20 14

Annual Report STATEMENT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER BANK AUDI ANNUAL REPORT 2014

STATEMENT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

- A strong franchise in Retail Banking, with a wide spectrum of retail products and services covering bancassurance, credit The year 2014 was another good year for Bank Audi. As a result of sound business and financial performance, the Bank card and internet banking, offered in all countries where Bank Audi operates. Retail activity is supported by its 80-branch continues to have an undisputed leadership position in the Lebanese banking sector in terms of all business criteria (assets, domestic network, which is the largest in Lebanon, and a 127-branch network abroad, mainly in the MENA region and deposits, loans, equity and net profits), to benefit from a differentiated visible brand in main markets of presence, notably Turkey. The Bank’s market penetration in terms of customers reached 20% in Lebanon in 2014, supported by the best brand Turkey and Egypt, and to reinforce its position among the top 20 Arab banks at large. The annual results confirm the Group’s image in the domestic market. In terms of credit cards, the number of cards grew by 18% in 2014 while volume growth good mastery over the operating conditions in the various countries of presence, mainly in Turkey where the subsidiary is reported 14%. As such, Bank Audi has ranked 1st in 2014 among Lebanese banks in both debit cards and credit cards. well placed to achieve its profits targets. Such results also confirm the Group’s good financial flexibility resulting from the diversification of activity and profit sources while bearing witness to the commercial growth momentum that represents a - A leading position in Private Banking, servicing the needs of high net-worth individuals through its subsidiaries. Bank Audi’s source of future recurrent revenues. Private Banking arm is represented by Banque Audi (Suisse) SA (the largest Arab bank in Switzerland by AuMs) and Audi Private Bank sal (the only 100% private bank subsidiary in Lebanon), along with Bank Audi LLC (Qatar) and Audi Capital The Bank’s consolidated assets increased by USD 5.8 billion in 2014, from USD 36.2 billion at end-December 2013 to USD (KSA), accounting together for over USD 10 billion of assets under management at end-December 2014, by far the largest 42 billion at end-December 2014, and reaching USD 52.1 billion when accounting for fiduciary deposits, security accounts portfolio managed by a Lebanese banking group and which compares competitively with portfolios managed by leading and assets under management. In spite of the negative impact of the depreciation of the local currencies versus the US dollar banks in the GCC. in a number of countries of presence, the contribution of entities outside Lebanon to consolidated assets reached 47% at end‑December 2014, bearing witness to Management’s success in reaching its set target of a balanced activity breakdown - A leading position in domestic and regional capital markets activities. The Bank has strong capital markets activities in between Lebanon and abroad. This achievement is even more important when considering that 33% of consolidated assets Lebanon, Saudi Arabia and Egypt. As a matter of fact, market making activities on Lebanese and GCC fixed income are booked in investment grade countries, reinforcing the overall quality of the Bank’s assets. instruments gradually strengthened across the Group, reporting an annual turnover of circa USD 8.4 billion in 2014.

The main drive for activity growth was customers’ deposits which increased by USD 4.7 billion, equivalent to a growth of The results of the past year were supported by significant developments in support functions, such as HR and IT. At the HR level, 15.2%, achieving a good performance relative to a number of large regional banks. This growth was principally driven by the year 2014 was concluded with various successful accomplishments around areas of Recruitment and Selection, Training and deposits' increases in entities in Turkey, Egypt and Lebanon. Accordingly, consolidated customers’ deposits reached USD 35.8 Development, Relationship Management and Organisational Development. Bank Audi continued to own up to its position as billion at end-December 2014, of which 45% from entities outside Lebanon. In parallel, consolidated loans rose from USD 14.7 the largest employer in the Lebanese private sector at large and the most significant contributor to job creation in Lebanon. It billion at end-December 2013 to USD 17.2 billion at end-December 2014, equivalent to an increase of USD 2.5 billion over has the most advanced recruitment processes fully recognised in Lebanon and the region for being a benchmark in the selection the year. strategy with a comprehensive talent attraction strategy (85.2% of staff in banking entities being university graduates). The Recruitment and Selection efforts for 2014 resulted in the engagement of 234 new employees from diverse backgrounds for The good activity growth was not realised at the detriment of the financial standing of the Group which was further reinforced different positions within the Bank. In addition, a total of 238 promotions and 290 transfers took place throughout 2014. In in 2014. The Bank first sustained its high liquidity status. Consolidated primary liquidity placed with central banks and foreign parallel, the Bank continued to be supported by wide full fledged training activities which were intensively focusing on academy banks stood at USD 16.2 billion, the equivalent of 45.1% of customers’ deposits, a high level when compared to regional and courses and Managerial and Behavioural trainings over the past year. global averages. At the IT level, the year 2014 marked the successful closure of multiple transformational business projects for Bank Audi IT. Second, regarding asset quality, the Bank allocated USD 140 million of consolidated net loan loss provision charges to reinforce A new Online Banking solution was made available to all the Bank’s customers. This solution allows serving the customers the Group’s loan quality. Within the context of a persisting challenging environment domestically and regionally, the ratio of efficiently by catering to the needs of the growing number of technology-aware customers through capabilities that significantly gross doubtful loans to gross loans reached 3.1% at end-December 2014, while the coverage of those loans by specific loan improve their online experience and enables, among other things, a 360-degree view of the customers’ relationship with the loss reserves rose to 71.6% and to 87.0% when including real guarantees. Accordingly, the ratio of net doubtful loans to gross Bank. Phase 2 of this project was also immediately triggered and is expected to go live in late 2015. This phase will enhance loans improved from 1.0% at end-December 2013 to 0.9% at end-December 2014. In parallel, collective provisions amounted the Online Banking experience and expand the offered features, especially for corporate customers. It will also launch the new to USD 139 million, representing 0.8% of outstanding loans. Bank Audi Mobile Banking application. In parallel, Phase 1 of the new Enterprise Resource Planning system also went live in 2014, covering financial management, Central Bank regulatory reporting, and asset and procurement management. From the Third, at the level of capitalisation, consolidated shareholders’ equity rose by USD 651 million in 2014 as a result of the Infrastructure and Technology side, Bank Audi IT continued the strategic journey started in 2012 towards a Software-Defined completion of the USD 300 million capital increase at end-September 2014 and of the additional USD 221 million of reserves Data Centre (SDDC) which makes all elements of the infrastructure – compute, networking, storage, and security – provisioned, for revaluation of fixed assets booked in accordance with BDL Intermediary Circular No. 44, within the context of the usual operated and managed through software and automation, and delivered as a service. changes in equity. Consequently, consolidated shareholders' equity of Bank Audi reached USD 3.3 billion at end-December 2014. When adjusting for the issued subordinated loans, regulatory capital reached USD 3.8 billion, leading to a Basel III capital Looking forward, the Group looks positively to the outlook, reiterating its commitment to actively meet the needs of both adequacy ratio of close to 13%, as compared to an 11.5% regulatory minimum requirement. businesses and individuals in the various countries of presence. Bank Audi’s overall strategy hinges around the following drivers: first, consolidating and strengthening its leadership in Lebanon with a particular focus on pursuing asset utilisation optimisation As a matter of fact, among the most important developments in the Group last year was the significant capital increase of Bank while reinforcing operational efficiency to enhance a greater generation of productivity gains; second, strengthening the Audi. Such a successful transaction was conducted in difficult regional conditions and showed the confidence of existing and market background and positioning in Egypt which is witnessing a positive turnaround in its economic conditions and growth new shareholders, including IFC, in the Bank’s performance and direction. The partnership with IFC will further assist the Bank prospects; third, securing over the medium term an established positioning in the Turkish market which still enjoys a large in expanding our access to underserved segments such as small and medium enterprises, and support our planned expansion size and high levels of growth in spite of short-term volatility; fourth, leveraging cooperation and synergies across the Private to new jurisdictions, in particular where IFC has significant in-country knowledge and experience. Banking entities in Europe, the Levant and the GCC, while transforming the Wealth Management operating model, enlarging its geographical footprint, and reinforcing the range of products and services to shore up Private Banking development at large. Fourth, as far as profitability is concerned, Bank Audi’s net earnings after provisions and taxes reached USD 350 million in 2014 as compared to USD 305 million in 2013, which represents a 15% growth year-on-year. This performance stems from a In pursuing such a strategy, we continue to count on the crucial support of our staff known for their exemplary motivation and 23.5% growth in total revenues, primarily as a result of the exponential growth of Odea Bank’s revenues within the context of their utmost dedication, and of our customers for their continued trust and their strong loyalty. To them, we leave our final a reinforcement of the revenue generation in the other development pillars of the Group. Revenue growth in Turkey allowed words of recognition as a gratitude of their permanent support to our corporate objectives. Odea Bank to report positive net profits after provisions and taxes starting the month of May 2014, building up growing net profits in accordance with the Bank’s targets for its Turkish subsidiary. Based on such results, the Bank’s profitability ratios were reinforced with the return on average assets achieving 0.9% and the return on average common equity recording 13.6% post Sincerely, capital dilution. Raymond W. Audi At the business level, Bank Audi has further reinforced its universal bank profile, offering a full range of products and services Chairman and General Manager covering principally Commercial and Corporate Banking activities, Retail and Individual Banking, Private Banking, and Treasury and Capital Market activities, along with ancillary activities such as On-line Brokerage services and Investment Banking. In particular, Bank Audi now benefits from the following leaderships: Samir N. Hanna Group Chief Executive Officer - A strong franchise in Commercial Banking activities, with a diversified loan portfolio covering top corporates from Lebanon, MENA and Turkey. By December 2014, the Bank had a loan portfolio of USD 17.1 billion, well diversified over economic sectors.

2 3 FINANCIAL HIGHLIGHTS BANK AUDI ANNUAL REPORT 2014

financial highlights

assets (usd million) net earnings (usd million) BANK AUDI SELECTED CONSOLIDATED FINANCIAL DATa (USD MILLION)

2009 2010 2011 2012 2013 2014 CAGR 09-14 Assets 26,486 28,688 28,737 31,304 36,191 41,961 9.64% Loans to customers 6,747 8,548 8,594 10,428 14,713 17,171 20.54% cagr 9.6% cagr 3.9% Customers’ deposits 22,985 24,848 24,798 26,805 31,095 35,821 9.28% Shareholders’ equity 2,193 2,420 2,357 2,669 2,696 3,348 8.83% Net earnings 289 352 365 384 3051 350 3.93% 41.961 Number of branches 154 157 154 162 189 207 6.09% 384 36,191 365 Number of staff 4,388 4,838 4,808 5,070 5,894 6,408 7.87% 352 350 31,304 3051 Liquidity and asset quality 28,737 289 26.486 26,688 Liquid assets/Deposits 82.10% 77.25% 77.20% 74.51% 65.67% 64.84% Loans/Deposits 29.35% 34.40% 34.66% 38.91% 47.32% 47.94% Net doubtful loans/Gross loans 0.93% 0.61% 0.66% 0.64% 1.00% 0.86%

Loan loss provisions/Gross doubtful loans (including collective provisions) 72.36% 104.17% 116.07% 114.38% 95.31% 97.38% Net doubtful loans/Equity 1.11% -0.34% 2.50% 2.58% 5.60% 4.57% Collective provisions/Net loans 0.72% 1.17% 1.06% 0.89% 0.81% 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Capital adequacy Equity/Assets 8.28% 8.44% 8.20% 8.53% 7.45% 7.98% Capital adequacy 11.93% 11.42% 10.69% 13.67% 12.09% 13.03% Profitability Cost/Income 48.41% 47.28% 44.71% 45.96% 56.07% 55.08% ROAA 1.23% 1.28% 1.27% 1.32% 0.91%1 0.90% ROACE 14.77% 16.02% 16.73% 16.51% 12.59%1 13.63% Share data Common shares oustanding 344,189,410 348,477,114 349,439,944 349,749,204 349,749,204 399,749,204 3.04%

EARNINGS PER COMMON SHARE GROWTH (USD) Preferred shares outstanding 12,500,000 13,750,000 13,750,000 15,250,000 5,000,000 5,000,000 -16.74% Net dividends on common shares (in USD million) 120 138 139 139 140 160 5.92% Net dividends on preferred shares (in USD million) 10 15 17 23 26 30 24.57% 1.00 1.00 1.01 1.01 Payout ratio 45% 44% 43% 42% 54% 54% 3.71% 0.96 0.94 Basic common earnings per share (in USD) 0.80 0.96 1.00 1.01 0.801 0.86 1.46% 0.86 0.86 Diluted common earnings per share 0.801 0.801 (in USD) 0.78 0.94 1.00 1.01 0.801 0.86 1.97%

0.80 Share price (in USD) 8 9 6 6 6 7 -2.64% 0.78 Market capitalisation (in USD) 2,856,772 3,136,294 1,970,841 2,150,376 2,207,939 2,698,307 -1.13%

1 Reflecting the initial stages of the launch of the fully owned subsidiary in Turkey.

2009 2010 2011 2012 2013 2014

Diluted common earnings per share (USD) Basic common earnings per share (USD)

1 Reflecting the initial stages of the launch of the fully owned subsidiary in Turkey.

4 5 TABLE OF CONTENT BANK AUDI ANNUAL REPORT 2014

Statement of the Chairman and the Chief Executive Officer 02 Consolidated Statement of Comprehensive Income 71 Financial Highlights 04 Consolidated Statement of Financial Position 72 Consolidated Cash Flow Statement 73 CORPORATE Consolidated Statement of Changes in Equity 74 GOVERNANCE 10 Notes to the Consolidated Financial Statements 76 1.0. Corporate Governance Framework 10 Notes’ Index 77 2.0. Remuneration Policy and Practices 10 Notes 78 3.0. Composition of the Board of Directors 11 4.0. Biographies of Board Members 13 015.0. Management of Bank Audi sal 18 GROUP STRUCTURE 178 1.0. Shareholding Structure 180 MANAGEMENT 2.0. Corporate Structure 181 DISCUSSION 3.0. Group High Level Chart 182 AND ANALYSIS 20 4.0. Organisation Chart 184 1.0. Introduction 22 04 2.0. Strategy 22 3.0. Economic Environment 23 3.1. Domestic Operating Environment 23 MANAGEMENT 186 02 3.2. Operating Environment in the MENA Region 25 Bank Audi sal 188 3.3. Operating Environment in Turkey 26 Group Management 188 3.4. Operating Environment in West Europe 27 Country Management 190 4.0. 2014 Activity and Performance Analysis 27 Audi Investment Bank sal 191 4.1. Business Overview in 2014 27 05 Audi Private Bank sal 192 4.2. Consolidated Balance Sheet Management 27 Banque Audi (Suisse) sa 193 4.3. Results of Operations 38 Bank Audi France sa 194 4.4. Analysis by Main Development Pillars 43 Bank Audi sal - Jordan Branches 195 4.5. Analysis by Business Segments 46 Bank Audi Syria sa 196 4.6. Capital Management 49 Bank Audi sae (Egypt) 197 5.0. Dividend Policy 51 Arabeya Online For Securities Brokerage (Egypt) 199 6.0. Risk Management 52 National Bank of Sudan 200 6.1. The Main Theme for 2014 52 Audi Capital (KSA) cjsc 201 6.2. Making Bank Audi Safer 52 Bank Audi LLC (Qatar) 202 6.3. Priorities for 2015 54 Audi Capital Gestion SAM (Monaco) 203 6.4. Credit Risk 54 Odea Bank A.Ş. 204 6.5. Operational Risk 55 6.6. Liquidity Risk Management 55 6.7. Market Risk Management 57 7.0. Deployed Resources 57 ADDRESSES 206 7.1. Operations 57 Lebanon 208 7.2. Information Technology 59 Bank Audi sal 208 7.3. Human Resources 59 Audi Investment Bank sal 210 8.0. Investor Relations 61 Audi Private Bank sal 210 8.1. Investor Relations Activity in 2014 61 06 Switzerland — Banque Audi (Suisse) sa 210 8.2. Bank Audi’s Stock Research Coverage 62 France — Bank Audi France sa 210 9.0. Compliance 62 Jordan — Bank Audi sal - Jordan Branches 210 10.0. Environmental and Social Management System 62 Syria — Bank Audi Syria sa 210 11.0. Corporate and Social Responsibility 63 Egypt 211 Bank Audi sae 211 Arabeya Online For Securities Brokerage 212 FINANCIAL Sudan — National Bank of Sudan 212 STATEMENTS 64 Saudi Arabia — Audi Capital (KSA) cjsc 213 General Assembly Excerpts 66 Qatar — Bank Audi LLC 213 Consolidated Financial Statements 68 Monaco — Audi Capital Gestion sam 213 Auditors’ Report 69 Turkey — Odea Bank A.Ş. 213 03 Consolidated Income Statement 70 United Arab Emirates — Bank Audi sal - Abu Dhabi Representative Office 214

6 7 01 | CORPORATE GOVERNANCE

Empowering businesses in an interconnected world. corporate governance BANK AUDI ANNUAL REPORT 2014

1.0. | CORPORATE GOVERNANCE FRAMEWORK benefits paid by the Bank is included in the annual budget benefits of Control Functions are determined in a way that approved by the Board and is set in a way not to affect the preserves their objectivity and independence; Introduction Group’s medium and long term capacity to sustain such levels of compensation nor its financial position or its interests; 4. There is currently no outstanding stock-related compensation. In 2014, and in line with its long standing commitment to Strategic objectives setting corporate values and promoting And there are no compensation arrangements encompassing sound governance, the Board of Directors of Bank Audi high standards of conduct have been established and widely 3. Core Compensation and Benefits include basic salary and claw backs or deferrals of payments, save for matters continued to give a significant consideration to the Bank and communicated throughout the Group, providing appropriate performance-based bonus (in addition to a number of resulting from applicable laws and regulations; the Group’s Governance practices. It monitored the evolution incentives to ensure professional behaviour. ancillary benefits including individual and family medical in Governance-related regulations and best practices and coverage, education allowances, and others). Individual 5. Amounts of compensation paid annually are disclosed introduced the necessary changes to its own framework. The Bank’s Corporate Governance Guidelines are accessible on compensation and benefits are based principally on the in accordance with the International Financial Reporting the Bank’s website at www.bankaudigroup.com achievement of objectives that are effectively aligned with Standards and with the provisions of Article 158 of the Changes introduced during 2014 to the Governance framework prudent risk taking. In addition, the compensation and Lebanese Code of Commerce. of the Bank include the creation of a new Board Committee The Board is supported in carrying out its duties by the Audit dedicated for Remuneration matters and the adoption of its Committee, the Risk Committee, the Remuneration Committee, charter, and the corresponding modification of the charter of the the Corporate Governance and Nomination Committee, and 3.0. | COMPOSITION OF THE BOARD OF DIRECTORS old “Corporate Governance and Remuneration Committee” that the Executive Committee. has now become the “Corporate Governance and Nomination Members of the Board of Directors serving throughout the term expiring on the date of the annual Ordinary General Committee”. A number of policies were also adopted, reviewed • The mission of the Group Audit Committee is to assist the year 2014 were elected by a resolution of the Ordinary General Assembly meeting (expected to be held in April 2016) that will and/or updated, including a “Group Compensation and Benefits Board in fulfilling its oversight responsibilities as regards (i) Assembly of shareholders held on April 8, 2013 for a three‑year examine the accounts and activity of the year 2015. Policy” and a “Performance Management Policy”. A new the adequacy of accounting and financial reporting policies, version of the Code of Ethics and Conduct was also adopted internal control and the compliance system; (ii) the integrity The Board of Directors currently comprises the following Directors1: in November 2014 and communicated throughout the Group. of the financial statements and the reliability of disclosures; (iii) the appointment, remuneration, qualifications, Members Bank Audi’s Board is satisfied that the Bank’s Governance independence and effectiveness of the external auditors; and Independent framework conforms to applicable directives and guidelines and (iv) the independence and effectiveness of the internal audit (as per Member of is adapted to the Bank’s needs and to the high expectations of function1. the Bank’s the Corporate Corporate Member of the Member of the Member of the Member of the Governance its stakeholders. The Board is also satisfied that, in 2014, it has Governance Group Executive Group Audit Board Group Remuneration and Nomination fully discharged all its responsibilities as mapped in its yearly • The mission of the Group Risk Committee is to assist the Board Guidelines2) Committee Committee Risk Committee Committee Committee rolling agenda and has acted on the recommendations of its in discharging its risk-related responsibilities. The Committee committees that also substantially discharged all of their own is expected to (i) consider and recommend the Group’s H.E. Mr. Raymond W. AUDI (Chairman) º Chair responsibilities. risk policies and risk appetite to the Board, (ii) monitor the Dr. Marwan M. GHANDOUR (Vice-chairman) º º Chair º º Chair º Group’s risk profile for all types of risks, and (iii) oversee the Mr. Samir N. HANNA º Chair º Governance Framework management framework of the aforementioned risks and assess its effectiveness. Sheikha Suad H. S. AL HOMAIZI Bank Audi is governed by a Board of Directors consisting of up Mr. Marc J. AUDI º to 12 members (currently 10) elected by the General Assembly • The mission of the Remuneration Committee is to assist the Dr. Freddie C. BAZ º Deputy Chair º of shareholders for a term of 3 years. The responsibility of the Board in maintaining a set of values and incentives for Group Sheikha Mariam N. AL SABBAH º º Board is to ensure strategic direction, Management supervision executives and employees that are focused on performance, and adequate control of the company, with the ultimate goal of and promote integrity, fairness, loyalty and meritocracy. Dr. Imad I. ITANI º increasing the long term value of the Bank. Mr. Abdullah I. AL HOBAYB º º º • The mission of the Corporate Governance and Nomination Dr. Khalil M. BITAR º º Chair º Bank Audi’s Governance framework and that of its major Committee is to assist the Board in maintaining an effective banking subsidiaries encompass a number of policies, institutional and Corporate Governance framework for the charters, and terms of reference that shape the Group’s Group, an optimal Board composition, and effective Board Secretary of the Board Governance framework over a wide range of issues including process and structure. Mr. Farid F. LAHOUD risk supervision, compliance, audit, remuneration, evaluation, (Group Corporate Secretary) succession planning, ethics and conduct, budgeting, and • The mission of the Group Executive Committee is to develop capital management. Clear lines of responsibility and and implement business policies for the Bank and to issue The Board is advised, for Audit Committee matters, by Mr. Maurice H. Sayde (who served as a member of the Board and Chairman accountability are in place throughout the organisation with guidance for the Group within the strategy approved by the of its Group Audit Committee from June 2006 until July 2008). a continuous chain of supervision for the Group as a whole, Board. The Group Executive Committee also supports the including effective channels of communication of the Group Group Chief Executive Officer in the day-to-day running of Executive Committee’s guidance and core group strategy. the Bank and in guiding the Group.

1 Listed according to their dates of appointment (beyond the Group CEO). 2.0. | REMUNERATION POLICY AND PRACTICES 2 Definition of Director independence as per the Bank’s Governance Guidelines (summary): “In order to be considered independent Director by the Board, a Director should have no relationship with the Bank that would interfere with the exercise Based on the recommendation of its Remuneration Committee, and the Group that are consistent with the Bank’s culture, of independent judgment in carrying out responsibilities as a Director. Such a relationship should be assumed to exist when a Director (him/her self or in conjunction with affiliates): the Board has approved a “Group Compensation and Benefits business, long-term objectives, risk strategy, performance, • is occupying, or has recently occupied an executive function in the Bank or the Group; Policy” founded on the following principles: and control environment, as well as with legal and regulatory • is providing, or has recently provided advisory services to the Executive Management; requirements; • is a major shareholder (i.e. owns, directly or indirectly, more than 5% of outstanding Audi common stock), or is a relative of a major shareholder; 1. The objective of the Policy is to establish coherent and • has, or has recently had a business relationship with any of the Senior Executives or with a major shareholder; transparent Compensation and Benefits practices in the Bank 2. The aggregate consolidated amount of compensation and • is the beneficiary of credit facilities granted by the Bank; • is a significant client or supplier of the Bank; • has been, over the 3 years preceding his appointment, a partner or an employee of the Bank’s external auditor; 1 It is not the duty of the Audit Committee to plan or to conduct audits or make specific determinations that the Bank’s statements and disclosures • is a partner with the Bank in any material joint venture. are complete and accurate, nor is it its duty to assure compliance with laws, regulations and the Bank’s Code of Ethics and Conduct. These are the In addition to the above, the Board of Directors is satisfied with the ability of the independent Directors to exercise sound judgment after fair consideration responsibilities of Management and of external auditors. of all relevant information and views without undue influence from Management or inappropriate outside interests.”

10 11 corporate governance BANK AUDI ANNUAL REPORT 2014

Frequency of Meetings 4.0. | BIOGRAPHIES OF BOARD MEMBERS In 2014, the Board of Directors held 11 meetings, the Group Committee1 held 2 meetings and the Group Executive Audit Committee held 5 meetings, the Group Risk Committee Committee held 29 meetings. held 6 meetings, the Corporate Governance and Remuneration

Group Sharia' Supervisory Board RAYMOND W. AUDI Dr. Abdulsattar A. ABU GHUDDA (Chair) Dr. Mohamed A. ELGARI Raymond Audi acts as Chairman of the Board of Directors and General Manager Sheikh Nizam M. YAQOOBI since December 2009. He had also served as Chairman of the Board of Directors and General Manager from 1998 to 2008, resigning from this position when he was Dr. Khaled R. AL FAKIH appointed Minister of the Displaced in the Lebanese government. Mr. Audi resumed his position as Chairman of the Board of Directors effective December 22, 2009. Legal Advisors He started his banking career in 1962, when, together with his brothers and with Law Offices of Ramzi Joreige & Partners prominent Kuwaiti businessmen, he founded Bank Audi, building on a successful long standing family business. Auditors BDO, Semaan, Gholam & Co. Raymond Audi has played an active role in leading Bank Audi through both prosperous and challenging times to its current status as a widely recognised leading Ernst & Young p.c.c. Chairman of the Board – General Manager Lebanese and regional bank. He served as President of the Association of Banks in Age: 82 – Lebanon Lebanon in 1994. Director since February 1962 Changes to the Board of Directors during the Year 2014: Term expires at the 2016 Annual Raymond Audi is the recipient of several honours and awards, including, in July 2007, General Assembly of shareholders an Honorary Doctorate in Humane Letters from the Lebanese American University. During the year 2014, no changes were brought to the composition of the Board of Directors. - Chairman of the Corporate Governance and Nomination Committee

MARWAN M. GHANDOUR

Marwan Ghandour is an independent member of the Board of Directors since March 2000 and the Vice-chairman of the Board of Directors since December 2009. He is a previous Vice-governor of the Central Bank of Lebanon. He held this position between January 1990 and August 1993, with primary responsibilities in the area of monetary policy. During this period, he was also a member of the Higher Banking Commission and various other government committees involved in economic policy. In this capacity, he liaised with various international institutions such as the International Monetary Fund (IMF), the World Bank and the Bank for International Settlements (BIS).

From 1995 until July 2011, Marwan Ghandour served as Chairman and General Vice-chairman of the Board Manager of Lebanon Invest sal, a leading financial services group in the region whose Age: 71 – Lebanon holding company merged with Bank Audi in 2000. He also served as Chairman of Director since March 2000 the Board of Directors of Audi Investment Bank sal, a fully owned subsidiary of Bank Term expires at the 2016 Annual Audi, from 2005 until December 2011. He was elected Chairman of the Board of General Assembly of shareholders Directors of Banque Audi (Suisse) sa in March 2011 and Vice-chairman of the Board - Independent Non-executive Director of Directors of Odea Bank A.Ş., Bank Audi’s subsidiary in Turkey, in June 2012. He also - Chairman of the Group Audit Committee serves as member of the Board of Directors of several affiliates of Bank Audi. - Chairman of the Remuneration Committee Marwan Ghandour holds a PhD in Economics (Econometrics) from the University of - Member of the Board Group Risk Illinois (Post-doctorate research at Stanford University). Committee - Member of the Corporate Governance and Nomination Committee

1 The “Corporate Governance and Remuneration Committee” was split into 2 committees, the “Corporate Governance and Nomination Committee” and the “Remuneration Committee” in November 2014. The new committees held their first meeting in 2015.

12 13 corporate governance BANK AUDI ANNUAL REPORT 2014

SAMIR N. HANNA MARC J. AUDI

Samir Hanna joined Bank Audi in January 1963. He held several managerial and Marc Audi started his banking career at Bank Audi France sa in 1981. He then executive positions across various departments of the Bank. He was appointed moved to Banque Audi California where he was appointed Director and Executive General Manager of Bank Audi in 1986 and member of its Board of Directors in Vice-president. He later returned to Lebanon to join Bank Audi in 1993, and was 1990. In the early 1990s, he initiated and managed the restructuring and expansion appointed member of its Board of Directors in 1996. He held executive responsibilities strategy of Bank Audi, transforming it into a strong banking powerhouse offering successively in Commercial Lending and Capital Markets divisions. Marc Audi served universal banking products and services including Corporate, Commercial, Retail, as General Manager of Banque Audi (Suisse), the Private Banking arm of the Audi Investment, and Private Banking. Group of Banks until 2005, and remains a member of its Board of Directors. He also serves as member of the Board of Directors of several affiliates of Bank Audi, and He grew the Bank to its current position as the largest bank in Lebanon (and among has been General Manager of the Bank since 2004, where he currently acts as the the top 20 Arab banking groups), with a presence in 12 countries, consolidated Lebanon Country Manager. assets exceeding USD 42 billion, consolidated deposits exceeding USD 35 billion and General Manager – group staff headcount exceeding 6,000 employees. General Manager – Marc Audi holds a Master’s of Business Administration from the University of Paris Group Chief Executive Officer Samir Hanna is also the Chairman of Odea Bank A.Ş., Bank Audi’s subsidiary in Country Manager Lebanon IX – Dauphine. Age: 70 – Lebanon Turkey, and member of the Board of Directors of several other affiliates of Bank Audi. Age: 57 – Lebanon Director since August 1990 Director since March 1996 Term expires at the 2016 Annual He currently serves as the Group Chief Executive Officer and the Chairman of Term expires at the 2016 Annual General Assembly of Shareholders the Group Executive Committee, and heads all aspects of the Bank’s Executive General Assembly of shareholders - Executive Director Management. - Executive Director - Chairman of the Group Executive - Member of the Group Executive Committee Committee - Member of the Corporate Governance and Nomination Committee

SUAD H. S. AL HOMAIZI FREDDIE C. BAZ

Sheikha Suad Al Homaizi is the wife of late Sheikh Jaber Ali Salem Al Sabbah, Freddie Baz joined the Bank in 1991 as Advisor to the Chairman and founded the a prominent member of the ruling family of Kuwait. She is one of the founders of Secretariat for Planning and Development at the Bank. As Group Strategy Director, he Bank Audi. Sheikha Suad Al Homaizi is one of the largest Kuwaiti private real estate is now responsible for the development of the Group strategy and for its oversight and developers and is active in many business sectors in Kuwait and overseas, notably communication, internally and externally. In addition to his duties as Group Strategy representing multinational corporations in the fields of infrastructure, construction, Director, Freddie Baz held the position of Group Chief Financial Officer from 2006 pharmaceuticals and others. to 2015, with overall authority over the finance and accounting, MIS and budgeting functions throughout the Group. In March 2015, he decided, jointly with the Group She is a member of the Board of Directors of Bank Audi since February 1962. CEO, to hand over his Group CFO responsibilities to his deputy, in conclusion of five years of cooperation and of common efforts to achieve that objective.

Freddie Baz is also the Chairman of the Board of Directors of Bank Audi France sa, Board Member General Manager – a fully owned subsidiary of Bank Audi, and a member of the Board of Directors of Age: 73 – Kuwait Group Strategy Director several affiliates of Bank Audi. Director since February 1962 Age: 62 – Lebanon Term expires at the 2016 Annual Director since March 1996 Furthermore, he is the General Manager of Bankdata Financial Services WLL which General Assembly of Shareholders Term expires at the 2016 Annual publishes Bilanbanques, the only reference in Lebanon that provides an extensive - Non-executive Director General Assembly of shareholders structural analysis of all banks located in Lebanon, in addition to other specialised - Executive Director periodicals and reports. - Deputy Chairman of the Group Executive Committee Freddie Baz holds a State PhD degree in Economics from the University of Paris I - Member of the Group Risk Committee (Panthéon – Sorbonne).

14 15 corporate governance BANK AUDI ANNUAL REPORT 2014

MARIAM N. AL SABBAH ABDULLAH I. AL HOBAYB

Sheikha Mariam Al Sabbah is the daughter of late Sheikh Nasser Sabah Al Nasser Abdullah Al Hobayb is the Chairman of Audi Capital (KSA) (an Investment Banking Al Sabbah and the widow of the late Sheikh Ali Sabah Al Salem Al Sabbah, who was subsidiary of Bank Audi, incorporated in the Kingdom of Saudi Arabia) and was, the son of the former Prince of Kuwait and who held several ministerial positions until July 2014, a member of the Boards of Directors of Bank Audi sae in Egypt in Kuwait, notably the Ministry of Interior. Sheikh Nasser Al Sabbah was one of the and Odea Bank A.Ş., Bank Audi’s subsidiary in Turkey. He was also an advisor to founders of Bank Audi. Sheikha Mariam Al Sabbah is a member of the Board of the previous Board of Directors of Bank Audi. He is the Chairman of several leading Directors of several Kuwaiti companies. companies in Saudi Arabia comprising ABB Saudi Arabia (a leader in power and automation technologies), General Lighting Company Ltd (one of the largest She is a member of the Board of Directors of Bank Audi since March 2001. manufacturers in the Middle East lighting industry), Ink Products Company Ltd (manufacturer of industrial ink) and United Industrial Investments Company Ltd (a leading paint manufacturing company).

Board Member Board Member Abdullah Al Hobayb holds a Master’s degree in Electrical Engineering from Karlsruhe Age: 66 – Kuwait Age: 72 – Saudi Arabia University in Germany. Director since March 2001 Director since April 2010 Term expires at the 2016 Annual Term expires at the 2016 Annual General General Assembly of shareholders Assembly of shareholders - Independent Non-executive Director - Independent Non-executive Director - Member of the Group Audit Committee - Member of the Group Audit Committee - Member of the Remuneration Committee

IMAD I. ITANI KHALIL M. BITAR

Prior to joining the Bank, Imad Itani held several key positions in Corporate Finance Khalil Bitar is a current Professor of Physics and a former Dean of the Faculty of Arts for major energy companies in Canada. In parallel, he taught Economics and Finance and Sciences of the American University of Beirut (AUB). He held this last position to graduate students at the American University of Beirut. He joined Bank Audi in from 1997 until 2009, playing an instrumental role in advocating AUB’s strengths and 1997 and headed the team that successfully launched the Bank’s Retail business line, regional position as the premier centre for higher education, and in re-establishing its today a major pillar of the Bank’s innovative and leading position. In 2002, Imad Itani PhD programs. Throughout his career, he held several academic and administrative was appointed Deputy General Manager and Member of the Board of Directors. He positions, including Associate Director of the Supercomputer Computations Research was later appointed General Manager – Head of Group Retail Banking. Imad Itani is Institute – Florida State University (between the years 1994 and 1997) and visiting also the Chairman of the Bank’s Sudanese Islamic Banking subsidiary acquired within Professor at leading academic institutes in Europe and North America (including the the context of the Bank’s regional expansion, the Chairman of Audi Investment Bank European Organisation for Nuclear Research in Geneva, the International Centre sal, a fully owned subsidiary of Bank Audi, and member of the Board of Directors of for Theoretical Physics in Italy, The Institute for Advanced Study in New Jersey, the Odea Bank A.Ş., Bank Audi’s subsidiary in Turkey, in addition to his responsibilities as Fermi National Accelerator Laboratory (Fermilab) in Illinois, the University of Illinois, General Manager – Head of Group Retail Banking and Head of Group Islamic Banking. Board Member Brookhaven National Lab. in New York, the Max Planck Institute in Munich, and the Head of Group Retail Banking Age: 72 – Lebanon Rockefeller University in New York). He also served two mandates as member of The Age: 53 – Lebanon Imad Itani holds a PhD in Economics from the University of Chicago. Director since April 2010 Institute for Advanced Study in Princeton, New Jersey, between 1968 and 1972. Director since June 2002 Term expires at the 2016 Annual Khalil Bitar is also a member of the Board of Directors of Audi Private Bank sal and Term expires at the 2016 Annual General Assembly of shareholders the Chairman of its Risk Committee. He also served as member of the Board of General Assembly of shareholders - Independent Non-executive Director Directors of Audi Investment Bank sal and Chairman of its Risk Committee from - Executive Director - Chairman of the Board Group Risk March 2012 until November 2013, and continues to serve as advisor to its Board for - Member of the Group Executive Committee Risk Committee matters. Committee - Member of the Remuneration Committee Khalil Bitar holds a Bachelor of Science degree in Physics from the American University of Beirut, a Master’s of Science degree in Physics, and a PhD in Theoretical Physics from Yale University in the United States.

