Significant restrictions

In Millions of Lebanese Pound 2018 2017 The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate. Financing commitments The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid Financing commitments given to customers 377,275 668,019 assets, limit their exposure to other parts of the Group, and comply with other ratios.

Financing commitments given to financial institutions 649,229 422,979 Activities Functions Control Guarantees (b) NCI in subsidiaries

Guarantees given to customers 250,941 232,510 Analysis and The following table summarises the information relating to the Group’s subsidiary that has a material NCI. Restricted and non-restricted fiduciary accounts 11,081 15,497 Commitments of signature received from financial intermediaries 38,484 46,437 Other commitments received 9,741,374 9,787,339 Credit Libanais D’Assurances et de Reassurances S.A.L

NCI percentage 33,03 33,03 39. Assets under management Support Functions Activities Functions Support In Millions of Lebanese Pound In Millions of Lebanese Pound 2018 2017 2018 2017 and Analysis and Assets 213,949 216,477 Assets under management 573,348 521,415 Liabilities 121,280 133,755 Net assets 92,669 82,722 Carrying amount of NCI 30,609 27,323 40. Group Entities Revenue 22,343 22,830 Profit 21,975 18,753 (a) List of significant subsidiaries Profit allocated to NCI 7,258 6,194 Financial Statements Cash flows from operating activities 4,463 6,041 The following table shows information related to the significant subsidiaries of the Group. Cash flows used in investing activities (3,965) (9,463) Cash flows used in financing activities (13,816) (11,782)

Country of 2018 2017 Net decrease in cash and cash equivalents (13,318) (15,204) Company Business activity incorporation % of control % of control

Credit Libanais Investment Bank SAL Banking Lebanon 99.86 99.86 41. Related parties Lebanese Islamic Bank SAL Banking Lebanon 99.84 99.84 (a) Transactions and balances with key management personnel

Cedar’s Real Estate SAL Real estate Lebanon 99.92 99.92 Banks Correspondent and

Soft Management SAL IT solutions Lebanon 47.00 47.00 Key management personnel and their immediate relatives have transacted with the Group during the year as Network Branch Hermes Tourism and Travel SAL Tourism and ticketing Lebanon 99.99 99.99 follows: Credit Libanais d’Assurances et de Reassurances SAL Insurance Lebanon 66.97 66.97 In Millions of Lebanese Pound 2018 2017 Business Development Center SARL Advertising Lebanon 98.62 98.62 Capital Real Estate SAL Real estate Lebanon 99.00 99.00 Direct facilities and credit balances Credilease SAL Leasing services Lebanon 99.26 99.26 Loans and advances 8,355 7,408 Collect SAL Collection services of receivables Lebanon 44.94 44.94 Deposits 298,728 302,367 Credit International SA Banking Senegal 89.13 89.13 Indirect facilities CL Milestones CL Credit Libanais SAL (Limassol Branch) Banking Cyprus Branch Branch Letters of guarantees 28 28 Credit Libanais SAL (Bahrain Branch) Banking Bahrain Branch Branch Credit Libanais SAL (Baghdad Branch) Banking Iraq Branch Branch Credit Libanais SAL (Erbil Branch) Banking Iraq Branch Branch Interest rates charged on balances outstanding from related parties are equal to the internally approved rates for employees of the Bank.

Annual Report 2018 Credit Libanais Group 198 199 Business Segments Activities Segments Business and Analysis and No impairment losses have been recorded against balances outstanding during the year with key management (e) Deposits from related parties personnel, and no specific allowance has been made for impairment losses on balances with key management personnel and their immediate relatives at the year end. In Millions of Lebanese Pound 2018 2017 Key management personnel compensation for the year comprised: Term deposits 169,707 158,489 Current deposits 11,208 16,798 In Millions of Lebanese Pound 2018 2017 Savings 151,540 159,236 Activities Functions Control Accrued interest payable 2,397 3,023 Short-term employee benefits 9,764 11,237 334,852 337,546 Analysis and

Board of Directors attendance fees amounted to LBP 2697 million (2017: LP 3,178). (f) Interest expense on deposits from related parties (b) Balances with associated companies In Millions of Lebanese Pound 2018 2017 In Millions of Lebanese Pound 2017 2018 Interest expense on deposits from related parties 20,421 21,800 Support Functions Activities Functions Support Direct facilities and credit balances

Loans and advances 8,645 8,093 42. Comparative figures Analysis and Deposits 33,727 32,156 Indirect facilities Certain comparative figures have been reclassified in order to comply with the basis of preparation adopted in Letters of guarantees 1,175 1,175 the current year.

43. Subsequent events (c) Loans and advances to related parties On 11 March 2019, the Board of Directors of the Group resolved to propose to the General Assembly of In Millions of Lebanese Pound 2018 2017 shareholders the distribution of dividends amounting to LBP 1,500 per share. Financial Statements

Loans and advances to shareholders, directors and other key management personnel 8,411 7,408 Loans and advances to associated companies 13,023 11,893 Impairment allowance – (3,800) Accrued interest receivable 3 3 Expected credit loss allowance (4,434) – 17,003 15,504 and Correspondent Banks Correspondent and (d) Interest income on loans and advances to related parties Branch Network Branch

In Millions of Lebanese Pound 2018 2017

Interest income on loans and advances to related parties 648 517 CL Milestones CL

Annual Report 2018 Credit Libanais Group 200 201 Business Segments Activities Segments Business and Analysis and Control Functions Activities Activities Functions Control and Analysis and

Board of Directors Support Functions Activities Functions Support

Chairman General Manager Analysis and Credit Libanais Dr. Joseph Torbey Investment Bank (CLIB) SAL

Members Financial Statements H.E. Dr. Samir Makdessi

Board of Directors 202 H.E. Mr. Jacques Joukhadarian

Management’s Discussion and Analysis of Results 204 Dr. Chafic Moharram and Correspondent Banks Correspondent and Statement of Financial Position 208 H.E. Mr. Michel Haddad Branch Network Branch

Dr. Michel Khadige Statement of Comprehensive Income 210

Mr. Moustafa Alaeddine Statement of Cash Flows 211

Statement of Changes in Equity 212 Milestones CL

Annual Report 2018 Credit Libanais Group 202 203 Business Segments Activities Segments Business

Management’s Discussion and Analysis of Results Analysis and On the equity side, shareholders’ equity decreased to LBP 158.38 billion in 2018, a decrease of 4.52% compared to LBP 165.88 billion recorded in 2017.

Basis of Presentation The following table sketches the development of the liability and equity accounts during the period 2017-2018:

The following discussion and analysis have been prepared based on the audited consolidated financial statements of Credit Libanais Investment Bank (“CLIB”) as at year end 2017 and 2018 and on selected

financial information. As at end of (million LBP) 2018 2017 %Change Activities Functions Control and Analysis and Analysis of Financial Position Loans and deposits with Central Banks 5,856 5,239 11.78%

1) Statement of Financial Position Balances with other banks and financial institutions 25 1,934 -98.69% Deposits from customers 782,313 954,285 -18.02% a) Total Assets Deposits from related parties 25,431 26,102 -2.57% CLIB’s Assets have witnessed a decrease of 15.71% in 2018, particularly in liquid assets which was Current tax liabilities 1,585 2,331 -32.01%

substantially matched by a decrease in funding consisting primarily of customer deposits. Activities Functions Support Other liabilities 800 846 -5.44%

The following table sketches the changes in major asset classes year-on-year. Analysis and Provision for risks and charges 1,917 1,690 13.40%

TOTAL LIABILITIES 817,926 992,428 -17.58% As at end of (million LBP) 2018 2017 %Change