16 17 corporate governance BANK AUDI ANNUAL REPORT 2014

5.0. | MANAGEMENT OF BANK AUDI sal

H.E. Mr. Raymond W. AUDI Chairman – General Manager

GROUP EXECUTIVE COMMITTEE STANDING MANAGEMENT COMMITTEES Executive Directors (Voting Members) Asset-Liability Credit Information Technology Chair Mr. Samir N. HANNA General Manager – Group Chief Executive Officer Committee Committee Strategic Committee

Voting Chair Mr. Samir N. HANNA 1 Mr. Samir N. HANNA1 Mr. Samir N. HANNA1 Deputy Chair Dr. Freddie C. BAZ General Manager – Group Strategy Director Executive Vice-chair Dr. Freddie C. BAZ1 Mr. Elia S. SAMAHA Mr. Danny N. DAGHER Mr. Marc J. AUDI General Manager – Country Manager Lebanon

Dr. Imad I. ITANI General Manager – Head of Group Retail Banking Members Mr. Marc J. AUDI1 Dr. Imad I. ITANI1 Dr. Imad I. ITANI1 Mr. Michel E. ARAMOUNI Mr. Marc J. AUDI1 Mr. Gaby G. KASSIS Mr. Tamer M. GHAZALEH2 Mr. Khalil I. DEBS Mr. Tamer M. GHAZALEH Non-directors (Non-voting Members) Mr. Elia S. SAMAHA Mr. Elie J. KAMAR Mr. Hassan A. SALEH Mr. Chahdan E. JEBEYLI General Manager – Group Chief Legal & Compliance Officer Mr. Elie J. KAMAR Mr. Ibrahim M. SALIBI Mr. Marwan O. ARAKJI Mr. Adel N. SATEL General Manager – Group Chief Risk Officer Mr. Fevzi Tayfun KUÇUK Mr. Naoum J. MOUKARZEL Mr. Yehia K. YOUSSEF Mr. Toufic S. ARIDA

Non-voting Mr. Adel N. SATEL Mr. Adel N. SATEL Mr. Adel N. SATEL

Permanent Invitees Dr. Marwan S. BARAKAT Mrs. Bassima G. HARB Mr. Khalil G. GEAGEA Mr. Jamil R. SHOCAIR Mr. Naim H. HAKIM

1 Member of the Group Executive Committee. 2 Member since March 2015.

18 19 02 | management discussion and analysis

Bringing whole cities to your fingertips. MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

1.0. | Introduction - Egypt: Management plans to reinforce its market position, in restructuring of the Private Banking entities, with the ultimate particular, through non-organic growth opportunities available objective of further growing the AUMs franchise and its Bank Audi is one of the largest banking institutions in the Bank Audi LLC (Qatar), Arabeya Online for Securities Brokerage in the Egyptian market. In late 2013, the Bank launched a contribution to the consolidated revenues. Middle East. Founded in 1830 in Lebanon, it was incorporated (AoLb) and Odea Bank A.Ş. (Turkey). All references to Lebanon 3-year growth plan for its Egyptian operations, which aims in its present form in 1962 as a private joint stock company are to all Lebanese entities excluding Audi Private Bank sal, to significantly increase the Bank’s franchise in Egypt with a In addition, in the medium term, Management is exploring with limited liability (“société anonyme libanaise”). Catering unless otherwise stated. corollary positive impact on earnings growth. This growth plan further regional expansion opportunities, including a presence to more than 800,000 customers served by more than 6,500 was launched as a result of Bank Audi Egypt’s strong resilience in: employees, the Bank has a universal banking model based on 3 All figures are presented in US Dollars (“USD”), unless since 2010, including a growth in assets and net profits by development pillar markets – Lebanon, Egypt, Turkey – focusing otherwise stated, since the Bank transacts and funds the large respectively 10% and 26% while consolidating the quality of - London to service the Bank’s Private Banking clients. on Corporate and Commercial Banking, Retail and Personal majority of its business in US Dollars and functional currencies assets, despite challenging politico-economic conditions in Banking, and Treasury and Capital Markets activities, along linked to the US Dollar. US Dollar amounts are translated the country, but not to the detriment of macro and banking - Sub-Saharan Africa, capitalising on an existing franchise with a fourth development pillar defined as the Private Banking from Lebanese Pounds (LBP) at the closing rate of exchange aggregates growth. turnover of USD 1.9 billion at end-September 2014 business line, working hand in hand through a distinctive published by the Central Bank of Lebanon, (1,507.5 as of each from a total of 30 countries in the region (of which most network of 11 banks and 3 financial institutions located in 12 of December 31, 2013 and December 31, 2014). References - Turkey: Turkey is a key growth market for the Bank, as importantly Nigeria, Ivory Coast, Equatorial Guinea, Gabon, countries across the MENA region and Turkey, over and above to foreign currency translation differences or changes reflect witnessed by the achieved robust growth since the launch of Senegal, Angola, Cameroon and Congo), and the presence a historical presence in Europe. the impact of the movement of functional currencies in operations in 2012, as well as the expected growth of trade, of a large Lebanese, Turkish and broader MENA region countries of presence against the US Dollar. financial and human flows between Turkey and Arab countries diaspora in those countries. Over and above Africa’s growing The Group’s main purpose is to achieve quality growth where the Bank has operations. Focusing on actively growing importance in the global economy, establishing a presence by efficiently meeting the needs of both businesses and All references to the Lebanese banking sector are to the 53 the middle corporate segment and developing value‑added in Sub-Saharan Africa would offer Odea Bank an advantage individuals in the various countries of presence and ensuring commercial banks operating in Lebanon, as published by SMEs and consumer lending segments, the strategy over its competitors as the Turkish market becomes more long-term sustainable value to all stakeholders. It ranks first the Central Bank of Lebanon (“BDL”). All references to the underscores a continued growth trend over the medium term, interested in Africa. among Lebanese banks and stands among the top Arab Bank’s peer group in Lebanon are to the Alpha Bank Group exceeding that of the overall growth of the Turkish banking banking groups as per major banking aggregates. In addition consisting of 14 banks with total deposits in excess of USD 2.0 sector, which has grown on average by 11% per annum (in - Latin America, in order to capitalise on and provide Private to its historical presence in Lebanon, Switzerland and France, billion each, as determined by Bankdata Financial Services WLL terms of assets) over the last five years. The plan would also be Banking services to the large Near Eastern diaspora in the Bank Audi is present in Jordan, Syria, Egypt, Sudan, Saudi (publishers of Bilanbanques). All references to the Bank’s peer supported by a strong emphasis on leveraging synergies across region. Such a platform is expected to build upon the Arabia, Qatar, Abu Dhabi (through a representative office), group in the MENA region are to the top regional Arab banking the wide footprint in the MENA region. business currently generated by the Bank’s Latin America Monaco and Turkey. groups, as compiled by the Bank’s Research Department. desks in Lebanon and Switzerland, which generated a - Private Banking: the Group intends to leverage co-operation turnover of USD 2.1 billion from Latin American clients Bank Audi’s shareholders’ base encompasses more than Lebanon’s economic and banking data are derived from the and synergies across its Private Banking entities in Europe, in 2014. 1,500 holders of common shares and/or holders of Global International Monetary Fund, the Central Bank of Lebanon, the Near East and the GCC, benefitting from the recent Depositary Receipts (GDRs) representing common shares. Its various Lebanese governmental entities and the Bank’s shares are listed on the Beirut Stock Exchange. Its GDRs are internal sources. The region’s economic and banking data are listed on both the Beirut Stock Exchange and the London derived from the International Monetary Fund, the Economist 3.0. | Economic Environment Stock Exchange. Intelligence Unit, Bloomberg, the region’s central banks and the Bank’s internal sources. 3.1. | Domestic Operating Environment The discussion and analysis that follows cover the consolidated performance of Bank Audi in 2014, based on the audited This discussion and analysis starts with an overview of the Bank’s In 2014, the Lebanese economy witnessed a relative one of its lowest levels in the past decade, estimated at 3.5% consolidated financial statements of the Bank as at and for the strategy, followed by a review of the operating environment improvement in performance, though much lower than its by the IMF based on average prices in 2004 relative to 2013. fiscal years ended December 31, 2013 and December 31, 2014. and a comparative analysis of the Group’s financial conditions potential capacity, within a precarious domestic/regional Terms such as “Bank Audi”, “the Bank” or “the Group” refer and results of operations for the periods ended December environment. Real growth remained modest, as suggested The year 2014 has seemingly reported a relative improvement to Bank Audi sal and its consolidated subsidiaries, principally 31, 2013 and December 31, 2014. An overview of risk by the average growth in the BDL coincident indicator which for Lebanon’s public finances. Though remaining high in Audi Private Bank sal, Audi Investment Bank sal, Banque Audi management comes next, followed by an extensive coverage reported 3.2% in 2014, reflecting the average performance absolute and relative terms, the government’s fiscal deficit (Suisse) SA, Bank Audi France sa, Audi Capital Gestion SAM, of share information and dividend policy, resources deployed, of main real sector indicators that were mostly on the upside reported some improvement during the first eleven months Bank Audi sal - Jordan Network, Bank Audi Syria sa, Bank Audi investor relations, compliance, environmental and social throughout the year 2014. of 2014, reversing a trend of deterioration that dominated sae (Egypt), National Bank of Sudan, Audi Capital (KSA) cjsc, management system, and corporate and social responsibility. in the past couple of years. The slight decline in total It is worth mentioning that the official national accounts for government expenditures, combined with a higher increase in 2012 and 2013 were released with a 2.8% real GDP growth total revenues, resulted into a contraction in the overall fiscal 2.0. | Strategy rate in 2012 and a 3.0% rate in 2013, exceeding previous deficit. The latter dropped by 24% relative to the first eleven preliminary estimates. Such rates correspond to moderate months of 2013, as a result of a 10% rise in public revenues Within a persisting challenging operating environment in Since then, the Group’s performance has demonstrated the acceptable growth given the spill over effects of the Syrian coupled with a 1% contraction in public spending. As such, the Bank’s markets, particularly in the MENA region, the strength and the resilience of the business model, notably in Arab crisis on Lebanon’s real economy. This has driven the GDP the public finance deficit to total expenditures ratio dropped fundamentals of the Bank’s diversification and expansion Countries in Transition (ACTs), efficiently driving a sustained growth value to USD 47.2 billion in 2013 and is thus set to exceed the from 31.9% in the first eleven months of 2013 to 24.3% strategy launched more than a decade ago have not changed. and enhancing the Group’s competitive positioning. Capitalising USD 50 billion threshold in 2014. during the corresponding period of 2014. The contraction Overall, Management remains focused on the key objective of on its robust balance sheet growth and high financial flexibility, in spending, which is partly related to the delay of some further developing the Bank as a fully integrated, pan‑regional the Group is now able to pursue its strategy of profitable growth, At the monetary level, Lebanon’s foreign exchange market expenditures, actually comes despite a rise in debt service by group which will continue to rank among the largest regional relying on the compelling customer-driven business prospects and witnessed further resilience over the past year, with Central 10% over the aforementioned period of 2014. As such, a players. leveraging synergies across businesses and countries. Bank reserves at a record high in absolute terms, covering primary surplus of 8.2% of expenditures was reported over close to 80% of LBP money supply and 22 months of imports. the first eleven months of 2014, against a net primary deficit Since 2004, the Bank has pursued a regional expansion strategy The current medium-term development strategy is based BDL’s foreign currency assets actually grew from USD 35.3 of 2.5% of expenditures over the same period in 2013. capitalising on the region’s economic growth and wealth around the following strategic aims: billion at year-end 2013 to USD 37.9 billion at year-end 2014. potential. As a result, the Group has enjoyed a wide regional Notwithstanding gold reserves which had reached USD 11.0 Amidst this environment, the financial sector performance presence in Lebanon and in Egypt, Syria, Jordan, Qatar, Saudi - Lebanon: the Bank’s strategy aims to consolidate and billion at year-end 2014, leading to BDL’s foreign assets in excess remained sound, confirming the sustained resilience of the Arabia and Sudan, and benefits from operations in France, reinforce its leading position in Lebanon, in particular, by of LBP money supply, which corresponds to a full currency board banking industry. Within the context of financial inflows Switzerland and Monaco. In addition, the Bank launched strengthening existing corporate and SME client relationships, situation. The balance of payments closed the year 2014 with a towards Lebanon amounting to circa USD 16.0 billion, the operations in Turkey on November 1, 2012 through the as well as by taking advantage of growth opportunities in the deficit of USD 1.4 billion, following a deficit of USD 1.1 billion banking sector reported a satisfactory annual growth of 6.0% establishment of Odea Bank. retail segment. for the year 2013. Inflation remained in parallel contained at in deposits and 7.4% in loans by end-December 2014, while

22 23 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014 profitability stagnated at its previous year’s level. The past year 9.0% in December 2014, outlining the banks' good coverage 3.2. | Operating Environment in the MENA Region reported in parallel a significant improvement in capitalisation. of all types of risks by their own funds. As a matter of fact, Shareholders’ equity recorded a growth of 10.8% in 2014, according to the latest estimate of the banks' capital adequacy Within this environment, the performance of the MENA It should be mentioned that, while the high-income countries in outpacing the growth in banking activity at large. As such, the ratio as per Basle 2, the latter stands at a sound 14.0%, well region in 2014 is even more mixed, and in some cases, more MENA (all hydrocarbon exporters in the Persian Gulf), have been equity to assets ratio rose from 8.6% in December 2013 to above regulatory requirements. disappointing. According to the IMF, the region as a whole is growing at a rapid clip, they also face structural problems that set to grow by 2.6% in 2014, but this average masks a big may constrain their growth. Given current projections for the Lebanon’s Major Economic Indicators (USD Million) difference between the high-income and developing countries price of oil in the aftermath of the recent drop, budget surpluses 2013 2014 Change of MENA. The former has a projected growth rate of 4.9%, are expected to disappear in most oil producing countries, Macroeconomy while the latter’s growth rate is expected to grow at 0.7%, a probably affecting the expansionary stance in those countries. bit faster than the previous year’s 0.4% as per the World Bank. GDP 47,221 50,000 5.9% At the banking level, the MENA region has been reporting a Real GDP growth (%) 3.0% 2.5% -0.5% The weak performance of developing MENA this year is due to satisfactory performance on the overall. The annualised growth GDP per capita (USD) 10,571 11,086 4.9% two ongoing phenomena in the region. The first is the violent rates in deposits of 7.8% and in loans of 7.8% by December Monetary sector conflicts, including the civil war in Syria, now in its fourth year 2014 remain sound. But such a banking sector growth in the Var M3 7,147 6,518 -8.8% and its attendant effects on its neighbours; the recent dramatic MENA region is mainly driven by oil exporters, while most oil Velocity 0.55 0.53 -4.2% security developments in Iraq since mid-last year; a devastating importers barely saw their deposit and loan bases growing. war in Gaza in June-July 2014, and ongoing insurgencies in Not less importantly, the latter’s net banking profitability Cleared checks 72,367 74,492 2.9% Libya and Yemen. The second is the political transitions in Egypt remained under pressure within the context of relatively tough Average CPI inflation (%) 3.2% 3.5% 0.3% and Tunisia, as well as political openings in Morocco and Jordan operating conditions in their respective economies, underlined Public sector which, accompanied by large macroeconomic imbalances by narrowing net interest margins, growing provisioning Gross domestic debt 37,349 40,963 9.7% and a huge and unfinished reform agenda, have kept these requirements and slow fee income growth generation at large. Foreign debt 26,113 25,601 -2.0% economies’ output well below potential. Total gross debt 63,462 66,564 4.9% Gross debt/GDP (%) 134% 133% -1.3% Banking Sectors’ Assets in the Arab MENA Region (USD billion) Assets Change Exchange Rate Deficit1 4,222 3,278 -22.4% Deficit/GDP (%)1 8.9% 6.6% -2.4% Dec-13 Dec-14 Vol. % Dec-13 Dec-14

External sector Regional countries of presence of the Group Imports 21,228 20,494 -3.5% Egypt 242.2 276.9 34.7 14.3% 6.95 7.15 Exports 3,936 3,313 -15.8% Jordan 60.4 63.3 2.9 4.9% 0.71 0.71 Trade deficit 17,292 17,181 -0.6% Lebanon 164.8 175.7 10.9 6.6% 1,507.50 1,507.50 Gross financial inflows 16,164 15,773 -2.4% Qatar 250.0 277.9 27.9 11.2% 3.64 3.64 Balance of payments -1,128 -1,408 24.8% Saudi Arabia 504.9 568.7 63.8 12.6% 3.75 3.75

1 11-month annualised figure for 2014. Sudan 13.6 15.5 1.9 13.7% 5.70 5.87 Sources: Ministry of Finance, Central Bank of Lebanon, the concerned public and private organisms, Bank Audi’s Research Department. United Arab Emirates 571.9 632.5 60.6 10.6% 3.67 3.67 Lebanon’s Banking Sector Activity Indicators (USD Million) Other countries in Arab MENA Change Algeria 132.1 137.5 5.4 4.1% 78.13 83.33 Dec-13 Dec-14 Vol. % Bahrain 75.1 79.7 4.6 6.2% 0.38 0.38 Assets 164,821 175,697 10,876 6.6% Kuwait 182.4 189.2 6.8 3.7% 0.28 0.29 Equity 14,202 15,734 1,532 10.8% Libya 79.7 75.6 -4.1 -5.2% 1.23 1.25 Deposits 136,205 144,425 8,220 6.0% Morocco 143.0 133.6 -9.4 -6.6% 8.18 9.07 o.w. in LBP 46,126 49,523 3,397 7.4% Oman 58.1 65.5 7.4 12.8% 0.39 0.39 o.w. in FC 90,079 94,902 4,823 5.4% Tunisia 45.7 44.6 -1.1 -2.4% 1.65 1.84 Yemen 12.9 13.1 0.2 1.4% 214.89 214.89 Loans 47,381 50,899 3,518 7.4% o.w. in LBP 11,122 12,443 1,321 11.9% Arab MENA 2,536.8 2,749.4 212.6 8.4%

o.w. in FC 36,259 38,455 2,197 6.1% Sources: central banks, Bloomberg, Bank Audi’s Research Department. Figures in italic are the latest available. Deposit dollarization ratio (%) 66.1% 65.7% -0.4% Loan dollarization ratio (%) 76.5% 75.6% -1.0% In Egypt, the main regional country of presence for Bank Audi, landmarks, combined with the large financial support from Loans/Deposits (%) 34.8% 35.2% 0.5% the economy has begun to recover after four years of slow the GCC countries, has shored up investor sentiment in Deposits/Assets (%) 82.6% 82.2% -0.4% activity. Policies implemented so far, along with a return of Egypt. The equity market continues its rally, bond spreads Equity/Assets (%) 8.6% 9.0% 0.3% confidence, are starting to produce a turnaround in economic have narrowed, and capital inflows have started to recover. activity and investment. On the back of a 6.8% growth in the Consumer confidence in Q3 of 2014 increased by four points Sources: Central Bank of Lebanon, Bank Audi’s Research Department. third quarter of 2014, triggered by manufacturing, construction (as compared to the previous quarter) to an index of 85. and the Suez Canal, the IMF is projecting growth will reach 3.8% Tourist arrivals increased by about 30% in Q3 of the current At the level of Lebanon’s capital markets, an improving million in 2014, raising the annual turnover ratio from 3.4% in FY 2014/2015. While the economy is still operating way below year, as compared with the same period of last year. There activity was reported in their two components of equity to 5.9%, though still low by international standards. In potential output, it is closing part of its cyclical output gap with are also signs that foreign investors are returning to the market and fixed income market. Prices at the Beirut Stock parallel, Lebanon’s 5-year CDs spread closed the year 2014 at its output growth now exceeding its population growth at large. Egyptian market, as indicated by the positive net purchases Exchange rose by a mild 0.6% in 2014, yet on the back of 394 bps, maintaining its level of the previous year’s closing, of Egyptian equities in recent months, with the stock market stronger trading activity. The trading value surged by close following a 57 bps contraction in 2013, underlining a relative Improved confidence on the political and economic index surging by 32% in 2014. In parallel, five year CDs to 80%, moving from USD 345 million in 2013 to USD 619 improvement in credit risks at large. course underpinned by a “Road Map” with well-defined spreads contracted by 323 bps from year-end 2013 to reach

24 25 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

282 bps at year-end 2014, outlining an improvement in At the banking sector level, the banking system has been 3.4. | Operating Environment in West Europe market perception of country risks at large. resilient amidst a tough operating environment. Banks operating in Egypt posted an activity growth of 17.6% in local currency The Western Europe region had a rather tough year in 2014, Within this environment, monetary authorities have maintained At the monetary level, conditions were relatively stable on the terms between end-2013 and end-November 2014 (+14.3% in marked by a mostly faltering economic momentum. The exceptionally accommodative policies throughout the year to overall over the past year in Egypt. The year 2014 ended with USD terms). Deposits and loans were up by 15.8% and 12.4% global financial crisis legacies, particularly still elevated public prop up economic activity in its consumption, investment and an exchange rate of 7.15 Egyptian Pound per USD, a slight (+12.5% and 9.2% in USD terms), respectively. Deposits in and private debt levels, along with high unemployment, trade components. The European Central Bank has announced depreciation of 2.8% per annum. The year did not witness foreign currency increased by 6.5% during the first 11 months continued to weigh on the economic recovery. Consumer and a series of measures to tackle low price pressures, such as a pressure on the gross FX reserves, which barely moved from USD of 2014 compared to a growth of 18.6% in local currency corporate confidence remains fragile in some areas, mirroring reduction in key interest rates, targeted liquidity provisions, 17.1 billion in December 2013 to USD 15.4 billion in December deposits over the same period, contracting deposit dollarization a few lingering uncertainties about the recovery of the private and outright purchases of covered bonds and asset-backed 2014, representing 8.2% of LE money supply and 2.8 months from 23.8% in December 2013 to 21.9% in November 2014, sector economy. Corporate investments remain somewhat securities. While such steps are bound to continue providing of imports. Still, the IMF thinks that a more flexible exchange which mirrors the relaxed activity on the foreign exchange constrained and capacity utilisation has still not renewed with markets with liquidity, banks’ lending activity has remained rate policy focused on achieving a market-clearing rate and market. The aggregated net profits of eleven listed banks of the pre-crisis levels. At the same time however, fiscal consolidation constrained by their recapitalisation efforts in abidance with avoiding real appreciation would improve the availability of sector rose by 15% in USD terms during the first nine months of efforts on behalf of authorities have had positive spill overs on new regulations and ongoing deleveraging efforts, despite the foreign exchange, strengthen competitiveness, support exports 2014, suggesting a reinforcement of banking sector profitability indebtedness ratios which have more or less stabilised, and successful completion of the ECB’s asset quality review and and tourism, and attract foreign direct investment. at large. headwinds to economic momentum from fiscal restraint have the move to place the largest banking institutions under single eased. Along the same lines, inflation rates have remained supervision. The still subdued quantity effect, along with tight very low in the absence of demand-side price pressures across spreads in a low interest rate environment, and dampened fee 3.3. | Operating Environment in Turkey the region. income generation in a low growth context, have weighed on banks’ bottom lines during 2014. The Turkish economy has grown significantly well in recent years. Foreign direct investment in Turkey dropped by 11.8% in 2014 The economy recovered promptly from the global financial crisis relative to the previous year. The number of foreign tourists rose and unemployment reached its lowest level in the last decade. by 5.5% in 2014. Last but not least, Turkey’s BOP reported a 4.0. | 2014 Activity and Performance Analysis Lately, Turkish authorities effectively contained the fallout from deficit of USD 0.5 billion in 2014, against a surplus of USD 10.8 heightened domestic uncertainty and financial market volatility. billion over the previous year. 4.1. | Business Overview in 2014 But low national savings and competitiveness challenges are constraining investment and exports, contributing to At the monetary level, inflation continues to be considerably Bank Audi’s performance in 2014 once again confirms the the challenging environment, highlighting the Bank’s capacity considerable external imbalances that expose the country to the higher than the Central Bank’s target of 5%, reflecting the soundness of the Group’s diversification strategy, driving growth to attract new customers and to expand its range of services. risks associated with international capital flows. exchange rate pass through, high food inflation and partly in spite of the persisting challenging operating environment, Both the number of customers and the total number of premature monetary easing. That being said, in December, particularly in Arab Countries in Transition (ACTs), with accounts continued to increase, with 148,422 new customers Economic growth has indeed continued this year, although it consumer prices reached an annual inflation rate of 8.2% consolidated net profits rising by 15% relative to 2013 to reach and 356,931 new accounts in 2014. At end-December has contracted from the previous year amidst the effects of US year-on-year. USD 350 million, after the allocation of USD 140 million of net 2014, the Bank’s franchise counted 834,247 customers and tapering and domestic uncertainties. All in all, it is expected loan loss provision charges, reinforcing the Bank’s asset quality 1,602,451 accounts. Accordingly, the Bank retained its status that growth would average 3% in 2014, yet below the four At the banking sector level, Turkish banks continue to post at large. In parallel, consolidated assets grew by 15.9% to as the leading bank in Lebanon by assets, deposits, loans and year average growth rate of 6%. As a matter of fact, domestic a relatively sound growth with good financial soundness exceed, for the first time, the USD 40 billion threshold. shareholders’ equity, while reinforcing its positioning among the demand slowed relatively as high domestic interest rates, indicators. When expressed in TL terms, assets grew by 15.1% top 20 largest Arab banking institutions according to the same coupled with uncertainty due to international developments, in 2014 (5.6% in USD terms), and loans grew by 18.5% in TL The growth in the Bank’s balance sheet reflects the resilience, criteria. prevailed. The largest contribution to growth is coming from terms over the period (8.8% in USD terms). Capital adequacy as well as the strong dynamics, across key businesses in spite of exports of goods and services and contracting imports (mirroring ratios are high, with an average ratio of 16.3% at end weak domestic demand), which translates into a strong net December 2014. Asset quality remains satisfactory with a NPL 4.2. | Consolidated Balance Sheet Management export contribution to growth. ratio of 2.8% of gross loans and a loan loss provision ratio of 73.8% of non-performing loans. Last but not least, profit Consolidated assets of Bank Audi increased by USD 5.8 billion in under management. Most of the consolidated assets growth was External sector indicators appear to be mixed this year. ratios have contracted this year but remain acceptable with a 2014, from USD 36.2 billion at end-December 2013 to USD 42 generated respectively and by order of importance by the entities Exports have increased by 3.9% in 2014, driven by the gains ROAA of 1.3% and a ROAE of 12.2%. billion at end-December 2014, reaching USD 52.1 billion when in Turkey, Egypt and Lebanon. Assets growth in Egypt and Turkey in competitiveness in the aftermath of currency depreciation. accounting for fiduciary deposits, security accounts and assets comes on the backdrop of improving economic conditions as

Turkey Main Macro & Banking Aggregates (USD Billion) SUMMARISED BALANCE SHEET (USD MILLION) 2013 2014 Change Change

Nominal GDP 820 813 -0.8% Dec-13 Dec-14 Vol. %

Real GDP growth 4.1% 3.0% -1.1% Primary liquidity 9,195 13,124 3,930 42.7% Portfolio securities 11,226 10,100 -1,126 -10.0% Population (in millions) 76.5 77.3 1.1% Loans to customers 14,713 17,171 2,458 16.7% GDP per capita (in USD) 10,721 10,518 -1.9% Other assets 608 862 254 41.7% Fixed assets 449 703 254 56.4% Domestic banks’ assets 814.4 859.8 5.6% Assets = Liabilities 36,191 41,961 5,769 15.9% Domestic banks’ deposits 444.5 454.3 2.2% Banks' deposits 1,359 1,475 117 8.6% Customers’ deposits 31,095 35,821 4,726 15.2% Domestic banks’ loans 492.4 535.5 8.8% Subordinated debt 356 507 151 42.4% Domestic banks’ equity 91.1 99.9 9.7% Other liabilities 685 809 124 18.1% Domestic banks’ net profits 11.6 10.6 -8.3% Shareholders’ equity (profit included) 2,696 3,348 651 24.2%

Exchange rate 2.15 2.33 8.4% Assets under management 9,288 10,098 809 8.7% Assets + assets under management 45,480 52,059 6,579 14.5% Sources: IMF, Central Bank of Turkey, Bank Audi’s Research Department.

26 27 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

witnessed by a real GDP growth rate of 3% in Turkey (14% presence, the contribution of entities outside Lebanon to LIABILITIES BREAKDOWN in nominal terms) and 2.2% in Egypt (17% in nominal terms) consolidated assets reached 47% at end-December 2014, within the context of a subdued growth of 1.8% in Lebanon bearing witness to Management’s success in reaching its set 2% 2% (6% in nominal terms). Accordingly, Bank Audi Egypt and Odea target of a balanced activity breakdown between Lebanon 1% 1% 4% Bank accounted for a higher share in the sector’s increase than and abroad. This achievement is even more important when 7% 4% 8% their asset market share, allowing them to improve their market considering that 33% of consolidated assets are booked in share and positioning among the private deposit banks. investment grade countries, reinforcing the overall quality of the Bank’s assets. In spite of the negative impact of the depreciation of local Banks' deposits currencies versus the US Dollar in a number of countries of Dec-13 Dec-14 Customers' deposits BREAKDOWN BETWEEN LEBANON & ABROAD Subordinated debt Dec-13 Dec-14 Change Other liabilities 86% 85% Total assets Shareholders' equity Lebanon 57.4% 52.6% -4.8% Abroad 42.6% 47.4% 4.8% Shareholders’ Equity Total customers’ deposits Consolidated shareholders’ equity rose from USD 2,696 The increase in shareholders’ equity is also justified by USD 221 Lebanon 61.6% 54.8% -6.8% million at end-December 2013 to USD 3,348 million at million of additional reserves for revaluation of fixed assets Abroad 38.4% 45.2% 6.8% end-December 2014, representing an increase by USD 652 booked in accordance with BDL Intermediary Circular No. 44, million in 2014. This increase was mainly the result of the within the context of USD 30.2 million of proceeds from the Total loans to customers completion, in spite of the tough regional environment, of liquidation/sale of AZA Holding based on the terms of the Lebanon 41.0% 33.6% -7.4% the USD 300 million capital increase at end-September 2014, shareholders’ agreement, USD 72.6 million of reduction in the Abroad 59.0% 66.4% 7.4% primarily through rights offering of common shares to existing Treasury stock position, and USD 160.1 million of internal capital shareholders in the amount of USD 240 million, as well as generation, totally offsetting the USD 101.1 million of additional

The following discussion covers an analysis of the evolution of funding sources and their uses in 2014 at a consolidated level. the subscription by the International Finance Corporation, a negative changes in foreign currency translation reserves. The member of the World Bank Group, to new common shares latter is broken down over an impact of depreciation of mainly 4.2.1. | Funding Sources in the amount of USD 60 million. The subscription price the Turkish Lira by USD 50.3 million, the Egyptian Pound by per common share was USD 6.00, and eligible subscribers USD 13.6 million, the Euro by USD 0.8 million and the Syrian Consolidated Customers’ Deposits were allocated three warrants per common share subscribed Pound by USD 7.3 million between end‑December 2013 and Consolidated customers’ deposits continued to drive end‑December 2014 69.4% of consolidated deposits (as entitling to purchase one common share of the Bank’s Turkish 2014. In January 2014, the Bank opted for hedging a large part consolidated assets growth in 2014, increasing by USD 4.7 compared to 70.8% at end-December 2013) with corporate subsidiary, Odea Bank, for each warrant. Fifty million Bank of the capital invested in Odea Bank, which has been converted billion, equivalent to a growth of 15.2%, witnessing to a good and commercial deposits representing at end‑December Audi’s common shares were issued in the capital increase, as into Turkish Lira to protect itself against depreciation of the performance relative to a number of large regional banks. This 2014 30.6% of the total (as compared to 29.2% as at well as 149,528,847 warrants, representing approximately currency against the US Dollar. The hedging strategies that growth was principally driven by deposit increases in entities end‑December 2013). 10.0% of Odea Bank’s common shares. There was an initial were entered into are a combination of capped calls and rolling in Turkey, Egypt and Lebanon. Accordingly, consolidated take up of 87.1% of the rights issue by existing shareholders collars, which would provide adequate levels of protection customers’ deposits moved from USD 31.1 billion as at By type of deposits, time and saving deposits made up for (including a take-up of 94% by holders of the Bank’s Global while minimising the impact of their cost on the net income of end‑December 2013 to USD 35.8 billion end-December 2014, almost all the consolidated deposits increase, underscoring Depositary Receipts (GDRs), with the balance taken up in the Bank. As a result, the Bank bears an annual cost of hedge exceeding the deposit bases of a number of leading regional reinforced stability of deposits. The increase in time deposits full through residual subscriptions by existing shareholders). of USD 18 million. banks. was totally offset by decreases in related parties’ deposits. At This transaction showed the confidence of existing and new end-December 2014, time deposits represented 66.5% of total shareholders in the Group’s performance and direction. When adjusting to the subordinated loans, gross regulatory By business segment, the increase in deposits was skewed deposits followed by 14.4% for saving deposits, 14.4% for The partnership with IFC will further assist the Bank in equity reached USD 3.3 billion at end-December 2014, towards retail and individual deposits, representing at sight deposits, 1.1% for related parties’ deposits, and 3.7% for expanding access to underserved segments, such as small and translating into a capital adequacy ratio of 13% as per Basel medium enterprises and support planned expansion to new III, as compared to an 11.5% regulatory minimum requirement. jurisdictions, in particular where IFC has significant in‑country Please refer to Section 4.5. for a detailed analysis of the BREAKDOWN OF CUSTOMERS’ DEPOSITS BY TYPE (USD MILLION) knowledge and experience. capitalisation ratios in 2014. Dec-13 Dec-14 Change Volume Structure Volume Structure Volume Structure

Subordinated Debt Total customers' deposits 31,095 100.0% 35,821 100.0% 4,726 100.0% On March 27, 2014, Bank Audi closed the issuance of USD 150 This issuance comes over and above the issuance by the Bank in Sight deposits 4,606 14.8% 5,143 14.4% 537 11.4% million of subordinated loans with the IFC, a member of the September 2013 of USD 350 million of subordinated unsecured World Bank Group, and the IFC Capitalisation Fund, which bonds which are expected to be repaid on October 16, 2023, Time deposits 21,728 69.9% 23,805 66.5% 2,076 43.9% are expected to be repaid on April 11, 2024, unless previously unless previously accelerated or redeemed by the Bank. Those Saving accounts 3,110 10.0% 5,147 14.4% 2,037 43.1% redeemed by the Bank or accelerated, with such early bonds carry an annual interest rate of 6.75% payable on a Related parties accounts 503 1.6% 389 1.1% -113 -2.4% redemption or acceleration being subject to the approval of the quarterly basis subject to the same conditions as mentioned Other deposits 1,149 3.7% 1,338 3.7% 189 4.0% Central Bank of Lebanon. The loans bear an interest rate spread above. of 6.55% over 6-month LIBOR and applicable fees per annum payable on a bi-annual basis, subject to the availability of free Both issuances are accounted for as regulatory Tier 2 capital. other deposits. This is to be compared to 69.9%, 10%, 14.8%, 86% as at end-December 2013. Subsequently, supplementary profits, in accordance with the Central Bank’s Basic Circular No. Please refer to Note 39 in the Consolidated Financial Statements 1.6% and 3.7% respectively at end-December 2013. funding sources were represented by shareholders’ equity 6830, as applicable at the time of the issuance. for further details. (accounting for 8% of total funding), dues to banks Consolidated customers’ deposits continued to represent 85% (representing 4% of total funding), subordinated debt (1%) and of total funding as at end-December 2014, as compared to other liabilities (2%).

28 29 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

The following analysis covers the breakdown of the consolidated loan portfolio by customer type, economic sector, maturity, currency 4.2.2. | Asset Utilisation (Balance Sheet Allocation) and collaterals. The assets utilisation policy of the Group continues to favour may submit on an ad hoc basis to the Board of Directors for placements in asset classes that have the highest impact on approval, changes in the limits in response to changing business Loans Breakdown by Customer Type profitability, while taking into consideration an optimum or market conditions. On a day-to-day basis, the responsibility In 2014, the corporate clients are the major contributors to the This remains in line with the Group’s strategy to strengthen its diversification of risks and a conservative approach to asset of monitoring the limits lies within the Group’s Credit Risk consolidated loan portfolio, accounting for 62.4% of the total presence within the corporate business line spearheaded by quality. Balance sheet allocation is as such determined by specific department. (61.9% in 2013), followed by consumer loans with 16.7% (14.1% the Turkish market. Going forward, growth of both profitable limits set internally and based on Management’s risk appetite in 2013), loans to SMEs with 11.5% (14.6% in 2013), and finally SMEs and retail segments will be our priorities in all three main and underlying volumes. Covering lending, placements with Bank Audi’s results as at end-December 2014 assert the Group’s loans to individuals and Private Banking with 9.4% (9.5% in 2013). markets of the Group, namely Turkey, Egypt and Lebanon. financial institutions and investment in portfolio securities, these high financial flexibility with primary liquidity accounting for limits are applied by all entities over and above the abidance to 45.1% of total deposits and the loans to deposits ratio standing BREAKDOWN OF NET LOANS & ADVANCES BY TYPE OF CUSTOMER local regulations requirements. As per the Group’s Corporate at 47.9% at the same date, reflecting the Group’s sufficient Governance guidelines (Article 2.8.), limits are subject to annual capacity to extend loans while continuing to optimise the review by the Board of Directors. Meanwhile, Management liquidity and yield management. 14% 15% 17% 12% assets BREAKDOWN 9% 9% 3% 4% Dec-13 Dec-14 SME 31% 24% Corporate clients Sole proprietorships and B/S Private Banking 62% 62% 41% Dec-13 41% Dec-14 Consumer loans Portfolio securities Bank's placements Loans to customers Loans Breakdown by Economic Sector 25% 31% The concentration of the loan portfolio by economic sector wholesale trade (12.9%), and financial intermediaries Other assets remains within the BOD’s approved concentration limits (10.5%), with no major changes to report except for the relative to each of the loan portfolio and consolidated equity. share of contractors in the total, driven by the contribution In what follows, we analyse the evolution of the various asset classes and their respective key indicators at end-December 2014 At end‑December 2014, the largest concentration by sector of Odea Bank in Turkey, although this increase remains within relative to end-December 2013. consisted in manufacturing industries (17.2%), consumer the risk appetite of the Group. loans (16.7%), real estate services and developers (16.2%), Consolidated Loan Portfolio The majority of the Group’s lending consists of working capital in loans in Lebanese entities. In terms of geographic risk as at BREAKDOWN OF NET LOANS & ADVANCES BY ECONOMIC SECTOR finance and trade finance to corporates, as well as to small and end‑December 2014, loans to the Lebanese private sector medium-sized businesses, with a growing share of retail lending represented 29.3% of the total loan portfolio (as compared to booked in Lebanon as well as in subsidiaries abroad. Working 33.2% as at end‑December 2013), loans to the Turkish private 5% 12% 5% Manufacturing industries capital financing is provided by way of credit lines, overdraft sector represented 45.2% (rising from 36.6% as at end-December 17% 19% facilities and short-term loans (with terms of less than one year). 2013), loans to the Egyptian private sector 10.8% (11.4% as 5% Financial intermediaries at end-December 2013), loans in Europe 6.6%, and loans in 16% Trade Over the past year, consolidated net loans rose from USD other MENA entities accounted for 8.0% of the total. Amid a 11% 14% Consumer loans 14.7 billion at end-December 2013 to USD 17.2 billion at challenging operating environment across the MENA limiting the Dec-13 12% Dec-14 end‑December 2014, equivalent to an increase by USD 2,458 availability of enticing lending opportunities, net loans booked in Real estate services & developers million accounted principally by Odea Bank, amid an increase in Lebanon for regional corporates dropped by USD 385 million in 13% Others loans by USD 213 million in Egypt totally offset by a contraction 2014, reaching USD 824 million at end-December 2014. 10% 16% 14% Transportation & communication 14% 17% BREAKDOWN OF NET LOANS & ADVANCES BY BOOKING ENTITY Contractors

5% 8% Loans Breakdown by Maturity The maturity profile of the consolidated loan portfolio end-December 2013 (37.3% in 2013). In parallel, medium-term 24% continues to evolve to the advantage of medium-term facilities. tenors moved from 18.5% at end-December 2013 to 20.7% at 27% Indeed short-term facilities, with maturities of less than one end-December 2014, reflecting the maturity structure of Odea 59% Dec-13 66% Dec-14 Loans booked in lebanon for non-residents year reflecting mainly working capital financings and goods Bank’s loan portfolio in Turkey. The share of long-term tenors financings to customers, represented 38.4% of the consolidated moved from 44.2% as at end-December 2013 to 40.9% as at 5% Cash collaterals & bank guarantees loan portfolio at end-December 2014, a stable level relative to end-December 2014. against Lebanese risk 6% Net Lebanese risk Loans booked in foreign subsidiaries

On the back of an almost equivalent growth pace for consolidated 2013 to 47.9% as at end-December 2014, amid a 30% ratio in loans and consolidated deposits, the consolidated loans to deposits Lebanese entities, 46.3% in Egypt and 85.1% in Odea Bank. ratio improved marginally from 47.3% as at end-December

30 31 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

BREAKDOWN OF NET LOANS & ADVANCES BY MATURITY Evolution of Contra-accounts The Group’s Trade Finance activities renewed in 2014 with in Lebanon in line with the domestic economic growth trend. growth generally driven by Odea Bank, Egypt and Lebanon by Concurrently, outstanding letters of credit increased by 23.7% order of importance. In fact, consolidated LC openings grew in 2014 to reach USD 468 million at end-December 2014 from from USD 1,873 million in 2013 to reach USD 2,395 million in USD 379 million at end-December 2013, while outstanding 2014, corresponding to an increase by USD 522 million or a letters of guarantee increased by 2.4% to stand at USD 1,783 37% 38% growth of 27.9%. LCs openings of Odea Bank and Bank Audi million at end-December 2014. 41% 44% Egypt doubled in 2014, coupled with an 8.2% growth registered Dec-13 Dec-14 Loan Quality Short-term facilities ASSET QUALITY (USD MILLION) Medium-term facilities Dec-13 Dec-14 Change 19% 21% Long-term facilities Gross NPLs 422.4 539.8 117.4 o.w. Corporate 374.9 439.6 64.8 o.w. Retail 47.5 100.2 52.6 Loans Breakdown by Currency The charts below highlight the breakdown of the loan portfolio remaining in foreign currencies (mostly in USD). Accordingly, Gross SLs 8.1 5.2 -2.8 by currency. Although the USD remains the dominant currency the share of Turkish Lira denominated loans in the consolidated at end-December 2014 with 46%, its share has decreased loans rose from 15.9% as at end-December 2013 to 22.3% as Net loans 14,712.9 17,171.0 2,458.2 by 5.3% from 51.3% at end-December 2013, reflecting the at end-December 2014, with the share of Lebanese Pounds, o.w. Corporate 12,646.4 14,326.5 1,680.1 solid growth in the portfolio of the Turkish subsidiary which Euro and Egyptian Pounds stabilising over the same period. o.w. Retail 2,066.5 2,844.6 778.1 has 48.5% of its loans denominated in Turkish Lira and the Specific provisions 271.4 386.7 115.4 o.w. Corporate 228.3 312.9 84.7 BREAKDOWN OF NET LOANS & ADVANCES BY CURRENCY o.w. Retail 43.1 73.8 30.7 1% 2% Collective provisions 131.2 138.9 7.7 1% 1% 3% 2% o.w. Corporate 109.5 112.9 3.4 USD (US Dollars) o.w. Retail 21.8 26.1 4.3 8% 8% TRY (Turkish Liras) Gross NPLs/Gross loans 2.79% 3.05% 0.26% 8% 8% EUR (Euros) o.w. Corporate 2.89% 2.98% 0.09% EGP (Egyptian Pounds) o.w. Retail 2.23% 3.40% 1.17% 46% Dec-13 Dec-14 Net DLs/Gross loans 1.00% 0.86% -0.13% 12% 51% 11% LBP (Lebanese Pounds) JOD (Jordanian Dinars) o.w. Corporate 1.13% 0.86% -0.27% Other currencies o.w. Retail 0.21% 0.90% 0.69% 16% 22% LLRs on DLs1 64.25% 71.64% 7.39% SYP (Syrian Pounds) o.w. Corporate 60.89% 71.18% 10.29% o.w. Retail 90.75% 73.67% -17.08% Collective provisions/Net loans 0.89% 0.81% -0.08% Loans Breakdown by Collateral o.w. Corporate 0.87% 0.79% -0.08% Notwithstanding the fact that lending decisions rely primarily as secured loans represented more than 42% of the total loan on the availability and sustainability of cash flows as a first portfolio of which real estate mortgages (26.5%) and cash/bank o.w. Retail 1.05% 0.92% -0.14% source of repayment, Bank Audi also relies on the availability guarantees (12.9%). Loans covered by personal guarantees 1 Including interest in suspense on doubtful loans. and enforceability of collaterals. As at end-December 2014, represented 23.8% of the portfolio as compared to 19.4% at Bank Audi’s loan portfolio remains adequately collateralised, end-December 2013. The growth of the consolidated loan portfolio of Bank Audi Lebanese entities, USD 92.5 million in Odea Bank and USD 6.3 was not achieved at the detriment of asset quality. Within the million in Bank Audi Egypt, amid a contraction by USD 19.3 BREAKDOWN OF NET LOANS & ADVANCES BY COLLATERAL context of a persisting challenging environment domestically million in Bank Audi Syria. The increase in doubtful loans in and regionally, the ratio of gross doubtful loans to gross loans Lebanese entities was triggered by Management’s decision to moved from 2.8% as at end-December 2013 to 3.1% at downgrade USD 19.9 million of corporate loans unrelated to 14% 13% end-December 2014, while the coverage of those loans by any Lebanese risk but booked in Lebanon for non-residents. The specific loan loss reserves rose from 64.3% to 71.6% over remaining USD 12.7 million of downgrades cover retail loans the same period. When accounting for real guarantee, the following the implementation of Circular No. 383 issued by the 37% 34% coverage ratio would reach 87% as compared to 78.9% in Central Bank of Lebanon and amending loan classification and Cash collateral & bank guarantee 2013. Notwithstanding coverage ratios, the ratio of gross minimum provision requirements by product and by bucket Dec-13 25% Dec-14 27% doubtful loans to gross loans of Bank Audi remains low so as to align all banks on the same level. Although justified Real estate mortgage when compared to the sector averages in Lebanon (3.6%), by the expected seasoning of the portfolio, the downgrades Securities (bonds & shares) the MENA region (4.7%), emerging markets (6.5%) and the in Odea Bank result from Management’s conservative early Personal guarantee world (6.7%). decision to downgrade a number of watch loans in the month 5% 2% 19% 24% of December 2014 amid an increase in doubtful retail loans Unsecured In absolute terms, gross doubtful loans increased by USD 117.4 by USD 38.4 million. Having said that, the ratio of gross million during the year, broken down over USD 32.6 million in doubtful loans in Turkey and Egypt is still well below the market

32 33 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

averages, and reached 1.5% for Odea Bank as compared to a provisions of USD 32.3 million, while the remaining USD 1.8 moved from USD 271.4 million as at end-December 2013 to million in Lebanese entities, USD 25.8 million in Odea Bank, market average of 2.9%. The ratio of gross doubtful loans to million were accounted for by write-off effected during the year. USD 386.7 million as at end-December 2014. Accordingly, the USD 13.3 million in Bank Audi Egypt and USD 45 million in gross loans of Bank Audi Egypt stood at 2.6% as compared to ratio of net doubtful loans to gross loans improved from 1.0% other entities (mainly Bank Audi Syria and Bank Audi Jordan). a market average of 8.9%. Specific provisions reached USD 386.7 million, broken down at end-December 2013 to 0.9% at end-December 2014. Management remains committed to gradually increasing the over USD 215 million in Lebanese entities, USD 46.5 million in ratio of collective provisions to net loans across main entities to The increase in gross doubtful loans was met with an allocation Odea Bank, USD 31.6 million in Bank Audi Egypt and USD 11.9 Total collective provisions reached USD 138.9 million at reach 1% over the medium term. of loan loss provisions by USD 152.4 million in 2014 broken million in Private Banking entities and USD 81.9 million in end‑December 2014, the equivalent of 0.81% of the down over specific provisions of USD 118.3 million and collective other entities. Including interest in suspense, specific provisions consolidated net loans portfolio, broken down over USD 54.8

The table below highlights the evolution of loan quality indicators in the main development pillars, Lebanon, Egypt, Turkey and Private Banking entities.

ASSET QUALITY BY DEVELOPMENT PILLARS (USD MILLION) Dec-13 Dec-14 Change Private Private Private Lebanese Banking Other Lebanese Banking Other Lebanese Banking Other Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total

Gross DLs 236.8 21.6 40.6 11.8 111.5 422.4 269.4 114.1 47.0 12.2 97.1 539.8 32.6 92.5 6.3 0.4 -14.4 117.4 LLRs on DLs 143.6 4.5 28.5 11.4 83.4 271.4 215.0 46.5 31.6 11.9 81.9 386.7 71.3 41.9 3.1 0.5 -1.5 115.4

Net DLs (predominantly covered by real guarantees) 93.2 17.1 12.1 0.5 28.1 151.0 54.4 67.7 15.4 0.3 15.3 153.1 -38.7 50.6 3.2 -0.1 -12.9 2.1 Collective provisions 60.2 12.0 14.2 2.1 42.8 131.2 54.8 25.8 13.3 2.1 42.9 138.9 -5.4 13.8 -0.8 0.0 0.1 7.7 Gross DLs/Gross loans 4.0% 0.4% 2.5% 1.3% 8.6% 2.8% 4.6% 1.5% 2.6% 1.2% 8.1% 3.1% 0.6% 1.1% 0.0% -0.1% -0.5% 0.3%

LLRs on DLs/DLs (excluding real guarantees) 60.7% 21.0% 70.1% 96.1% 74.8% 64.3% 79.8% 40.7% 67.3% 97.2% 84.3% 71.6% 19.1% 19.7% -2.8% 1.1% 9.5% 7.4% Collective provisions/Net loans 1.0% 0.2% 0.9% 0.2% 3.6% 0.9% 1.0% 0.3% 0.8% 0.2% 4.0% 0.8% -0.1% 0.1% -0.2% 0.0% 0.4% -0.1%

Changes in Primary Liquidity The Bank continues to consistently maintain a highly-liquid as at end-December 2014 from 9% as at end-December Total money markets placements with banks reached USD in low risk OECD and GCC countries characterised by high position. The Bank’s overall primary liquidity, comprised 2013. The Bank’s primary liquid assets denominated in 2.4 billion at end-December 2014, as compared to USD 2.7 levels of solvency and financial and monetary stability. Over principally of balances held at the Central Bank (excluding foreign currency consist of cash and short-term deposits billion as at end-December 2013. They are mostly placed 40% of these placements are held in banks rated A- or Central Bank certificates of deposits) and placements with placed at central banks, excluding certificates of deposits, and with highly rated and financially sound banks, mainly based better as displayed in the following charts. banks, increased from USD 9.2 billion as at end-December 2013 placements at prime banks (rated A3 and above) in OECD to USD 13.1 billion as at end-December 2014, representing countries. Primary liquidity in foreign currencies increased from 36.6% of customers’ deposits (as compared to 29.6% as at USD 8.8 billion as at end-December 2013 to USD 12.5 billion BREAKDOWN OF PLACEMENTS WITH BREAKDOWN OF PLACEMENTS WITH end-December 2013). When adjusting for BDL certificates of as at end-December 2014, representing 40% of consolidated BANKS BY REGION BANKS BY RATING deposits, the ratio of primary liquidity to customers’ deposits deposits in foreign currencies as compared to 33.2% as at rises to 45.1%, one of the highest levels in the region. end-December 2013. 1% From a currency perspective, the Bank’s primary liquid Primary liquidity remains mainly concentrated on Central assets in Lebanese Pounds are essentially composed of Bank placements, representing 67% of the total as at 9% cash and deposits with the Central Bank. The ratio of end‑December 2014, while bank placements, composed of 16% Lebanese Pound‑denominated liquid assets to Lebanese money market deposits and short term loan participations Pound‑denominated customers’ deposits increased to 13.5% and reverse repo balances, accounted for the remaining 33%. 31% 35% Aaa to Aa3 The table below highlights the breakdown of primary liquidity by type and by currency as at end-December 2014: Dec-14 Dec-14 40% MENA A1 to A3 LIQUIDITY BREAKDOWN As at end-december 2014 (USD MILLION) G10 countries Baa1 to Baa3 LBP USD EUR SYP EGP TRY JOD Others Total 48% Other Europe 16% Ba1 to Ba3

Central banks 543 6,662 657 107 377 155 98 188 8,788 Other 4% Not rated o.w. Reserves requirements 192 3,478 5 10 196 70 3 3,954 o.w. Cash deposits 351 3,184 652 97 181 155 28 186 4,834 Exposures to banks are continuously monitored by the Risk In parallel, the Bank entered into reverse repurchase Placement with banks 62 2,224 382 9 10 1,341 18 291 4,337 Management department in close coordination with the Group agreements for USD 1.9 billion as at end-December 2014 as Financial Institutions and Correspondent Banking department compared to USD 0.4 billion as at end-December 2013 mainly o.w. Deposits with banks 34 1,329 328 9 10 375 18 291 2,394 (Group FI). Regular portfolio reviews are conducted throughout in Turkey and Lebanon. The Bank holds the highest available the year to assess the Bank’s risk profiles and ensure that related quality of local securities as collateral, namely in the form of o.w. Reverse repurchase agreements 28 895 54 966 1,943 positions remain within the overall risk appetite of the Group. certificates of deposits from the Central Bank of Lebanon and During these reviews, specific attention is paid to concentration Turkish Treasury bills. Total primary liquidity 605 8,886 1,039 116 387 1,495 116 479 13,124 risk levels to ensure that these remain well under control.

34 35 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

Changes in Portfolio Securities The charts below show the breakdown of the other international bond portfolio by geographic location and by ratings. The increase in consolidated primary liquidity was partly USD 1,126 million, moving from USD 11,226 million funded by a decrease in consolidated portfolio securities at end-December 2013 to USD 10,100 million as at comprising of BDL certificates of deposits, Lebanese end‑December 2014, corresponding to a contraction by NON-LEBANESE BONDS ALLOCATION BY ZONE Treasury bills and Eurobonds, other sovereign securities, 10%. As a percentage of total assets, the Bank’s securities equity instruments, as well as various other securities. portfolio represented 24.1% as at end-December 2014 as Consolidated portfolio securities decreased in 2014 by compared to 31.0% as at end-December 2013. 14%

The following table shows the distribution of the Bank’s portfolio securities by type of security as at end-December 2014 relative to end-December 2013: Dec-14 PORTFOLIO SECURITIES BREAKDOWN as at end-december 2014 (USD Million) 50% Emerging markets LBP USD TRY EGP Other Total Developed markets 36%

Central banks’ certificates of deposits 3,007 31 3,038 GCC Treasury bills & Eurobonds 1,115 1,266 210 1,610 686 4,887 Risk-ceded Lebanese Eurobonds 1,446 1,446 Equity instruments 41 58 8 22 129 NON-LEBANESE BONDS ALLOCATION BY RATING Fixed income instruments 478 2 120 600 Total portfolio securities 4,163 3,279 210 1,620 828 10,100

2% Lebanese Bond Portfolio The decrease in the consolidated portfolio securities USD 1,446 million of bonds whose risk has been ceded 7% was mostly accounted for by Lebanese Eurobonds, to customers (as compared to USD 1,202 million as at contracting by USD 948 million (including risk-ceded end-December 2013). Subsequently, the net exposure to AA- to AAA government Eurobonds) over the same period, pointing sovereign Eurobonds reached at the same date USD 1,110 32% A- to A+ to the optimisation of liquidity placements measures million, representing 11% of the Bank’s total portfolio implemented by Management. At end‑December 2014, securities and 3.7% of foreign currency denominated Dec-14 BBB to BBB+ Bank Audi’s exposure to Lebanese sovereign Eurobonds in customers’ deposits (as compared to respectively 20.5% Not rated foreign currency stood at USD 2,556 million (as compared and 9.1% as at end‑December 2013). to USD 3,504 million as at end-December 2013), of which 59%

Non-Lebanese Sovereign Securities In parallel, the Bank also bears a significant exposure to the end-December 2014 (as compared to USD 1.1 billion as at non-Lebanese sovereign risk, particularly that of Turkey and end-December 2013), while its exposure to the sovereign risk Egypt in consideration to the Group’s sizeable operations in of Turkey amounted to USD 210 million, equivalent to TL 488 those markets. As at end-December 2014, the non-Lebanese million as compared to TL 943 million as at end-December 2013. This portfolio enjoys a high average rating, as 90% is invested in of diversification. At end-December 2014, the top exposure, sovereign bonds portfolio reached USD 2,662 million, rising from In relative terms, the portfolio of non-Lebanese sovereign bonds bond issues rated A- or better. The highest single issuer position representing an investment by USD 43 million, was held in an USD 2,121 million as at end-December 2013 and underscoring represented 26.4% of the total securities portfolio and 8.5% of in this portfolio represents 7.3% of the total, while the second AA- rated issuer. a year-on-year increase by USD 541 million. The Bank’s exposure foreign currency denominated customers’ deposits (as compared largest represents 6.7% of the total, underscoring a good level to the sovereign risk of Egypt reached USD 1,610 million at to 18.9% and 8%, respectively, as at end-December 2013).

Other International Fixed Income Securities Well diversified across sectors, placements in other international banks is mitigated by good issuer diversification and relatively fixed income securities contracted by 33.5% in 2014, moving short tenor maturities (under 2 years), making these investments from USD 902 million to USD 600 million. These placements somewhat similar to ordinary placements with banks in terms of continue to favour highly rated financial institutions which implied risk profile and market risk exposure. accounted for 65% of the total international bond portfolio at end-December 2014 (as compared to 56% as end-December In terms of geographic allocation, 46% of international fixed 2013), while corporate issuers accounted for 28% (32% in income bond positions relate to issuers domiciled in GCC the previous year) and sovereigns for 7% of the total (same as markets, 25% in core western Europe countries, 17% in the Far at end-December 2013). The relatively high concentration on East, 9% in the USA, 2% in Australia, and 1% in Jordan.

36 37 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

4.3. | Results of Operations SPREAD EVOLUTION (USD MILLION) 2013 2014 Change Bank Audi’s results in 2014 confirm the Group’s good mastery revenues within the context of a reinforcement of the revenue Net interest income 673.3 815.2 141.9 over the operating conditions in the various countries of generation in the other development pillars of the Group. presence, mainly in Turkey where the subsidiary is well Accordingly, the revenue stream of the Group continues to Yield on assets 5.43% 5.88% 0.45% positioned to achieve a sustainable growth in net profits, be well diversified, with the share of Lebanese entities in total o.w. Lebanese entities 4.52% 4.50% -0.01% in line with preset targets. Bank Audi’s net earnings after revenues further declining from 55.9% in 2013 to reach 48.9% provisions and taxes reached USD 350 million in 2014 as in 2014, with Turkey accounting for 20.2% of total revenues o.w. Odea Bank 6.85% 7.95% 1.10% compared to USD 305 million in 2013, which represents a in 2014 (as compared to 9.2% in 2013) and Egypt 12.2% (as o.w. Bank Audi Egypt 9.59% 9.26% -0.33% 15% growth year-on-year. compared to 13.6% as at end-December 2013), and with the o.w. Private Banking entities 2.90% 2.86% -0.04% remaining entities accounting for 18.7% of the total. This performance stems from a 23.5% growth in total revenues, o.w. Other entities 4.71% 4.73% 0.02% primarily as a result of the exponential growth of Odea Bank’s Cost of funds 3.43% 3.78% 0.35% o.w. Lebanese entities 2.90% 2.97% 0.08% The tables below present an overview of Bank Audi’s consolidated financial results in 2014 as compared to 2013: o.w. Odea Bank 5.30% 5.66% 0.36% SUMMARIsED INCOME STATEMENT (USD Million) o.w. Bank Audi Egypt 6.21% 6.12% -0.09% Change o.w. Private Banking entities 1.32% 1.10% -0.22% 2013 2014 Vol. %

o.w. Other entities 2.10% 2.08% -0.02% Interest income 673.3 815.2 141.9 21.1% Non-interest income 397.7 507.9 110.2 27.7% Spread 2.00% 2.10% 0.10% Total revenues 1,070.9 1,323.1 252.2 23.5% o.w. Lebanese entities 1.62% 1.53% -0.09% o.w. Odea Bank 1.55% 2.29% 0.74% Operating expenses 600.5 728.8 128.3 21.4% o.w. Bank Audi Egypt 3.38% 3.13% -0.24% - Loans loss provisions 90.3 139.6 49.3 54.6% o.w. Private Banking entities 1.58% 1.76% 0.18% - Net other provisions -0.5 -0.5 0.0 -5.0% o.w. Other entities 2.61% 2.65% 0.04% - Tax 76.1 104.8 28.7 37.8%

= Total cost 766.4 972.8 206.4 26.9% negative price effect of USD 20.5 million totally offsetting a from 1.55% on average in 2013 (74 basis points). This spread quantity effect of USD 14.9 million. evolution in 2014 results from an active management of yields = Net income 304.6 350.3 45.8 15.0% and cost within the context of changing market conditions. On Cost to income 56.1% 55.1% -1.0% By currency, the decrease is driven by interest income the backdrop of the political crisis and market volatility in late denominated in Lebanese Pounds which contracted by 2013 and early 2014, the reference rates increased significantly,

BREAKDOWN BETWEEN LEBANON & ABROAD USD 30.2 million, underscoring primarily a quantity effect, driving up the cost of funding, while efforts were made to with average assets contracting over the period by USD 309.6 renew loans with longer maturities at higher yield. As a result, 2013 2014 Change million, along with a price effect. Spread in LBP moved from monthly spreads moved from 2.42% in December 2013 to

Total revenues 2.71% in 2013 to 2.68% in 2014, driven by a decrease in the 2.78% in December 2014. Management guidance in 2014 is Lebanon 59.1% 52.0% -7.0% yields on placements with the Central Bank of Lebanon. to sustain and improve the spread steadily to a normalised level Abroad 40.9% 48.0% 7.0% close to the Turkish market conditions. On the other hand, interest income of Lebanese entities Total cost denominated in foreign currencies increased by USD 6.1 million, In Egypt, interest income of Bank Audi improved by USD 11.3 underlying predominantly a quantity effect amid a 5 basis points million, led primarily by a USD 24.7 million quantity effect Lebanon 49.6% 49.7% 0.1% decrease in spread in FCY justified by an increase in the cost of partially offset by a price effect of USD 9.3 million, following Abroad 50.4% 50.3% -0.1% deposits in foreign currencies and the additional cost related to a spread contraction from 3.38% in 2013 to 3.13% in 2014. the USD 150 million subordinated issuance to the IFC. Amid a decrease in the cost of deposits by 9 basis points, the Net income contraction in the spread is better explained by a decrease in the Lebanon 82.8% 58.4% -24.4% In Turkey, interest income of Odea Bank increased by USD 130.2 average yield on portfolio securities following renewals at lower Abroad 17.2% 41.6% 24.4% million, driven almost evenly by quantity and price effects. In returns offsetting improvement in yield on other asset classes. 2014, Odea Bank’s spread stood at 2.29% on average, increasing The USD 252.2 million increase in total income was met by an expenses matches that of revenues with the share of Lebanese increase in total costs by USD 206.4 million over the same period, entities declining to 48.8% in 2014, with 25.2% for Turkey, 4.3.2. | Evolution of Non-interest Income representing a growth of 26.9% relative to 2013. Total cost 9.2% for Egypt and 16.8% for other entities, as compared to includes general operating expenses, loan loss provision charges 49.1%, 22.6%, 10% and 18.4% respectively in 2013. Non-interest income increased by USD 110.2 million in 2014 In parallel, non-interest income from operations slightly increased, and tax cost. The diversification profile of general operating (corresponding to a growth of 27.7%), broken down over driven principally by increases in non-interest income from Retail increases of USD 54.8 million in Lebanese entities, USD 40.1 and Personal Banking activities by USD 18.7 million, from Private 4.3.1. | Evolution of Interest Income million in Odea Bank, USD 16.9 million in Private Banking entities, Banking activities by USD 18 million, and from Commercial and and USD 5 million in Bank Audi Egypt. 55.1% of the increase Corporate Banking activities by USD 17.5 million. Within such a 56.3% of the increase in consolidated total income in 2014 34.3 million following the depreciation of the Egyptian Pound in non-interest income is accounted for by core commissions context, the resilience of non-interest income from operations was accounted for by consolidated interest income rising over and the Turkish Lira over the period. (59.4% of which attributed to Odea Bank, 28.2% to Private underlines the solid fundamental of the diversified business the period by USD 141.9 million (i.e. a growth by 21.1%) to Banking entities and 9.9% to Bank Audi Egypt). Consolidated model across geographies, noting that Management relentlessly reach USD 815.2 million. The increase in interest income was By entities, the share of interest income of Lebanese entities core commissions grew by 32.4% in 2014, reaching USD 247.7 seeks to improve efficiency and agility. Management’s strategy mainly driven by a quantity effect (USD 122.8 million), with (excluding Audi Private Bank sal) in consolidated income million and representing 0.64% of average assets. Income from remains to capitalise on the continuing growth in regional trade average assets growing year-on-year by 15.4%, coupled with continued to decline, moving from 53.9% in 2013 to 43.8% financial instruments and FX, including USD 18 million of cost and capital flows in the Levant, as well as wealth creation in the a price effect of USD 53.4 million following the reinforcement in 2014, to reach USD 357.2 million as compared to USD 362.8 of hedge on part of the investment in Turkey, accounted for MENA region at large, leveraging on the Group’s presence in all of consolidated spread by 10 basis points, largely driven by million in 2013. In fact, interest income of Lebanese entities 38.3% of the increase, with the remaining 6.7% representing major regional markets, allowing to offer a differentiated service Odea Bank within the context of negative FX effect of USD decreased by USD 5.6 million in 2014, mainly attributed to a additional other income. to customers with regional businesses.

38 39 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

The table below presents a segmental breakdown of non-interest income by main development pillars and by business lines:

NON-INTEREST INCOME BREAKDOWN BY DEVELOPMENT PILLARS (USD MILLION) 2013 2014 Change Private Private Private Lebanese Banking Other Lebanese Banking Other Lebanese Banking Other Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total Commercial and Corporate Banking 42.4 16.4 13.1 1.8 10.1 83.8 38.2 33.0 17.0 1.7 11.4 101.3 -4.2 16.6 3.9 -0.1 1.3 17.5 o.w. Lending operations 16.8 6.0 4.3 0.1 0.7 27.9 12.3 16.9 4.5 0.2 0.5 34.4 -4.5 10.9 0.2 0.1 -0.2 6.5 o.w. Syndication fees 5.2 0.2 1.5 0.3 2.1 9.2 3.6 4.6 1.0 0.2 1.8 11.2 -1.6 4.4 -0.5 0.0 -0.3 2.0 o.w. Trade finance 13.6 3.5 6.8 1.4 6.5 31.9 16.0 7.2 11.2 1.3 6.8 42.4 2.3 3.7 4.3 -0.1 0.3 10.5 o.w. Other banking operations 0.3 0.4 0.2 0.5 1.4 0.3 0.8 0.2 0.5 1.8 0.0 0.4 0.0 0.0 0.4 o.w. Foreign exchange 6.5 6.3 0.2 0.3 13.4 6.2 3.4 0.1 1.7 11.4 -0.4 -2.9 -0.1 1.4 -2.0 Private Banking 1.4 0.0 0.4 48.7 1.8 52.4 0.8 0.8 0.8 65.0 3.0 70.4 -0.6 0.7 0.4 16.3 1.2 18.0 o.w. Brokerage and custody -0.7 0.0 0.4 20.0 1.8 21.6 -0.6 0.8 0.8 28.4 3.1 32.4 0.1 0.7 0.4 8.4 1.2 10.8 o.w. Fiduciary operations 1.0 3.8 4.9 0.5 5.8 6.2 -0.6 2.0 1.4 o.w. Other banking operations 0.2 13.4 0.0 13.7 0.2 20.2 -0.1 20.4 0.0 6.8 -0.1 6.7 o.w. Foreign exchange 0.8 11.5 12.2 0.8 10.6 11.3 0.0 -0.9 -0.9 Retail and Personal Banking 57.6 2.8 17.1 0.5 12.0 90.1 64.4 17.6 16.1 0.5 10.1 108.8 6.8 14.8 -1.0 0.0 -1.9 18.7 o.w. Lending operations 3.5 0.5 3.6 3.0 10.6 9.5 8.0 4.8 2.8 25.0 5.9 7.5 1.1 -0.2 14.4 o.w. Retail products 24.5 0.6 2.9 0.2 1.1 29.3 24.2 6.2 3.7 0.2 1.1 35.4 -0.3 5.6 0.7 0.0 0.1 6.1 o.w. Other banking operations 23.6 0.7 5.1 0.3 3.6 33.2 25.1 1.4 5.2 0.3 3.1 35.0 1.5 0.7 0.1 0.0 -0.5 1.8 o.w. Foreign exchange 6.1 1.1 5.5 4.4 17.0 5.7 2.1 2.5 3.1 13.4 -0.4 1.0 -2.9 -1.3 -3.6 Treasury and Capital Markets 121.6 0.8 7.6 3.2 -0.3 132.9 169.7 7.2 10.8 3.5 0.7 191.9 48.0 6.4 3.2 0.3 1.0 59.0 o.w. Dividends 19.1 0.0 0.1 0.0 19.2 21.4 0.0 0.1 0.0 21.5 2.3 0.0 0.0 0.0 2.3 o.w. Trading/Sale of financial instruments 101.7 0.8 7.4 0.4 -0.8 109.5 148.4 7.2 10.5 1.3 0.1 167.6 46.7 6.4 3.1 1.0 0.9 58.1 o.w. Revaluation 0.8 0.2 2.7 0.5 4.2 -0.1 0.3 2.0 0.6 2.8 -1.0 0.1 -0.6 1.0 -1.4 Other non-interest income 12.4 -5.3 2.6 2.4 26.2 38.4 17.2 -3.8 1.2 2.8 18.1 35.5 4.7 1.5 -1.4 0.4 -8.1 -3.0 o.w. Insurance 3.9 0.0 -0.3 3.7 3.6 2.7 -0.2 6.1 -0.3 2.7 0.0 2.4 o.w. Investment Banking o.w. Foreign exchange 0.0 -2.5 3.4 25.4 26.4 0.0 -3.2 1.9 17.4 16.1 0.0 -0.7 -1.6 -8.1 -10.3 o.w. Other 8.5 -2.8 -0.8 2.4 1.1 8.3 13.6 -3.4 -0.6 2.8 1.0 13.3 5.1 -0.6 0.2 0.4 -0.1 5.0 Total non-interest income 235.5 14.8 40.9 56.6 49.8 397.7 290.3 54.9 45.9 73.5 43.3 507.9 54.8 40.1 5.0 16.9 -6.5 110.2

In relative terms, total non-interest income represented 38.4% of total income in 2014 (as compared to 37.1% in 2013) and 1.31% of average assets (as compared to 1.18% in 2013).

4.3.3. | Evolution of General Operating Expenses General operating expenses increased by USD 128.3 million million at Bank Audi Egypt, and USD 9.2 million in Private The increase in general operating expenses in Lebanon is owed increase of USD 15.2 million at Odea Bank) within a USD 14.9 (21.4%), to reach USD 728.8 million in 2014. The increase is Banking entities. The increase in general operating expenses at to USD 27.5 million of one-off staff expenses in the form of million increase in depreciation and amortisation charges. broken down over USD 61.1 million in Lebanese entities, most Bank Audi Egypt is essentially tied to the IT transformation plan end-of-year indemnities adjustments and run rate of salary of which is one-offs, USD 48.3 million at Odea Bank (as the Bank underway, in addition to costs related to the roll-out of new adjustments within the context of USD 14.8 million of various With total income increasing at a slightly faster pace than continued to expand its services offering and its network, with branches and the hiring of 126 new staff. non-recurrent operating and depreciation expenses. general operating expenses, the cost to income ratio improved 17 new branches in 2014, and hired 286 new staff), USD 7.0 from 56.1% in 2013 to 55.1% in 2014, driven primarily by The increase in general operating expenses is also broken Odea Bank. Once the latter reaches its cruise speed, the cost down over an increase of USD 92.5 million in staff expenses, to income ratio is expected to achieve a normalised level within The table below presents a segmental breakdown of consolidated general operating expenses by development pillars: USD 20.9 million in other operating expenses (within an the range of 42-45%.