Cash and balances with Central Banks 113,740 138,492 -17.87% As at end of (million LBP) 2018 2017 %Change Balances with other banks and financial institutions 2,162 99 2074.68% Financial Statements Head Office, branches, parent company, sisters, fin. Inst. & subs. 310,838 564,641 -44.95% SHAREHOLDERS’ EQUITY

Loans and advances to customers 309,522 310,181 -0.21% Share capital-Common Shares 80,000 80,000 -

Loans and advances to related parties 143 297 -51.76% Legal Reserve 28,077 26,978 4.08%

Financial assets at fair value/OCI 8,494 9,209 -7.76% General banking risks reserve - 18,230 -100.00%

Financial assets at fair value/Profit or Loss 3,068 3,621 -15.28% Reserve appropriated to capital increase 4,725 2,807 68.31%

Financial assets at amortised cost 166,476 69,984 137.88% Other Reserves 16,196 16,917 -4.26% and Correspondent Banks Correspondent and Investment in associates 44,077 44,077 0.00% Reserve for property acquired in settlement of debt 10,216 8,930 14.40% Branch Network Branch Property & equipment 1,072 1,161 -7.70% Net change in fair of financial assets at fair value through OCI 618 1,024 -39.65%

Intangible assets - 5 -100.00% Retained Earnings 10,969 - 100%

Assets held for sale 14,890 14,681 1.42% Result of the period 7,584 10,996 -31.03%

Other assets 1,829 1,862 -1.77% TOTAL SHAREHOLDERS’ EQUITY 158,384 165,882 -4.52%

Total Assets 976,310 1,158,310 -15.71% TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 976,310 1,158,310 -15.71% CL Milestones CL b) Liabilities & Shareholders’ Equity

Total Liabilities showed a decrease of 17.58% to reach LBP 817.93 billion in 2018 compared to LBP 992.43 billion at yearend 2017. The 17.61% decrease in total deposits, which constitute 98.76% of CLIB’s liabilities, was the main driver behind this decrease.

Annual Report 2018 Credit Libanais Group 204 205 Business Segments Activities Segments Business and Analysis and The following table portrays the evolution of CLIB’s sources and uses of funds during the period 2017-2018: 2) Statement of Income

Credit Libanais Investment Bank posted after tax net profits of LBP 7.18 billion in 2018, a decrease of 35.59% from the LBP 11.14 billion registered in 2017. As at end of (million LBP) Sources of Funds 2018 2017 %Total The following table highlights the yearly change of the major items in CLIB’s statement of income:

Control Functions Activities Activities Functions Control Customers’ deposits 782,313 954,285 96.85%

As at end of (million LBP) Analysis and Deposits from related parties 25,431 26,102 3.15% 2018 2017 %Change

Total 807,744 980,387 100.00% Interest and similar income 62,423 64,262 -2.86%

Tax on Interest (987) -

Interest and similar expense (45,614) (46,060) -0.97%

The above table clearly states that the entirety of CLIB’s financing is sourced from customer deposits Net interest income 15,822 18,201 -13.07%

Fees & commissions income 439 3,210 -86.32% Activities Functions Support

Fees & commissions expense (806) (1,514) -46.76% As at end of (million LBP) Analysis and Uses of Funds 2018 2017 %Total Net fees & commissions income / (loss) (367) 1,696 -121.64%

Net gain (loss) on trading portfolio (80) (150) -46.72% Head Office, branches, parent company, sisters, fin. Inst. & subs. 310,838 564,641 50.09% Net gain on disposal of subsidiary - - -

Loans & advances to customers 309,522 310,181 49.88% Net gain on financial investments 2,061 2,272 -9.30%

Loans & advances to related parties 143 297 0.02% Other operating income 345 807 -57.23%

Total 620,503 875,119 100.00% Total operating income 17,782 22,827 -22.10% Financial Statements Credit loss expense (789) (1,922) -58.96% “On the fund’s utilization front, loans and advances to customers, while registering a YOY decrease of 0.26%, were Net reversal of impairment losses on financial investments - - - increased to a 49.91% share of the total fund utilization in 2018 compared to 35.48% in 2017. Net operating income 16,993 20,905 -18.72% On the other hand, CLIB’s current account with the Head Office, branches and parent company has witnessed a Staff costs (4,403) (4,342) 1.40% 44.95% decrease in 2018 to constitute the bulk of CLIB’s funds deployment at a ratio of 50.09% in 2018 compared Depreciation and amortization (102) (265) -61.38% to 64.52% in 2017.” Other operating expenses (4,204) (4,001) 5.06%

Total Operating Expenses (8,709) (8,608) 1.17% and Correspondent Banks Correspondent and Profit before tax 8,284 12,297 -32.64% Branch Network Branch Income Tax expense (700) (1,301) -46.20%

Profit for the year 7,584 10,996 -31.03%

Other comprehensive income -

Net gain on available-for-sale financial assets (406) 148 -373.84%

Total comprehensive income for the year, net of tax 7,178 11,144 -35.59% CL Milestones CL Profits of CLIB are stated on an individual basis and do not include the share of the bank in the companies in which it holds a direct interest. After consolidating the share of CLIB in the profit of affiliated companies, Net profits for the year 2018 would aggregate LBP 12.70 billion compared to LBP 16.22 billion in 2017. CLIB’s Pre-tax consolidated return on average equity and on average assets reached 8.33% and 1.25% respectively in 2018, compared to 10.72% and 1.51% respectively in 2017.

Annual Report 2018 Credit Libanais Group 206 207 Business Segments Activities Segments Business

Statement of financial position Analysis and as at 31 December Control Functions Activities Activities Functions Control (million LBP) 2018 2017 (million LBP) 2018 2017 and Analysis and

ASSETS SHAREHOLDERS’ EQUITY

Cash and balances with the central bank 113,740 138,492 Share capital - Common shares 80,000 80,000

banks and financial institutions 2,162 99 Legal reserves 28,077 26,978

Head office,branches, parent company, foreign sister financial institutions & subsidiaries 310,838 564,641 General Banking risks reserve - 18,230

Loans and advances to customers 309,522 310,181 Capital reserve 4,725 2,807 Support Functions Activities Functions Support Loans and advances to related parties 143 297 Other reserves 14,940 15,661

Financial assets at Fair value through other comprehensive income 8,494 9,209 Reserve for property acquired in settlement of debt 10,216 8,930 Analysis and

Financial assets at Fair value through Profit or Loss 3,068 3,621 Special Reserves Against doubtful debts 1,256 1,256

Financial assets at amortized cost 166,476 69,984 Fair value reserve 618 1,024

Investments in associates 44,077 44,077 Retained Earnings 10,969 -

Property and equipment 1,072 1,161 Profit for the year 7,584 10,996

Intangible assets - 5 TOTAL SHAREHOLDERS’ EQUITY 158,384 165,882 Financial Statements Assets acquired in recovery of bad debts 14,890 14,681

Other assets 1,829 1,862 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 976,310 1,158,310

TOTAL ASSETS 976,310 1,158,310

LIABILITIES

Loans and deposits with Central Banks 5,856 5,239 and Correspondent Banks Correspondent and banks and financial institutions 25 1,934 Branch Network Branch Head office,branches, parent company, foreign sister financial institutions & subsidiaries - -

Customers’ deposits 782,313 954,285

Related parties’ deposits 25,431 26,102

Current tax liabilities 1,585 2,331

Other liabilities 800 846

Provision for risks and charges 1,917 1,690 CL Milestones CL

TOTAL LIABILITIES 817,926 992,428

Annual Report 2018 Credit Libanais Group 208 209 Business Segments Activities Segments Business

Statement of Comprehensive Income Statement of Cash Flows Analysis and as at 31 December as at 31 December