BREAKDOWN OF GENERAL OPERATING EXPENSES BY DEVELOPMENT PILLARS (USD MILLION) 2013 2014 Change Private Private Private Lebanese Banking Other Lebanese Banking Other Lebanese Banking Other Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total Entities Turkey Egypt Entities Entities Total Staff expenses 166.9 68.1 30.9 41.6 19.6 327.1 221.4 93.1 37.0 47.9 20.1 419.6 54.5 25.0 6.1 6.3 0.5 92.5 Depreciation & amortisation 23.5 9.3 5.4 3.6 3.9 45.6 30.1 17.3 5.5 3.6 4.0 60.6 6.6 8.0 0.1 0.0 0.2 14.9 Other operating expenses 104.3 58.2 23.6 23.8 18.0 227.8 104.2 73.4 24.4 26.6 20.0 248.6 0.0 15.2 0.8 2.8 2.1 20.9 o.w. Information Technology 6.1 6.8 1.3 1.4 0.9 16.5 5.3 8.3 1.6 1.4 1.4 18.1 -0.8 1.6 0.2 0.1 0.5 1.6 Total general operating expenses 294.7 135.6 59.9 69.0 41.4 600.5 355.8 183.9 66.9 78.1 44.1 728.8 61.1 48.3 7.0 9.2 2.8 128.3

40 41 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

4.3.4. | Evolution of Loan Loss Provision Charges Common Book per Share Common equity represents total equity less minority shares and at the end of the period. The table below presents the evolution Net loan loss provision charges moved from USD 90.3 million additional one-time provisions on retail loans following the preferred shares. Common equity per share is based on the of common equity per share between end-December 2013 and in 2013 to USD 139.6 million in 2014, corresponding to an adoption of the new Circular No. 383 by the Central Bank of outstanding number of common shares net of Treasury stocks end-December 2014. increase of USD 49.3 million, accounted for predominantly by Lebanon, although the said circular allowed for amortising of an allocation of USD 44.5 million of additional provision charges those provisions over several years. In Turkey, the increase in EQUITY METRICS (USD THOUSANDS) Change in Odea Bank and an increase of USD 37.1 million at Lebanese provisions is partly explained by the seasoning of the portfolio entities, amid decreases in most other entities, particularly at and an increase in provisioning on the retail portfolio within Dec-13 Dec-14 Vol. % Bank Audi Syria and Bank Audi France. The increase in provisions the context of an increasing allocation of collective provisions Shareholders’ equity 2,696,192 3,347,615 651,423 24.2% in Lebanon is due to provisioning on corporates booked in in order to gradually book collective reserves representing a - Minority shares 41,767 41,965 198 0.5% Lebanon for non-resident customers, amid the allocation of targeted 75 basis points of the net loan portfolio. = Shareholders’ equity group share 2,654,426 3,305,651 651,225 24.5% - Preferred stock (including dividends) 525,875 530,375 4,500 0.9% 4.3.5. | Evolution of Income Tax = Common shareholders’ equity 2,128,551 2,775,276 646,725 30.4% The consolidated effective tax rate of Bank Audi increased by 3% Bank, Bank Egypt and Private Banking entities, amid USD 3.9 Outstanding number of shares (net of Treasury stock) 340,526,319 398,523,869 57,997,550 17.0% in 2014, moving from 20% to 23% and mirroring an increase million of additional income tax in Lebanon tied to income tax Common book per share 6.25 6.96 0.71 11.4% in income tax by USD 28.7 million, broken down over USD 22.2 on dividends from subsidiaries and deferred income tax. Share price at December 31 6.24 6.00 -0.24 -3.8% million of additional income tax from operations mainly at Odea Price/Common book 1.00 0.86 -0.14 -13.7%

4.3.6. | Key Performance Metrics Common equity per share of Bank Audi increased from USD 6.25 the common share is traded at 0.9 times the common book The return on average assets stabilised at 0.90% at end-December time lag between laid off operating expenses and expected at end-December 2013 to USD 6.96 at end-December 2014. On value, reflecting very low multiples with respect to regional 2014, while the return on average common equity improved from revenues. Consolidated return ratios are hence set to improve the basis of a closing price of USD 6.0 at end-December 2014, peers trading at an average of 1.8 times book value. 12.6% in 2013 to 13.6% in 2014 in spite of the USD 300 million with the normalisation over the coming period of Odea Bank’s capital increase. Return ratios remain affected by Odea Bank, still profitability. The results of 2014 confirm that the Turkish subsidiary 4.4. | Analysis by Main Development Pillars in its investment period two years after launch, given the normal is poised for a sustained profitability growth in the coming years. The Bank’s activity and earnings growth in 2014 were driven The tables below set forth breakdowns of the Bank’s assets, The evolution of activity and results in 2014 were mirrored in the movement of key performance metrics as follows: by the Group’s main development pillars, in particular Turkey, deposits, loans to customers and net earnings, by these but also Lebanon, Egypt and the Private Banking entities. development pillars: KEY PERFORMANCE METRICS 2013 2014 Change Spread 2.00% 2.10% 0.10% Main balance sheet aggregates by development pillars (usd million) + Non-interest income/AA 1.18% 1.31% 0.13% Dec-13 Dec-14 Change = Asset utilisation 3.18% 3.41% 0.22% Share Share Share Volume in Total Volume in Total Volume in Total X Net operating margin 28.44% 26.48% -1.96% o.w. Cost to income 56.07% 55.08% -0.99% ASSETS o.w. Provisons 8.38% 10.52% 2.13% Lebanese entities 19,314 53.4% 20,688 49.3% 1,374 -4.1% o.w. Tax cost 7.11% 7.92% 0.82% Turkey 7,549 20.9% 11,065 26.4% 3,516 5.5% = ROAA 0.91% 0.90% -0.00% Egypt 3,267 9.0% 4,348 10.4% 1,082 1.3% X Leverage 12.64 13.55 0.92 Private Banking entities 3,354 9.3% 3,104 7.4% -250 -1.9% = ROAE 11.44% 12.23% 0.79% Other entities 2,707 7.5% 2,755 6.6% 48 -0.9% ROACE 12.59% 13.63% 1.04% Total 36,191 100.0% 41,961 100.0% 5,769 0.0% o.w. Sub-investment grade 25,825 71.4% 28,321 67.5% 2,496 -3.9%

4.3.7. | Investment Considerations o.w. Investment grade 10,366 28.6% 13,640 32.5% 3,274 3.9% CUSTOMERS’ DEPOSITS Earnings per Share Lebanese entities 17,887 57.5% 18,422 51.4% 535 -6.1% Basic earnings per share are calculated based on the weighted reached USD 0.86 in 2014, as compared to USD 0.8 in 2013, Turkey 5,795 18.6% 9,108 25.4% 3,312 6.8% number of common shares actually issued and net profits after corresponding to an increase of 8%. Egypt 2,873 9.2% 3,833 10.7% 959 1.5% tax. On this basis, Bank Audi’s basic common earnings per share Private Banking entities 2,643 8.5% 2,418 6.8% -225 -1.7% The table below represents the evolution of Bank Audi’s common earnings per share including net profits from discontinued Other entities 1,897 6.1% 2,041 5.7% 144 -0.4% operations over the past 5 years: Total 31,095 100.0% 35,821 100.0% 4,726 0.0% EARNINGS PER COMMON SHARE GROWTH (in USD) o.w. Sub-investment grade 23,290 74.9% 24,890 69.5% 1,601 -5.4%

1.00 1.00 1.01 1.01 o.w. Investment grade 7,806 25.1% 10,930 30.5% 3,125 5.4% 0.94 0.96 0.86 0.86 LOANS TO CUSTOMERS 0.80 0.80 0.80 0.78 Lebanese entities 5,790 39.4% 5,587 32.5% -203 -6.8% Turkey 5,302 36.0% 7,755 45.2% 2,453 9.1% Egypt 1,562 10.6% 1,775 10.3% 213 -0.3% Private Banking entities 883 6.0% 979 5.7% 95 -0.3% Diluted Other entities 1,176 8.0% 1,075 6.3% -101 -1.7% Total 14,713 100.0% 17,171 100.0% 2,458 0.0% Basic o.w. Sub-investment grade 8,237 56.0% 8,152 47.5% -84 -8.5% 2009 2010 2011 2012 2013 2014 o.w. Investment grade 6,476 44.0% 9,019 52.5% 2,542 8.5%

42 43 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

main income statement aggregates by development pillars (usd million) contraction in Lebanese Pounds deposits is mostly justified by with the sector, leading to a stabilisation of Bank Audi’s FX 2013 2014 Change the margin focus strategy adopted by Management in recent deposits market share at 14.8%. On the overall, Bank Audi’s Share Share Share years and favouring the improvement in spread (via the decrease deposit market share decreased by 0.4% to stand at 12.8% at Volume in Total Volume in Total Volume in Total in the cost of deposits) over volume growth. end-December 2014. On the uses side, within a 7.4% growth in

net loans in the sector, Bank Audi’s loan market share dropped TOTAL REVENUES On the uses side, the loan portfolio reported a contraction of by 1.2% to 11%. Lebanese entities 598.2 55.9% 647.5 48.9% 49.3 -6.9% USD 203 million justified primarily by a USD 385 million decrease Turkey 98.5 9.2% 267.1 20.2% 168.5 11.0% in loans booked in Lebanon for regional corporates, amid a In parallel, the share of foreign currency deposits in Bank Audi’s Egypt 145.4 13.6% 161.6 12.2% 16.3 -1.4% limited risk appetite in the domestic market over the short term, deposits in Lebanese entities moved from 85% at end‑December Private Banking entities 109.4 10.2% 130.9 9.9% 21.5 -0.3% awaiting an improvement in the prospects. Loans to customers 2013 (including 55.8% in USD) to 87.5% at end-December Other entities 119.4 11.2% 116.1 8.8% -3.4 -2.4% reached USD 5.6 billion as at end-December 2014, as compared 2014 (including 52.2% in USD), against the trend of commercial to USD 5.8 billion as at end-December 2013. At the loan quality banks in Lebanon where the share of foreign currency deposits Total 1,070.9 100.0% 1,323.1 100.0% 252.2 0.0% level, the ratio of gross doubtful loans to gross loans moved from moved from 66.1% as at end-December 2013 to 65.7% at o.w. Sub-investment grade 873.9 81.6% 939.5 71.0% 65.6 -10.6% 4% at end-December 2013 to 4.6% at end-December 2014, end-December 2014. o.w. Investment grade 197.0 18.4% 383.6 29.0% 186.6 10.6% while coverage of those loans by specific provisions increased TOTAL OPERATING EXPENSES from 60.7% at end-December 2013 to 79.8% at end-December Lebanese entities generated USD 184.5 million of net profits Lebanese entities 294.7 49.1% 355.8 48.8% 61.1 -0.3% 2014, amid the allocation of USD 60.9 million of net loan loss after provisions and taxes in 2014, corresponding to a provision charges during the year. Justified in part by the lower decrease of USD 52.8 million relative to 2013 net profits of Turkey 135.6 22.6% 183.9 25.2% 48.3 2.7% gross loan base, the deterioration of the ratio in 2014 was USD 237.3 million. With total revenues increasing over the Egypt 59.9 10.0% 66.9 9.2% 7.0 -0.8% triggered by Management’s decision to downgrade a number period by USD 49.3 million, the decrease in net profits stems Private Banking entities 69.0 11.5% 78.1 10.7% 9.2 -0.8% of corporate loans in Lebanon unrelated to any Lebanese risk primarily from an expansion in general operating expenses Other entities 41.4 6.9% 44.1 6.1% 2.8 -0.8% but booked in Lebanon for non-resident corporates. In parallel, over the period of USD 61.1 million and USD 37.1 million Total 600.5 100.0% 728.8 100.0% 128.3 0.0% primary liquidity of Lebanese entities reached a high of USD 10.5 of additional loan loss provisions charges. The increase in o.w. Sub-investment grade 397.7 66.2% 470.1 64.5% 72.4 -1.7% billion (including certificates of deposits), after increasing by USD general operating expenses is broken down over USD 54.5 2.5 billion in 2014, representing 57.0% of customers’ deposits. million of additional staff expenses, and USD 6.6 million of o.w. Investment grade 202.7 33.8% 258.7 35.5% 55.9 1.7% depreciation mainly related to the IT transformation plan NET INCOME Within the context of a similar growth of assets in the Lebanese underway within a USD 2 million impairment of the goodwill Lebanese entities 237.3 77.9% 184.5 52.7% -52.8 -25.2% banking sector to reach USD 175.7 billion at end-December of the Egyptian on-line brokerage company Arabeya Online Turkey -44.5 -14.6% 15.8 4.5% 60.3 19.1% 2014, Bank Audi’s asset market share reached 11.8%. At the for Securities Brokerage. The additional staff expenses were Egypt 49.1 16.1% 57.6 16.4% 8.5 0.3% deposits side, the decrease in deposits in LBP at Bank Audi was mainly driven by USD 27.5 million of one-off expenses tied to met by an increase by USD 3.4 billion for the sector, leading to exceptional non-recurrent compensation, the run rate impact Private Banking entities 32.3 10.6% 43.8 12.5% 11.4 1.9% a corollary decrease in Bank Audi’s market share to 8.8%. In of salaries adjustments effected late 2013 and end of service Other entities 30.3 9.9% 48.7 13.9% 18.4 3.9% parallel, the increase of foreign currency deposits was in line indemnities adjustments. Total 304.6 100.0% 350.3 100.0% 45.8 0.0% o.w. Sub-investment grade 328.4 107.8% 304.8 87.0% -23.7 -20.8% 4.4.2. | Bank Audi Egypt o.w. Investment grade -23.9 -7.8% 45.6 13.0% 69.4 20.8% The policies implemented so far in Egypt, the support of external As at end-December 2014, Bank Audi Egypt accounted for In 2014, the Group was steadily on its way to reach its set target 41.6% of consolidated net profits in 2014 were sourced from donors, along with a return of confidence, are starting to 2.2% of the overall assets increase in the sector (22.9%), as its of a balanced breakdown of activity and earnings between entities outside Lebanon. By development pillars, 52.7% of the produce a turnaround in economic activity and investment in market share increased from 1.35% as at end-December 2013 Lebanon and abroad. By geography, the contribution of entities Bank’s consolidated net earnings were contributed by the Bank’s Egypt, which so far led to an upward revision of real GDP growth to 1.5% as at end-December 2014, consolidating its positioning outside Lebanon to consolidated assets increased from 42.6% operations in Lebanon, as compared to 77.9% in 2013, 16.4% by the IMF to 3.8% for the fiscal year 2014/2015, almost double as the 7th bank among private banks in Egypt. The latter was at end-December 2013 to 47.4% at end-December 2014, by Bank Audi Egypt (as compared to 16.1% in 2013), 12.5% by its pace since the 2011 revolution. This translated into a two-digit driven by an increase in the deposits market share from 1.52% primarily as a result of the contribution of Odea Bank in Turkey. Private Banking entities (as compared to 10.6% in 2013), and growth in banking activity in 2014 allowing the anticipation of a to 1.81%, as Bank Audi Egypt’s deposits growth exceeds that By development pillars, 49.3% of the Group’s consolidated 13.9% by other entities, as compared to 9.9% in 2013. The strong growth over the medium term. Within this context, assets of the sector, while the loan market share stabilised at its assets were held by Lebanese entities (excluding Audi Private contribution of Odea Bank to net consolidated profits reached of Bank Audi Egypt grew by 33.1% in 2014, corresponding end‑December 2013 level of 2.05%. Bank) as at end-December 2014, as compared to 53.4% as at 4.5% in 2014 as compared to a negative contribution of 14.6% to an increase of USD 1,082 million to reach USD 4.3 billion, December 31, 2013, 26.4% by Odea Bank (as compared to in 2013, noting that Odea Bank generated its first net profits outperforming its budget. Assets growth was driven by USD 959 In parallel, Bank Audi Egypt registered net profits of USD 57.6 20.9% as at December 31, 2013), 10.4% by Bank Audi Egypt (as in May 2014, 19 months after the launch of the operations. million of additional customers’ deposits, reaching USD 3.8 million in 2014, rising by 17.2% (USD 8.5 million) relative to compared to 9.0% as at December 31, 2013), 7.4% by Private The share of net profits booked in investment grade countries billion as at end-December 2014, met by an increase in high the 2013 results of USD 49.1 million. Based on the above, Banking entities (as compared to 9.3% as at December 31, reached 13.0% in 2014, up from a negative contribution the yielding portfolio securities of USD 524 million and in net loans Bank Audi Egypt reported comfortable key financial metrics at 2013) and 6.6% by other entities (as compared to 7.5% as at previous year. to customers of USD 213 million to reach USD 1.8 billion at the end-December 2014, with a primary liquidity to deposits ratio December 31, 2013). The share of assets booked in investment same date. A quarterly evolution of net loans bears witness to of 18.5% (versus 15.4% at end-December 2013), a capital grade countries increased from 28.6% at end-December 2013 What follows is a brief discussion of the overall growth trends the improvement in banking activity and the renewed optimism. adequacy ratio of 16.1% (versus 16% at end-December 2013), to 32.5% at end-December 2014. across main development pillars: After contracting by USD 34 million in the first quarter of 2014, a ROAA of 1.6% (same level as in 2013) and a ROAE of 18.9% net loans increased by USD 66 million in the second quarter, (versus 18.7% in 2013). 4.4.1. | Lebanese Entities (excluding Audi Private Bank) USD 76 million in the third quarter and USD 105 million in the fourth quarter. At the asset quality level, the ratio of gross The performance of Bank Audi Egypt in 2014 clearly reflects its On the back of lingering domestic and regional uncertainties equity increase closed end-September 2014 and an increase in doubtful to gross loans stabilised at 2.6% at end-December capacity to deliver the 3-year development adopted late 2013 subduing economic growth in Lebanon to below its potential, the revaluation reserves of fixed assets of USD 221 million to be 2014, the same level as at end-December 2013, which is still and its aim to double the assets size with a corollary growth of Lebanese entities reported an assets increase of USD 1,374 added to the issuance of USD 150 million subordinated loans below the average gross doubtful loans to gross loans ratio of net earnings. million in 2014, reaching USD 20.7 billion as at end-December to the IFC in March 2014. The increase in deposits was mainly the Egyptian banking sector (8.9% as at December 31, 2014). 2014 from USD 19.3 billion as at end-December 2013. This driven by foreign currency deposits representing the principal increase was sourced at the liability side from an increase in funding source of lending and increasing during the year by 4.4.3. | Odea Bank customers’ deposits of USD 535 million to reach USD 18.4 billion USD 690 million, to reach USD 14.1 billion. In parallel, deposits over an above an increase in shareholders’ equity of USD 406 denominated in Lebanese Pounds contracted by USD 155 In 2014, the contribution of Odea Bank to consolidated assets billion at end-December 2014, with a deposits contribution of million, mainly as a result of the USD 300 million common million, reaching USD 4.4 billion as at end-December 2013. The moved from USD 7.5 billion at end-December 2013 to USD 11.1 USD 9.1 billion and a loan contribution of USD 7.8 billion. An

44 45 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014 analysis of Odea Bank’s performance in 2014 in Turkish Lira registered in the Turkish banking sector, with assets growing 4.5.1. | Corporate and Commercial Banking allows to offset the impact of the 7.8% depreciation of the year-to-date by 59.1%, deposits by 70% and loans by 58.8% Turkish Lira versus the USD recorded in 2014. Assets of Odea as compared to 15.1%, 11.3% and 18.5% respectively in the Bank Audi provides integrated Corporate and Commercial In Lebanon, Bank Audi continued supporting the growth of Bank continued on a solid growth path in 2014, moving from Turkish banking sector. Concurrently, Odea’s assets market Banking solutions, with a coverage span entailing the Middle East, many local businesses by building a strong relationship with TL 16.1 billion at end-December 2013 to TL 25.6 billion at share rose by 0.35% to stand at 1.3% as at end-December GCC, Africa and Europe through its established headquarters in the existing customers and increasing penetration to large end‑December 2014, corresponding to an increase of TL 9.5 2014, while its deposits market share increased by 0.69% Lebanon and its entities operating in Turkey, Egypt, Syria, Jordan, corporates. Bank Audi continues to be the largest commercial billion (i.e. a growth of 59.1%). In parallel, customers’ deposits to stand at 2.0% and its loan market share increased by Saudi Arabia, Qatar, Sudan, France and Switzerland. Despite and corporate lender in the Lebanese sector, with a corporate reported a year-on-year growth of 70%, moving from TL 12.4 0.4% to 1.45%. Odea Bank’s outperformance allowed to the continuing challenging economic and political conditions and commercial loan portfolio standing at USD 4.1 billion at billion at end-December 2013 to TL 21 billion at end-December consolidate significantly its market positioning, ranking 13th in prevailing in several key markets that triggered a slow down end-December 2014. 2014. At the uses level, loans to customers grew by 58.8%, just 26 months of operations. More significantly, Odea Bank’s in new lending in some markets and a decrease in exposure moving from TL 11.3 billion at end-December 2013 to TL 18 deposit base became larger than that of HSBC and ING, both in other markets, Bank Audi still managed to increase its loan Based on the above, the corporate and commercial business billion at end-December 2014. Subsequently, the loans to established in the Turkish market since more than 20 years, portfolio. This was achieved through Bank Audi’s expansion of generated total revenues of USD 445.1 million in 2014, as deposits ratio of Odea Bank stood at 85.4% at end-December while enjoying large market visibility through a network of 300 its corporate presence into Turkey, thus further strengthening its compared to USD 319.5 million in 2013, corresponding to 2014 (91.4% at end-December 2013), in line with the Group’s branches each. regional franchise. a growth by 39.3%. The USD 125.6 million increase in total Management recommended level which remains below the revenues is mainly attributed to a USD 99.2 million increase 118% average of Turkish banks. Deposits and loans growth Notwithstanding the solid balance sheet momentum, the most In fact, Turkey and Egypt continue to be the main growth in interest income, driven by an improvement in spread were supported by an improved granularity as the retail business important turnaround in Odea Bank’s performance in 2014 drivers for the corporate and commercial activity of the Bank. following the re-pricing of loans, along with a slower increase grows to achieve its cruise speed. In fact, the contribution of was registered in the month of May 2014, with the subsidiary Total assets generated by the corporate and commercial in non‑interest income of USD 26.3 million. retail loans to total loans moved from 6.5% at end-December recording its first positive net profits after provisions and taxes, segment at group level reached USD 13,409 million at 2013 to 9.6% at end-December 2014 on the back of a moving firmly thereafter in a rising increase trend. Accordingly, end‑December 2014, up 12.6% from the level achieved at During 2014, Bank Audi updated its Environmental and Social contribution of retail deposits of 57% at end-December 2014 Odea Bank reported net profits after provisions and taxes end-December 2013 (USD 11,905 million). Management System (ESMS) to actively manage environmental (as compared to 54% at end-December 2013) . of USD 15.8 million in 2014, as compared to a negative and social risks and to promote environmental business contribution of USD 44.5 million in 2013, broken down over In Turkey, Bank Audi (via its subsidiary Odea Bank) initiated opportunities. A process was set to evaluate the environmental The evolution of Odea Bank’s franchise also reflects its solid negative profits by USD 8.6 million in the first quarter of 2014, relationships with top tier corporate and commercial clients in and social impacts of client operations and activities financed customer attraction and business development capacity, as followed by net profits of USD 3.1 million in the second quarter a wide range of sectors including healthcare and education, by Bank Audi. Any lending activity with either serious adverse witnessed by the evolution of the number of active customers and USD 11.4 million in the third and fourth quarters of 2014. construction and real estate, textile and other manufacturing effects on the environment or serious negative social impacts increasing in 2014 by 226,614 and reaching 259,172 customers On the backdrop of an allocation of USD 63 million of loan industries, oil and gas, energy, retail and commercial shall not be supported. This applies to the Bank’s Corporate, as at end-December 2014, the number of active accounts loss provision charges as compared to USD 18.5 million in development, tourism, as well as transportation and logistics. Commercial and Investment Banking lending activities. increasing by 503,514 accounts to reach 576,607 accounts as 2013, those results are mainly justified by a 2.7-fold growth The corporate and commercial loan portfolio of Odea Bank at end-December 2014, and the number of cards increasing by in total revenues amounting to USD 168.5 million, reflecting stood at USD 7,028 million as at end-December 2014. Also, the Bank requires compliance with national environmental 369,551 to reach 472,772 cards of which 251,801 credit cards. an improvement in spread of 74 basis points to reach 2.29% standards in the countries in which it operates. In specific and in non-interest income generation (core commission) of 39 Egypt remains the other key focus for growth at the corporate instances where national standards are absent or considered In 2014, Odea Bank’s growth rates exceeded by far those basis points to reach 0.67%. and commercial levels. Bank Audi Egypt’s lending activity covers insufficient, internationally accepted environmental and social a wide range of corporations in the fields of higher education, standards should be considered. 4.4.4. | Private Banking Entities fertilizer production, oil and gas, real estate development, steel manufacturing, pharmaceuticals, and airlines. The corporate Private banking entities encompassing Audi Private Bank, AUMs of Audi Private Bank increasing by USD 165 million. and commercial loan portfolio of Bank Audi Egypt stood at Banque Audi (Suisse), Audi Capital Gestion (Monaco), Bank The increase in assets under management reflects new money USD 1,346 million as at end-December 2014. Audi Qatar and Audi Capital (KSA), reported an increase in booked in 2014 by USD 735 million, of which USD 484 million assets under management and fiduciary deposits, hereafter in Audi Capital, USD 68 million in Banque Audi (Suisse) and 4.5.2. | Retail and Personal Banking AUMs, of USD 969 million, moving from USD 5.9 billion at USD 182 million in Audi Private Bank. The evolution of AUMs end-December 2013 to USD 6.9 billion as at end-December along the improvement in operating conditions following the In 2014, the Retail Banking activity continued to be focused relationships and readily satisfy the changing needs of clients. 2014. By entity, AUMs of Audi Capital in Saudi Arabia drove implementation of the adopted restructuring plan, allowed on implementing the strategy of transforming the business In parallel, Bank Audi Lebanon focused on enhancing customer the increase in total AUMs, reporting an increase by USD 515 the Private Banking entities to report USD 43.8 million of to become a truly customer-centric organisation. To that end, experience via the introduction of increased functionalities on million, followed by Banque Audi (Suisse) registering an net profits in 2014, up from USD 32.3 million in 2013, and new service models and customer segmentation initiatives were alternative delivery channels through: increase of USD 254 million (and almost USD 290 million when representing a 35.6% year-on-year growth. implemented across pillar markets, supported by the expansion adjusting to the depreciation of the Euro versus the USD), with of delivery channels, the introduction of innovative technologies - The roll out of a new state-of-the-art online banking platform and the customisation of existing products and services. Those with a new user friendly interface. initiatives aimed first and foremost at enhancing customer 4.5. | Analysis by Business Segments experience, transparency and profitability, and improving - The inauguration of a Novo branch in an ultra-modern space customer retention while growing the retail lending exposure located at our Palladium head office, showcasing the latest Bank Audi is managed on the basis of a cross-sectional business segment reporting methodology is provided in Note 4 in compliance with the approved internal risk limits. With 180 banking technologies such as the ITM (Interactive Teller organisation matrix of business lines and markets, reflecting of the Consolidated Financial Statements. branches and 400 advanced ATMs catering for more than Machine), a Novo advisory room providing full customer the following four major business segments: Corporate and 900,000 clients, supported by an entrenched pool of talent service capabilities, and instant card issuance capabilities. At Commercial Banking, Retail and Personal Banking, Private In parallel, the implementation of an Integrated Finance and Risk and a comprehensive product offering, Bank Audi is one of the end-December 2014, the Bank had at total of 8 operational Banking, and Treasury and Capital Markets activities. Those Management System (IFRM) aiming at unifying the source of leading banks of choice in the region. Novo branches located primarily in Greater Beirut. business segments are determined based on the products information and data serving the business, is currently underway and services provided or the type of customers served, and with Phase I of the said implementation already completed. This In Lebanon, the Bank initiated the roll out of a new operating At the level of e-Payment solutions and Card Services (EPCS), constitute the basis for Management’s evaluation of financial would ultimately allow risk and finance to produce analytical model across the domestic network, based in particular on a the Bank’s main focus in 2014 was to build the foundation for results. Results of each business segment are intended to reflect tools with a greater granularity, assisting the decision-making customer segmentation initiative and a channel behaviour a cashless society by creating pioneering payment landscapes the performance of each business line, namely in terms of process, along with clear benefits for ALM, fund transfer pricing analysis. Deeper customer insights catered for an increased and business solutions evolving with customers’ needs and total assets and total revenues. Senior Management sets the and profitability management. Please refer to Section 7.2. for marketing focus and tapped into unexploited potential. Within international market trends. These solutions covered: business segment reporting methodology which is approved by further details. that scope, several impactful customer care events based on the Group Executive Committee. A detailed description of the detailed customer feedback from advanced analytics have - Contactless payment solutions under the umbrella of the been executed, such as the 25 Years Tenure event, the Labour “Tap2Pay series of payments” through different devices and The performance of the four principal business segments of Bank Audi in 2014 is discussed and analysed in what follows: Day event and the Festive Season event, allowing to nurture channels (cards, mobiles, stickers, wearables), allowing to

46 47 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

securely process transactions simply by tapping or waving but Yours”. Despite being a newcomer in the competitive In 2014, Private Banking continued its successful expansion Excluding extraordinary income recorded in 2013, Private different devices in front of a contactless reader. Turkish market, the Bank was able to attract 450,000 retail in the Middle East, especially in KSA and Egypt, as well as in Banking total revenues in 2014 exceeded USD 130 million, a customers and book TL 12 billion worth of retail deposits Africa, Turkey, and Latin America. Moreover, it expanded its 19.6% growth which resulted in a profit after tax growth of - Building a contactless infrastructure to allow the merchants to through a network of 48 branches, supported by an innovative reach within Lebanon through developing more synergies and 35.4%. The consolidated assets under management booked accept contactless transactions. and solution-oriented strategy. cooperation with the domestic branch network. The wealth in the Private Banking entities reached USD 10.1 billion at management business of Bank Audi puts particular emphasis end‑December 2014, an 8.7% year-on-year growth. - An “e-Payment” solution that offers merchants, companies Retail Banking activity in Turkey is focused around the provision on investment content, developing diversified and competitive and the private sector a single and secure internet payment of wealth management services, card services and retail solutions to high net worth individuals within the strategic solution for all their processing needs. Recent launches were lending services. Wealth management activity aims at providing regions on a discretionary, advisory or execution basis. the “Ogero” online payment solutions, the bill payment premium targeted services executed on a state-of-the-art solution for “Alfa and Touch”, and the “Park Meter” fines platform, developed for the first time in Turkey, combining 4.5.4. | Treasury and Capital Markets online payment. access to a vast variety of funds and comprehensive research. The offering is supported by a variety of “bancassurance” Bank Audi’s financial services include Capital Markets, non-bank financial institutions. This marketing effort for Keeping at par with the latest trends, Bank Audi launched products and services conceived in collaboration with Aviva SA Investment Banking, asset management and securities services. Lebanese papers comes in a current global environment where an “e-gallery”, a first of its kind in Lebanon, showcasing the Emeklilik ve Hayat A.Ş., AXA Sigorta A.Ş., and MetLife Emeklilik The Bank is leveraging its regional presence to develop further fund managers are searching for high yields rather than high latest payment technologies and serving as an educational ve Hayat A.Ş. its securities services and brokerage platform, consolidating the rating investment solutions, which makes the Lebanese high venue for young generations through workshops tackling the business towards increased intra-group synergies. Beta bonds particularly attractive. history of plastic money and interaction with the latest payment At the card business level, Odea Bank made a rapid entry into technologies. the market, with the awards-winning Bank’O Card and the In Lebanon, Bank Audi remains the leading international market In parallel, the Bank’s asset management, corporate finance Bank’O Card Axess reaching more than 250,000 cards issued maker in Lebanese securities, namely in Republic of Lebanon and advisory businesses are currently focused on the Saudi The advanced systems and expertise, coupled with customer by end-December 2014. The success of this business is justified Eurobonds and Lebanese Treasury notes, with an annual turnover Arabian market and are also supported by extensive equity service excellence provided by EPCS, allows the Bank to continue by the appealing products features and dedicated campaigns of USD 8.4 billion in 2014. Over and above, the Bank was a co-lead research coverage. to be the partner of choice of Visa and MasterCard for piloting allowing to attract a large number of clients. manager of a new Lebanese Eurobonds issuance in April 2014. any new innovation in the Arab world. As for equities, it accounted in 2014 for a 57.2% market share In line with the consolidated position, assets of the Treasury In parallel, the consumer lending strategy was based on the on the Beirut Stock Exchange. Those activities in Lebanon and and Capital Markets activities increased by 23.6% in 2014, Based on the above and on the perception of having the best provision of in-sourced lending products and services customised the MENA region are supported by an extensive sovereign, fixed reaching USD 20.4 billion at end-December 2014. In parallel, brand image in the domestic market, the Bank’s customers’ and readily available to customers on highly technological income and corporate research coverage business. total revenues of this business segment grew by 8.2% market penetration reached 20% in 2014, ranking first among platforms allowing instant underwriting and a tight quality year‑on-year, moving from USD 564 million in 2013 to USD competitors, while its consumer lending exceeded 10% and monitoring. Three new lines of products were introduced in Bank Audi continued to develop and maintain new and existing 610 million in 2014. the cross sell ratio per individual peaked at an all time high of 2014 and covered: institutional coverage of Lebanese securities to international 4.34. Also, the Bank continued to rank first in the issuance of debit and credit cards, with a market share of 38% in volume of - Nakit Hazir, an immediate credit facility granted through the spending and 43% in merchants sales volume. branches but also through direct sales SMS, websites and call 4.6. | Capital Management centres. This product will benefit from the extension in 2015 In 2014, Bank Audi Egypt carried on building on the solid of the channel reach through the agreement with the (PTT) Bank Audi adopts a long-term view on capital focusing on: foundation that was established in the previous years, with new postal office present across the Turkish territory. product launches and branch openings. The adopted customer - Ensuring that capital sufficiently covers all material risks - Optimising the capital usage while providing support focused and value-added approach has enabled the institution - Mortgage plans through exclusive deals with development generated by the Bank’s activities. for the expansion of business segments and entities. to continue on its journey to become a key player in the Retail projects and special payment plans for development projects. Banking market in Egypt. The achieved track record in delivering - Protecting depositors in case of stress events. Changes in shareholders’ equity, net earnings of the year simple, leading and innovative products supported a strong - Instant loan facility granted in chain stores across Turkey and dividends policies are inter-linked with the preservation financial performance at this level. (“Trink’O”) and supported by strategic collaborations with - Factoring in the requirements of various stakeholders including of capital strength. selected chain stores, bringing the number of its “in-store regulators, rating agencies, depositors and shareholders. In 2014, the retail operating model in Egypt initiated its branches” in 2014 to 8 while boosting the number of instant transformation, taking into consideration a customer life cycle loan access points to 260. 4.6.1. | Evolution of Shareholders’ Equity segmentation strategy focusing on lifetime value delivery to the customer. As a result, new ”bancassurance” life products were Based on the above, consolidated retail loans reached USD 2.8 Consolidated shareholders’ equity rose by USD 651 million USD 101.1 million of additional negative changes in group introduced in cooperation with Egyptian Life Takaful – GIG, in billion at end-December 2014, achieving a year‑on‑year growth in 2014, mainly as a result of the completion of the USD 300 share foreign currency translation reserves. The consolidated addition to the launch of a World MasterCard card (a premiere of 37.7%, driven primarily by Odea Bank. This growth reflects million capital increase at end-September 2014 (please refer shareholders’ equity of Bank Audi reached USD 3.3 billion at in Egypt) enhanced with a generous bundle of facilities, benefits a 40.4% growth in housing loans, 36.5% growth in personal to the section on Shareholders’ Equity for further details), end-December 2014, broken down over USD 2.1 billion of and a wide range of new loans programs meeting the needs loans, 12.4% in credit cards, and 9.9% in car loans. The and USD 221 million of additional reserves for revaluation common Tier 1 equity, USD 504 million of additional Tier 1 of a broad spectrum of clients. In parallel, two new saving growth of the consolidated retail portfolio was not achieved of fixed assets booked in accordance with BDL Intermediary equity, and USD 643 million of Tier 2 equity. Adding to equity accounts with unique value proposition catering to specific at the detriment of its quality, with the gross doubtful retail Circular No. 44, within the context of USD 30.2 million of the USD 500 million of subordinated debt accounted by Basle target segments were introduced (Mega Saver and Star Saver), loans to retail loans reaching 3.4% at end-December 2014, proceeds from the liquidation/sale of AZA Holding based on III as Tier 2 capital, the Bank’s gross regulatory capital would triggering a 32% growth in individual deposits. a level still below the Group’s risk limit, with a coverage of the terms of the shareholders’ agreement, USD 72.6 million reach more than USD 3.8 billion. those loans by specific provisions of 73.7%, while collective of reduction in the Treasury stock position and USD 160.1 Odea Bank continued its successful launch of Retail Banking provisions represented 0.9% of retail loans. million of internal capital generation, totally offsetting the activities in 2014, supported by its motto of “Not Everyone’s

4.5.3. | Private Banking and Wealth Management Audi Private Bank is the wealth management arm of Audi Group the United Arab Emirates. Deep-rooted in the Middle East and and one of its strategic key growth drivers next to its three key Africa region, Audi Private Bank’s leading position in the wealth geographies (Lebanon, Turkey, Egypt). It operates through three management business sets it apart from its peers and is of main booking centres based in Switzerland, Lebanon and Saudi significant value for clients seeking investment knowledge and Arabia, with additional offices in Monaco, Qatar, Jordan and expertise in the region.