(million LBP) 2018 2017 (million LBP) 2018 2017

Cash Flows From Operating Activities Interest and similar income 62,423 64,262

Profit before tax 8,284 12,297 Activities Functions Control Tax on Interest ( 51) (987) - Adjustments for: and Analysis and Interest and similar expense (45,614) (46,060) Depreciation and Amortization 102 265 Net (recovery) Impairment Loss on loans and advances to customers 789 1,922 Net interest income 15,822 18,201 Net Provision for End of service indemnity 281 185 Fees and commission income 439 3,210 Gain /Loss on sale of shares in an associate (67) (672) Fees and commission expense (806) (1,514) 9,389 13,997

Net fees and commission income (367) 1,696 Change in balances with the central bank 25,509 (132) Change in Head office,branches, parent company, foreign sister financial institutions &

Net gain/loss on financial investments 2,061 2,272 Activities Functions Support subsidiaries 269,934 (36,910) Net gain/loss on disposal of subsidiaries - -

Change in balances with the central bank 600 1,380 Analysis and Net gain on FVTPL financial instruments (80) (150) Change in banks and financial institutions (1,909) 1

Other operating income 345 807 Change in loans and advances to customers and related parties 42 9,538 Change in other assets 33 208 Total Operating Income 17,782 22,827 Change in deposits from customers (171,973) (5,969) Credit losses (gains) (789) (1,922) Change in deposits from related parties (671) 1,108 Net reversal of impairment losses on financial investments - - Change in Current Tax Liabilities (145) 347 Change in other liabilities (46) (165) Net Operating Income 16,993 20,905 Financial Statements 130,765 (16,597) Staff expenses (4,403) (4,342) Income tax paid (1,301) (1,800) Depreciation and Amortisation (102) (265) Provisions transferred from parent company - 25 Other operating expenses (4,204) (4,001) Settled End of Service indemnity (687) (521) Other Provisions 614 Total Operating Expenses (8,709) (8,608) Net cash flows from operating activities 129,391 (18,893) Profit Before Tax 8,284 12,297 Cash Flows From Investing Activities Income Tax Expense (700) (1,301) Acquisition of Property and Equipment (8) (20) Banks Correspondent and

Profit for the Period 7,584 10,996 Net change in assets acquired in recovery of bad debts (142) 1,283 Network Branch Proceeds from investments in associates - (4,914) Change in Fair Value of Financial Instruments through OCI (406) 148 Net change in investment securities (95,629) 18,936 Total comprehensive income for the year 7,178 11,144 Net cash used in investing activities (95,780) 15,285

Cash flows from financing activities Distribution of dividends (6,000) (12,000) Effect of exchange rate fluctuation on cash & cash 369 (706) CL Milestones CL Transfer from Reserves to ECL (9,045) - Net cash from financing activities (14,676) (12,706)

Net decrease in cash and cash equivalents 18,935 (16,313) Cash and cash equivalents at 1 January 75,037 91,350 Cash and cash equivalents at 31 December 93,972 75,037

Annual Report 2018 Credit Libanais Group 210 211 Business Segments Activities Segments Business

Statement of Changes in Equity Analysis and as at 31 December Control Functions Activities Activities Functions Control Reserve For Special Reserves

Share Capital- General Banking Property Acquired in Against Doubtful Fair Value Retained Profit For Total Equity Analysis and (million LBP) Common Shares Legal Reserve Risks Reserve Capital Reserve Other Reserves Settlement of Debt Debts Reserve Earnings the Year

Balance at 01 January 2017 80,000 25,616 16,434 2,807 7,294 7,981 1,298 875 11,524 13,613 167,444

Distribution of dividends - - - - (12,000) - - - - - (12,000)

Profit allocation 2016 - 1,361 1,804 - 20,537 1,435 - - (11,524) (13,613) -

Transfer to reserves - - - - 528 (486) (42) - - - - Support Functions Activities Functions Support Previous Years adjustments ------

Difference of Exchange - - (8) - (698) - - - - - (706) Analysis and

Profit for the year ------10,996 10,996

Net Change in fair value of financial assets at fair value through OCI ------148 - - 148

Total comprehensive income for the year 2017 ------148 - 10,996 11,144

Balance at 31 December 2017 80,000 26,977 18,230 2,807 15,661 8,930 1,256 1,024 - 10,996 165,882

Impact Of IFRS9 (4,402) (4,402) Financial Statements Balance at 01 January 2018 80,000 26,977 18,230 2,807 11,259 8,930 1,256 1,024 - 10,996 161,480

Distribution of dividends ------(6,000) - (6,000)

Profit allocation 2017 - 1,100 - 672 - 1,286 - - 7,939 (10,996) -

Transfer to retained earnings - - - - (10,832) - - - 10,832 - -

Profits from sale of properties in recovery of bad debts - - - 1,246 (1,246) ------

Net Change of foreign financial assets 369 - - - - - 369

Transfer to other reserves - - (18,230) - 20,033 - - - (1,802) - - Banks Correspondent and Branch Network Branch Transfer from Reserves to ECL - - - - (4,643) - - - - - (4,643)

Profit for the year ------7,584 7,584

Net Change in fair value of financial assets at fair value through OCI ------(406) - - (406)

Total comprehensive income for the year 2018 ------(406) - 7,584 7,178

Balance at 31 December 2018 80,000 28,077 - 4,725 14,940 10,216 1,256 618 10,968 7,584 158,384 CL Milestones CL

Annual Report 2018 Credit Libanais Group 212 213 Business Segments Activities Segments Business and Analysis and Control Functions Activities Activities Functions Control and Analysis and

Credit Libanais D’Assurances Board of Directors Support Functions Activities Functions Support et de Reassurances (CLA) SAL Chairman General Manager Analysis and

Mr. Elie Torbey

Board of Directors 214 Members Financial Statements Statement of the Chairman General Manager 216 Credit Libanais SAL

Management’s Discussion and Analysis of Results 217 Mr. Jacques Sehnaoui

The Honorable Mr. Said Mirza Insurance Activities 218

Mr. Khaldoun Barakat Banks Correspondent and Independent Auditor’s Report 219 Branch Network Branch H.E. Mr. Jacques Joukhadarian Statement of Financial Position 221 Agence Generale de Courtage d’ Assurances (AGCA) SAL Statement of Comprehensive Income 222

Statement of Changes in Equity 223 Milestones CL

Statement of Cash Flows 224

Annual Report 2018 Credit Libanais Group 214 215 Business Segments Activities Segments Business

Management’s Discussion and Analysis of Results Analysis and

A year in review

CLA’s total assets decreased confirming the company’s strength since in 2018 the company total assets amounted to LBP 213.950 Billion as compared to LBP 216.478 billion in 2017 with a percentage decrease of 11.67%.

Cash flow statement for the company at the end of the year 2018 shows that the net cash provided from operating Activities Functions Control activities decreased by 26.13% from LBP 6.042 billion in 2017 to LBP 4.463 Billion in 2018. and Analysis and The total gross premiums written amounting to LBP 22.343 billion for the year under review, nevertheless the Gross premiums written for the life insurance business amounted to LBP 13.773 Billion in 2018 representing 61,65% of total gross premiums written. Statement of the Chairman General Manager The after tax profits recorded in 2018, amounting to LBP 21.974 billion as compared to LBP 18.753 billion in 2017 with a percentage increase of 17.17% mainly attributed to the increase of operating and financial income.