48 49 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

4.6.2. | Regulatory Requirements – Central Bank of Lebanon Intermediary Circular No. 358 for moving towards more advanced methods in the Basel The ICAAP was conducted for the Group on a consolidated basis Framework, the Bank adopted the Foundation-IRB approach and on an individual basis for some material entities to ensure In October 2011, the Central Bank of Lebanon amended Basic Circular No. 44 requiring banks to report capital ratio following the within the internal credit risk capital charges calculations for that standalone capital is appropriate. Various stress tests were Basle III framework, setting higher capital requirements to be achieved gradually in phase-in arrangements, as described below: certain asset classes in order to better capture the quality conducted using multiple scenarios and severities. and riskiness of the portfolios. BASEL III IMPLEMENTATION IN LEBANON: PHASE-IN ARRANGEMENTS

2011 2012 2013 2014 2015 2016 2017 2018 2019 5.0. | Dividend Policy

Minimum common equity (including CB): CETl (a) 5.0% 6.0% 7.0% 8.0% Since 1996, it has been the policy of the Bank’s Board of Directors Bank’s shareholders. to recommend the distribution to holders of common shares a - To the Bank’s general or special reserve or profits carried Minimum Tier 1 equity (including CB) TIE (b) 8.0% 8.5% 9.5% 10.0% dividend payment of at least 30% of the after-tax profits for forward. Minimum total equity (including CB) TE (c) 10.0% 10.5% 11.5% 12.0% each year, subject to the approval of the Bank’s shareholders and to the availability of distributable net income for the year, - To holders of the Bank’s common shares. o.w. Capital conservation buffer1 0.5% 1.0% 2.0% 2.5% after payment of distributions to holders of preferred shares. The determination to pay any dividend in respect of the common 1 Must be met with Common Equity Tier 1 (CETI). Pursuant to the Bank’s by-laws and applicable Lebanese law, shares, and the amounts thereof, will depend upon, among the Bank’s annual net profits (which are payable from the other things, the Bank’s earnings, its financial condition and During 2014, the Central Bank of Lebanon issued Intermediary Based on this circular effective end-December 2013 and Bank’s standalone available-for-distribution net income) shall be cash requirements, priority rights for distribution, government Circular No. 358 whereby it reduced the risk weight on foreign including profits, the Bank’s capital adequacy ratio would distributed in the following order of priority: regulations and policies, and other factors as may be deemed currency deposits and reserve requirements at the Central stand at 13% at end-December 2014, as compared to a 9.5% relevant by the Board of Directors and shareholders from time Bank of Lebanon from 100% to 50%. Also in this circular, the regulatory requirement (11.5% including the conservation - To the legal reserve, in amounts equivalent to 10% of the to time. Central Bank of Lebanon allowed banks to account within their buffer). The capital adequacy ratio is broken down over 8.8% Bank’s net profits after tax, to be transferred each year until regulatory capital 50% of unrecorded real estate revaluation of core common Tier 1 ratio, 2.1% of additional Tier 1 ratio and such reserve reaches one-third of the Bank’s share capital. The common dividend distributions are made annually on the amount, provided a similar cash amount is injected into equity 2.2% of Tier 2 ratio. Within a 13.7% increase in risk‑weighted The legal reserve is distributable only upon the liquidation of dates specified by the General Meeting. Under Lebanese law, on or before the end of 2018 with the prior approval of the assets, the evolution relative to end-December 2013 (12.1%) is the Bank. In 2014, the Bank and its subsidiaries transferred dividends not claimed within five years of the date of payment Central Bank of Lebanon. justified by the USD 465 million increase in core Tier 1 capital LBP 55,250 million to the legal reserve in accordance with become barred by statute of limitations; half of these unclaimed during the year, of which USD 300 million of common equity applicable law. dividends revert to the Bank, while the balance is paid over to The said circular also gave some clarification on the increase mentioned above, in addition to an increase in Tier the Lebanese government. conservation buffer (which must be met from core common 2 capital of USD 117 million, of which USD 150 million of - To the general banking risks reserve; pursuant to BDL’s Decision Tier 1), that comes on top of the minimum regulatory total subordinated debt issued to the IFC in March 2014. No. 7129, the Bank is required to set aside a minimum of The table below highlights the dividends distribution practices CAR (set at 10% in 2015) and represents 2.5% in 2015. As 0.2% and a maximum of 0.3% of its risk-weighted assets as a at Bank Audi for the 2009 exercise till that of 2014. per regulation, should the Bank dip into the conservation Once the regulatory approvals for including the allowed effect reserve for unspecified banking risks, which forms an integral buffer at any point in time, it should put a plan to cover the of the asset revaluation in Tier 2 capital are obtained, the Tier part of the Bank’s Tier I capital. The aggregate of this reserve During its meeting held on April 7, 2015, the Ordinary General shortage within a defined period of time and seek the Central 2 capital would increase from USD 532 million to USD 644 must be equivalent to 1.25% of risk-weighted assets within Assembly resolved the payment of dividends on preferred shares Bank’s approval. million, corresponding to a Tier 2 ratio of 2.64%. Accordingly, ten years from the date of Decision No. 7129 and 2.0% of of respectively USD 6, USD 6, USD 6 and 6.5 respectively per total capital ratio would reach 13.5% at end-December 2014. risk-weighted assets within 20 years of such date. In addition, Series “E”, “F”,”G” and “H” preferred shares and a common the Bank is required to establish a special reserve for properties dividend per share of LBP 603 (before the 5% withholding tax), acquired in satisfaction of debts and not liquidated within the the equivalent of USD 0.4. Total dividends paid for the exercise CAPITAL ADEQUACY RATIO AS PER BDL CIRCULAR 358 (USD MILLION) required delays. represented 54.3% of consolidated net earnings in 2014. On the Dec-13 Dec-14 Change basis of a share price of listed shares and GDRs of respectively - To the payment of dividends in respect of the Series “E”, “F”, USD 6.75 and USD 7.00 as at March 12, 2015, the dividend

Risk-weighted assets 21,434 24,366 2,932 “G” and “H” preferred shares (or any other series of preferred yield reached 5.9% for listed shares and 5.7% for GDRs. o.w. Credit risk 19,398 22,137 2,739 shares), as approved by the Ordinary General Meeting of the o.w. Market risk 397 451 53 1 o.w. Operational risk 1,638 1,778 140 CONSOLIDATED PAYOUT RATIO (IN USD THOUSANDS) Tier 1 capital (including net profit less proposed dividends) 2,175 2,643 468 2009 2010 2011 2012 2013 2014 Common Tier 1 ratio 7.8% 8.8% 1.0% Common earnings 279,263 337,560 348,021 360,420 278,681 319,956 + Additional Tier 1 ratio 2.3% 2.1% -0.3% Dividends on common shares 120,466 138,422 139,776 139,420 139,900 159,701 = Tier 1 ratio 10.1% 10.8% 0.7% Dividends per common shares (USD) 0.35 0.40 0.40 0.40 0.40 0.40 Tier 2 ratio 1.9% 2.2% 0.2% Payout ratio on common shares 43.1% 41.0% 40.2% 38.7% 50.2% 49.9% Total ratio 12.1% 13.0% 0.9%

Dividends on preferred shares 9,687 14,687 17,188 23,188 25,875 30,375

4.6.3. | Regulatory Requirements – ICAAP Total dividends 130,153 153,109 156,963 162,608 165,775 192,076

During 2014, the Bank prepared its annual Internal Capital used by Management and the Board for capital planning. Net earnings 288,950 352,247 365,208 383,608 304,556 350,331 Adequacy Assessment Process (ICAAP) report and submitted It also acts as an important exercise that drives the Bank to it to Senior Management, the Board Group Risk Committee develop and use better risk measurement techniques. The Total payout ratio 45.0% 43.5% 43.0% 42.4% 54.4% 54.3% and the Board of Directors. The Bank views the ICAAP as an Bank continues to build on the approaches used in previous ¹ Adjusted to the 10:1 stock split approved by the Extraordinary General Assembly held on 02/03/2010 and the Central Bank of Lebanon on 21/04/2010, important internal initiative rather than just a regulatory one ICAAP submissions to further develop and refine various risk and in effect since 24/05/2010. by calculating both regulatory and economic capital. This methodologies and include more sensitive risk measures able is being reflected by the ICAAP becoming an integral part to capture risk more adequately. The assessment was based of the Bank’s decision-making process and an essential tool on quantitative and qualitative methods. In preparation

50 51 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

6.0. | Risk Management 4. Senior Management will carefully assess and weigh the risk 6. The Bank gives the highest importance to the full and versus rewards for all business proposals that potentially complete implementation of all laws and regulations 6.1. | The Main Theme for 2014 create significant risk concentration (be it in products, governing its activities. To achieve this, the Bank will sectors, markets or countries). Final approval for such conduct regular due diligence exercises and establish Strong risk management continued to be a top strategic immaterial. With enough provisions taken into account for any proposals will only be granted for reasons deemed to be adequate controls to ensure that strict adherence to laws priority at Bank Audi in 2014. Over the past two years, possible loss, we were able to confidently face any challenge of franchise building for the Bank. When doing so, Senior and regulations is maintained at all time. we have accompanied the business growth of our Turkish while being safe and sustainable. Management will ensure that such concentration risk is subsidiary, Odea Bank, to ensure that we maintain the same adequately mitigated and controlled. 7. The Bank has a very low risk appetite for name lending. high standards of risk management. With close monitoring of In addition, we maintained good asset quality in the Egyptian the loan portfolio, as well as the constant enhancement of its market while expanding the Bank’s franchise. 5. The Bank upholds the highest standards of ethics and 8. The Bank has a low risk appetite for holding for its own risk management framework and its alignment with that of the professional competence when providing banking services account volatile financial instruments that can generate Group, we thrived in making the rapid expansion in Turkey a As for the Lebanese operations, we maintained our strong to its clients and engaging with counterparts. Therefore, no undesirable earnings fluctuations. safe and successful one. internal controls while persistently looking for ways to enhance products or services or other types of banking transactions our risk management practice. We focused on expanding our will be contracted if deemed unsuitable to the clients or can We also took the necessary precautions to protect our assets retail portfolio and on preserving our good corporate and SME potentially raise financial or reputational risk for the Bank. in our entities operating in unstable political and economic asset quality by reinforcing our existing relationships, while environments, notably in Syria where our exposure has become ensuring optimal risk-reward balance. 6.2.3. | The Broadening of the Stress Testing Scope Stress testing is used by Bank Audi to measure the Bank’s results are reported to the Group Executive Committee, Board 6.2. | Making Bank Audi Safer vulnerability to exceptional but plausible events. Bank Audi has Group Risk Committee, and Board of Directors depending on formalised stress testing within a Board of Director-approved the materiality and relevance of the stress test at hand. Bank Audi has continuously aimed at putting the customer at the the most current risk management best practices. The Bank document and conducts regular stress testing for material heart of all that it does and continuously thrives to bring about constantly searches for ways to make Bank Audi safer through: risks to which it is exposed and resulting from both on and The Bank has undergone stress tests outside the framework of off‑balance sheet transactions. regulatory requirements to include all relevant risk disciplines, as 6.2.1. | Protecting Stakeholders and Customers’ Interest well as stress testing at the portfolio, transaction and individual The selection of stress testing scenarios is the result of the level, enabling the Bank to move towards more complex models In line with its commitment to constantly protect the interest posture and completed the establishment of a world-class discussion between Group Risk, Group Finance and business and more structured approaches to stress testing. of its stakeholders and customers and to maintain a high business continuity site, along with a disaster recovery site that lines, in consultation with the Group Research department. The quality of service with minimum disruption, Bank Audi has was awarded the Tier 4 - Fault Tolerant Certification of Design implemented several initiatives to enhance its cyber security Documents and Constructed Facility. 6.2.4. | Close Risk Monitoring

A Strong Business Continuity Plan We strive to make sure all material and relevant risks are closely portfolio reviews, risk assessments, as well as regular reporting The Bank has developed and implemented a business continuity are resumed within a tolerable timeframe based on business monitored through the enhancement of our MIS capabilities, from entities supported by regular entity visits. plan based on international standards to anticipate a variety of requirements. In addition, necessary provisions were taken by probable disaster scenarios. Several business continuity plan the Bank to keep this plan abreast of changes pertaining to 6.2.5. | The Promotion of a Strong Risk Culture testings were conducted over the past year. These tests were people, processes and technology. To ensure the safety of its concluded successfully by a full operational test that included personnel, the Bank has designated and trained fire marshals, The Group Risk Principles all branches and critical head office departments. The objective established evacuation procedures, and conducted fire drills for Bank Audi has defined the following key guiding principles that line of defence being Internal Audit and External Auditors. of these tests was to ensure that critical business operations its headquarters facilities. underpin its approach to risk management, which include: - Risks are properly disclosed to various internal and external A Strong Security Posture - The risk function aims to preserve the Bank’s financial strength stakeholders in a transparent, systematic, structured, timely The Bank is constantly reinforcing the security of its information awareness trainings are conducted to all staff on a continuous by ensuring that risks and rewards are properly balanced and and accurate manner, in order to allow various stakeholders to systems to address evolving threats and vulnerabilities. basis in order to reduce the risk of human errors, theft, fraud or by minimising the impact of undesirable events on capital and make prompt and informed decisions. Accordingly, advanced security solutions were acquired misuse of information resources. profits. and implemented during the past year. In addition, security - The Risk function is independent from business lines and - Bank Audi’s risk management responsibilities follow a decision makers, yet supports them in making informed choices 6.2.2. | Setting the Risk Appetite and Limits three‑line of defence structure: the first being the business and distinguishing among alternative courses of action. lines, the second being Risk and Compliance, and the third The risk appetite, which is set on an annual basis, is meant to in terms of the risk that such transactions or activities are provide the boundaries within which business lines operate. The likely to generate. The Risk Training Program setting of the risk appetite at Bank Audi is a result of a formal Following the establishment of the Risk Training Academy subject matter experts. Courses are open to attendees from all dialogue between Group Risk, business lines, Senior Management 2. Risk monitoring and control is a key component of our in 2013, the Bank has continued in the implementation of departments within the Bank in order to promote a strong risk and the Board Group Risk Committee. The risk appetite, which is risk management framework. Therefore, the Bank does the program in 2014. Core risk courses were developed and culture across the functions. approved by the Board of Directors, is expressed in both qualitative not engage in risk-generating activities and products that it delivered both in-house and through trainings delivered by and quantitative statements. The latter include a set of metrics cannot fully monitor and control. covering risk appetite or targets, tolerances and limits. 6.2.6. | Enhancing the Risk-rating System for Corporate and Commercial 3. The Bank places great importance and priority on maintaining The Bank maintains constant communication of the risk appetite a robust liquidity profile. As part of this strategy, the Bank In 2014, Bank Audi deployed its new Facility Risk-Rating (FRR) complement the existing credit internal rating models such to business lines and monitors the risk profile to ensure that it endeavours to ensure that its funding base is mainly sourced Model and Related-Entity Support Model, accompanied by as the Corporate Model, SME, with and without financial always remains within the Board of Directors’ approved limits. from a stable and well diversified deposit base. Therefore, in trainings to relevant stakeholders from various entities. The statements and Project Finance. general, the Bank does not normally solicit wholesale market purpose of the FRR model is to rate facilities taking into The general principles of the Bank’s risk appetite and limits are funding for its ordinary banking activities. However, in the account the obligor’s creditworthiness, but also the type By continuously enhancing our risk-rating system, the Bank aims the following: event that this situation changes in future, a proper policy of facility and any credit risk mitigant. The Related-Entity to have more accurate measurement of credit risk and expected framework will be put in place to ensure that the impact Support model provides an objective measurement of degree losses estimates, and consequently be better prepared for the 1. The Bank does not engage in banking transactions and of such strategy is well understood and monitored through of support through a substitution of the obligor’s rating, adoption of the final version of the IFRS 9 standards. activities it does not have a full understanding of, specifically adequate limits and controls. when an explicit or implicit support is available. These models

52 53 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

6.2.7. | Continuously Enhancing Our Methodologies 6.4.2. | Retail Credit Risk Bank Audi has taken a strategic decision to move toward for the development, calibration, validation and maintenance The Bank continues to place great emphasis on the Accomplishing these objectives will support the Bank in advanced approaches in risk management, which require of various risk-related models. Such models will not only allow a enhancement of data capture and analytics production in 2015. carrying out the portfolio reviews which are scheduled to be both competent quantitative skills and adequate analytical better quantification of risk, but also support the business in its Standardisation of key performance metrics and their definition conducted over the different entities twice a year. tools. The Bank has made several efforts to strengthen the decision-making process. enables more accurate assessment of portfolios and facilitate framework around model validation by adopting best practices decision making at group level. In terms of risk profile, the Bank closed 2014 with solid credit indicators on its retail portfolio. The portfolio is well diversified: Significant progress has been made in 2014 for scorecards 40% on housing loans, 37% on personal loans, 10% on auto 6.2.8. | The Development of Risk-adjusted Return on Capital (RAROC) by Business Line development for various products and entities of the Group. loans, 12% on cards, and 1% on other products. The objectives of these scorecards are to better assess the A revised approach to risk-adjusted performance measurement taking into account a full assessment of the RAROC by business creditworthiness of applicants in an objective manner, adopt the Despite the unstable political and economic conditions in the has been implemented in line with international best practice, line to ensure proper risk-reward balance. industry best practices, and comply with regulatory requirements. countries the Bank operates in, the portfolio has demonstrated resilience, as reflected in the stability of the performance Amongst the 2015 objectives is establishing profitability‑linked indicators. Gross Retail NPL stands at 2.4% with a 70% of 6.2.9. | Submission of the Internal Capital Adequacy Assessment Process (ICAAP) at Entity Level performance benchmarks and early performance indicators provisions coverage on closure of 2014. to accurately assess portfolio health and risk appetite. During 2014, the major entities of the Group have Odea Bank, Bank Audi Egypt, Bank Audi Jordan and Audi conducted their own Internal Capital Adequacy Assessment Capital. The decisions to undergo the exercise in line with Process. The ICAAP exercise has been conducted on a best practices were part of both an internal initiative and a 6.5. | Operational Risk consolidated, but also on an entity level, which included regulatory requirement. Operational risk is the risk of loss arising from system failure, The Bank has rolled out a special purpose operational risk human error, fraud or external events. Operational risk exists in management tool which allows users to log risk assessments, 6.3. | Priorities for 2015 all activities and can materialise in various ways such as errors, key risk indicators, incidents, action plans, and follow up frauds or business interruptions that can result in direct and on their resolution. This tool is designed to ensure a more The Bank, in its continuous effort to be the leader in risk - Continue to enhance the scope and accuracy of the credit indirect lost income, such as reputational damage. efficient group-wide implementation of the operational risk management, is always looking for ways to improve the way rating system. policy. As an additional layer of mitigation against operational we look at Risk. Our priorities for 2015 are as follows: At Bank Audi, the primary responsibility for the management of events, the Bank purchases comprehensive insurance - Continue with training efforts and widen the scope of operational risk resides in the business. To monitor and control coverage from highly-rated reinsurers. This coverage is - Ensure optimal capital allocation. participants to include entities. operational risk so as to maintain it within Board-approved risk purchased wherever economically feasible and includes tolerances, operational risks are assessed on a regular basis by coverage against certain types of fraud and political violence, - Widen the scope of utilisation of the return on capital - Strengthen our risk and finance infrastructure. evaluating the effectiveness of the control design against risk strikes, riots and terrorism in some countries that experienced measures to include more businesses and entities to ensure scenarios mapped to internal risk registries and implementing unrest. Notwithstanding its efforts to control operational proper risk‑reward balance. - Reinforce constantly our security posture, increase the corrective actions where needed. risks, Bank Audi does incur unexpected operational losses, in efficiency of our business continuity plan, and keep it abreast particular as the sum of losses incurred below the insurance - Maintain and strengthen the Group’s risk culture. of upcoming changes. These internal risk registries are mapped to seven standardised deductible, losses that are neither insured nor so predictable categories used for reporting to Management and to the as to be priced, as well as setbacks to budgeted revenue - Continuously improve the quality of our data. Board of Directors: internal and external fraud; employment (lost income). When these happen, they are escalated to the practices and workplace safety, clients, products and business relevant manager or Management committee and followed practices, damage to physical assets, business disruption up for possible recoveries and process improvements. The 6.4. | Credit Risk and system failures, and execution, delivery and process Bank applies the basic indicator approach for the calculation management. In addition, a system of incident reporting and of its capital charge for operational risk, while complying with 6.4.1. | Corporate Credit Risk a set of risk indicators together help confront ex-ante risk the qualifying standards of Basel II’s standardised approach assessments to reality and improve controls before a situation (Paragraph 663 of the Basel II Capital Accord). Finally, the In our Group Risk charter, “Credit Risk entails negative within our Group risk appetite. develops into lost income exceeding tolerances. In recent operational risk framework is audited yearly as per regulatory consequences associated with the default or deterioration in The Group strategy was successfully implemented in 2014. years, most of Bank Audi’s operational losses have been requirements and standard industry practice. credit quality of counterparty in lending operations…”. As a matter of fact, the three pillars of growth, namely our caused by external fraud. Private Banking business line, as well as our Egyptian and The challenging operating conditions persisted throughout 2014, Turkish subsidiaries, were the main growth drivers. Indeed, the along with the political tensions in the MENA, thus impeding any aforementioned growth in the consolidated corporate loan 6.6. | Liquidity Risk Management potential economic breakthrough in the region. Moreover, the portfolio was led by Odea Bank (42%), Private Banking (11%) concomitant spill over effect of the Syrian conflict maintains the and Egypt (10%). Liquidity risk is the risk that the Group will be unable to meet The Bank addresses these risks in two distinct environments: intense pressure on the competitive Lebanese market. its payment obligations when they fall due under normal and Thus, the geographical diversification throughout the entities stress circumstances. - Normal conditions where the Bank must satisfy daily liquidity However, within the permanent Management supervisory and business lines, as mentioned, did largely offset the decrease needs (flows) and the liquidity risk associated with those needs culture and a sound risk framework, the Group is always in our domestic corporate portfolio, which mirrors the lending Liquidity risk can manifest in the following two forms: (e.g. in conjunction with expanding product or business mix, keen to boost its financial performance and to build a durable activity slowdown of 9% reported in the banking sector settlement, deposit/loan growth, etc.). diversified revenue franchise capitalising on its customer base throughout the first 11 months of 2014. - Funding liquidity risk is the risk that the Bank’s financial and market knowledge. condition is adversely affected as a result of its inability to meet - Stressed conditions where the Bank is facing liquidity strains Finally, Management’s oversight and the vigilant credit risk both expected and unexpected current and future cash flow due to idiosyncratic or systemic conditions and may invoke the Indeed, the performing consolidated corporate loan culture outline an encouraging growth perspective and a sound and collateral needs in a timely and cost efficient manner. Contingency Funding Plan (CFP) as a result. portfolio maintained its double digit growth of circa 14%, liquidity covering all types of risks and maintaining an acceptable with an adequate quality of assets highlighted by 71% profitability level with respect to international standards and - Market liquidity risk is the risk that the Bank cannot easily coverage of NPL, 0.74% of net NPL to gross loans and best practices. offset or eliminate a position at the market price because 3.8% of Net NPL to consolidated equity, all comprised of inadequate market depth or market disruption ultimately leading to loss.

54 55 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

6.6.1. | Liquidity Adequacy does not view borrowing capacity at central bank discount Bank holds high quality, marketable securities available to raise windows in the jurisdictions it operates in as a primary source liquidity, such as corporate and sovereign debt securities. Management considers the Bank’s liquidity position to be The Bank’s consolidated short-term liquidity ratios (defined as net of funding, but rather as a secondary one. In addition, the strong, based on its liquidity metrics as of December 31, 2014, current accounts and maturing placements with central banks and believes that the Bank’s funding capacity is sufficient to plus banks and financial institutions relative to maturing deposits meet its on and off-balance sheet obligations. over one-month and three-month horizons) are at healthy levels. 6.7. | Market Risk Management For example, the one-month ratio stands at 21.4%. The Bank’s funding strategy is intended to ensure sufficient Market risk is defined as the potential loss in both on and from trading activities in FX and interest rates which the Bank is liquidity and diversity of funding sources to meet actual and The Bank maintains pools of liquid unencumbered securities off‑balance sheet positions resulting from movements in market willing to make use of. contingent liabilities through both normal and stress periods. and short-term placements with highly rated bank risk factors, such as foreign exchange rates, interest rates and counterparts or the Central Bank in the relevant jurisdiction. equity prices. The Bank’s main exposure to changes in FX rates at year-end The Bank continues to source funds by relying on a stable It also engages in short-term reverse repo agreements 2014 stems mainly from its structural FX positions resulting from customers’ deposit base constituting 84% of its funding whose underlying securities’ risk-weighing is equal or better The Bank maintains low appetite to market risk stemming from its equity investments in banking subsidiaries in currencies that (liabilities + equity), which was USD 35.4 billion at December than the sovereigns where the liquidity risk is being taken. changes in equity prices and foreign exchange rates. However, cannot be hedged against, except for the Turkish Lira where 31, 2014, rising from USD 30.7 billion at December 31, The Bank also actively monitors the availability of funding operations in Turkey open revenue-generating opportunities derivatives can be used. 2013. Nearly 70% of deposits are Retail/Personal Banking across various geographic regions and in various currencies. accounts, whereas about 29% are corporate/SME. The Its ability to generate funding from a range of sources in a 6.7.1. | IRRBB large Retail/Personal Banking base emphasises the Bank’s variety of geographic locations and in a range of tenors is reliance on sources of funding that are considered to be the intended to enhance financial flexibility and limit funding Interest rate risk in the banking book arises out of the Bank’s mismatch in the re-pricing dates of these positions creates interest most stable, evidenced by their treatment under the Basel concentration risk. However, the ability to transfer cash/liquid interest-sensitive asset, liability and derivative positions. The rate risk for the Bank which is inherent in its banking activities. III Liquidity Standards, as part of the Liquidity Coverage assets between entities is given thorough consideration. As Ratio (LCR) of 60%. Local rules in Lebanon have not been mentioned later under Liquidity Management, the Bank’s The sensitivity of net interest income for major currencies is listed below at the consolidated group level. published yet, but the Bank’s internal assessment of the liquidity management strategy promotes self-sufficiency of Interest Rate Sensitivity - 2014 LCR reveals healthy levels above the final target of 100%, legal entities, most especially across borders. Sensitivity of Net Interest Income to be adhered to starting 2019. The rule has been placed Change Increase Decrease into effect as of January 2015 and includes for Odea Bank, The Bank monitors its liquidity position in new markets on a daily Currency (Basis Points) (LBP Million) (LBP Million) the Bank’s subsidiary in Turkey, whose LCR is above the basis. The Bank’s fund-raising ability in Turkey has been tested EUR ± 25 (4.780) 4.780 minimum statutory requirement. and found reliable in several instances during unsettled periods. USD ± 50 (1.242) 1.242 6.6.2. | Governance LBP ±100 (5.369) 5.369 The Bank’s governance process is designed to ensure that its of which inform and may escalate to ALCO based on key risk It is important to note that interest rates on assets do not change in The interest rate risk profile of the Bank is within acceptable liquidity position remains strong at both entity and parent indicators and both regulatory and internal limits. tandem with liability rates. The stickiness of customer deposit rates bounds. The impact of a fall in USD rates (50 bps), as indicated levels. The Asset-Liability Committee (ALCO) formulates and in Lebanon, an observed phenomenon in the Lebanese market, above, constitutes less than 1% of net interest income for the oversees execution of the Bank’s liquidity policy at the level of Treasury is responsible for executing the Bank’s liquidity policy, as has been incorporated in the above table. It has been quantified Group. In LBP, the stated rate (100 bps) increase takes away less each entity (which essentially lays down the Bank’s liquidity well as for maintaining the Bank’s liquidity risk profile according for the Lebanese USD customers’ deposits market whereby than 1% of net interest income as well. management strategy). The liquidity risk policy for identifying, to ALCO directives, all within the risk appetite set by the Board a relationship between changes in deposit rates has proven measuring, monitoring and reporting liquidity risk, and of Directors. statistically reliable and reflects historical behaviour. For LBP, the Using the same method above, a shock of +3% on TRY the contingency funding plan are recommended by Risk estimated relationship is based on relatively recent history, which interest rate sensitive positions affects net interest income Management, reviewed by ALCO, approved by the Executive The parent bank’s Treasury and Capital Markets division Management believes is more relevant in the current economic by nearly -10% of annual NII from a purely contractual Committee, and finally ratified by the Board of Directors. communicates with entity Treasury departments to ensure environment. The relationship, along with Senior Management’s perspective. On a separate note, the Turkish regulator Measurement, monitoring and reporting are performed for adequate liquidity conditions at the Group level. view of current market dynamics, is incorporated for customers’ imposes a limit for 5% and 2% shocks on TRY and FX interest the most part by either Treasury or Risk Management, each deposits in Lebanese entities only, whereas other entities are sensitive balance sheets of banks in Turkey respectively, to calculated on purely contractual terms. It is worth noting that the assess the change in the economic value of equity relative to 6.6.3. | Liquidity Monitoring and Risk Appetite relationship also incorporates the lag in the response of deposit capital. The Bank’s end-of-year 2014 position was at 13%, rate changes to changes in market rates. These relationships are well within the limit of 20%. Monitoring and setting of risk appetite for liquidity occur assets, the loans-to-deposits ratio, and other balance sheet reviewed annually to ensure they still hold. independently for each entity. Given the Bank’s operating measures). The Bank also uses methods such as Basel’s environment, the Bank monitors liquidity adequacy in each Liquidity Coverage Ratio to measure and monitor liquidity currency separately, especially for significant currency positions. under different conditions, which is not confined to the 7.0. | Deployed Resources regulatory weighting, but reflects Management’s own view The Bank employs a variety of metrics to monitor and manage under different scenarios in the relevant jurisdiction. 7.1. | Operations liquidity. One set of analyses used by the Bank relates to the timing of liquidity sources versus liquidity uses (e.g. liquidity The Bank performs liquidity stress tests as part of its liquidity With a strategic focus on delivering exceptional client operating model which combines customer centricity with gap analysis). A second set of analyses focuses on ratios monitoring. The purpose is to ensure sufficient liquidity for experience and a high operational efficiency, the Bank’s operational efficiency. This is a long-term transformation that of funding and liquid assets/collateral (e.g. measurements the Bank under both idiosyncratic and systemic market stress objective is to deliver a world class service quality and will be deployed in phases with a continuous improvement of the Bank’s reliance on short-term unsecured funding as conditions. They are produced for the parent and major bank products, and to lead innovation and digitisation in market. aspect driving it. Below is a list of achievements completed a percentage of total liabilities, as well as analyses of the subsidiaries. In this direction, the Bank has launched a comprehensive throughout the year 2014 per topic. relationship of short-term unsecured funding to highly‑liquid “Lean Transformation” across all aspects of the Bank’s

6.6.4. | Liquidity Management 7.1.1. | Channels Innovations and Digitisation

Liquidity management at the parent level takes into account management strategy promotes self-sufficiency of legal entities, New Online Banking regulatory restrictions that limit the extent to which bank most especially across borders. Clients’ behaviour and needs are changing and are moving more solution aiming to enhance its image as a leader in providing subsidiaries may extend credit to the parent and vice versa and more towards self-service and online banking. In response online banking services through the deployment of leading and to other non-bank subsidiaries. The Bank’s liquidity Although considered as a source of available liquidity, the Bank to this trend, the Bank has launched a new online banking technologies. The new online banking has a new set of services

56 57 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

(such as external transfers, standing orders, bulk payments and features and personalisation (naming the accounts, creating 7.2. | Information Technology others) and an improved user experience in terms of navigation, templates). The year 2014 marked the successful closure of multiple From the infrastructure and technology side, Bank Audi’s New e-Branch transformational business projects for Bank Audi’s IT. IT continued the strategic journey started in 2012 towards The Bank launched its latest banking landmark, the “Novo - Card Artist station. a Software-Defined Data Centre (SDDC) which makes all e-branch”, in Beirut Central District. The branch opens 7 days a - The “Cards to Go” prepaid card vending machine. A new online banking solution was made available to all the elements of the infrastructure – compute, networking, week from 10:00 am till 10:00 pm, and offers a convenient and Bank’s customers. This solution allows serving customers storage and security – provisioned, operated and managed user-friendly banking experience through interactive channels Through this new branch format, customers have unlimited efficiently by catering to the needs of the growing number through software and automation, and delivered as a service. and features providing the below channels: access to financial advice via video conferencing with bank of technology-aware customers through capabilities that officers. They can also perform transactions and open accounts, significantly improve their online experience and enables, After achieving “Infrastructure-as-a-service” in 2013, - Novo ATM and regular ATM. as well as apply for cards and loans, among other services. A among other things, a 360 degree view of customers’ replication and failover/failback activities to and from the - New Interactive Teller Machines (ITMs), for the first time in special waiting area boasting an interactive table has been relationship with the Bank. disaster recovery site have been streamlined and automated. Lebanon, handling almost all counter operations through made available for customers to access the latest news, play Work on “Platform-as-a-service” has begun, expected to be video banking. games and connect to social media platforms. Bank Audi has Phase 2 of this project was also immediately triggered and is completed in 2015. The IT team also started evaluating and - Advisory room. also set up a huge video wall where ads, clips and animations expected to go live in late 2015. This phase will enhance the testing leading-edge technologies such as Network Virtualisation, - Information station. are displayed. online banking experience and expand the offered features, Software-Defined Networks, and Security-as-a-service. especially for corporate customers. It will also launch the new 7.1.2. | A Performance Management System with Direct Impact on Customer Experience Bank Audi Mobile Banking application. From our beliefs that mobility empowers the workforce and enhances customer service quality by bringing productivity An improved Performance Management System is implemented - A new interactive digital dashboard reporting a 360 view to The ”IFRMS” project, Integrated Finance and Risk Management on the go to Bank’s staff, Bank Audi’s IT implemented an in all the branches geared towards improving client experience, branches’ dashboard: using the Leading Business intelligence System, jointly owned by the Finance and Risk departments, Enterprise Mobility Management (EMM) solution in mid 2014. boosting performance and fostering communication and team Technology, branches’ staff now have clear visibility of the that aims to provide a central repository for Finance and The EMM solution delivers a secure, flexible, scalable and work. Below is an overview on the components: overall branch performance in a digital and easy-to-use Risk reporting and management, in addition to the Bank’s enterprise-ready platform that makes email, collaboration, application. procurement cycle from initiation till payment with projects documents and business applications securely available on - New branch KPIs and scorecard – with direct impact on the and assets management, went live in July 2014. Phase 2 of any mobile device or tablet. Employees can now confidently client experiences and operational efficiency. - Branch performance meetings: a standard meeting mechanism the project includes implementing analytical applications for use and process corporate information in mobile workflows is implemented across the network using whiteboard in every Asset Liability Management (ALM), Profitability and Funds on bring-your-own or company-owned devices, knowing that For example: branch. This tool helped improve communication between Transfer Pricing (FTP) was kicked in August 2014 and expected the enterprise’s data is always protected. • Improving quality of service in branches based on clients’ Management and branch staff, and boost the performance to go live in phases starting late 2015 till mid 2016. quality feedback. through clear, objective, tactical plans and a continuous 2014 also witnessed the completion of the Bank’s new Tier • Reducing clients’ waiting time in branches. improvement culture. Phase 1 of the new Enterprise Resource Planning system also 4 data centre, the first in Lebanon. This new data centre will • Increasing clients’ cross ratio. went live in 2014, covering financial management, Central support mission critical Information Technology infrastructure • Increasing the number of operations that can be handled Bank regulatory reporting, and asset and procurement and maintain business continuity. It was certified by the by an employee, thus leading to faster operations. management. Phase 2 of this project was also started and will Uptime Institute in mid-2014 and the Bank is planning to use cover risk management, profitability and human resources it as a secondary site for most of its international entities. 7.1.3. | Automating Operations for Better Efficiency and Control management to name a few. Eventually, this system will be the central information control portal for the Bank and will Last but not least, as cyber-security attacks and advanced A new Document Management System (DMS) – The Bank has A new loan origination platform (Bluering) – A new lending play an intrinsic role in the strategic business decision-making persistent threats become more sophisticated and use better introduced a modern enterprise wide document management platform was introduced to support loan origination cycles. process. technologies to bypass traditional security controls, the Bank platform that allows the archiving of key documentation for This tool will help improve customer experience through faster opted for a new proactive security approach using Big Data indefinite periods of time in soft copy, thus increasing security turnaround time, as well as enhance operational efficiency In addition, many other business solutions projects were Security Analytics. Implemented in the beginning of 2014, the and control, creating a paperless environment, and supporting through automating, streamlining, tracking and standardising successfully concluded and launched, including a new new Intelligence-driven security system, fuelled by big data the automation and streamlining of processes. the loan origination processes across the Bank. loan initiation system. All these systems were implemented analytics, helps the Bank proactively detect suspicious security leveraging Bank Audi IT’s strategy of service-based events and deter cyber-attacks at early stages. The system’s 7.1.4. | Customer Centricity and Operational Efficiency architecture, with the Enterprise Service Bus being at the intelligence capabilities include improved threat analysis and core of the environment, orchestrating and integrating the trending mechanisms, advanced automated responses, and This trend of moving towards online channels and ATMs is branches, aiming at speeding operations and enhancing staff different systems together. real-time smart alerts. helping in reducing non-value added activities in the branch, utilisation efficiency, supported by scientific staffing calculations therefore enabling the staff to provide more advisory and ensuring proper staffing level in branches. In addition, a new personalised servicing to the customers. This is a long journey branch look and feel was introduced in 2014 that touches on 7.3. | Human Resources that started by segmenting customers to provide the most the external and internal design of the branch and addresses suitable products and services. In parallel, the Bank carried new clients’ behaviour and needs. 7.3.1. | HR Developments on its initiated streamlining and reengineering process across The year 2014 was concluded with various successful from Ivy Leagues such as Harvard and Columbia and from 7.1.5. | Learning and Development accomplishments for the Human Resources department (HR) other prominent business schools such as INSEAD and London around areas of Recruitment and Selection, Training and Business School. The improvement in staff behaviour and skills was a key This was complemented by the ongoing technical and soft Development, Relationship Management and Organisational component of Lean Transformation, whereby the staff was skills training academy for new joiners and current employees Development. Since the Bank recognises the importance of continuously trained on the improved Performance Management System and looking for career growth. enhancing its selection process, both the Talent Assessment on communicating and leading the branch staff toward better Bank Audi continued to own up to its position as the largest Centre and the Branch Management Assessment Centre performance though classroom and on the ground process employer in the Lebanese private sector at large and the most (BMAC) were revisited, allowing an even better selective confirmation mechanism. significant contributor to job creation in Lebanon. It has the most choice of internal and external candidates. Subsequently, advanced recruitment processes fully recognised in Lebanon and the implementation of the BMAC during 2013 took place as the region for being a benchmark in the selection strategy with follows: 91 internal candidates from branches and head office a comprehensive talent attraction strategy, drawing from a pool departments were targeted based on a set of pre-defined of global/regional talent with prime educational backgrounds criteria including the feedback of HR and concerned managers;

58 59 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

56 shortlisted candidates were accordingly selected to sit for the Bank kept on providing the widest learning opportunities and I-Recruitment and Self–service. 2014, covering all the functions at the Bank, as part of the Assessment Centre (AC) phase. sponsorships granted to high-potential employees aiming to “Performance Management” module to be implemented on pursue graduate education both locally and overseas. - Elaboration phase of 2 modules (Payroll, Time and Labour) the Oracle Human Resource Management System. The purpose The Recruitment and Selection efforts for 2014 resulted in the detailing the solution designs for review and GAP analysis. of having such a library is to make it easier for managers to engagement of 234 new employees from diverse backgrounds Bank Audi carried on with delivering valuable trainings and select objectives and, accordingly, assign appropriate measures for different positions within the Bank. In addition, the “Student unparalleled learning and development opportunities to its - Data migration applied to ensure the proper continuity of the (related to time, percentages, amounts, etc.) for team members Internship Program” welcomed 431 undergraduate/graduate human capital. With its prime T&D activities and exceptional business workflow. on an individual basis. students from prominent universities, offering them the talent management programs, the Bank delivered a total of opportunity to gain knowledge about banking operations and a 180,326 training hours and 229,047 on-the-job training hours - Development of a high-level Integration design between the The Human Resources department continuously strives to remain general understanding of the Bank’s corporate culture. during 2014. payroll process and other systems, namely core banking. the Bank’s strategic partner, recognised for being a benchmark in the selection, motivation and growth of its human capital. Priding itself for dedicating one of the highest budgets in Training activities were intensively focusing on academy courses The ”Library of Objectives” project was also developed during Lebanon for Training and Development (T&D) activities, the and managerial and behavioural trainings:

Training 3% 8.0. | Investor Relations 5% 4% 8.1. | Investor Relations Activity in 2014 6% Bank Audi’s investor relations activity focused on maintaining region and Turkey. Many of these investor relations meetings 32% 6% Training Academy Risk Management the long-term and solid relationship with its institutional and involved members of the Group Executive Committee and 2014 private investors, analysts and media, in addition to diversifying Senior Executives from key subsidiaries providing the audience 6% Managerial & Organisational Behaviour Legal, Regulations, AML & Fraud its shareholders base which includes more than 1,500 with transparent and prompt information relevant to the Bank’s Information Technology Retail & CRM shareholders. Investor relations try to address the main concerns activities. 6% of the investment community about the Group’s operating Banking + BDL103 Information Technology 17% environments, performance and strategic outlook, in addition While somehow underscoring the limited equity institutional 15% Languages Specialised Field to providing extensive, clear and timely information which may investors’ appetite prevailing in 2014 as a result of global and help them understand how the Bank is building its value and regional woes, Bank Audi’s investor relations activity in 2014 assessing it. reflects only an extension of the Bank’s long-standing track record since 1995. The table below illustrates Bank Audi’s Armed with a highly qualified T&D team, the majority of On another note and living up to its belief that learning is a way The ongoing political turmoil within the Middle East and North participation since 2005 in equity conferences, highlighting behavioural trainings were delivered internally. of life as it is embedded in its culture, motivating employees Africa region, coupled with the emerging market sell-off by Management’s commitment to Investor Relations. through continuous growth, learning and development is of investors, have reduced the investor relations activity in 2014 Within the context of the Training Academy, unique in its kind high significance to the Bank. For that, Bank Audi sponsored 59 where it weighed down the number of equity conferences hosted Several site visits were also scheduled for institutional investors in Lebanon and launched in 2012 with the aim to transform employees to further pursue their higher-level education: within the region. Through the year, Bank Audi participated in who were not able to secure meetings during the equity employees into highly qualified bankers, 136 sessions covering 5 equity conferences, fulfilling 83 meetings with 65 institutional conferences and for those investors interested in visiting the specialised technical/behavioural courses were offered to 600 The Relationship Management team continued to provide investment companies, represented by 102 fund managers corporate head offices to complement their knowledge on Bank registered employees, allowing them to advance in their careers. support to stakeholders in branches and head office departments based principally in the United States, United Kingdom, MENA Audi. Within the same scope, the Corporate Academy hosted 101 through field visits and follow-ups. A total of 238 promotions network managers, branch managers and assistant branch and 290 transfers took place throughout 2014. PARTICIPATION IN EQUITY CONFERENCES/NON-DEAL ROADSHOWS managers, providing them with macro level information about 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total milestones taking place at the global, regional and domestic Emphasising the importance of communication and levels. transparency, the HR team delivered ”Ask Your HR” sessions Equity conferences 4 3 6 2 10 13 14 7 7 5 71 to network and branch managers. The aim was to get in touch Number of meetings 87 66 139 68 201 207 170 68 72 83 1,161 In addition, Bank Audi launched the first “Advanced with the front line and truly listen to the concerns of branch Number of companies met with 74 54 120 66 141 151 116 60 61 65 908 Management Program” (AMP) in collaboration with the employees, while discussing the latest HR goals and current American University of Beirut. AMP is a thirty-day executive projects and assessing solutions, exploring needs, and disclosing Number of portfolio managers met with 122 88 171 94 244 248 185 73 95 102 1,422 education program customised to integrate the Bank’s future action plans. Company/Roadshow 18.5 18.0 20.0 33.0 14.1 11.6 8.3 8.6 8.7 13.0 12.8 organisational development objectives with the personal Meeting/Company 1.2 1.2 1.2 1.0 1.4 1.4 1.5 1.1 1.2 1.3 1.3 development of its middle managers. It equipped the first As a continuation to the new Branch Operating Model project, cohort of 20 participants who successfully completed the HR assisted, during 2014, in its implementation in 6 additional Portfolio manager/Company 1.6 1.6 1.4 1.4 1.7 1.6 1.6 1.2 1.6 1.6 1.6 program at year-end, with contextual know-how and a way branches in different regions, allowing them to comply with of thinking to be active contributors to the Bank’s key pillars international trends and best practices. For that, specialised The sell-side and buy-side communities were also constantly in November 2014, along with a group website webpage. The of success: innovation, customer centricity, quality, people training topics were accordingly delivered to all 78 participants updated through mass mails dispatched on regular basis, Bank is currently considering launching, during the course of development and social responsibility. in order to ensure a smooth transition from the previous with the Bank’s quarterly earnings releases and related 2015, an IR application available on androids and in Apple store operating model. corporate actions, as well as through constant updates of the to keep the investor communities informed in a timely manner Within the context of the Risk Training Program (Risk Academy) Investor Relations webpage (including the Investor Relations on all developments pertaining to the Group. launched in 2013, 12 topics were successfully covered in Aiming at evolving into a more tech-based profession and presentation). A new Investor Relations webpage was launched training sessions delivered to 400 concerned employees at ensuring consultative partnership with stakeholders and the Group level during 2014. Significant trainings covering greater efficiency in service delivery, HR focused in 2014 technical – related to banking, legal, AML and fraud – and on the implementation of the “Oracle Human Resource behavioural topics were provided to head office and branch Management System”. While the project transition and employees through training activities/coursework and production are planned for 2015, the following phases were development programs. Off-site retreats aiming at improving completed in 2014: team dynamics while consolidating related visions and action plans were conducted by the T&D team for several departments - Construction phase and quality assurance testing of 5 modules: and branches. Core HR, Performance Management, Learning Management,

60 61 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI ANNUAL REPORT 2014

8.2. | Bank Audi’s Stock Research Coverage - Comply with the spirit and intent of national laws and - Generally raise awareness internally and externally with regards regulations with respect to protection of human rights, illegal to the environmental and social challenges that may face the Since 2010, several London-based banks and regional financial institutions initiated coverage of Bank Audi’s stock. labour, child or forced labour, and social issues. countries in which we operate.

The table below lists institutions that cover the Bank’s stock till April 2014: 11.0. | Corporate AND Social Responsibility BANK AUDI’S STOCK COVERAGE Institutions Country Analyst Initiation Date At Bank Audi, integrating social responsibility within our core updated Code of Ethics and Conduct where respect for human business has been a growing step through engaging multiple rights is clearly highlighted and embedded in day‑to-day

EFG Hermes Egypt Elena Sanchez-Cabezudo Jan-06 stakeholders in the economic, social and environmental areas. practices. In addition, Human Rights trainings were initiated FFA Private Bank sal Lebanon Nadim Kabbara Oct-09 In this respect, Management acknowledged the role of the for Top Management down to employees, followed by the Beltone Financial Egypt David Mikhail Dec-09 Bank in spreading the Corporate Social Responsibility (CSR) formation of a Human Rights Focus Group whose major role culture and thus expanded the CSR strategies to further is to identify initiatives, monitor practices, report and solve HSBC United Kingdom Vikram Viswanathan Feb-10 reach key indicators of community interest by consulting any violations, and assess implementation of guidelines within Deutsche Bank United Kingdom Rahul Shah Nov-10 inclusive stakeholders groups. Bank Audi organised a special corporate practices. Arqaam Capital United Arab Emirates Jaap Meijer Feb-12 stakeholders panel grouping clients, suppliers, regulatory Moreover, employees’ community engagement was bodies, correspondents, managers, employees and competitors, institutionalised by the Volunteer Program and awarded as the

Management was always keen to provide all necessary a transparent, effective and timely manner, in full compliance thus creating a communication sphere whereby its strategy was Best CSR Project in the category of Social Mainstreaming by the resources for in-house meetings or conference calls with the with the Bank’s disclosure policy. assessed, ideas to enhance CSR nationally were proposed, and Socio Economic Awards (SEA). sell-side community, and to answer all information requests in room for collaboration between all stakeholders was identified. 2014 was also characterised by the Bank’s ongoing efforts in Similarly, and also aiming at engaging stakeholders, Bank Audi the field of CSR activities, such as: 9.0. | Compliance organised two major competitions: the first comes within the context of the Environmental Protection Pillar where the - Maintaining social equity and good organisational governance The Board of Directors and Senior Management consider substantially increased over the last few years and represent acquired knowledge in measuring our own carbon footprint was within our sphere of influence and supply chain. the Group’s integrity, reputation and franchise to be key challenges facing the Group, as well as banks and financial reflected upon school students who, in turn, were encouraged assets. Compliance and business functions are entrusted with institutions worldwide. These relate to broadly all areas of to measure the carbon footprint in their households and - Sustaining the “Capacity Building” program to enhance the preserving these assets, constantly identifying improvement compliance, mainly anti-money laundering and combating the find means to reduce their energy consumption. The second capacities of public sector employees and hence public‑private areas and rising up to the challenges imposed by compliance financing of terrorism, complying with economic and trade competition, initiated within the Human Development Pillar, collaboration. requirements. A good understanding of and compliance with sanctions, capital markets compliance, and last but not least, targeted graduate university students, and aimed at exposing the letter, spirit and intent of applicable laws, regulations global initiatives to fight tax evasion such as the OECD Common them to the concept of Social Responsibility within corporations - Hosting several activities and trainings for students at different and standards in each of the jurisdictions in which the Group Reporting Standard and FATCA. As a result, regulatory authorities in general, the CSR Strategy at Bank Audi, and inspired this schools to familiarise them with the banking sector and with operates and the ongoing implementation of and adherence worldwide are becoming more stringent and relationships particular stakeholder group to explore their creativity and Bank Audi’s values. to compliance policies are therefore required from all business with global correspondent banks are now more demanding. innovative minds and design an impactful CSR initiative. lines. Their contents are mandatory and represent minimum This new state of things calls for enterprise‑wide compliance - Fulfilling various fund-raising requests for public, private, standards that apply throughout the Group. management that requires stakeholders at all Group entities to Aiming at sustaining transparency, Bank Audi continued to medical, welfare and humanitarian purposes. further work together in a coherent manner. comply with the ISO 26000 Social Responsibility Standard Moreover, it is within the Group’s policy for all its subsidiaries to and reporting according to internationally recognised - Conducting surveys on different topics to seek continuous be fully informed of the laws and regulations governing their In 2014, the Compliance function group-wide continued to Global Reporting Initiative (GRI) G4 indicators, and was improvement and taking internal and external recommendations foreign correspondents, and deal with the latter in conformity ensure that risks deriving from local and global developments the first Lebanese Institution to join the GRI Organisational into consideration. with these laws, regulations, procedures, sanctions and are appropriately managed and suitable mitigating measures Stakeholders Network. Additionally, Bank Audi refined its restrictive measures imposed by their respective governments. are effectively implemented. The desired objective is to avoid tactics so as to embrace the United Nations Global Compacts - Providing trainings to enhance employees’ performance. The Group considers this to be a matter of sound banking failures or mistakes with adverse impact on the Group on the one (UNGC) requirements. practices and reflects its commitment to remain compliant with hand, and missing out on good business opportunities on the - Supporting SMEs in general, and more specifically through all applicable laws and regulations, and stay abreast of industry other, while operating in high risk geographies. The Compliance In an effort to move forward and strengthen its impact, Bank the Bank’s long-standing collaboration with “Bader Young standards and best practices observed by the global banking function also worked on improving itself and its governance, Audi’s CSR unit enhanced its communication and started using Entrepreneurs Program” and the “Grow My Business” community, whether at international or local levels. policies, procedures and measurement methods so as to keep social media, as well as the Bank’s website and other platforms in initiative. These projects preserve our belief in the value succeeding in this balancing act, promote a compliance culture order to reach its stakeholders. In addition, Bank Audi took part of human capital and strengthen our attempt to boost Since the 2008 global financial crisis and the turmoil in the at group level, remain a trusted and skilled business partner, in major national and regional CSR conferences and workshops, entrepreneurship and innovation within our core business. Middle East that started in 2011, the banking industry has been and help achieve durable earnings. This places the Group today thus becoming a benchmark among CSR practitioners. subject to increasing compliance requirements and heightened in a leading position in the Middle East region in terms of the The various activities and different measures taken by Bank Audi regulatory scrutiny. Standards and regulatory requirements have efficiency and effectiveness of its compliance program. The year 2014 was marked by major achievements related are available in a separate CSR Report published and released to Corporate Governance, in addition to human, economic on the Bank’s website, including further details on CSR-related and community developmental projects. These helped in projects and their effect on the Bank’s stakeholders and on 10.0. | Environmental and Social Management System sustaining the Bank’s position as a non-discriminatory and society at large. equal opportunity employer of choice in the Lebanese private To reiterate our commitment to the wellbeing of the In this way, Bank Audi is determined to: sector. Sustaining its commitment, Bank Audi launched its environment in which we operate, Bank Audi has developed - Promote environmental soundness and sustainable development an Environmental and Social Management system (ESMS) to in all its operations. For this purpose, specific measures have ensure that we, as a socially responsible component of society, been established to control and monitor the environmental and reduce our operational footprint, actively manage environment social impact of the operations that we finance. and social risks associated with our client transactions, and promote environmental business opportunities. - Encourage prospective clients to undertake measures aimed at reducing energy intensity, promoting energy efficiency, using cleaner technologies and renewable resources, waste reduction, resource recovery and recycling.

62 63 03 | financial statements

Giving you more control wherever you are. financial statements BANK AUDI ANNUAL REPORT 2014

April 7, 2015 GENERAL ASSEMBLY EXCERPTS Resolution No. 1 The Ordinary General Assembly of shareholders of the Bank approved the Bank’s accounts, in particular the balance sheet and the profit and loss statement as at and for the year ended on December 31, 2014, and granted full discharge to the Chairman and members of the Board of Directors in respect of their management of the Bank’s activities during the year 2014. Resolution No. 2 The Ordinary General Assembly of shareholders of the Bank resolved to appropriate the stand alone profits of Bank Audi sal for the year 2014 as follows:

Amounts in LBP Thousands Net profits for the year 20141 362,359,032 Less: - Appropriation of 10% to the legal reserve 36,235,903 - Appropriation for general banking risks 41,600,000 - Unrealised profits from revaluation of financial instruments classified at fair value –not distributable in accordance with Circular No. 270 issued by the Banking Control Commission 8,546,173 - Transfer to the retail collective reserves in accordance with Intermediate Circular No. 383 issued by the Central Bank of Lebanon 4,878,164 - Transfer to the reserves for fixed assets earmarked for liquidation and acquired in settlement of debt 3,041,471 - Transfer to reserves appropriated to capital increase resulting from the liquidation of fixed assets acquired in settlement of debt in accordance with Circular No. 173 issued by the Banking Control Commission 57,280 268,000,041 Add: - Net release from the reserve for unrealised gains on financial instruments fair value revaluation – available for distribution 111,324 - Transfer from previous retained earnings 130,139,349

Net profits available for distribution 398,250,714 Less: - Distribution to holders of 1,250,000 series “E” preferred shares on the basis of USD 6.00 per share at the exchange rate of LBP 1,507.50 per USD 11,306,250 - Distribution to holders of 1,500,000 series “F” preferred shares on the basis of USD 6.00 per share at the exchange rate of LBP 1,507.50 per USD 13,567,500 - Distribution to holders of 1,500,000 series “G” preferred shares on the basis of USD 6.00 per share at the exchange rate of LBP 1,507.50 per USD 13,567,500 - Distribution to holders of 750,000 series “H” preferred shares on the basis of USD 6.50 per share at the exchange rate of LBP 1,507.50 per USD 7,349,063 Less: - Dividends to holders of 399,280,388 common shares2 on the basis of LBP 603 per common share 240,766,074

Profits carried forward to 2015 111,694,328

Resolution No. 3 In line with the preceding resolution, the Ordinary General Assembly of shareholders of the Bank announced a series “E” preferred shares distribution of USD 6.00 per share, a series “F” preferred shares distribution of USD 6.00 per share, a series “G” preferred shares distribution of USD 6.00 per share, a series “H” preferred shares distribution of USD 6.50 per share, and a dividend to common shares of LBP 603 per share, all subject to the withholding of distribution tax, and resolved that all distributions and dividends will be paid starting April 15, 2015, to the holders of shares on record as at April 14, 2015 (“Record Date”) as per the records of Midclear sal.

1 On a stand alone basis. 2 After deducting the dividends related to the treasury GDRs owned by the Bank.

66 67 financial statements BANK AUDI ANNUAL REPORT 2014

CONSOLIDATED FINANCIAL STATEMENTS

68 69 financial statements BANK AUDI ANNUAL REPORT 2014

CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended December 31, 2014 For the Year Ended December 31, 2014 2014 2013 2014 2013 Notes LBP Million LBP Million Notes LBP Million LBP Million CONTINUING OPERATIONS Profit for the year from continuing operations 528,085 459,718 Interest and similar income 4 3,401,120 2,693,381 Profit for the year from discontinued operations 40 (600) Interest and similar expense 5 (2,150,881) (1,731,234) Profit for the year 528,125 459,118 Net interest income 1,250,239 962,147 Other comprehensive income (loss) Fee and commission income 6 458,795 351,110 Fee and commission expense 7 (85,356) (69,092) Items to be reclassified to the Income Statement in subsequent periods: Net fee and commission income 373,439 282,018 Exchange differences on translation of foreign operations 47 (174,327) (254,388) Net gain on financial assets at fair value through profit or loss 8 52,189 162,307 Net gain (loss) on hedge of net investments 21 6,580 (5,743) Net gain on sale of financial assets at amortised cost 9 262,026 163,976 (167,747) (260,131) Revenues from financial assets at fair value through other comprehensive income 26 32,120 28,806 Effect of change in time value of hedging instruments 21 348 - Share of profit of associates under equity method 27 373 1,169 Items not to be reclassified to the Income Statement in Net gain on sale of subsidiaries 10 - 775 subsequent periods: Other operating income 11 23,307 12,909 Actuarial loss on defined benefits plans (35) (578) Total operating income 1,993,693 1,614,107 Net deferred income taxes 15 521 (167) Net credit losses 12 (209,748) (135,362) 47 486 (745) Net operating income 1,783,945 1,478,745 Net unrealised gain on financial assets at fair value through other comprehensive income 22,599 25,647 Personnel expenses 13 (632,571) (509,415) Net deferred income taxes 15 (2,211) 6,989 Other operating expenses 14 (374,789) (326,771) 47 20,388 32,636 Depreciation of property and equipment 28 (64,674) (52,723) Amortisation of intangible assets 29 (23,602) (16,092) Revaluation of lands and buildings 383,096 - Impairment of goodwill 32 (3,015) - Net deferred income taxes 15 (49,332) - Total operating expenses (1,098,651) (905,001) 47 333,764 - Operating profit 685,294 573,744 Net gain on disposal of fixed assets 816 685 Share of other comprehensive income of an associate Profit before tax from continuing operations 686,110 574,429 under equity method 27 - 4,546 Income tax 15 (158,025) (114,711) 354,638 36,437 Profit after tax from continuing operations 528,085 459,718 DISCONTINUED OPERATIONS Other comprehensive gain for the year, net of tax 47 187,239 (223,694) Profit (loss) from discontinued operations, net of tax 16 40 (600) Total comprehensive income for the year, net of tax 715,364 235,424 Profit for the period 528,125 459,118 Attributable to: Attributable to: Equity holders of the Bank 713,319 265,015 Equity holders of the Bank: 513,500 454,621 Non-controlling interest 2,045 (29,591) Profit for the year from continuing operations 513,460 455,221 715,364 235,424 Profit for the year from discontinued operations 40 (600)

Non-controlling interest: 14,625 4,497 Profit for the year from continuing operations 14,625 4,497 528,125 459,118 Earnings per share: LBP LBP Basic earnings per share 17 1,297 1,199 Basic earnings per share from continuing operations 17 1,297 1,201

70 71 financial statements BANK AUDI ANNUAL REPORT 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED CASH FLOW STATEMENT As at December 31, 2014 2014 2013 For the Year Ended December 31, 2014 2014 2013 Notes LBP Million LBP Million Notes LBP Million LBP Million ASSETS OPERATING ACTIVITIES Cash and balances with central banks 18 13,247,387 9,192,108 Profit before tax from continuing operations 686,110 574,429 Profit before tax from discontinued operations 40 (600) Due from banks and financial institutions 19 3,608,892 4,010,658 Adjustments to reconcile profit before tax to net cash flows: Loans to banks and financial institutions and reverse repurchase agreements 20 2,928,743 657,945 Non-cash: Derivative financial instruments 21 197,127 136,062 Depreciation and amortisation 28 & 29 88,276 68,815 Financial assets at fair value through profit or loss 22 516,822 627,981 Net gain on financial instruments at amortised cost 9 (262,026) (163,976) Provisions for loans and advances 12 229,705 145,721 Loans and advances to customers at amortised cost 23 25,775,338 22,064,822 Provision for impairment of financial instruments 12 (699) (736) Loans and advances to related parties at amortised cost 24 110,007 114,829 Recoveries of provision for loans and advances 12 (19,258) (14,131) Debtors by acceptances 340,480 262,689 Share of net profit of associates 27 (373) (1,169) Financial assets at amortised cost 25 14,573,743 16,023,035 Net gain on disposal of assets acquired in settlement of debt 11 (11,600) - Net gain on sale or disposal of fixed assets (846) (685) Financial assets at fair value through other comprehensive income 26 135,706 272,475 Provision for risks and charges 39 38,140 31,441 Investments in associates 27 27,762 28,615 Write-back of provisions for risks and charges 39 (897) (2,307) Property and equipment 28 948,541 575,836 Provision for end of service benefits 39 34,013 21,741 Intangible assets 29 92,652 82,259 Write-back of provision for end of service benefits (239) (27) Non-current assets held for sale 30 18,510 19,318 Impairment of goodwill 32 3,015 - 783,361 658,516 Other assets 31 536,536 278,584 Working capital adjustments: Goodwill 32 197,473 211,144 Balances with the central banks, banks and financial institutions maturing in more than 3 months (5,830,497) 597,293 TOTAL ASSETS 63,255,719 54,558,360 Change in derivatives and financial assets held for trading 31,932 (123,917) LIABILITIES Change in loans and advances to customers and related parties (3,880,895) (6,546,791) Change in other assets (247,787) (40,232) Due to central banks 33 438,385 252,042 Change in deposits from customers and related parties 7,124,023 6,467,816 Due to banks and financial institutions 34 1,695,351 1,599,912 Change in other liabilities (63,043) 122,862 Due to banks under repurchase agreements 33 90,443 196,180 Proceeds from sale of non-current assets held for sale 16,734 35,841 Derivative financial instruments 21 116,303 134,466 Cost of non-current assets held for sale (4,932) (5,104) Change in non-controlling interest 298 213 Customers’ deposits 35 53,413,209 46,118,217 Effect of entities deconsolidated during the year - (6,092) Deposits from related parties 36 586,621 757,590 Cash (used in) from operations (2,070,806) 1,160,405 Debt issued and other borrowed funds 37 854,455 537,101 Provisions for risks and charges paid 39 (24,882) (16,952) Engagements by acceptances 340,480 262,689 End of service benefits paid 39 (17,607) (3,989) Other liabilities 38 519,980 502,771 Taxation paid 15 (148,506) (158,751) Net cash flows (used in) from operating activities (2,261,801) 980,713 Provisions for risks and charges 39 153,961 132,882 INVESTING ACTIVITIES TOTAL LIABILITIES 58,209,188 50,493,850 Change in financial assets – other than trading 1,869,311 (1,303,331) SHAREHOLDERS’ EQUITY – GROUP SHARE Purchase of property and equipment and intangibles 28 & 29 (112,019) (186,243) Share capital – common shares 40 659,586 454,324 Change in investments under equity method and related loans 1,225 6,556 Cash collected from sale of property and equipment and intangibles 1,330 822 Share capital – preferred shares 40 8,250 6,495 Net cash flows from (used in) investing activities 1,759,847 (1,482,196) Issue premium – common shares 41 883,582 659,206 FINANCING ACTIVITIES Issue premium – preferred shares 41 745,500 747,255 Subsidiary shares warrants 40 22,613 - Warrants issued on subsidiary shares 40 17,195 - Issuance of common shares 40 426,820 - Cash contribution to capital 42 72,586 72,586 Issuance of preferred shares 40 - 339,008 Cancellation of preferred shares “D” 40 - (188,438) Non-distributable reserves 43 1,050,579 959,545 Distribution of dividends 40 (249,906) (245,131) Distributable reserves 44 616,976 589,523 Treasury GDR and warrants transactions 76,334 (93,936) Treasury shares 46 (4,929) (114,327) Debt issued and other borrowed funds 37 317,354 537,101 Retained earnings 599,388 441,400 Net cash flows from financing activities 593,215 348,604 CHANGE IN CASH AND CASH EQUIVALENTS 91,261 (152,879) Other components of equity 47 (178,943) (269,081) Net foreign exchange difference (173,492) (255,107) Result of the year 513,500 454,621 Cash and cash equivalents at January 1 5,184,476 5,592,462 4,983,270 4,001,547 CASH AND CASH EQUIVALENTS AT DECEMBER 31 50 5,102,245 5,184,476 NON-CONTROLLING INTEREST 48 63,261 62,963 Operational cash flows from interests and dividends Interest paid (2,103,459) (1,706,500) TOTAL SHAREHOLDERS’ EQUITY 5,046,531 4,064,510 Interest received 3,232,999 2,658,311 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 63,255,719 54,558,360 Dividends received 32,392 28,987

72 73 financial statements BANK AUDI ANNUAL REPORT 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended December 31, 2014 Attributable to the Equity Holders of the Bank

Share Share Issue Issue Warrants Capital - Capital - Premium - Premium - Issued on Cash Non- Other Total Common Preferred Common Preferred Subsidiary Contribution distributable Distributable Treasury Retained Components Result Non-controlling Shareholders’ Shares Shares Shares Shares Shares to Capital Reserves Reserves Shares Earnings of Equity of the Year Total Interest Equity LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Balance at January 1, 2014 454,324 6,495 659,206 747,255 - 72,586 959,545 589,523 (114,327) 441,400 (269,081) 454,621 4,001,547 62,963 4,064,510 Net profits for the year ------513,500 513,500 14,625 528,125 Other comprehensive income ------199,819 - 199,819 (12,580) 187,239 Total comprehensive income ------199,819 513,500 713,319 2,045 715,364 - Appropriation of 2013 profits ------105,168 23,372 - 76,175 - (204,715) - - - Capital increase 64,950 - 387,300 - - - - (2,817) - - - - 449,433 - 449,433 Increase in share nominal value 140,312 1,755 (140,312) (1,755) ------Distribution of dividends on ordinary shares ------(210,899) (210,899) - (210,899) Distribution of dividends on preferred shares ------(39,007) (39,007) - (39,007) Entities under equity method ------358 2,701 - 3,059 - 3,059 Treasury shares transactions ------(22,942) - 109,398 - - - 86,456 - 86,456 Non-controlling interest share of reserves ------(28,616) 8,212 - 20,006 - - (398) 398 - Non-controlling interest share of capital ------(2,145) (2,145) Sale of financial assets at FVTOCI ------101,144 (112,382) - (11,238) - (11,238) Unrealised gain on foreign exchange ------37,773 - - (37,773) - - - - - Subsidiary shares warrants - - (22,612) - 26,004 - - - - (3,392) - - - - - Warrant transactions - - - - (8,809) - - (1,314) - - - - (10,123) - (10,123) Transfer between reserves ------(349) - - 349 - - - - - Other movements ------1,121 - - 1,121 - 1,121 Balance at December 31, 2014 659,586 8,250 883,582 745,500 17,195 72,586 1,050,579 616,976 (4,929) 599,388 (178,943) 513,500 4,983,270 63,261 5,046,531

Balance at January 1, 2013 438,586 19,124 659,206 583,876 - 72,586 812,960 551,406 (20,245) 323,697 (79,475) 564,737 3,926,458 96,838 4,023,296 Net profits for the year ------454,621 454,621 4,497 459,118 Other comprehensive losses ------(189,606) - (189,606) (34,088) (223,694) Total comprehensive income ------(189,606) 454,621 265,015 (29,591) 235,424

Appropriation of 2012 profits ------151,332 18,825 - 149,449 - (319,606) - - - Cancellation of preferred shares “D” - (15,675) - (172,762) ------(188,437) - (188,437) Increase in share nominal value 15,738 124 - (124) - - - (15,738) ------Issue of preferred shares “G” & “H” - 2,922 - 336,265 - - - (174) - - - - 339,013 - 339,013 Distribution of dividends on ordinary shares ------431 - (210,176) (209,745) - (209,745) Distribution of dividends on preferred shares ------(34,955) (34,955) - (34,955) Entities consolidated during the year ------470 - - 470 - 470 Entities deconsolidated during the year ------(251) (2,894) - 3,184 - - 39 - 39 Entities under equity method ------478 - - 478 - 478 Treasury shares transactions ------146 - (94,082) - - - (93,936) - (93,936) Non-controlling interest share of reserves ------(4,662) (4,662) Non-controlling interest share of capital ------(116) (13,365) - 13,103 - - (378) 378 - Transfer between reserves ------(4,526) 51,470 - (46,944) - - - - - Increase in subsidiary ownership ------(3,983) - - (3,983) - (3,983) Other movements ------(7) - 1,515 - - 1,508 - 1,508 Balance at December 31, 2013 454,324 6,495 659,206 747,255 - 72,586 959,545 589,523 (114,327) 441,400 (269,081) 454,621 4,001,547 62,963 4,064,510

74 75 financial statements BANK AUDI ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED NOTES’ INDEX FINANCIAL STATEMENTS At December 31, 2014

1.0. Corporate Information 78 29.0. Intangible Fixed Assets 118 2.0. Accounting Policies 78 30.0. Non-current Assets Held for Sale 119 3.0. Segment Reporting 95 31.0. Other Assets 119 4.0. Interest and Similar Income 98 32.0. Goodwill 120 5.0. Interest and Similar Expense 98 33.0. Due to Central Banks 121 6.0. Fee and Commission Income 98 34.0. Due to Banks and Financial Institutions 121 7.0. Fee and Commission Expense 99 35.0. Customers’ Deposits 122 8.0. Net Gain on Financial Assets at Fair Value 36.0. Deposits from Related Parties 123 through Profit or Loss 99 37.0. Debt Issued and Other Borrowed Funds 124 9.0. Net Gain on Sale of Financial Assets 38.0. Other Liabilities 125 at Amortised Cost 100 10.0. Net Gain on Sale of Subsidiaries 100 39.0. Provisions for Risks and Charges 126 11.0. Other Operating Income 100 40.0. Share Capital and Warrants Issued on Subsidiary Capital 128 12.0. Net Credit Losses 101 41.0. Issue Premiums 131 13.0. Personnel Expenses 101 42.0. Cash Contribution to Capital 131 14.0. Other Operating Expenses 102 43.0. Non-distributable Reserves 132 15.0. Income Tax 103 44.0. Distributable Reserves 133 16.0. Profit from Discontinued Operations 105 45.0. Proposed Dividends 134 17.0. Earnings per Share 105 46.0. Treasury Shares 134 18.0. Cash and Balances with Central Banks 106 47.0. Other Components of Equity 134 19.0. Due from Banks and Financial Institutions 107 48.0. Non-controlling Interest 136 20.0. Loans to Banks and Financial Institutions 49.0. Cash and Cash Equivalents 137 and Reverse Repurchase Agreements 107 21.0. Derivative Financial Instruments 108 50.0. Fair Value of Financial Instruments 138 22.0. Financial Assets at Fair Value through 51.0. Contingent Liabilities, Commitments Profit or Loss 110 and Leasing Arrangements 144 23.0. Loans and Advances to Customers 52.0. Assets under Management 146 at Amortised Cost 111 53.0. Related Party Transactions 147 24.0. Loans and Advances to Related Parties 54.0. Risk Management 148 at Amortised Cost 113 55.0. Credit Risk 149 25.0. Financial Assets at Amortised Cost 114 56.0. Market Risk 160 26.0. Financial Assets at Fair Value through 57.0. Liquidity Risk 169 Other Comprehensive Income 115 27.0. Investments in Associates 116 58.0. Operational Risk 176 28.0. Property and Equipment 117 59.0. Capital Management 176

76 77 financial statements BANK AUDI ANNUAL REPORT 2014

1.0. | CORPORATE INFORMATION 2.2. | Basis of Consolidation Bank Audi sal (the Bank) is a Lebanese joint stock company On December 27, 2013, the Extraordinary General Assembly The consolidated financial statements comprise the financial statements of Bank Audi sal and its subsidiaries as at December 31, registered since 1962 in Lebanon under No. 11347 at the decided to change the name of the Bank from “Bank Audi sal - 2014. Register of Commerce and under No. 56 on the banks’ list at Audi Saradar Group” to “Bank Audi sal”. The Bank of Lebanon the Bank of Lebanon (“BDL”). The Bank’s head office is located approved the change on January 29, 2014 as per the letter from Business Combinations and Goodwill in Bank Audi Plaza, Omar Daouk Street, Beirut, Lebanon. The the governor of the Central Bank of Lebanon dated February Bank’s shares are listed on the Beirut Stock Exchange and 5, 2014. Business combinations are accounted for using the acquisition Goodwill is initially measured at cost, being the excess of the London SEAQ. method. The cost of an acquisition is measured as the aggregate aggregate of the consideration transferred and the amount The consolidated financial statements were authorised for issue of the consideration transferred, measured at acquisition date recognised for non-controlling interests, and any previous The Bank, together with its subsidiaries (collectively “the in accordance with the Board of Directors’ resolution on March fair value and the amount of any non-controlling interest in the interest held, over the net identifiable assets acquired and Group”), provides a full range of Retail, Commercial, Investment 19, 2015. acquiree. For each business combination, the Group measures liabilities assumed. If the fair value of the net assets acquired and Private Banking activities through its headquarters, as well the non-controlling interest in the acquiree at the proportionate is in excess of the aggregate consideration transferred, the as its branches in Lebanon and its presence in Europe, the share of the acquiree’s identifiable net assets. Acquisition costs Group re-assesses whether it has correctly identified all of the Middle East and North Africa. incurred are expensed and included in administrative expenses. assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised When the Group makes an acquisition meeting the definition at the acquisition date. If the re-assessment still results in an 2.0. | ACCOUNTING POLICIES of a business under IFRS 3, it assesses the financial assets excess of the fair value of net assets acquired over the aggregate and liabilities assumed for appropriate classification and consideration transferred, then the gain is recognised in profit 2.1. | Basis of Preparation designation in accordance with the contractual terms, economic or loss. circumstances and pertinent conditions as at the acquisition The consolidated financial statements have been prepared on at amortised cost, are adjusted to record changes in fair value date. This includes the separation of embedded derivatives in After initial recognition, goodwill is measured at cost less any a historical cost basis except for: a) the revaluation of land and attributable to the risks that are being hedged. host contracts by the acquiree. accumulated impairment losses. For the purpose of impairment buildings pursuant to the adoption of the revaluation model of testing, goodwill acquired in a business combination is, IAS 16 for this asset class, and b) the measurement at fair value The consolidated financial statements are presented in If the business combination is achieved in stages, the acquisition from the acquisition date, allocated to each of the Group’s of derivative financial instruments, financial assets at fair value Lebanese Pounds (LBP) which is the Bank’s functional currency date fair value of the acquirer’s previously held equity interest cash-generating units that are expected to benefit from the through profit or loss and financial assets at fair value through and all values are rounded to the nearest million, except in the acquiree is remeasured to fair value at the acquisition combination, irrespective of whether other assets or liabilities of other comprehensive income. when otherwise indicated. Besides, the consolidated financial date through the Consolidated Income Statement. It is then the acquiree are assigned to those units. statements provide comparative information in respect of the considered in the determination of goodwill. The carrying values of recognised assets and liabilities that previous period. Where goodwill forms part of a cash-generating unit and part are hedged items in fair value hedges, and otherwise carried Any contingent consideration to be transferred by the acquirer of the operation within that unit is disposed of, the goodwill will be recognised at fair value at the acquisition date. Subsequent associated with the operation disposed of is included in the Statement of Compliance changes to the fair value of the contingent consideration which carrying amount of the operation when determining the gain is deemed to be an asset or liability will be recognised either in or loss on disposal of the operation. Goodwill disposed of in this The consolidated financial statements have been prepared in (IASB), and the regulations of the Central Bank of Lebanon and profit or loss or as a change to other comprehensive income. If circumstance is measured based on the relative values of the accordance with International Financial Reporting Standards the Banking Control Commission (“BCC”). the contingent consideration is classified as equity, it should not operation disposed of and the portion of the cash-generating (IFRS) as issued by the International Accounting Standards Board be remeasured until it is finally settled within equity. unit retained.

Presentation of Financial Statements Control and Subsidiaries The Group presents its statement of financial position broadly in simultaneously. Only gross settlement mechanisms with features order of liquidity. An analysis regarding recovery or settlement that eliminate or result in insignificant credit and liquidity risk Control is achieved when the Group is exposed, or has rights, The Group re-assesses whether or not it controls an investee within one year after the statement of financial position date and that process receivables and payables in a single settlement to variable returns from its involvement with the investee and if facts and circumstances indicate that there are changes to (current) and more than one year after the statement of process or cycle would be, in effect, equivalent to net settlement. has the ability to affect those returns through its power over the one or more of the three elements of control. Consolidation financial position date (non-current) is presented in the Risk This is not generally the case with master netting agreements, investee. Specifically, the Group controls an investee if and only of a subsidiary begins when the Group obtains control over Management notes. therefore the related assets and liabilities are presented gross in if the Group has: the subsidiary and ceases when the Group loses control of the Consolidated Statement of Financial Position. Income and the subsidiary. Assets, liabilities, income and expenses of a Financial assets and financial liabilities are offset and the net expense will not be offset in the Consolidated Income Statement - Power over the investee (i.e. existing rights that give it the subsidiary acquired or disposed of during the year are included amount is reported in the Consolidated Statement of Financial unless required or permitted by any accounting standard or current ability to direct the relevant activities of the investee); in the Statement of Comprehensive Income from the date the Position only when there is a legally enforceable right to offset interpretation, as specifically disclosed in the accounting policies - Exposure, or rights, to variable returns from its involvement Group gains control until the date the Group ceases to control the recognised amounts and there is an intention to settle of the Group. with the investee; and the subsidiary. on a net basis, or to realise the assets and settle the liability - The ability to use its power over the investee to affect its returns. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into When the Group has less than a majority of the voting or similar line with the Group’s accounting policies. All intra-group assets rights of an investee, the Group considers all relevant facts and liabilities, equity, income, expenses and cash flows relating and circumstances in assessing whether it has power over an to transactions between members of the Group are eliminated investee, including: in full on consolidation.

- The contractual arrangement with the other vote holders of the investee; - Rights arising from other contractual arrangements; and - The Group’s voting rights and potential voting rights.