The year under review was a challenging year for the insurance sector in general and for our company in particular. In 2018, “Credit Libanais d’Assurances” (CLA) s.a.l. after tax profits amounted to LBP 21.974 billion, Performance by class of business Activities Functions Support recording an increase of 17.17% compared to 2017 despite the economic stagnation in Lebanon and in the Middle East. MOTOR CASUALTY Analysis and

Nonetheless, in 2018, we developed the life insurance business and introduced several investment and The motor line of business showed a slight increase in Casualty business premium income generated for the insurance products which contributed positively to the recorded increase in the company profits. The solid premiums from LBP 3.547 billion in 2017 to LBP 3.556 year 2018 amounted to LBP 2.432 Billion as compared financial position is mainly attributed to the loyalty of our customers and to the retention strategy applied by billion for the year under review. to LBP 2.619 billion in 2017, a percentage Decrease of CLA management team. 7.14%. The loss ratio for the motor class of business for the The lines of business falling under the casualty class Looking ahead, we intend to further develop our insurance products based on our customers’ needs. We year 2018 based on calendar year stands at 53,47% as are mainly Hospitalization, Workmen’s compensation, look forward to further strengthening our position on the Lebanese market and enhancing the company compared to 56.54% in 2017. personal accident, theft on property…etc. competitiveness in the years to come. Such will be the main target of CLA management and staff. Our strategy Financial Statements can only be achieved by consolidating our efforts to reach our objectives for the benefit of our customers and MARINE The loss ratio calculated on this line of business is shareholders alike. 27,66 % in 2018 while it was 14.41% in 2017. The marine business showed a decrease in premiums from LBP 118 million in 2017 to 78 million for 2018. TECHNICAL RESERVES

Sincerely, FIRE At the end of year 2018, a decrease in the unexpired risks reserves has been recorded to become LBP Elie Torbey The gross premiums written for the fire business in 88.596 billion with a difference of LBP 10.594 million Chairman General Manager 2018 totaled LBP 2.504 Billion compared to LBP 2.795 as compared to the year 2017 when it recorded Banks Correspondent and

billion achieved in the year 2017 this recording a LBP 99.190 billion including the premium deficiency Network Branch percentage decrease of 10.41%. reserves.

Outstanding claims reserves decrease from LBP 9.526 LIFE billion in 2017 to LBP 9.142 Billion in 2018 including IBNR due to a decrease in the number of claims In 2018, the generated income under the life business recorded in 2018 as compared to 2017 especially in totaled LBP 13.773 billion as compared to LBP 13.750 motor business. billion in 2017 with a percentage increase of 0,17%.

As a result, CLA recorded as technical reserves LBP Milestones CL The loss ratio recorded for the year under review is 97.737 billion in its books for 2018 as compared to 13,86% compared to the loss ratio of LBP 108.715 billion in 2017 with a decrease of 10.09%. 22.40% recorded in the year 2017. The loss ratio, all lines of business combined, decreased from 23.50 % in 2017 to 16,01% in 2018.

Annual Report 2018 Credit Libanais Group 216 217 Business Segments Activities Segments Business

Insurance activities Independent Auditor’s report Analysis and

Credit Libanais insurance services are offered in coordination with Credit Libanais d’Assurances et de Reassurances (CLA) SAL, the Independent Audit’s report to the shareholders of Credit Libanais D’Assurances et de Reassurances S.A.L. 66,97% owned bancassurance subsidiary. Control Functions Activities Activities Functions Control CLA offers a diversified product portfolio and has recently increased the availability to products in the motor, marine, fire and Opinion life lines of business. Analysis and

We have audited the accompanying financial statements of Credit Libanais D’Assurances et de Reassurances S.A.L. which comprise the statement of financial position as of 31 December 2018, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Credit Libanais D’Assurances et Insurance Products de Reassurance S.A.L. as of 31 December 2018 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Support Functions Activities Functions Support

Basis for Opinion Analysis and

SAFEDRIVE A comprehensive car insurance scheme. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) SAFETRAVEL A travel Insurance program providing worldwide emergency medical assistance of up to $200,000. together with the Code of Ethics of the Lebanese Association of Certified Public Accountants that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion. Financial Statements A LA CARTE A travel Insurance, purchase protection and wallet cover service linked to bank cards.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

SAFEWAY A third-party car insurance scheme covering death and total personal disability for the driver and his family. Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. SAFEMIND A personal accident insurance service offering worldwide coverage.

In preparing the financial statements, management is responsible for assessing the Company’s ability to Banks Correspondent and

continue as a going concern, disclosing, as applicable, matters related to going concern and using Network Branch the going concern basis of accounting unless management either intends to liquidate the Company SAFE STEPS A long-term savings program, providing children with financial assistance during university education. or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process. A personal accident policy, which provides the insured and his/her family with worldwide coverage for SAFEGUARD personal accidents, including death and disability. Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are CL Milestones CL SAFEFUTURE A long-term retirement plan that ensures an income during retirement years to better face life needs. free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with lSAs will always detect a material misstatement when it exists.

A long-term savings plan that allows parents to constitute the down-payment for their children to buy a SAFEHOME house, and benefit from a preferential interest rate.

Annual Report 2018 Credit Libanais Group 218 219 Business Segments Activities Segments Business

Statement of financial position Analysis and Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial as at 31 December 2018 statements. (Thousand LBP) 2018 2017 As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional Assets scepticism throughout the audit. We also: Property and equipment 478,530 589,152 Identify and assess the risks of material misstatement of the financial statements, whether due to fraud Activities Functions Control or error, design and perform audit procedures responsive to those risks, and obtain audit evidence Intangible assets 123,877 173,430 and Analysis and that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material Deferred acquisition costs 9,356,893 9,830,211 misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Financial assets at amortized cost 7,269,871 7,267,451

Unquoted equity investments 15,613,478 8,651,353 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Premiums receivable 2,510,460 2,165,434 effectiveness of the Company’s internal control. Receivables from related party 6,030,000 6,030,000

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and Reinsurance balances receivable 3,693,394 3,681,672 Activities Functions Support related disclosures made by management. Other receivables 54,100 33,918 and Analysis and Conclude on the appropriateness of management’s use of going concern basis of accounting and, based on Reinsurance assets 16,098,542 18,453,504 the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that Bank deposits 149,769,498 156,547,180 a material uncertainty exists, we are required to draw attention in our auditor’s report to the related Cash and cash equivalents 2,951,063 3,054,471 disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future Total assets 213,949,706 216,477,775 events or conditions may cause the Company to cease to continue as a going concern. Equity and Liabilities Equity

Evaluate the overall presentation, structure and content of the financial statements, including the Capital 10,005,000 10,005,000 Financial Statements disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Legal reserve 3,335,000 3,335,000

Other reserves 57,355,032 50,629,600 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control Profit for the year 21,974,859 18,753,057 that we identity during our audit. Total equity 92,669,891 82,722,657

Liabilities

Insurance liabilities 97,737,523 108,715,829 and Correspondent Banks Correspondent and

Beirut, Lebanon Unearned reinsurance commission 2,724,510 2,912,209 Network Branch 12 March, 2019 Retirement benefits obligations 901,203 1,749,097

Other payables and accruals 453,785 645,830

Reinsurance balances payable 17,028,789 15,551,284

Reinsurance deposits 1,147,166 2,935,089

Taxes payable 1,286,840 1,245,779 CL Milestones CL Total liabilities 121,279,815 133,755,117

Total equity and liabilities 213,949,706 216,477,775

The financial statements were approved on 12 March 2019, by the Board of directors.

Annual Report 2018 Credit Libanais Group 220 221 Business Segments Activities Segments Business

Statement of comprehensive income Statement of changes in equity Analysis and as at 31 December 2018 as at 31 December 2018

Profit (Thousand LBP) 2018 2017 (Thousand LBP) Capital Legal Reserve Other Reserve for the Year Total Control Functions Activities Activities Functions Control

Balance as at January 2017 10,005,000 3,335,000 44,114,315 18,542,910 75,997,225

Insurance premium revenue 22,343,278 22,828,538 Analysis and Allocation of 2016 profit - - 18,542,910 (18,542,910) - Insurance premium ceded to reinsurers (9,608,170) (9,367,423) Dividends and Bonuses distributed - - (12,027,625) - (12,027,625) Net insurance premium revenue 12,735,108 13,461,114 Profit for the year 2017 - - - 18,753,057 18,753,057 Change in unearned premium revenue 8,637,042 4,353,657 Balance as at 31/12/2017 10,005,000 3,335,000 50,629,600 18,753,057 82,722,657 Net earned premium 21,372,150 17,814,771 Allocation of 2017 profit - - 18,753,057 (18,753,057) - Net investment income 9,800,531 9,749,962 Dividends and Bonuses distributed - - (12,027,625) - (12,027,625) Activities Functions Support Reinsurance commission income and profit sharing 2,929,256 3,142,576 Profit for the year 2018 - - - 21,974,859 21,974,859 and Analysis and Other operating income/(loss) 266,671 (4,120) Balance as at 31/12/2018 10,005,000 3,335,000 57,355,032 21,974,859 92,669,891 Net income 34,368,608 30,703,189

Insurance claims expenses (5,701,728) (4,344,006)

Insurance claims recovered from reinsurers 3,130,739 1,900,312

Change in outstanding claims (13,700) (198,258)

Net insurance claims (2,584,688) (2,641,952) Financial Statements Expense for acquisition of insurance contracts (3,239,913) (3,043,824)

Expense for administration and other expenses (5,566,956) (5,638,353)

Depreciation and amortization expense (183,037) (190,196)

Impairment loss recognized on unquoted equity investments (500,000) -

Write - back /Provision for retirement benefits obligations 152,850 (335,251)

Net foreign exchange profit 12,735 15,943 and Correspondent Banks Correspondent and Net allowance/write - back of provisions for premiums receivable (110,895) 161,204 Branch Network Branch (12,019,906) (11,672,429)

Profit before tax 22,348,702 19,030,760

Income tax expense (373,843) (277,703)

Total comprehensive income for the year 21,974,859 18,753,057

Milestones CL The financial statements were approved on 12 March 2019, by the Board of directors.

Annual Report 2018 Credit Libanais Group 222 223 Business Segments Activities Segments Business

Statement of cash flows Analysis and as at 31 December 2018

(Thousand LBP) 2018 2017 (Thousand LBP) 2018 2017 Control Functions Activities Activities Functions Control

Operating activities Cash flows from investing activities Analysis and

Profit before tax 22,348,701 19,030,760 Acquisition of Property and equipment (23,760) (109,102)

Adjusted for: Acquisition of Intangible assets - (92,572)

Depreciation and amortization expenses 183,037 190,196 Increase in bank deposits (more than 3 months) (6,237,274) (15,940,709)

Impairment loss recognized on unquoted equity investments 500,000 - Increase in unquoted equity investments (7,462,125) (3,015,047)

Write - back /Provision for retirement benefits obligations (152,850) 335,251 Subsidized loan granted to Dourat Loubnan - - Activities Functions Support

Write off of intangible assets - - Disposal of financial assets at fair value through OCI - - and Analysis and Interest income (9,959,401) (9,899,186) Proceeds from disposal of property and equipment 603 5,020

Interest expense and related charges 158,870 149,224 Interest income received 9,757,782 9,689,421

Loss from sale of property and equipment 294 4,368 Net cash used in investing activities (3,964,773) (9,462,989)

Allowance/write - back of provision for premiums receivable 110,895 (161,204) Cash flows from financing activities

Change in other payables and accruals (192,045) (33,488) Change in reinsurance deposits (1,787,922) 245,424

Change in other receivables (20,182) 7,714 Dividends and bonuses distributed (12,027,625) (12,027,625) Financial Statements

Change in reinsurance assets 2,354,962 (759,678) Net cash used in financing activities (13,815,547) (11,782,201)

Change in insurance liabilities (10,978,306) 1,717,304 Net decrease in cash and cash equivalents (13,317,563) (15,203,622)

Change in unearned reinsurance commission (187,699) (149,392) Cash & cash equivalents at the beginning of the year 33,982,322 49,185,944

Change in deferred acquisition cost 473,318 154,788 Cash & cash equivalents at the end of the year 20,664,759 33,982,322

Change in reinsurance balances payable 1,477,506 (4,253,432)

Change in taxes payable (55,080) 49,654 and Correspondent Banks Correspondent and Change in reinsurance balances receivable (11,723) 46,094 Branch Network Branch

Change in premiums receivable (455,921) 50,279

Employees’ end of service benefits paid (695,045) (7,327)

Income tax paid (277,703) (281,134)

Interest expense paid (158,870) (149,224)

Net cash provided from operating activities 4,462,758 6,041,567

Milestones CL

Annual Report 2018 Credit Libanais Group 224 225 With a landmark reference Head Office Tower in the banking sector, the Bank has a network outreach of 79 branches including local and international presence in Cyprus, Bahrain and Iraq, a representative office in Canada and a subsidiary Branch Network and Correspondent Banks Network and Correspondent Branch bank in Senegal. 05 Business Segments Activities Segments Business

Head Office and Branch Network CL Network in Lebanon Analysis and Lebanon 1518 Call Center +961 1 607100

Credit Libanais Tower - Corniche El Nahr, Adlieh Roundabout Adlieh (Main Branch) Mazraa Activities Functions Control Ashrafieh 1100 2811 - Beirut, Lebanon BEIRUT Credit Libanais Tower Corniche El Nahr, Adlieh Roundabout, Corniche El-Mazraa, Salam Blvd., Choueiry Bldg. and Analysis and P.O.Box: 16-6729 P.O.Box: 16-6729 Fax: (01) 300 937 - Phone: (01) 313 590 - 317435 Fax: +961 1 608 126 - Phone: +961 1 608 000 Fax: (01) 608 047 - Phone: (01) 608 048/9 - 608 050 Branch Manager: Mr. Bassam Matta Branch Manager: Mr. Roger Bridi Website: www.creditlibanais.com E-mail: [email protected] - [email protected] Ashrafieh Zahret Al Ihsan St., Sausalito Bldg. Fax: (01) 204 643 - Phone: (01) 216 540 - 204 641 Raouche In process of relocation Branch Manager: Mr. Rami Nassif Credit Libanais Tower - Corniche El Nahr, Adlieh Roundabout Activities Functions Support Ashrafieh 1107 2080 - Beirut, Lebanon

Badaro Riad El Solh Analysis and P.O.Box: 11-1458 Badaro St., Khatoun Center Beirut Central District, Riad El Solh Square, Asseily Bldg. Fax: +961 1 425 637 - Phone: +961 1 425 671/2/3/4 - +961 1 608000 Fax: (01) 382 145 - Phone: (01) 387 878/9 Fax: (01) 983 141 - Phone: (01) 983 141/2/3 Website: www.creditlibanais.com Branch Manager: Mr. Gaby Torbey Branch Manager: Ms. Lina Dabaghi E-mail: [email protected] - [email protected]

Gefinor Rmeil Clemenceau St., Gefinor Center 1st floor, Bloc C Nahr St., Zoghbi Bldg. Hamra, Roma Street, Liberty Tower 9th Floor - Beirut, Lebanon Fax: (01) 740 168 - Phone: (01) 739 830/1 Fax: (01) 445 275 - Phone: (01) 445 684 - 443806 Financial Statements P.O.Box: 113/5357 Hamra - Beirut Branch Manager: Ms. Noha Yammout Branch Manager: Ms. Marie Ayoub Fax: +961 1 755 316/8 - Phone: +961 1 755 310/1/2/3/4/5 Website: www.lebaneseislamicbank.com.lb Geitawi Sassine E-mail: [email protected] Facing Geitawi Hospital Sassine Square, Independance Ave., Credit Libanais Bldg. Fax: (01) 582 087 - Phone: (01) 580 715/6 Fax: (01) 203 007 - Phone: (01) 332 889 - 218 608 Branch Manager: Mr. Samer Assaf Branch Manager: Mr. Joseph S. Raad