78 79 financial statements BANK AUDI ANNUAL REPORT 2014

A change in the ownership interest of a subsidiary, without a Where the Group loses control of a subsidiary but retains an 2.3. | Changes in Accounting Policies and Disclosures loss of control, is accounted for as an equity transaction. If the interest in it, then such interest is measured at fair value at the Group loses control over a subsidiary, it: date that control is lost with the change in carrying amount Changes in Accounting Policies Investment Entities (Amendments to IFRS 10, IFRS - Derecognises the assets (including goodwill) and liabilities of recognised in profit or loss. Subsequently it is accounted for as 12 and IAS 27) the subsidiary. an equity-accounted investee or in accordance with the Group’s Early Adoption of IFRS 9 (2013) These amendments provide an exception to the consolidation - Derecognises the carrying amount of any non-controlling accounting policy for financial instruments depending on the On November 19, 2013 the IASB issued a new version of IFRS requirement for entities that meet the definition of an investment interests. level of influence retained. In addition, any amounts previously 9 Financial Instruments (Hedge Accounting and Amendments entity under IFRS 10 Consolidated Financial Statements and - Derecognises the cumulative translation differences, recognised in other comprehensive income in respect of that to IFRS 9, IFRS 7 and IAS 39) (IFRS 9 (2013)), which includes must be applied retrospectively, subject to certain transition recorded in equity. entity are accounted for as if the Group had directly disposed the new hedge accounting requirements and some related relief. The exception to consolidation requires investment - Recognises the fair value of the consideration received. of the related assets or liabilities. As such, amounts previously amendments to IAS 39 Financial Instruments: Recognition and entities to account for subsidiaries at fair value through profit - Recognises the fair value of any investment retained. recognised in other comprehensive income are transferred to Measurement and IFRS 7 Financial Instruments: Disclosures. IFRS or loss. These amendments have no impact on the Group, since - Recognises any surplus or deficit in profit or loss. Consolidated Income Statement. 9 (2013) also replicates the amendments in IAS 39 in respect none of the entities in the Group qualifies to be an investment - Reclassifies the parent’s share of components previously of novations. In addition, IFRS 9 (2013) includes two changes entity under IFRS 10. recognised in other comprehensive income to profit or loss that result from other phases of the IASB’s financial instruments or retained earnings, as appropriate. project: 1) A “fast-track” to applying the requirements of IFRS Offsetting Financial Assets and Financial Liabilities — 9 for the presentation of own credit risk-related fair value gains Amendments to IAS 32 Non-controlling Interest and losses arising on financial liabilities designated at fair value These amendments clarify the meaning of “currently has through profit or loss under the fair value option. This “fast a legally enforceable right to set-off” and the criteria for Non-controlling interest represents the portion of profit or loss doing so causes the non-controlling interest to have a deficit track” is an option for entities to apply the accounting for own non‑simultaneous settlement mechanisms of clearing houses and net assets of subsidiaries not owned by the Group. The balance. credit risk in isolation (i.e. without applying the other IFRS 9 to qualify for offsetting and is applied retrospectively. These Group has elected to measure the non-controlling interests requirements at the same time); and 2) IFRS 9 (2013) does not amendments have no impact on the Group. in acquirees at the proportionate share of each acquiree’s The Group treats transactions with non-controlling interests as have a mandatory effective date. The Group has early adopted identifiable net assets. Interests in the equity of subsidiaries transactions with equity holders of the Group. For purchases IFRS 9 (2013) effective January 1, 2014. IFRS 9 did not revisit the IFRIC 21 Levies not attributable to the Group are reported in consolidated from non-controlling interests, the difference between any mechanics for hedges of net investments in foreign operations IFRIC 21 clarifies that an entity recognises a liability for a levy equity as non-controlling interests. Profits or losses attributable consideration paid and the relevant share acquired of the and, as such, these hedges are still accounted for similar to when the activity that triggers payment, as identified by the to non‑controlling interests are reported in the Consolidated carrying value of net assets of the subsidiary is recorded in cash flow hedges. The early adoption did not have an effect relevant legislation, occurs. For a levy that is triggered upon Income Statement as profit or loss attributable to non-controlling equity. Gains or losses on disposals to non-controlling interests on the opening financial statements of the Group as all hedges reaching a minimum threshold, the interpretation clarifies that interests. Losses applicable to the non-controlling interest in a are also recorded in equity. existing in the prior year and at the beginning of the earliest no liability should be anticipated before the specified minimum subsidiary are allocated to the non-controlling interest even if period presented qualified as continuing hedges under the early threshold is reached. Retrospective application is required for adopted standard. IFRIC 21. This interpretation has no impact on the Group as it Investment in Associates has applied the recognition principles under IAS 37 Provisions, Revaluation of Land and Buildings and Building Contingent Liabilities and Contingent Assets consistent with the An associate is an entity over which the Group has significant associate. Gains and losses resulting from transactions between Improvements requirements of IFRIC 21 in prior years. influence, generally accompanying a shareholding of between the Group and the associate are eliminated to the extent of the The Group re-assessed its accounting policy with respect to 20% and 50% of the voting rights. Significant influence is interest in the associate. the measurement of certain classes of property and equipment Annual Improvements 2010-2012 Cycle the power to participate in the financial and operating policy after initial recognition. The Group has previously measured In the 2010-2012 annual improvements cycle, the IASB decisions of the investee, but is not control or joint control over The financial statements of associates are prepared for the same all property and equipment using the cost model, whereby issued seven amendments to six standards, which included those policies. reporting period as the Group. When necessary, adjustments after initial recognition, those assets were carried at cost less an amendment to IFRS 13 Fair Value Measurement. The are made to bring the accounting policies in line with those of accumulated depreciation and accumulated impairment amendment to IFRS 13 is effective immediately and, thus, for The considerations made in determining significant influence are the Group. losses. Pursuant to the change in regulatory framework, the periods beginning at January 1, 2014, and it clarifies in the similar to those necessary to determine control over subsidiaries. Group voluntarily elected to adopt the revaluation model for Basis for Conclusions that short-term receivables and payables After application of the equity method, the Group determines subsequent measurement of i) land and ii) buildings and related with no stated interest rates can be measured at invoice The Group’s investments in its associate are accounted for using whether it is necessary to recognise an impairment loss on improvements since Management believes that this model more amounts when the effect of discounting is immaterial. This is the equity method. Under the equity method, the investment its investment in its associate. At each reporting date, the effectively demonstrates the financial position of these classes in line with the applied fair valuation methodologies and, as in an associate is initially recognised at cost. The carrying Group determines whether there is objective evidence that of assets. As such, the revaluation model is adopted effective such, this amendment to IFRS 13 has no impact on the Group. amount of the investment is adjusted to recognise changes the investment in the associate is impaired. If there is such December 31, 2014 whereby land and buildings and related in the Group’s share of net assets of the associate since the evidence, the Group calculates the amount of impairment improvements will be measured at fair value at the date of Annual Improvements 2011-2013 Cycle acquisition date. Goodwill relating to the associate is included in as the difference between the recoverable amount of the the revaluation less any subsequent accumulated depreciation In the 2011-2013 annual improvements cycle, the IASB the carrying amount of the investment and is neither amortised associate and its carrying value, then recognises the loss in the and subsequent accumulated impairment losses. Revaluation issued four amendments to four standards, which included nor individually tested for impairment. Consolidated Income Statement. surplus amounted to LBP 383,096 million and was booked in an amendment to IFRS 1 First-time Adoption of International equity reserves net of related taxes. Financial Reporting Standards. The amendment to IFRS 1 The statement of profit or loss reflects the Group’s share of the If the ownership interest in an associate is reduced but is effective immediately and, thus, for periods beginning at results of operations of the associates. Any change in other significant influence is retained, only a proportionate share of New and Amended Standards and January 1, 2014, and clarifies in the Basis for Conclusions that comprehensive income of those investees is presented as part the amounts previously recognised in other comprehensive Interpretations an entity may choose to apply either a current standard or a new of the Group’s other comprehensive income. In addition, when income is transferred to Consolidated Income Statement standard that is not yet mandatory, but permits early application, there has been a change recognised directly in the equity of where appropriate. Upon loss of significant influence over the The Group applied for the first time certain standards and provided either standard is applied consistently throughout the the associate, the Group recognises its share of any changes, associate, the Group measures and recognises any retained amendments, which are effective for annual periods beginning periods presented in the entity’s first IFRS financial statements. when applicable, in the Statement of Changes in Equity. When investment at its fair value. Any difference between the carrying on or after January 1, 2014. This amendment to IFRS 1 has no impact on the Group, since the Group’s share of losses in an associate equals or exceeds amount of the associate upon loss of significant influence and the Group is an existing IFRS preparer. its interest in the associate, including any other unsecured the fair value of the retained investment and proceeds from receivables, the Group does not recognise further losses, unless disposal is recognised in profit or loss. it has incurred obligations or made payments on behalf of the

80 81 financial statements BANK AUDI ANNUAL REPORT 2014

2.4. | Standards Issued but not yet Effective IFRS 3, and not the description of ancillary services in IAS 40, is apply to both the acquisition of the initial interest in a joint used to determine if the transaction is the purchase of an asset operation and the acquisition of any additional interests in the The standards and interpretations that are issued, but not yet - A performance condition may be a market or non-market or business combination. same joint operation and are prospectively effective for annual effective, up to the date of issuance of the Group’s financial condition. periods beginning on or after January 1, 2016, with early statements are disclosed below. The Group intends to adopt - If the counterparty, regardless of the reason, ceases to provide IFRS 15 Revenue from Contracts with adoption permitted. These amendments are not expected to these standards, if applicable, when they become effective. service during the vesting period, the service condition is not Customers have any impact to the Group. satisfied. IFRS 9 (2014) Financial Instruments IFRS 15 was issued in May 2014 and establishes a new five-step Amendments to IAS 16 and IAS 38: IFRS 3 Business Combinations model that will apply to revenue arising from contracts with Clarification of Acceptable Methods of In July 2014, the IASB issued the final version of IFRS 9 Financial The amendment is applied prospectively and clarifies that all customers. Under IFRS 15, revenue is recognised at an amount Depreciation and Amortisation Instruments (IFRS 9 (2014)) which reflects all phases of the contingent consideration arrangements classified as liabilities that reflects the consideration to which an entity expects to financial instruments project and replaces IAS 39 Financial (or assets) arising from a business combination should be be entitled in exchange for transferring goods or services to a The amendments clarify the principle in IAS 16 and IAS 38 Instruments: Recognition and Measurement and all previous subsequently measured at fair value through profit or loss customer. The principles in IFRS 15 provide a more structured that revenue reflects a pattern of economic benefits that are versions of IFRS 9. The standard introduces new requirements whether or not they fall within the scope of IFRS 9. approach to measuring and recognising revenue. The new generated from operating a business (of which the asset is for classification and measurement, impairment, and hedge revenue standard is applicable to all entities and will supersede part) rather than the economic benefits that are consumed accounting. In prior years, the Group has early adopted IFRS IFRS 8 Operating Segments all current revenue recognition requirements under IFRS. Either through use of the asset. As a result, a revenue-based method 9 (2011) which includes the requirements for the classification The amendments are applied retrospectively and clarify that 1) a full or modified retrospective application is required for cannot be used to depreciate property, plant and equipment and measurement. In 2014, the Group early applied IFRS 9 an entity must disclose the judgments made by management annual periods beginning on or after January 1, 2017 with early and may only be used in very limited circumstances to amortise (2013) which includes the classification and measurement, as in applying the aggregation criteria in Paragraph 12 of IFRS adoption permitted. The Group is currently assessing the impact intangible assets. The amendments are effective prospectively well as the hedge accounting requirements of the standard. IFRS 8, including a brief description of operating segments that of IFRS 15 and plans to adopt the new standard on the required for annual periods beginning on or after January 1, 2016, with 9 (2014) is effective for annual periods beginning on or after have been aggregated and the economic characteristics used effective date. early adoption permitted. These amendments are not expected January 1, 2018, with early application permitted. Retrospective to assess whether the segments are “similar”, and 2) the to have any impact to the Group given that the Group has not application is required, but comparative information is not reconciliation of segment assets to total assets is only required Amendments to IFRS 11 Joint used a revenue-based method to depreciate its non-current compulsory. The adoption of IFRS 9 (2014) will have an effect to be disclosed if the reconciliation is reported to the chief Arrangements: Accounting for Acquisitions assets. on measuring impairment allowances and on the classification operating decision maker, similar to the required disclosure for of Interests and measurement of the Group’s financial assets, but no segment liabilities. Amendments to IAS 27: Equity Method in impact on the classification and measurement of the Group’s The amendments to IFRS 11 require that a joint operator Separate Financial Statements financial liabilities. The Group is currently assessing the impact IAS 16 Property, Plant and Equipment and IAS 38 accounting for the acquisition of an interest in a joint operation, of IFRS 9 (2014) and plans to adopt the new standard on the Intangible Assets in which the activity of the joint operation constitutes a The amendments will allow entities to use the equity method required effective date. The amendment is applied retrospectively and clarifies in IAS business must apply the relevant IFRS 3 principles for business to account for investments in subsidiaries, joint ventures and 16 and IAS 38 that the asset may be re-valued by reference to combinations accounting. The amendments also clarify that a associates in their separate financial statements. Entities already Amendments to IAS 19 Defined Benefit observable data on either the gross or the net carrying amount. previously held interest in a joint operation is not remeasured applying IFRS and electing to change to the equity method Plans: Employee Contributions In addition, the accumulated depreciation or amortisation is on the acquisition of an additional interest in the same joint in their separate financial statements will have to apply that the difference between the gross and carrying amounts of the operation while joint control is retained. In addition, a scope change retrospectively. The amendments are effective for IAS 19 requires an entity to consider contributions from asset. exclusion has been added to IFRS 11 to specify that the annual periods beginning on or after January 1, 2016, with employees or third parties when accounting for defined benefit amendments do not apply when the parties sharing joint early adoption permitted. These amendments will not have any plans. Where the contributions are linked to service, they should IAS 24 Related Party Disclosures control, including the reporting entity, are under common impact on the Group’s consolidated financial statements. be attributed to periods of service as a negative benefit. These The amendment is applied retrospectively and clarifies that a control of the same ultimate controlling party. The amendments amendments clarify that, if the amount of the contributions Management entity (an entity that provides key Management is independent of the number of years of service, an entity is personnel services) is a related party subject to the related party permitted to recognise such contributions as a reduction in disclosures. In addition, an entity that uses a Management entity the service cost in the period in which the service is rendered, is required to disclose the expenses incurred for Management instead of allocating the contributions to the periods of service. services. This amendment is effective for annual periods beginning on or after July 1, 2014. It is not expected that this amendment Annual Improvements 2011-2013 Cycle would be relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions These improvements are effective from July 1, 2014 and are not independent of years of service. expected to have a material impact on the Group. They include:

Annual Improvements 2010-2012 Cycle IFRS 3 Business Combinations The amendment is applied prospectively and clarifies for the These improvements are effective from July 1, 2014 and are scope exceptions within IFRS 3 that 1) joint arrangements, not not expected to have a material impact on the Group. They just joint ventures, are outside the scope of IFRS 3, and 2) this include: scope exception applies only to the accounting in the financial statements of the joint arrangement itself. IFRS 2 Share-based Payment This improvement is applied prospectively and clarifies various IFRS 13 Fair Value Measurement issues relating to the definitions of performance and service The amendment is applied prospectively and clarifies that the conditions which are vesting conditions, including: portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within - A performance condition must contain a service condition. the scope of IFRS 9. - A performance target must be met while the counterparty is rendering service. IAS 40 Investment Property - A performance target may relate to the operations or The description of ancillary services in IAS 40 differentiates activities of an entity, or to those of another entity in the between investment property and owner-occupied property. same group. The amendment is applied prospectively and clarifies that

82 83 financial statements BANK AUDI ANNUAL REPORT 2014

2.5. | Summary of Significant Accounting Policies Financial Assets at Amortised Cost Statement of Financial Position at Fair Value. Changes in fair Debt instruments are subsequently measured at amortised value and interest income are recorded under “Net Gain on Foreign Currency Translation gain or loss on change in fair value of the item (i.e. translation cost less any impairment loss (except for debt instruments that Financial Assets at Fair Value through Profit or Loss” in the differences on items whose fair value gain or loss is recognised in are designated at fair value through profit or loss upon initial Consolidated Income Statement showing separately those The consolidated financial statements are presented in Lebanese other comprehensive income or profit or loss is also recognised recognition) if they meet the following two conditions: related to financial assets designated at fair value upon initial Lira (LBP) which is the Group’s presentation currency. Each entity in other comprehensive income or profit or loss respectively). recognition from those mandatorily measured at fair value. Gains in the Group determines its own functional currency and items - The asset is held within a business model whose objective is and losses arising from the derecognition of debt instruments included in the financial statements of each entity are measured Any goodwill arising on the acquisition of a foreign operation to hold assets in order to collect contractual cash flows; and and other financial assets at fair value through profit or loss are using that functional currency. and any fair value adjustments to the carrying amounts of assets - The contractual terms of the instrument give rise on specified also reflected under “Net Gain on Financial Assets at Fair Value and liabilities arising on the acquisition are treated as assets and dates to cash flows that are solely payments of principal and through Profit or Loss” in the Consolidated Income Statement Transactions and Balances liabilities of the foreign operations and translated at closing rate. interest on the principal amount outstanding. showing separately those related to financial assets designated Transactions in foreign currencies are initially recorded at the at fair value upon initial recognition from those mandatorily functional currency rate of exchange ruling at the date of the Group Companies These financial assets are initially recognised at cost, being measured at fair value. transaction. On consolidation, the assets and liabilities of subsidiaries and the fair value of the consideration paid for the acquisition of overseas branches are translated into the Bank’s presentation the investment. All transaction costs directly attributed to the Equity Instruments at Fair Value through Profit or Loss Monetary assets and liabilities denominated in foreign currencies currency at the rate of exchange as at the reporting date, and acquisition are also included in the cost of investment. After Investments in equity instruments are classified at fair value are retranslated at the functional currency rate of exchange at their income statements are translated at the weighted average initial measurement, these financial assets are measured at through profit or loss, unless the Group designates at initial the date of the statement of financial position. All differences exchange rates for the year. Exchange differences arising on amortised cost using the effective interest rate method (EIR), less recognition an investment that is not held for trading as at fair are taken to “Net Gain on Financial Assets at Fair Value through translation are taken directly to the foreign currency translation allowance for impairment. Amortised cost is calculated by taking value through other comprehensive income. Profit or Loss” in the Consolidated Income Statement. reserve in equity. On disposal of a foreign entity, the deferred into account any discount of premium on acquisition and fees cumulative amount recognised in equity relating to that and costs that are an integral part of the effective interest rate. These financial assets are recorded in the Consolidated Non-monetary items that are measured in terms of historical particular foreign operation is recognised in the Consolidated The amortisation is included in “Interest and Similar Income” in Statement of Financial Position at Fair Value. Changes in fair cost in a foreign currency are translated using the exchange Income Statement. the Income Statement. The losses arising from impairment are value and dividend income are recorded under “Net Gain on rates as at the dates of the initial transactions. Non-monetary recognised in the Income Statement in “Impairment Losses on Financial assets at fair value through Profit or Loss” in the items measured at fair value in a foreign currency are translated Any goodwill arising on the acquisition of a foreign operation Other Financial Assets”. Consolidated Income Statement. Gains and losses arising from using the exchange rates at the date when the fair value and any fair value adjustments to the carrying amounts of assets the derecognition of equity instruments at fair value through was determined. The gain or loss arising on retranslation of and liabilities arising on the acquisition are treated as assets and Although the objective of an entity’s business model may be to profit or loss are also reflected under “Net Gain from Financial non‑monetary items is treated in line with the recognition of liabilities of the foreign operations and translated at closing rate. hold financial assets in order to collect contractual cash flows, Assets at Fair Value through Profit or Loss” in the Consolidated the entity need not hold all of those instruments until maturity. Income Statement. The table below presents the exchange rates of the currencies used to translate assets, liabilities and statement of income items of Thus an entity’s business model can be to hold financial assets foreign branches and subsidiaries: to collect contractual cash flows even when sales of financial Financial Assets at Fair Value through Other assets occur. However, if more than an infrequent number of Comprehensive Income 2014 2013 sales are made out of a portfolio, the entity needs to assess Investments in equity instruments designated at initial whether and how such sales are consistent with an objective of recognition as not held for trading are classified at fair value Year-end Rate Average Rate Year-end Rate Average Rate LBP LBP LBP LBP collecting contractual cash flows. If the objective of the entity’s through other comprehensive income. business model for managing those financial assets changes,

US Dollar 1,507.50 1,507.50 1,507.50 1,507.50 the entity is required to reclassify financial assets. These financial assets are initially measured at fair value plus Euro 1,833.87 1,998.31 2,074.77 2,004.10 transaction costs. Subsequently, they are measured at fair Swiss Franc 1,524.27 1,645.50 1,690.97 1,632.43 Gains and losses arising from the derecognition of financial value, with gains and losses arising from changes in fair value assets measured at amortised cost are reflected under “Net recognised in other comprehensive income and accumulated Syrian Lira 7.62 7.62 10.50 10.50 Gain on Sale of Financial Assets at Amortised Cost” in the under equity. The cumulative gain or loss will not be reclassified Turkish Lira 651.19 690.62 706.16 788.97 Consolidated Income Statement. to the Consolidated Income Statement on disposal of the Jordanian Dinar 2,126.23 2,129.50 2,129.54 2,127.94 investments. Balances with Central Banks, Due from Banks and Egyptian Pound 210.84 212.95 217.08 220.47 Financial Institutions, and Loans and Advances to Dividends on these investments are recognised under “Revenue Sudanese Dinar 239.16 250.22 252.91 264.06 Customers and Related Parties – at Amortised Cost from Financial Assets at Fair Value through Other Comprehensive Saudi Riyal 401.68 401.89 401.94 401.97 After initial measurement, “Balances with Central Banks”, Income” in the Consolidated Income Statement when the Qatari Riyal 413.93 414.01 413.98 414.04 “Due from Banks and Financial Institutions”, and “Loans and Group’s right to receive payment of dividend is established in Advances to Customers and Related Parties” are subsequently accordance with IAS 18: “Revenue”, unless the dividends clearly measured at amortised cost using the EIR, less allowance for represent a recovery of part of the cost of the investment. Financial Instruments – Classification and and the contractual cash flow characteristics of the financial impairment. Amortised cost is calculated by taking into account Measurement asset. Assets are initially measured at fair value plus, in the any discount or premium on acquisition and fees and costs that b. Financial Liabilities case of a financial asset not at fair value through profit or loss, are an integral part of the EIR. The amortisation is included Liabilities are initially measured at fair value plus, in the case of a Date of Recognition particular transaction costs. Assets are subsequently measured in “Interest and Similar Income” in the Consolidated Income financial liability not at fair value through profit or loss, particular All financial assets and liabilities are initially recognised on the at amortised cost or fair value. Statement. The losses arising from impairment are recognised transaction costs. Liabilities are subsequently measured at settlement date. This includes “regular way trades”: purchases in the Consolidated Income statement in “Net Credit Losses”. amortised cost or fair value. or sales of financial assets that require delivery of assets within An entity may, at initial recognition, irrevocably designate a the time frame generally established by regulation or convention financial asset as measured at fair value through profit or loss Financial Assets at Fair Value through Profit or Loss The Group classifies all financial liabilities as subsequently in the market place. if doing so eliminates or significantly reduces a measurement Included in this category are those debt instruments that do measured at amortised cost using the effective interest method, or recognition inconsistency (sometimes referred to as an not meet the conditions in “Financial Assets at Amortised Cost” except for: Classification and Measurement of Financial “accounting mismatch”) that would otherwise arise from above, debt instruments designated at fair value through profit - Financial liabilities at fair value through profit or loss (including Instruments measuring assets or liabilities or recognising the gains and losses or loss upon initial recognition, and equity instruments at fair derivatives). on them on different bases. An entity is required to disclose such value through profit or loss. - Financial liabilities that arise when a transfer of a financial a. Financial Assets financial assets separately from those mandatorily measured at asset does not qualify for derecognition or when the The classification of financial assets depends on the basis of fair value. Debt Instruments at Fair Value through Profit or Loss continuing involvement approach applies. each entity’s business model for managing the financial assets These financial assets are recorded in the Consolidated - Financial guarantee contracts and commitments to provide

84 85 financial statements BANK AUDI ANNUAL REPORT 2014

a loan at a below-market interest rate which, after initial customers’ and related parties’ deposits are measured at carrying amount and fair value is recognised in profit or loss. If a EIR. When the counterparty has the right to sell or repledge the recognition, are subsequently measured at the higher of the amortised cost less amounts repaid using the effective interest financial asset is reclassified so that it is measured at amortised securities, the Group reclassifies those securities in its Statement amount determined in accordance with IAS 37 Provisions, rate method. Amortised cost is calculated by taking into account cost, its fair value at the reclassification date becomes its new of Financial Position to “Financial Assets Given as collateral”. Contingent Liabilities and Contingent Assets and the amount any discount or premium on the issue and costs that are an carrying amount. initially recognised less, when appropriate, cumulative integral part of the effective interest rate method. Customers’ amortisation recognised in accordance with IAS 18 Revenue. deposits which are linked to the performance of indices or Conversely, securities purchased under agreements to resell at commodities are subsequently measured at fair value through Derecognition of Financial Assets and a specified future date are not recognised in the Consolidated The Group may, at initial recognition, irrevocably designate a profit or loss. Financial Liabilities Statement of Financial Position. The consideration paid, financial liability as measured at fair value through profit or loss including accrued interest is recorded in the Consolidated when: Financial Assets Statement of Financial Position within “Loans to Banks and - Doing so results in more relevant information because it c. Derivatives Recorded at Fair Value through Profit The Group derecognises a financial asset when the contractual Financial Institutions and Reverse Repurchase Agreements”, either eliminates or significantly reduces a measurement or Loss rights to the cash flows from the financial asset expire, or when it reflecting the transaction’s economic substance as a loan by the or recognition inconsistency (sometimes referred to as “an The Group uses derivatives such as interest rate swaps and transfers the financial asset in a transaction in which substantially Group. The difference between the purchase and resale prices accounting mismatch”) that would otherwise arise from futures, credit default swaps, cross currency swaps, forward all the risks and rewards of ownership of the financial asset are is recorded in “Net Interest Income” and is accrued over the life measuring assets or liabilities or recognising the gains and foreign exchange contracts and options on interest rates, transferred or in which the Group neither transfers nor retains of the agreement using the EIR. If securities purchased under losses on them on different bases; or foreign currencies and equities. substantially all the risks and rewards of ownership and it does agreement to resell are subsequently sold to third parties, the - A group of financial liabilities or financial assets and financial not retain control of the financial asset. Any interest in transferred obligation to return the securities is recorded as a short sale liabilities is managed and its performance is evaluated on Derivatives are recorded at fair value and carried as assets when financial assets that qualify for derecognition that is created within “Financial Liabilities at Fair Value through Profit or Loss” a fair value basis, in accordance with a documented risk their fair value is positive and as liabilities when their fair value is or retained by the Group is recognised as a separate asset or and measured at fair value with any gains or losses included in management or investment strategy, and information about negative. Changes in the fair value of derivatives are recognised liability in the statement of financial position. On derecognition “Net Gain on Financial Instruments at Fair Value through Profit the Group is provided internally on that basis to the Group’s in “Net Gain on Financial Assets at Fair Value through Profit or of a financial asset, the difference between the carrying amount or Loss” in the Consolidated Income Statement. key Management personnel. Loss” in the Consolidated Income Statement. of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any Fair Value Measurement The amount of changes in fair value of a financial liability An embedded derivative is separated from the host and new asset obtained less any new liability assumed) is recognised designated at fair value through profit or loss at initial accounted for as a derivative if, and only if: in Consolidated Income Statement. The Group measures financial instruments, such as derivatives, recognition that is attributable to changes in credit risk of that - The hybrid contract contains a host that is not an asset within When the Group has transferred its rights to receive cash flows and, effective December 31, 2014, non-financial assets, such as liability is recognised in other comprehensive income, unless the scope of IFRS 9. from an asset or has entered into a pass-through arrangement, land and building and building improvements, at fair value at such recognition would create an accounting mismatch in - The economic characteristics and risks of the embedded and has neither transferred nor retained substantially all the each balance sheet date. Also, fair values of financial instruments the Consolidated Income Statement. Changes in fair value derivative are not closely related to the economic risks and rewards of the asset nor transferred control of the measured at amortised cost are disclosed in the Notes. attributable to changes in credit risk are not reclassified to characteristics and risks of the host. asset, the asset is recognised to the extent of the Group’s Consolidated Income Statement. - A separate instrument with the same terms as the embedded continuing involvement in the asset. In that case, the Group Fair value is the price that would be received to sell an asset derivative would meet the definition of a derivative; and also recognises an associated liability. The transferred asset and or paid to transfer a liability in an orderly transaction between Debt Issued and Other Borrowed Funds and - The hybrid contract is not measured at fair value with the associated liability are measured on a basis that reflects the market participants at the measurement date. The fair value Subordinated Notes changes in fair value recognised in profit or loss. rights and obligations that the Group has retained. measurement is based on the presumption that the transaction Financial instruments issued by the Group, which are not to sell the asset or transfer the liability takes place either: designated at fair value through profit or loss, are classified as Day 1 Profit or Loss Continuing involvement that takes the form of a guarantee over liabilities where the substance of the contractual arrangement When the transaction price differs from the fair value of other the transferred asset is measured at the lower of the original - In the principal market for the asset or liability, or results in the Group having an obligation either to deliver observable current market transactions in the same instrument carrying amount of the asset and the maximum amount of - In the absence of a principal market, in the most advantageous cash or another financial asset to the holder, or to satisfy the or based on a valuation technique whose variables include consideration that the Group could be required to repay. market for the asset or liability. obligation other than by the exchange of a fixed amount of only data from observable markets, the Group immediately cash or another financial asset for a fixed number of own equity recognises the difference between the transaction price and Financial Liabilities The principal or the most advantageous market must be shares. fair value (a “Day 1” profit or loss) in the Consolidated Income A financial liability is derecognised when the obligation under accessible by the Group. The fair value of an asset or a liability Statement. In cases where fair value is determined using data the liability is discharged or cancelled or expires. Where an is measured using the assumptions that market participants After initial measurement, debt issued and other borrowings and which is not observable, the difference between the transaction existing financial liability is replaced by another from the same would use when pricing the asset or liability, assuming that subordinated notes are subsequently measured at amortised price and model value is only recognised in the Consolidated lender on substantially different terms, or the terms of an market participants act in their economic best interest. cost using the effective interest rate method. Amortised cost Income Statement when the inputs become observable, or existing liability are substantially modified, such an exchange is calculated by taking into account any discount or premium when the instrument is derecognised. or modification is treated as a derecognition of the original A fair value measurement of a non-financial asset takes into on the issue and costs that are an integral part of the effective liability and the recognition of a new liability. The difference account a market participant’s ability to generate economic interest rate method. Reclassification of Financial Assets between the carrying value of the original financial liability and benefits by using the asset in its highest and best use or by The Group reclassifies financial assets if the objective of the the consideration paid is recognised in the Consolidated Income selling it to another market participant that would use the asset A compound financial instrument which contains both a liability business model for managing those financial assets changes. Statement. in its highest and best use. and an equity component is separated at the issue date. A Such changes are expected to be very infrequent. Such changes portion of the net proceeds of the instrument is allocated to are determined by the Group’s Senior Management as a result Repurchase and Reverse Repurchase The Group uses valuation techniques that are appropriate in the debt component on the date of issue based on its fair value of external or internal changes when significant to the Group’s Agreements the circumstances and for which sufficient data are available to (which is generally determined based on the quoted market operations and demonstrable to external parties. measure fair value, maximising the use of relevant observable prices for similar debt instruments). The equity component is Securities sold under agreements to repurchase at a specified inputs and minimising the use of unobservable inputs. assigned the residual amount after deducting from the fair value If financial assets are reclassified, the reclassification is applied future date are not derecognised from the Consolidated of the instrument as a whole the amount separately determined prospectively from the reclassification date, which is the first Statement of Financial Position as the Group retains substantially All assets and liabilities for which fair value is measured or for the debt component. The value of any derivative features day of the first reporting period following the change in all the risks and rewards of ownership. The corresponding cash disclosed in the financial statements are categorised within the (such as a call option) embedded in the compound financial business model that results in the reclassification of financial received is recognised in the Consolidated Statement of Financial fair value hierarchy, described as follows, based on the lowest instrument other than the equity component is included in the assets. Any previously recognised gains, losses or interest are Position as an asset with a corresponding obligation to return level input that is significant to the fair value measurement as debt component. not restated. it, including accrued interest as a liability within “Due to Banks a whole: under Repurchase Agreements”, reflecting the transaction’s Due to Central Banks, Banks and Financial Institutions If a financial asset is reclassified so that it is measured at fair economic substances as a loan to the Group. The difference - Level 1 – Quoted (unadjusted) market prices in active markets and Customers’ and Related Parties’ Deposits value, its fair value is determined at the reclassification date. between the sale and repurchase prices is treated as interest for identical assets or liabilities. After initial measurement, due to banks and financial institutions, Any gain or loss arising from a difference between the previous expense and is accrued over the life of the agreement using the - Level 2 – Valuation techniques for which the lowest level

86 87 financial statements BANK AUDI ANNUAL REPORT 2014

input that is significant to the fair value measurement is are not included in a collective assessment of impairment. Collateral Repossessed - There is an economic relationship between the hedged item directly or indirectly observable. The Group occasionally acquires properties in settlement of and the hedging instrument; - Level 3 – Valuation techniques for which the lowest level If there is objective evidence that an impairment loss has been loans and advances. Upon initial recognition, those assets are - The effect of credit risk does not dominate the value changes input that is significant to the fair value measurement is incurred, the amount of the loss is measured as the difference measured at fair value as approved by the regulatory authorities. that result from that economic relationship; and unobservable. between the asset’s carrying amount and the present value of Subsequently these properties are measured at the lower of - The hedge ratio of the hedging relationship is the same as estimated future cash flows (excluding future expected credit carrying value or net realisable value. that resulting from the quantity of the hedged item that For assets and liabilities that are recognised in the financial losses that have not yet been incurred). The carrying amount of Upon sale of repossessed assets, any gain or loss realised is the entity actually hedges and the quantity of the hedging statements on a recurring basis, the Group determines whether the asset is reduced through the use of an allowance account recognised in the Consolidated Income Statement under “Other instrument that the entity actually uses to hedge that transfers have occurred between levels in the hierarchy by and the amount of the loss is recognised in the Consolidated Operating Income” or “Other Operating Expenses”. Gains quantity of hedged item. However, that designation shall not re‑assessing categorisation (based on the lowest level input that Income Statement. resulting from the sale of repossessed assets are transferred to reflect an imbalance between the weightings of the hedged is significant to the fair value measurement as a whole) at the “Reserves for Capital Increase” in the following financial year. item and the hedging instrument that would create hedge end of each reporting period. Loans together with the associated allowance are written off ineffectiveness that could result in an accounting outcome when there is no realistic prospect of future recovery and all Hedge Accounting that would be inconsistent with the purpose of hedge The Group’s Management determines the policies and collateral has been realised or has been transferred to the accounting. procedures for both recurring fair value measurement, such as Group. If, in a subsequent year, the amount of the estimated In order to manage particular risks, the Group applies hedge land and building and building improvements and unquoted impairment loss increases or decreases because of an event accounting for transactions which meet the specified criteria. Hedge ineffectiveness is recognised in the Consolidated Income financial assets, and for non-recurring measurement, such occurring after the impairment was recognised; the previously The Group makes use of derivative instruments to manage Statement in “Net Gain (Loss) from Financial Instruments at Fair as assets held for distribution in discontinued operation. At recognised impairment loss is increased or reduced by adjusting exposures to foreign currency risk. The process starts with Value through Profit or Loss”. each reporting date, Management analyses the movements the allowance account. If a future write-off is later recovered, identifying the hedging instrument and hedged item and in the values of assets and liabilities which are required to be the recovery is credited to the “Net Credit Losses” in the preparing hedge documentation detailing the risk management Fair Value Hedges re‑measured or re-assessed as per the Group’s accounting Consolidated Income Statement. strategy and objective. For qualifying fair value hedges, the gain or loss on the hedging policies. For this analysis, Management verifies the major inputs instrument is recognised in the Consolidated Income Statement applied in the latest valuation by agreeing the information in The present value of the estimated future cash flows is Setting the Risk Management Strategy and Objectives under “Net Gain on Financial Assets at Fair Value through the valuation computation to contracts and other relevant discounted at the financial asset’s original effective interest At inception of the hedge relationship, the Group formally Profit or Loss” (or other comprehensive income, if the hedging documents. rate. If a loan has a variable interest rate, the discount rate for documents its risk management the relationship between the instrument hedges an equity instrument for which an entity has measuring any impairment loss is the current effective interest hedged item and the hedging instrument, including the nature elected to present changes in fair value in other comprehensive For the purpose of fair value disclosures, the Group has rate. The calculation of the present value of the estimated future of the risk, the objective and strategy for undertaking the hedge income. Hedging gain or loss on the hedged item adjusts the determined classes of assets and liabilities on the basis of the cash flows of a collateralised financial asset reflects the cash and the method that will be used to assess the effectiveness of carrying amount of the hedged item and is recognised in the nature, characteristics and risks of the asset or liability and the flows that may result from foreclosure less costs of obtaining the hedging relationship. Consolidated Income Statement also under “Net Gain on level of the fair value hierarchy, as explained above. and selling the collateral, whether or not the foreclosure is Financial Assets at Fair Value through Profit or Loss”. If the probable. The risk management strategy is established at the level of hedged item is an equity instrument for which the Group has Impairment of Financial Assets Executive Management and identifies the risks to which the elected to present changes in fair value in other comprehensive For the purpose of a collective evaluation of impairment, Group is exposed and whether and how the risk management income, those amounts remain in other comprehensive income. The Group assesses at each statement of financial position date financial assets are grouped on the basis of the Group’s internal activities should address those risks. The strategy is typically whether there is any objective evidence that a financial asset credit grading system, that considers credit risk characteristics maintained for a relatively long period of time. However, it may Cash Flow Hedges or a group of financial assets is impaired. A financial asset or a such as asset type, industry, geographical location, collateral include some flexibility to react to changes in circumstances. The For qualifying cash flow hedge, a separate component of equity group of financial assets is deemed to be impaired if, and only type, past-due status and other relevant factors. risk management strategy is set out in general documentation associated with the hedged item (cash flow hedge reserve) is if, there is objective evidence of impairment as a result of one and is cascaded down through policies containing more specific adjusted to the lower of the following (in absolute amounts): or more events that has occurred after the initial recognition Future cash flows on a group of financial assets that are guidelines. - a) The cumulative gain or loss on the hedging instrument of the asset (an incurred “loss event”) and that loss event (or collectively evaluated for impairment are estimated on the from inception of the hedge; and events) has an impact on the estimated future cash flows of basis of historical loss experience for assets with credit risk The Group sets risk management objectives at the level of - b) The cumulative change in fair value (present value) of the the financial asset or the group of financial assets that can be characteristics similar to those in the Group. Historical loss individual hedging relationships and defines how a particular hedged item from inception of the hedge. reliably estimated. experience is adjusted on the basis of current observable data to hedging instrument is designated to hedge a particular hedged Evidence of impairment may include indications that the reflect the effects of current conditions on which the historical item. As such, a risk management strategy would usually be The portion of the gain or loss on the hedging instrument that borrower or a group of borrowers is experiencing significant loss experience is based and to remove the effects of conditions supported by many risk management objectives. is determined to be an effective hedge (the portion that is financial difficulty, the probability that they will enter bankruptcy in the historical period that do not exist currently. offset by the change in the cash flow hedge reserve described or other financial reorganisation default or delinquency in Qualifying Hedging Relationships above) shall be recognised in other comprehensive income. interest or principal payments, and where observable data Estimates of changes in future cash flows reflect, and are The Group applies hedge accounting for qualifying hedging Any remaining gain or loss on the hedging instrument is hedge indicates that there is a measurable decrease in the estimated directionally consistent with, changes in related observable data relationships. A hedging relationship qualifies for hedge ineffectiveness that shall be recognised in the Consolidated future cash flows, such as changes in arrears or economic from year to year (such as changes in unemployment rates, accounting only if: (a) the hedging relationship consists only Income Statement. The amount that has been accumulated in conditions that correlate with defaults. property prices, commodity prices, payment status, or other of eligible hedging instruments and eligible hedged items; (b) the cash flow hedge reserve and associated with the hedged factors that are indicative of incurred losses in the Group and at the inception of the hedging relationship, there is formal item is treated as follows: Financial Assets at Amortised Cost their magnitude). The methodology and assumptions used for designation and documentation of the hedging relationship For financial assets carried at amortised cost (such as due estimating future cash flows are reviewed regularly to reduce any and the Group’s risk management objective and strategy for - a) If a hedged forecast transaction subsequently results in from banks and financial institutions, debt instruments differences between loss estimates and actual loss experience. undertaking the hedge, and (c) the hedging relationship meets the recognition of a non-financial asset or non-financial at amortised cost, loans and advances to customers and all of the hedge effectiveness requirements. liability, the Group removes that amount from the cash related parties, the Group first assesses individually whether Renegotiated Loans flow hedge reserve and includes it directly in the initial objective evidence of impairment exists for financial assets Where possible, the Group seeks to restructure loans rather At each hedge effectiveness assessment date, a hedge cost or other carrying amount of the asset or the liability that are individually significant, or collectively for financial than to take possession of collateral. This may involve extending relationship must be expected to be highly effective on a without affecting other comprehensive income. assets that are not individually significant. If the Group the payment arrangements and the agreement of new loan prospective basis in order to qualify for hedge accounting. - b) For cash flow hedges other than those covered by Section determines that no objective evidence of impairment exists conditions. Once the terms have been renegotiated, any The effectiveness test can be performed qualitatively or a), that amounts are reclassified from the cash flow hedge for an individually assessed financial asset, it includes the impairment is measured using the original effective interest rate quantitatively. A formal assessment is undertaken to ensure reserve to profit or loss as a reclassification adjustment asset in a group of financial assets with similar credit risk as calculated before the modification of terms and the loan is the hedging instrument is expected to be highly effective in the same period or periods during which the hedged characteristics and collectively assesses them for impairment. no longer considered past due. The loans continue to be subject in offsetting the designated risk in the hedged item, both at expected future cash flows affect profit or loss. However, Assets that are individually assessed for impairment and for to an individual or collective impairment assessment, calculated inception and semi-annually on an ongoing basis. A hedge is if that amount is a loss and the Group expects that all or which an impairment loss is, or continues to be, recognised using the loan’s original effective interest rate. expected to be highly effective if: a portion of that loss will not be recovered in one or more