Credit Libanais Tower - Corniche El Nahr, Adlieh Roundabout Hamra Sofil Banks Correspondent and Hamra St., Ghanem Bldg. Ashrafieh, Charles Malek Ave., Sofil Center Ashrafieh 1100 2811 - Beirut, Lebanon Network Branch Fax: (01) 340 390 - Phone: (01) 346 960 - 342 954/5 - 350 293 Fax: (01) 215 044 - Phone: (01) 200 028/9 - 201 292 P.O.Box: 116-5235 Museum - Lebanon Branch Manager: Mr. Saadeddine Akel Branch Manager: Ms. Georgette Abdo Fax: +961 1 425 637 - Phone: +961 1 608 400 Website: www.creditlibanais.com E-mail: [email protected] - [email protected] Liberty Tower Starco Hamra, Rome St., Liberty Tower Bldg. Mina El Hosn, George Picot St., Starco Center, Bloc A, 1st Floor Fax: (01) 740 017 - Phone: (01) 740 017/8/9 Fax: (01) 367 584 Branch Manager: Ms. Rana Takieddine Phone: (01) 367 582/3 Branch Manager: Mr. Nadim Hatoum Credit Libanais Tower - Corniche El Nahr, Adlieh Roundabout CL Milestones CL

Ashrafieh 1100 2811 - Beirut, Lebanon Mar Elias Verdun (Unesco) P.O.Box: 16-6729 Mousaitbeh, Mar Elias St. Unesco St., Boubes Bldg. Phone: +961 1 425 761/2/3/4 Fax: (01) 312 028 - Phone: (01) 819 116 - 312 021 Phone/Fax: (01) 790 511 - 790 289 Website: www.creditlibanais.com Branch Manager: Mr. Houssam El Hajj Branch Manager: Ms. Fadia Hammoud E-mail: [email protected]

228 229 Business Segments Activities Segments Business and Analysis and MOUNT LEBANON

Amchit Chehim Haret Hreik Kaslik Main Road, Jafoury Bldg. Main Road, El Chraifeh St., Raiif Abdallah Bldg. Menchieh St., Dabaja Bldg. Main Road, Kaslik Plaza Center Fax: (09) 621 072 - Phone: (09) 622 781/2 Fax: (07) 242 405/6 - Phone: (07) 242 405/6/7 Fax: (01) 556 784 - Phone: (01) 556 780/1/2 Fax: (09) 640 244 - Phone: (09) 639 945 - 640 794 - 640 118 Branch Manager: Mr. Paul Ajaltouni Branch Manager: Mr. Ahmad Charafeddine Branch Manager: Mr. Alaa Diab Branch Manager: Mr. Joseph Kmeid Activities Functions Control and Analysis and Haret Sakhr Antelias Dekwaneh Khaldeh Jounieh highway, Credit Libanais Tower Rahabneh St., Antelias Square, St. Elie Center Main Road, Rawda Roundabout Saida Highway, Credit Libanais Bldg. Fax: (09) 636 842 - Phone: (09) 636 841 - (03) 675 004 Fax: (04) 419 760 - Phone: (04) 418 582/3 Fax: (01) 686 903 - Phone: (01) 686 794/5 Fax: (05) 810 893 - Phone: (05) 810 891/2/3 Branch Manager: Mr. Chakib Khoury Branch Manager: Ms. Nohad Torbey Branch Manager: Ms. Reine Abi Hatab Branch Manager: Mr. Mahfoud Ghanem

Hazmieh Awkar Jisr El Bacha Main Road, S & S Center Dbayeh Kornet Chehwan Main Road Fax: (05) 952 425 - Phone: (05) 952 426 Sarkis Center, Next to ascension church Main Road, Forum 600 Center Activities Functions Support Fax: (04) 544 763 - Phone: (04) 544 760/1/2 Branch Manager: Ms. Randa Khater (Al Saoud) Fax: (04) 913 911 - Phone: (04) 913 911 - 928 240 Branch Manager: Ms. Amal El Azar Phone: (04) 547 570 - 544 549 Branch Manager: Mr. Joseph Mallouk Analysis and Branch Manager: Mr. Abdo El Khoury Jal El Dib Bauchrieh Main Road, Next to Mar Takla Church, Dora Industrial City St., Boulghourjian Bldg. Facing The Public Garden Mkalles Dora Roundabout, Bassil Bldg. Fax: (01) 497 332 - Phone: (01) 497 092- 497 260 Fax: (04) 721 853 - Phone: (04) 721 850/1/2 Fax: (01) 264 813 - Phone: (01) 251 832 - 260 358 Main Road, Factory Center Branch Manager: Mr. Atef Renno Branch Manager: Ms. Marie Abi Haidar Branch Manager: Mr. Antoine Kmeid Fax: (01) 698 753 - Phone: (01) 698 750/1/2/3/4 Branch Manager: Mr. Emile Moukarzel

Beit Mery Fanar Jbeil Financial Statements Notre Dame St., Dr. Sawan Bldg. Fanar Roundabout, Samra Center Main St., Kordahi & Matta Center Fax: (09) 949 588 - Phone: (09) 942 588 - 949 558 Fax: (04) 871 176 - Phone: (04) 871 916 - 871 761 Fax: (01) 902 362 - Phone: (01) 902 360/1/2 Sin El Fil Branch Manager: Mr. Antoine Habib Branch Manager: Mr. Adib Hamouche Branch Manager: Ms. Antoinette Tannoury Fouad Chehab Road, St. Georges Center Fax: (01) 491 899 - Phone: (01) 495 370/1 - 482 368 Branch Manager: Ms. Katia Ayoub Bhamdoun Jbeil Fères Furn El Chebbak Main Road, Bhamdoun Station, Mouttawah Center Collège des Frères, Street 13, Khoury Business Center Damascus Road, Ghaoui Bldg. Fax: (05) 260 247 - Phone: (05) 260 244/5/6/7 Phone/Fax: (09) 540 496/7/8 - 540 534 Phone/Fax: (01) 281 518/9 Branch Manager: Mr. Imad Abdel Nour Branch Manager: Mr. Akram Khoury Branch Manager: Ms. Ghada Bassil Tannourine

Tannourine, Main Road, Douma junction Beit Chlala Banks Correspondent and Phone: (06) 520 980 - 520 961/3

Bourj El Brajneh Network Branch Ghobeiry Jdeideh Zein Harb Road, Yassine Bldg. Branch Manager: Mr. Nicolas Maalouf Airport Blvd., Moucharafieh Square, Wazneh Bldg. Nahr El Mott Roundabout, Montelibano Bldg. Fax: (01) 450 471 - Phone: (01) 450 470/2 Fax: (01) 887 780 - Phone: (01) 898 065 - 887 779 Fax: (01) 552 781 - Phone: (01) 552 781/2 Branch Manager: Mr. Hassan Nasser Branch Manager: Mr. Kamal Zakhem Branch Manager: Mr. Fawaz Toufeili Zouk Jounieh Highway, Zeayter Bldg. Bourj Hammoud Hadeth Jisr Fax: (09) 211 556 - Phone: (09) 210 485/7 - 211 542 Adib Al Chidiac St., Kafaa’t Intersection, Wehbe Center Municipality Square, Mukhtarian & Sarkissian Bldg. Dora Highway, Karantina Bridge, Azar Bldg. Branch Manager: Mr. Joseph B. Khoury Fax: (01) 265 299 - Phone: (01) 262 393 Fax: (05) 466 680 - Phone: (05) 466 681/2 Fax: (01) 257 641 - Phone: (01) 257 640/1 Branch Manager: Ms. Arpie Tcheboukjian Branch Manager: Mr. Chawki El Asmar Branch Manager: Mr. Naji Lahoud CL Milestones CL

Broummana Haret Hreik Jounieh Zouk Mosbeh Main Road, Tawil Bldg. Hady Nasrallah Blvd., Diab and Ayad Bldg. Facing La Cité Geita Main Road, Near Pizza Hut Fax: (04) 862 105 - Phone: (04) 960 664 - 960 349 Fax: (01) 278 004 - Phone: (01) 278 042/9 - 278 121 Fax: (09) 832 075 - Phone: (09) 832 069/70 - 832 063/5 Fax: (09) 211 083 - Phone: (09) 211 082 - 210 744 - 210 711 Branch Manager: Mr. Naoum Labaki Branch Manager: Mr. Noureddine Ballout Branch Manager: Mr. Michel Ghalieh Branch Manager: Ms. Amale Araman

230 231 Business Segments Activities Segments Business and Analysis and BEKAA SOUTH

Bar Elias Machghara Bint Jbeil Saida 2 Damascus Road, Araji Bldg. Main Road, Albert Karam Bldg. Main Road, Charara Center East Blvd., Elia Roundabout, Center Zaatari 2035 Fax: (08) 510 267 - Phone: (08) 510 265/6/7 Phone/Fax: (08) 650 250 - 650 297 Fax: (07) 450 802 - Phone: (07) 450 800/1 - (03) 675 012 Fax: (07) 755 793 - Phone: (07) 755 790/1/2

Branch Manager: Mr. Nayef Al Kadi Branch Manager: Mr. Antoine Hajjar Branch Manager: Mr. Ghassan Ghafari Branch Manager: Mr. Mohamad Saad Activities Functions Control and Analysis and Nabatieh Tyr Chtaura Rachaya - Dahr El Ahmar Main Road, Sabbagh Bldg. Rest House St., Farran Bldg. Damascus Road, Rose Massabki Bldg. Dib Mounzer Bldg. Fax: (07) 767 911 - Phone: (07) 767 909/10/11 Fax/Phone: (07) 742 854/5/6 Fax: (08) 544 802 - Phone: (08) 540 833 - 543 555/666 Fax: (08) 590 303 - Phone: (08) 591 013/4 Branch Manager: Mr. Zahi Jaffal Branch Manager: Mr. Riad Chebli Branch Manager: Mr. Wassim Rahal Branch Manager: Mr. Nidal Abou Hjeili

Ferzol Zahle Saida 1 Tyr Abbassieh

Main Road, Ordre Salvatoriens Bldg. Hoch Al Omara, Deir Mar Chaaya Bldg. Riad El Solh St., Zaatary Bldg. Abbassieh, Main Road, Jal Al Baher, Sea Center Activities Functions Support Fax: (08) 950 540 - Phone: (08) 950 54/12/3/4 Fax: (08) 800 459 - Phone: (08) 810 142/3 - 803 200 Fax: (07) 721 401 - Phone: (07) 721 401/2 - 751 101/2/3 Fax: (07) 351 094 - Phone: (07) 351 064 - 351 074 - 351 084

Branch Manager: Mr. Michel Gerges Branch Manager: Mr. Aziz Chamma Branch Manager: Mr. Wassim Kotob Branch Manager: Mr. Hussein Saleh Analysis and

Jeb Jannine Ismaïl Sharanek Bldg. Fax: (08) 660 233 - Phone: (08) 660 233 - 660 710 Branch Manager: Mr. Souheil Charanik

Regional Branch Management Financial Statements NORTH

Abdeh Tripoli - Azmi Regional Branch Management - Mr. Michele Cherenti - Regional Branch Management- Riad el Solh Abdeh Main Road, Haddad Bldg. Azmi St., Haytham Center Asseily Building, Riad El Solh Square, Riad El Solh Fax: (06) 470 650/1/2 - Phone: (06) 470 650/1/2 - (03) 583 586 Fax: (06) 215 900 - Phone: (06) 215 900/1/2 Deputy General Manager-Retail Banking and Branches Branch Manager: Mr. Aghiad Dandachi Branch Manager: Mr. Nazih Naja Credit Libanais Tower, Blvd. Pierre Gemayel, Corniche El Nahr, Adlieh Phone: (01) 983 204 and Correspondent Banks Correspondent and Phone: (01) 609392 Regional Branch Manager: Mr. Fouad Boustani Amioun Tripoli - Tell Network Branch Koura Main Road, Azar Bldg. Abdel Hamid Karame St., Kantara Bldg. Fax: (06) 952 714 - Phone: (06) 952 715/6/7 Fax: (06) 430 350 - Phone: (06) 430 350/1/2 - 424 434 Regional Branch Management-North Metn and Keserwan Regional Branch Management-Hamra Branch Manager: Mr. Esper El Azar Branch Manager: Mr. Chadi Kalaoun Kaslik Plaza, Kaslik Main Street, Zouk Gefinor center, Clemenceau street, Gefinor Phone: (09) 832 893- 639 451 Phone: (01) 350 092 - 345 364 Batroun Zghorta Main Road, Juliette Adaymi Bldg. Main Road, Kareh & Mouawad Bldg. Regional Branch Manager: Mr. Georges Hajj Regional Branch Manager: Mr. Hassan Ali Fax: (06) 642 168 - Phone: (06) 742 074/5 Fax: (06) 668 601 - Phone: (06) 668 600/1/2/3

Branch Manager: Mr. Nidal Farah Branch Manager: Ms. Elissar Frangieh Milestones CL Regional Branch Management- Bekaa and South Regional Branch Management-North Kobbe Masabki Building, Chtaura Main Road, Chtaura Credit Libanais Tower, Jounieh Highway, Haret Sakhr Kobbe Main Road, Yehya Center Phone: (08) 540 738 - 542 372 Phone: (09) 638 178 - 638 187 Fax: (06) 393 902 - Phone: (06) 393 900/1 Branch Manager: Mr. Walid Rima Regional Branch Manager: Mr. Antoine Khater Regional Branch Manager: Mr. Nadim Issa

232 233 Business Segments Activities Segments Business

CL Network Worldwide Correspondent Banks Network Analysis and Helpline for transfers

Central Processing Department Phone : + 961 1 258 106/9 Ext. 100/111 Fax : + 961 1 257 635/6 Baghdad Branch (Iraq) Erbil Branch (Iraq)

Street No. 14, Selman Al Faek, 904, Credit Newroz Street, Worech 44, Credit Libanais Bldg. Libanais Bldg.

P.O. Box: 20 Newroz Activities Functions Control P.O. Box: 81018, Abi Nawas Fax: +964 66 2296690 Fax: +964 727 0020385 Phone: +964 750 3000111 / +964 770 0000766 / Analysis and Phone: +964 770 0434434 / +964 750 5000555 +964 750 3000666 / +964 770 0000103 Austria Norway Mobile: +964 750 5000111 / +964 770 0000665 SWIFT/BIC: CLIB IQ BA SWIFT/BIC: CLIB IQ BA Branch Manager: Mr. Gaby Khoury UniCredit Bank Austria AG - Vienna DNB Bank ASA - Oslo Branch Manager: Mr. Marwan Abi Hana Website: www.creditlibanais.com Website: www.creditlibanais.com E-mail: [email protected] Bahrain Saudi Arabia E-mail: [email protected] National Bank of Bahrain BSC - Manama The National Commercial Bank - Riyad

Spain Support Functions Activities Functions Support Limassol, Cyprus Branch Manama, Bahrain Branch Canada Banco Bilbao Vizcaya Argentaria SA (BBVA) - Madrid Bank of Montreal - Montreal Banco de Sabadell - SA Madrid Chrysalia Court, 1st Floor, 206 Arch. Seef Area, 428, Road 2806 Analysis and

Makarios III Avenue, CY 3303 P.O.Box: 5576, Manama Kingdom of Bahrain Sri Lanka P.O.Box: 53-492, Limassol Cyprus E-fax: +973 17 910 573 - Fax: +973 17 582 224 Cyprus Bank of Ceylon - Colombo Commercial Bank of Ceylon PLC - Colombo Fax: +357 25 376 807 Phone: +973 17 560 570 Bank of Cyprus Public Company Limited - Nicosia Phone: +357 25 376 444 Mobile: +973 39 912 912 / +973 39 981 981 Sweden Country Manager: Ms. Hayat Harfouche SWIFT/BIC: CLIB BH BB E-mail: [email protected] Country Manager: Mr. Aghar Kanafani Denmark Skandinaviska Enskilda Banken AB (Publ) - Stockholm [email protected] E-mail: [email protected] Danske Bank A/S - Copenhagen [email protected] Switzerland Financial Statements France Credit Suisse AG - Zurich Representative Office-Montreal, Canada Natixis - Paris Thailand Montreal, Quebec, Place du Canada, 1010 Bangkok Bank Public Company Limited - Bangkok de la Gauchetière Ouest # 1325, 13th Floor, Germany Montreal, Quebec H3B 2N2 Canada Deutsche Bank AG - Frankfurt Turkey Fax: +1 514 866 6220 Commerzbank AG - Frankfurt Standard Chartered Bank - Frankfurt Akbank TAS - Istanbul Phone: +1 514 866 6688 / +1 800 864 5512 Manager: Mr. Malek Badro UAE and Correspondent Banks Correspondent and E-mail: [email protected] Italy First Abu Dhabi Bank - Abu Dhabi [email protected] Network Branch Intesa Sanpaolo SPA - Milan Standard Chartered Bank PLC - Dubai city UniCredit SPA - Milan UK Credit International, Credit International, SA (CISA) - Citibank - London SA (CISA) - Dakar (Senegal) Zone Industrielle - Dakar (Senegal) Japan Standard Chartered Bank - London MUFG – Tokyo Agence Principale Zone Industrielle de Dakar, Km 2.8 Sumitomo Mitsui Banking Corporation - Tokyo Credit International sa (CISA) Senegal, Immeuble Boulevard du Centenaire de la commune USA le Goelan, Boulevard Djily Mbaye, Intersection de Dakar Kuwait JP Morgan Chase Bank NA - New York Henri Dunan Fax: +221 33 822 80 80

Citibank NA - New York Milestones CL The Gulf Bank KSC - Kuwait City B.P.: 50117 Dakar RP Phone: +221 33 849 30 80 Standard Chartered Bank - New York The National Bank of Kuwait SAK - Kuwait City Fax: +221 33 822 80 80 E-mail: [email protected] The Bank of New York Mellon - New York Phone: +221 33 829 64 64 / +221 33 889 18 18 General Manager: Mr. Christian Khalife Website: www.cisenegal.com E-mail: [email protected]

234 235 06 CL Milestones

We deliver superior customer service. Customer advocacy is ensured by our application of the suitability, transparency, fairness and equitability standards across all our activities. CL Milestones Activities Segments Business

A Journey of Continuous Success and Achievements Analysis and

Launching of the investment A capital increase of USD 102m banking arm “Credit Libanais Implementation of the Employee Stock Investment Bank” (CLIB) Issuance of $50m preferred shares Ownership Plan for a total consideration of First issuance of Euro CD listed Acquisition of ISO 9001:2000 Certification 5.7% of the Bank’s common shares on international markets by a for Quality Management System Winning of the Golden Pan Arab Corporate Activities Functions Control Acquisition of Continental Bank Lebanese bank Website Award and Analysis and

1961 1977 1994 1996 1997 2000 2004 2005 2006 2007 Support Functions Activities Functions Support

Establishment of the Bank Acquisition of both First Phoenician Acquisition of a Controlling majority Acquisition of the Issuance of three-year Euro CD Opening of Bahrain Branch Bank and Capital Trust Bank by CIH Manama Holding operations of American listed on international markets Changing of affiliated leasing and Analysis and Express Bank, Lebanon Launching of Islamic banking company Credilease into a operations in Lebanon (LIB) Lebanese financial institution

Straight Through Processing (STP) Outstanding Achievement Award by JP Morgan. Financial Statements Opening of Credit International Relocation to the landmark newly built Straight Through Processing (STP) Euro Operational SA, Senegal Headquarters Tower in Adlieh Excellence Award by Deutsche Bank Acquisition by EFG Hermes Group Winning of the prestigious Awards for STP by Safest Bank Award by World Union of Arab Banks of a controlling majority in Credit Launching of operations in Iraq Citibank and JP Morgan (WUAB). Libanais. (Baghdad and Erbil) First bank in Lebanon to be fully compliant with Reconstruction and Development Award by Union Issuance of USD 75 million Migration to the core banking Payment Card Industry Data Security Standard of Arab Banks (UAB). Subordinated Bonds maturing in system, equation, across all (PCI DSS) CISO (Chief Information Security Officer) 100 Award January 2018 branches of the Group Opening of CISA second branch in Dakar by Middle East Security Awards (MESA).

and Correspondent Banks Correspondent and

2009 2010 2011 2012 2013 2014 2015 2016 2017 20172018 Network Branch

Management with Credit Suisse & Best in category: Social and Economic Increase of CL Tier One capital by 18.28%, through Winning of prestigious awards by Citibank, 2016 saw a structural change $100 million subordinated notes Byblos Bank of the 2009 Republic Award for Housing Loans the issuance of $100m preferred shares Deutsche Bank and Standard Chartered in the shareholders base of the issuance of Lebanon voluntary exchange Best Website Awards granted to JP Morgan Elite “Quality Recognition for Bank Bank pursuant to the disposal of a $50 million from International transaction for a total consideration affiliates: Hermes Travel and CISA Outstanding Achievement” Award Opening of Adlieh and Jal el Dib branches majority stake by EFG Hermes CL Finance Corporation (IFC) to Credit of some USD 2.3 billion. (Senegal) Cross Knowledge Special Award in the Best Social Economic Award (SEA): The National Holding SAL in the Bank’s Capital, Libanais PCI DSS compliance for subsidiaries e-learning Category and Social Impact Award to a network of international, Arab Opening of Beit Chlala – Netcommerce and IPN World Finance “Best Commercial Bank” Award and Lebanese investors comprising Tannourine Branch Milestones CL World Confederation of Businesses “Peak of sophisticated funds, institutional Opening of Dbayeh Branch Success” Award and individual investors. CISO (Chief Information Security First e-payment services for built property taxes and CISO (Chief Information Security Officer) 100 Award by Middle East first e-payment services for the Order of Engineers Officer) 100 Award by Middle East Security Awards (MESA). and Architects in Beirut Security Awards (MESA). Opening of Jounieh Branch

238 239 sarl

The Forest Stewardship Council www.FSC.org is an international organization promoting responsible forest management. FSC has developed principles for forest management of forest Designed by Publi media holdings, and system of tracing, verifying and labeling timber and wood products, which original from FSC-certified forests. Publishing Department – CEO Office and Corporate Consumer Financial Protection - www.creditlibanais.com + 961 1 608126 [email protected] + 961 1 608122 - Fax: 16 - 6729 Beirut, Lebanon Tel: | Corniche El Nahr - Adlieh P.O.Box: Libanais Tower Credit The Forest Stewardship Council www.FSC.org is an international organization promoting responsible forest management. FSC has developed principles for forest management of forest holdings, and a system of tracing, verifying and labeling timber and wood products, which originate from FSC-certied forests.