88 89 financial statements BANK AUDI ANNUAL REPORT 2014

future periods, it immediately reclassifies the amount that is the rate that exactly discounts estimated future cash Cash and Cash Equivalents The useful lives of intangible assets are assessed to be either is not expected to be recovered into profit or loss as a payments or receipts through the expected life of the financial finite of indefinite. Intangible assets with finite lives are reclassification adjustment. instrument or a shorter period, where appropriate, to the net Cash and cash equivalents as referred to in the Cash Flow amortised over the useful economic life. The amortisation carrying amount of the financial asset or financial liability. Statement comprise balances with original maturities of a period and the amortisation method for an intangible asset Hedge of a Net Investment The calculation takes into account all contractual terms of period of three months or less including: cash and balances with with a finite useful life are reviewed at least at each financial Hedges of net investments in a foreign operation, including a the financial instrument and includes any fees or incremental the central banks, deposits with banks and financial institutions, year‑end. Changes in the expected useful life or the expected hedge of a monetary item that is accounted for as part of the costs that are directly attributable to the instrument and are and deposits due to banks and financial institutions. pattern of consumption of future economic benefits embodied net investment, are accounted for in a way similar to cash flow an integral part of the effective interest rate, but not future in the asset are accounted for by changing the amortisation hedges. Gains or losses on the hedging instrument relating to credit losses. Property and Equipment period or method, as appropriate, and treated as changes in the effective portion of the hedge are recognised directly in accounting estimates. The amortisation expense on intangible other comprehensive income, while any gains or losses relating The carrying amount of the financial asset or financial liability Property and equipment, except for land and buildings, is assets with finite lives is recognised in the Consolidated Income to the ineffective portion are recognised in the Consolidated is adjusted if the Group revises its estimates of payments or stated at cost excluding the costs of day-to-day servicing, Statement. Income Statement. On disposal or partial disposal of the foreign receipts. The adjusted carrying amount is calculated based less accumulated depreciation and accumulated impairment operation, the cumulative value of any such gains or losses on the original effective interest rate and the change in the in value. Such cost includes the cost of replacing part of the Intangible assets with indefinite useful lives are not amortised, recognised directly in the foreign currency translation reserve carrying amount is recorded as “Interest and Similar Income” property and equipment. When significant parts of property but are tested for impairment annually, either individually or at is transferred to the Consolidated Income Statement as a for financial assets and “Interest and Similar Expense” for and equipment are required to be replaced at intervals, the the cash-generating unit level. The assessment of indefinite life reclassification adjustment. financial liabilities. Group recognises such parts as individual assets with specific is reviewed annually to determine whether the indefinite life useful lives and depreciates them accordingly. Likewise, continues to be supportable. If not, the change in useful life To enhance hedge effectiveness, the Group designates only Once the recorded value of a financial asset on a group of when a major inspection is performed, its cost is recognised from indefinite to finite is made on a prospective basis. the change in the intrinsic value as the hedging instrument similar financial assets has been reduced due to an impairment in the carrying amount of the equipment as a replacement when hedging a net investment in a foreign operation through loss, interest income continue to be recognised using the rate of if the recognition criteria are satisfied. All other repair and Gains or losses arising from de-recognition of an intangible financial derivatives. The time value of the derivatives is treated interest used to discount the future cash flows for the purpose maintenance costs are recognised in the Consolidated Income asset are measured as the difference between the net disposal as costs of hedging to be deferred or amortised. The change in of measuring the impairment loss. Statement as incurred. The present value of the expected cost proceeds and the carrying amount of the asset and are fair value of the time value of the option is recognised in other for the decommissioning of an asset after its use is included in recognised in the Statement of Profit or Loss when the asset is comprehensive income to the extent that it relates to the hedged Fee and Commission Income the cost of the respective asset if the recognition criteria for a derecognised. item. The method used to reclassify the amounts from equity The Group earns fee and commission income from a diverse provision are met. to Consolidated Income Statement is determined by considering range of services it provides to its customers. Fee income can be The Group does not have intangible assets with indefinite that the hedged item is time‑period related since the Group divided into the following two categories: Land and buildings are measured at fair value less accumulated economic life. seeks to hedge the currency risk during a period of time. depreciation on buildings and impairment losses recognised Fee Income Earned from Services that Are Provided over since the date of revaluation. Valuations are performed by Amortisation is calculated using the straight-line method to Leases a Certain Period of Time internal or external valuers with sufficient frequency to ensure write down the cost of intangible assets to their residual values Fees earned for the provision of services over a period of time that the carrying amount of a re-valued asset does not differ over their estimated useful lives as follows: The determination of whether an arrangement is a lease, or it are accrued over that period. These fees include commission materially from its fair value. contains a lease, is based on the substance of the arrangement income and asset management, custody and other management - Computer software 5 years and requires an assessment of whether the fulfilment of the and advisory fees. A revaluation surplus is recorded in other comprehensive - Key money 70 years arrangement is dependent on the use of a specific asset or income and credited to the real estate revaluation reserve in - Others 7 to 10 years assets and the arrangement conveys a right to use the asset. Loan commitment fees for loans that are likely to be drawn equity. However, to the extent that it reverses a revaluation down and other credit-related fees are deferred (together with deficit of the same asset previously recognised in profit or loss, Non-current Assets Held for Sale and Group as a Lessee any incremental costs) and recognised as an adjustment to the the increase is recognised in profit and loss. A revaluation deficit Discontinued Operations Leases which do not transfer to the Group substantially all the EIR on the loan. When it is unlikely that a loan be drawn down, is recognised in the Statement of Profit or Loss, except to the risks and benefits incidental to ownership of the leased items the loan commitment fees are recognised over the commitment extent that it offsets an existing surplus on the same asset Non-current assets held for sale are measured at the lower of are operating leases. Operating lease payments are recognised period on a straight line basis. recognised in the asset revaluation reserve. their carrying amount and fair value less costs to sell. Non-current as an expense in the Consolidated Income Statement on a assets and disposal groups are classified as held for sale if their straight line basis over the lease term. Contingent rental payable Fee Income from Providing Transaction Services An annual transfer from the asset revaluation reserve to retained carrying amounts will be recovered principally through a sale are recognised as an expense in the period in which they are Fee arising from negotiating or participating in the negotiation earnings is made for the difference between depreciation based transaction rather than through continuing use. This condition incurred. of a transaction for a third party, such as the arrangement of the on the re-valued carrying amount of the asset and depreciation is regarded as met only when the sale is highly probable and acquisition of shares or other securities or the purchase or sale based on the asset’s original cost. Additionally, accumulated the asset or disposal group is available for immediate sale in its Group as a Lessor of businesses, are recognised on completion of the underlying depreciation as at the revaluation date is eliminated against present condition, Management has committed to the sale, and Leases where the Group does not transfer substantially all the transaction. Fee or components of fee that are linked to a certain the gross carrying amount of the asset and the net amount is the sale is expected to have been completed within one year risks and benefits of ownership of the asset are classified as performance are recognised after fulfilling the corresponding restated to the re-valued amount of the asset. Upon disposal, from the date of classification. operating leases. Initial direct costs incurred in negotiating criteria. any revaluation reserve relating to the particular asset being sold operating leases are added to the carrying amount of the leased is transferred to retained earnings. In the Consolidated Statement of Comprehensive Income asset and recognised over the lease term on the same basis as Dividend Income of the reporting period, and of the comparable period of rental income. Contingent rents are recognised as revenue in Dividend income is recognised when the right to receive the Intangible Fixed Assets the previous year, income and expenses from discontinued the period in which they are earned. payment is established. operations are reported separately from income and expenses An intangible asset is recognised only when its cost can be from continuing operations, down to the level of profit Recognition of Income and Expenses Net Gain on Financial Assets at Fair Value through measured reliably and it is probable that the expected future after taxes, even when the Group retains a non-controlling Profit or Loss economic benefits that are attributable to it will flow to the interest in the subsidiary after the sale. The resulting profit Revenue is recognised to the extent that it is probable that the Results arising from financial assets at fair value through profit or Group. or loss (after taxes) is reported separately in the Statement of economic benefits will flow to the Group and the revenue can loss, include all gains and losses from changes in fair value and Comprehensive Income. be reliably measured. The following specific recognition criteria related income or expense and dividends for financial assets at Intangible assets acquired separately are measured on initial must also be met before revenue is recognised. fair value through profit or loss. This includes any ineffectiveness recognition at cost. The cost of intangible assets acquired in Impairment of Non-financial Assets recorded in hedging transactions. This caption also includes the a business combination is their fair value as at the date of Interest and Similar Income and Expense results arising from trading activities including all gains and acquisition. Following initial recognition, intangible assets The Group assesses at each reporting date whether there is For all financial instruments measured at amortised cost, losses from changes in fair value and related income or expense are carried at cost less any accumulated amortisation and an indication that an asset may be impaired. If any indication interest income or expense is recorded using the EIR, which and dividends for financial assets held for trading. accumulated impairment losses. exists, or when annual impairment testing for an asset is

90 91 financial statements BANK AUDI ANNUAL REPORT 2014

required, the Group estimates the asset’s recoverable amount. Net interest is calculated by applying the discount rate to the extent that it has become probable that future taxable profit will When the Group holds own equity instruments on behalf An asset’s recoverable amount is the higher of an asset’s or net defined benefit liability or asset. The Group recognises the allow the deferred tax asset to be recovered. of its clients, those holdings are not included in the Group’s cash-generating unit’s fair value less costs to sell and its value in following changes in the net defined benefit obligation under Consolidated Statement of Financial Position. use. Where the carrying amount of an asset or cash‑generating “Personnel Expenses” in Consolidated Statement of Income: Deferred tax assets and liabilities are measured at the tax rates unit exceeds its recoverable amount, the asset is considered - Service costs comprising current service costs, past-service that are expected to apply in the year when the asset is realised Contracts on own shares that require physical settlement of impaired and is written down to its recoverable amount. In costs, gains and losses on curtailments and non-routine or the liability is settled, based on tax rates (and tax laws) that a fixed number of own shares for a fixed consideration are assessing value in use, the estimated future cash flows are settlements. have been enacted or substantively enacted at the Statement of classified as equity and added to or deducted from equity. discounted to their present value using a pre-tax discount rate - Net interest expense or income. Financial Position date. Contracts on own shares that require net cash settlement that reflects current market assessments of the time value of Current tax and deferred tax relating to items recognised or provide a choice of settlement are classified as trading money and the risks specific to the asset. In determining fair Taxes directly in equity are also recognised in equity and not in the instruments and changes in the fair value are reported in the value less costs to sell, an appropriate valuation model is used. Consolidated Income Statement. Consolidated Income Statement. These calculations are corroborated by valuation multiples, Taxes are provided for in accordance with regulations and laws quoted share prices for publicly traded subsidiaries or other that are effective in the countries where the Group operates. Deferred tax assets and deferred tax liabilities are offset if Assets under Management and Assets Held available fair value indicators. a legally enforceable right exists to set off current tax assets in Custody and under Administration Current Tax against current tax liabilities and the deferred taxes relate to the For assets excluding goodwill, an assessment is made at each Current tax assets and liabilities for the current and prior years same taxable entity and the same taxation authority. The Group provides custody and administration services that reporting date as to whether there is any indication that are measured at the amount expected to be recovered from result in the holding or investing of assets on behalf of its clients. previously recognised impairment losses may no longer exist or or paid to the taxation authorities. The tax rates and tax laws Warrants Issued on Subsidiary Shares Assets held in trust, under management or under custody or may have decreased. If such indication exists, the recoverable used to compute the amount are those that are enacted or under administration, are not treated as assets of the Group amount is estimated. A previously recognised impairment loss substantively enacted by the Statement of Financial Position The value of warrants issued on subsidiary shares is reported as and, accordingly, are recorded as off-balance sheet items. is reversed only if there has been a change in the estimates date. part Group share of equity and is based on the issuance date used to determine the asset’s recoverable amount since the last fair value. Subsequently, the carrying amount of those warrants Financial Guarantees impairment loss was recognised. The reversal is limited so that Deferred Tax is reduced by the cost of warrants acquired pursuant to trading the carrying amount of the asset does not exceed its recoverable Deferred tax is provided on temporary differences at the transactions. No gain or loss is recognised in the Consolidated In the ordinary course of business, the Group gives financial amount, nor exceeds the carrying amount that would have Statement of Financial Position date between the tax bases of Income Statement on the purchase, sale, issue or cancellation guarantees, consisting of letters of credit, guarantees and been determined, net of depreciation, had no impairment loss assets and liabilities and their carrying amounts for financial of those warrants. acceptances. Financial guarantees are initially recognised in the been recognised for the asset in prior years. Such reversal is reporting purposes. financial statements (within “Other Liabilities”) at fair value, recognised in the Consolidated Income Statement. Dividends on Ordinary Shares being the premium received. Subsequent to initial recognition, Deferred tax liabilities are recognised for all taxable temporary the Group’s liability under each guarantee is measured at the Impairment losses relating to goodwill cannot be reversed in differences, except: Dividends on ordinary shares are recognised as a liability and higher of the amount initially recognised less, when appropriate, future periods. - Where the deferred tax liability arises from the initial deducted from equity when they are approved by the Bank’s cumulative amortisation recognised in the Consolidated Income recognition of goodwill or of an asset or liability in a shareholders. Interim dividends are deducted from equity when Statement, and the best estimate of expenditure required to Provisions for Risks and Charges transaction that is not a business combination and, at the they are declared and no longer at the discretion of the Bank. settle any financial obligation arising as a result of the guarantee. time of the transaction, affects neither the accounting profit Dividends for the year that are approved after the reporting Any increase in the liability relating to financial guarantees is Provisions are recognised when the Group has a present nor taxable profit or loss. date are disclosed as an event after the reporting date. recorded in the Consolidated Income Statement. The premium obligation (legal or constructive) as a result of a past event, - In respect of taxable temporary differences associated with received is recognised in the Consolidated Income Statement on and it is probable that an outflow of resources embodying investments in subsidiaries and associates, where the timing Treasury Shares a straight line basis over the life of the guarantee. economic benefits will be required to settle the obligation of the reversal of the temporary differences can be controlled and a reliable estimate can be made of the amount of and it is probable that the temporary differences will not Own equity instruments of the Bank which are acquired by it or by Customers’ Acceptances the obligation. The expense relating to any provision is reverse in the foreseeable future. any of its subsidiaries (Treasury shares) are deducted from equity presented in the Consolidated Income Statement net of any and accounted for at weighted average cost. Consideration Customers’ acceptances represent term documentary credits reimbursement. Deferred tax assets are recognised for all deductible temporary paid or received on the purchase sale, issue or cancellation which the Group has committed to settle on behalf of its differences, carry forward of unused tax credits and unused tax of the Bank’s own equity instruments is recognised directly in clients against commitments by those clients (acceptances). The Pensions and Other Post-employment losses, to the extent that it is probable that taxable profit will be equity. No gain or loss is recognised in the Consolidated Income commitments resulting from these acceptances are stated as Benefits available against which the deductible temporary differences, Statement on the purchase, sale, issue or cancellation of the a liability in the Statement of Financial Position for the same and the carry forward of unused tax credits and unused tax Bank’s own equity instruments. amount. The Group provides retirement benefits obligation to its losses can be utilised except: employees under defined benefit plans which requires contributions to be made to separately administered funds. The Where the deferred tax asset relating to the deductible temporary cost of providing these benefits is determined using the projected difference arises from the initial recognition of an asset or unit credit method which involves making actuarial assumptions liability in a transaction that is not a business combination and, about discount rates, expected rates of return on assets, future at the time of the transaction, affects neither the accounting salary increases, mortality rates and future pension increases. profit nor taxable profit or loss. Those assumptions are unbiased and mutually compatible. In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets Re-measurements, comprising of actuarial gains and losses, are recognised only to the extent that it is probable that the the effect of the asset ceiling, excluding net interest and the temporary differences will reverse in the foreseeable future and return on plan assets (excluding net interest), are recognised taxable profit will be available against which the temporary immediately in the Statement of Financial Position with a differences can be utilised. corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not The carrying amount of deferred tax assets is reviewed at each reclassified to profit or loss in subsequent periods. Statement of Financial Position date and reduced to the extent Past service costs are recognised in profit or loss on the earlier of: that it is no longer probable that sufficient taxable profit will - The date of the plan amendment or curtailment; and be available to allow all or part of the deferred tax asset to be - The date that the Group recognises restructuring-related utilised. Unrecognised deferred tax assets are reassessed at each costs. Statement of Financial Position date and are recognised to the

92 93 financial statements BANK AUDI ANNUAL REPORT 2014

2.6. | Significant Accounting Judgments and Estimates of principal and interest on the principal outstanding and, so, value as at December 31, 2014. Land and buildings were valued may qualify for amortised cost measurement. In making the by reference to market-based evidence, using comparable prices The preparation of the Group’s consolidated financial Impairment Losses on Loans and Advances assessment, the Group considers all contractual terms, including adjusted for specific market factors such as nature, location and statements requires Management to make judgments, The Group reviews its individually significant loans and advances any prepayment terms or provisions to extend the maturity of condition of the property. estimates and assumptions that affect the reported amounts of at each Statement of Financial Position date to assess whether the assets, terms that change the amount and timing of cash revenues, expenses, assets and liabilities, and the accompanying an impairment loss should be recorded in the Consolidated flows, and whether the contractual terms contain leverage. Pensions Obligation disclosures, and the disclosure of contingent liabilities. Income Statement. In particular, judgment by Management The cost of the defined benefit pension plan is determined Uncertainty about these assumptions and estimates could result is required in the estimation of the amount and timing of Revaluation of Property and Equipment using an actuarial valuation. The actuarial valuation involves in outcomes that require a material adjustment to the carrying future cash flows when determining the impairment loss. In As of December 31, 2014, the Group carries its land and building making assumptions about discount rates, expected rates of amount of assets or liabilities affected in future periods. estimating these cash flows, the Group makes judgments about and building improvements at fair value, with changes in fair return on assets, future salary increases, mortality rates and the borrower’s financial situation and the net realisable value value being recognised in other comprehensive income. The future pension increases. Due to the long-term nature of these Judgments of collateral. These estimates are based on assumptions about Group engaged independent valuation specialists to assess fair plans, such estimates are subject to significant uncertainty. a number of factors and actual results may differ, resulting in In the process of applying the Group’s accounting policies, future changes to the allowance. Management has made the following judgments, apart from 3.0. | SEGMENT REPORTING those involving estimations, which have the most significant Loans and advances that have been assessed individually and effect in the amounts recognised in the financial statements: found not to be impaired and all individually insignificant loans Management monitors the operating results of its business Corporate and Commercial Banking and advances are then assessed collectively, in groups of assets units separately for the purpose of making decisions about Provides diverse products and services to the corporate and Consolidation of Entities in which the Group Holds with similar risk characteristics, to determine whether provision resource allocation and performance assessment. Segments commercial customers including loans, deposits, trade finance, Less than Majority of Voting Rights should be made due to incurred loss events for which there are evaluated based on net operating income. Income taxes exchange of foreign currencies, as well as all regular Corporate The Group considers that it controls Bank Audi Syria sa, even is objective evidence but whose effects are not yet evident. and depreciation are managed on a group basis and are not and Commercial Banking activities. though it owns less than 50% of the voting rights. This is The collective assessment takes account of data from the allocated to operating segments. because the Group is the single largest shareholder of Bank loan portfolio (such as credit quality, levels of arrears, credit Retail and Personal Banking Audi Syria sa, with a 47% equity interest. The remaining 53% utilisation, loan to collateral ratios etc.), concentrations of Interest income is reported net since Management monitors Provides individual customers’ deposits and consumer loans, of the equity shares are held by many other shareholders, none risks and economic data (including levels of unemployment, net interest income, not the gross income and expense overdrafts, credit cards, and funds transfer facilities, as well as of which individually hold more than 5% of the equity shares. real estate price indices, country risk and the performance of amounts. Net interest income is allocated to the business all regular Retail and Private Banking activities. There is no history of the other shareholders collaborating to different individual groups). segment based on the assumption that all positions are exercise their votes collectively or to outvote the Group. funded or invested via a central funding unit. An internal Treasury and Capital Markets Deferred Tax Assets Funds Transfer Pricing (FTP) mechanism was implemented Provides Treasury services including transactions in money and Going Concern Deferred tax assets are recognised in respect of tax losses to between operating segments. capital markets for the Group’s customers, manages investment The Group’s Management has made an assessment of the the extent that it is probable that taxable profit will be available and trading transactions (locally and internationally), and manages Group’s ability to continue as a going concern and is satisfied against which the losses can be utilised. Judgment is required The assets and liabilities that are reported in the segments liquidity and market risks. This segment also offers Investment that the Group has the resources to continue in business for the to determine the amount of deferred tax assets that can be are net from inter-segments’ assets and liabilities since they Banking and brokerage services, and manages the Group’s own foreseeable future. Furthermore, Management is not aware of recognised, based upon the likely timing and level of future constitute the basis of Management’s measures of the segments’ portfolio of stocks, bonds, and other financial instruments. any material uncertainties that may cast significant doubt upon taxable profits, together with future tax planning strategies. assets and liabilities and the basis of the allocation of resources the Group’s ability to continue as a going concern. Therefore, between segments. Group Functions and Head Office the financial statements continue to be prepared on the going Business Model Consists of capital and strategic investments, exceptional profits concern basis. In making an assessment whether a business model’s objective Business Segments and losses, as well as operating results of subsidiaries which is to hold assets in order to collect contractual cash flows, the offer non-banking services. Estimates and Assumptions Group considers at which level of its business activities such The Group operates in four main business segments which assessment should be made. Generally, a business model is a are Corporate and Commercial Banking, Retail and Personal Transfer prices between operating segments are on an arm’s The key assumptions concerning the future and other key matter of fact which can be evidenced by the way business Banking, Treasury and Capital Markets, and Group Functions length basis in a manner similar to transactions with third parties. sources of estimation uncertainty at the reporting date, that is managed and the information provided to Management. and Head Office. have a significant risk of causing a material adjustment to the However, in some circumstances, it may not be clear whether The following tables present net operating income information and financial position information: carrying amounts of assets and liabilities within the next financial a particular activity involves one business model with some year, are described below. The Group based its assumptions infrequent asset sales or whether the anticipated sales indicate and estimates on parameters available when the consolidated that there are two different business models. Net Operating Income Information financial statements were prepared. Existing circumstances 2014 and assumptions about future developments, however, may In determining whether its business model for managing Corporate and Retail Treasury Group change due to market changes or circumstances arising beyond financial assets is to hold assets in order to collect contractual Commercial and Personal and Capital Functions and the control of the Group. Such changes are reflected in the cash flows, the Group considers: Banking Banking Markets Head Office Total assumptions when they occur. - Management’s stated policies and objectives for the portfolio LBP Million LBP Million LBP Million LBP Million LBP Million and the operation of those policies in practice; Net interest income 512,056 107,518 607,168 23,497 1,250,239 Fair Value of Financial Instruments - How Management evaluates the performance of the Non-interest income Where the fair values of financial assets and financial liabilities portfolio; Net fee and commission income 146,483 197,883 28,129 944 373,439 recorded on the Statement of Financial Position cannot be - Whether Management’s strategy focuses on earning derived from active markets, they are determined using a variety contractual interest revenues; Foreign exchange operations 7,727 21,562 43,486 1,938 74,713 of valuation techniques that include the use of mathematical - The degree of frequency of any expected asset sales; Financial operations 4,671 8,535 240,283 18,133 271,622 models. The inputs to these models are derived from observable - The reason for any asset sales; and Share of profit of associates - - - 373 373 market data where possible, but where observable market data - Whether assets that are sold are held for an extended period are not available, judgment is required to establish fair values. of time relative to their contractual maturity. Other operating income 34 4,078 488 18,707 23,307 The judgments include considerations of liquidity and model Total non-interest income 158,915 232,058 312,386 40,095 743,454 inputs such as volatility for longer dated derivatives and discount Contractual Cash Flows of Financial Assets Total operating income 670,971 339,576 919,554 63,592 1,993,693 rates, prepayment rates and default rate assumptions for asset The Group exercises judgment in determining whether the Net credit losses (146,269) (65,215) 1,736 - (209,748) backed securities. Changes in assumptions about these factors contractual terms of financial assets it originates or acquires could affect the reported fair value of financial instruments. give rise on specific dates to cash flows that are solely payments Net operating income 524,702 274,361 921,290 63,592 1,783,945

94 95 financial statements BANK AUDI ANNUAL REPORT 2014

2013 Net Operating Income Information Corporate and Retail Treasury Group 2014 Commercial and Personal and Capital Functions and Lebanon MENAT Europe Total Banking Banking Markets Head Office Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Net interest income 566,493 628,801 54,945 1,250,239 Net interest income 362,441 43,091 539,364 17,251 962,147 Non-interest income Non-interest income Net fee and commission income 159,615 159,922 53,902 373,439 Net fee and commission income 104,861 156,446 18,969 1,742 282,018 Foreign exchange operations 20,029 37,604 17,080 74,713 Foreign exchange operations 6,565 19,923 42,398 (121) 68,765 Financial operations 270,157 (3,647) 5,112 271,622 Financial operations 7,392 6,848 248,622 24,237 287.099 Share of profit or loss of associates 14 359 - 373 Share of profit of associates - - - 1,169 1,169 Other operating income 17,942 2,425 2,940 23,307 Other operating income 397 1,229 976 10,307 12,909 Total non-interest income 467,757 196,663 79,034 743,454 Total non-interest income 119,215 184,446 310,965 37,334 651,960 Total external operating income 1,034,250 825,464 133,979 1,993,693 Total operating income 481,656 227,537 850,329 54,585 1,614,107 Net credit losses (89,963) (117,496) (2,289) (209,748) Net credit losses (115,211) (20,976) 825 - (135,362) Net external operating income 944,287 707,968 131,690 1,783,945 Net operating income 366,445 206,561 851,154 54,585 1,478,745

2013 Financial Position Information Lebanon MENAT Europe Total LBP Million LBP Million LBP Million LBP Million 2014

Corporate and Retail Treasury Group Net interest income 569,277 342,392 50,478 962,147 Commercial and Personal and Capital Functions and Non-interest income Banking Banking Markets Head Office Total Net fee and commission income 151,877 81,375 48,766 282,018 LBP Million LBP Million LBP Million LBP Million LBP Million

Foreign exchange operations 19,358 33,143 16,264 68,765 Investments in associates - - - 27,762 27,762 Financial operations 203,174 81,080 2,845 287,099 Total assets 20,213,559 7,042,229 30,777,227 5,222,704 63,255,719 Share of profit or loss of associates 53 1,116 - 1,169 Total liabilities 13,592,789 38,085,813 2,828,261 3,702,325 58,209,188 Other operating income 8,947 2,382 1,580 12,909

Total non-interest income 383,409 199,096 69,455 651,960 2013 Total external operating income 952,686 541,488 119,933 1,614,107 Net credit losses (36,031) (94,575) (4,756) (135,362) Corporate and Retail Treasury Group Commercial and Personal and Capital Functions and Net external operating income 916,655 446,913 115,177 1,478,745 Banking Banking Markets Head Office Total

LBP Million LBP Million LBP Million LBP Million LBP Million

Investments in associates - - - 28,615 28,615 Financial Position Information 2014 Total assets 17,946,452 6,147,007 24,890,896 5,574,005 54,558,360 Total liabilities 11,229,936 34,046,925 1,405,387 3,811,602 50,493,850 Lebanon MENAT Europe Total LBP Million LBP Million LBP Million LBP Million

Capital expenditures amounting to LBP 112,019 million for the year 2014 (2013: LBP 186,242) are allocated to the Group Functions Capital expenditures 42,682 67,784 1,553 112,019 and Head Office business segment. Investments in associates 27,027 735 - 27,762 Total assets 35,646,768 24,381,211 3,227,740 63,255,719 Geographical Segments Total liabilities 31,283,637 23,928,658 2,996,893 58,209,188

The Group operates in three geographical segments: Lebanon, operating income, assets and liabilities allocated based on the Middle East and North Africa, and Turkey (MENAT) and Europe. location of the subsidiaries reporting the results or advancing 2013 As such, it is subject to different risks and returns. The following the funds. Transactions between segments are carried at market tables show the distribution of the Groups’ net external prices and within pure trading conditions. Lebanon MENAT Europe Total LBP Million LBP Million LBP Million LBP Million Capital expenditures 58,826 120,487 6,929 186,242 Investments in associates 27,872 743 - 28,615 Total assets 33,654,158 17,360,985 3,543,217 54,558,360 Total liabilities 30,377,187 16,794,896 3,321,767 50,493,850

96 97 financial statements BANK AUDI ANNUAL REPORT 2014

4.0. | INTEREST AND SIMILAR INCOME 7.0. | FEE AND COMMISSION EXPENSE 2014 2013 2014 2013 LBP Million LBP Million LBP Million LBP Million Balances with central banks 322,143 236,030 Commercial Banking expenses 7,349 7,584 Due from banks and financial institutions 40,839 26,166 Insurance brokerage fees 848 885 Loans to banks and financial institutions and reverse repurchase agreements 86,092 63,466 Brokerage and custody fees 11,936 12,823 Loans and advances to customers at amortised cost 1,893,577 1,338,634 Electronic Banking 53,934 41,203 Loans and advances to related parties at amortised cost 2,364 8,362 Corporate finance fees 1,645 281 Financial assets classified at amortised cost 1,055,328 1,020,365 Other fees and commissions 9,644 6,316 Other interest income 777 358 85,356 69,092

3,401,120 2,693,381

The components of interest and similar income from financial assets classified at amortised cost are detailed as follows: 8.0. | NET GAIN ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 2014 2013 2014 2013 LBP Million LBP Million Trading Interest Trading Interest Lebanese sovereign and Central Bank of Lebanon 694,531 705,537 Gain (Loss) Income Total Gain (loss) Income Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Other sovereign 339,602 288,666 a) Net gain on financial instruments Private sector and other securities 21,195 26,162 Lebanese sovereign and Central Bank of Lebanon 1,055,328 1,020,365 Certificates of deposits (95) 2,903 2,808 (493) 2,608 2,115

Treasury bills 3,449 4,116 7,565 1,807 2,986 4,793 5.0. | INTEREST AND SIMILAR EXPENSE Eurobonds 8,929 8,644 17,573 (1,653) 11,683 10,030 2014 2013 12,283 15,663 27,946 (339) 17,277 16,938 LBP Million LBP Million Other sovereign Due to central banks 5,295 3,839 Treasury bills 2,330 192 2,522 1,345 5,171 6,516 Due to banks and financial institutions 37,866 40,670 Other governmental securities - - - (3) - (3) Due to banks under repurchase agreements 11,323 26,374 Eurobonds 72 16 88 25 5 30 Customers’ deposits 2,012,919 1,629,815 Deposits from related parties 25,951 21,060 2,402 208 2,610 1,367 5,176 6,543 Debt issued and other borrowed funds 57,527 9,476 Private sector and other securities 2,150,881 1,731,234 Banks and financial institutions debt instruments 1,313 21 1,334 (492) 168 (324) Corporate debt instruments 68 2,791 2,859 543 4,098 4,641

Mutual funds 3,301 - 3,301 4,063 - 4,063 6.0. | FEE AND COMMISSION INCOME Equity instruments 522 - 522 348 - 348 2014 2013 LBP Million LBP Million 5,204 2,812 8,016 4,462 4,266 8,728 Commercial Banking income 72,422 68,669 b) Other trading income Credit-related fees and commissions 90,231 59,399 Foreign exchange 78,755 - 78,755 100,692 - 100,692 Brokerage and custody income 81,310 55,971 Currency swaps (40,004) - (40,004) 25,872 - 25,872 Trust and fiduciary activities 9,420 5,758 Currency options (33,198) - (33,198) - - - Trade finance income 63,955 48,127 Credit derivatives (52) - (52) 1,001 - 1,001 Electronic Banking 107,327 84,699 Other derivatives 7,843 - 7,843 2,352 - 2,352 Corporate finance fees 18,554 14,112 Dividends 273 - 273 181 - 181 Insurance brokerage income 10,018 6,429 13,617 - 13,617 130,098 - 130,098 Other fees and commissions 5,558 7,946 33,506 18,683 52,189 135,588 26,719 162,307 458,795 351,110

Trading gain on financial assets at fair value through profit of LBP 52 million (2013: gain of LBP 1,001 million) representing or loss includes the results of trading in the above classes of the change in fair value of the credit default swaps related to securities, as well as the result of the change in their fair values. the Lebanese sovereign risk and embedded in some of the Group’s deposits, as discussed in Note 35 to these consolidated Currency derivatives and Forex includes gains and losses from spot financial statements. transactions, forward and swap currency contracts, amortisation of time value of options designated for hedging purposes, and the revaluation of the daily open foreign currency positions. For the year ended December 31, 2014, derivatives include a loss

98 99 financial statements BANK AUDI ANNUAL REPORT 2014

9.0. | NET GAIN ON SALE OF FINANCIAL ASSETS AT AMORTISED COST 12.0. | NET CREDIT LOSSES The Group derecognises some debt instruments classified at amortised cost due to the following reasons: 2014 2013 LBP Million LBP Million – Deterioration of the credit rating below the ceiling allowed in – Currency risk management as a result of change in the Charges for the year the Group’s investment policy; currency base of deposits; or Loans and advances to customers at amortised cost (Note 23) 227,026 145,333 – Liquidity gap and yield management; – Liquidity for capital expenditures. – Exchange of certificates of deposits by the Lebanese Central Loans directly written off 2,679 4,896 Bank; 229,705 150,229 The schedule below details the gains and losses arising from the derecognition of these financial assets: Recoveries for the year – loans and advances to customers 2014 2013 Impairment allowance recovered (Note 23) (6,916) (7,043) Unrealised interest recovered (Note 23) (1,652) (631) Gains Losses Net Gains Losses Net LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Recoveries of debts previously written off (Note 23) (10,690) (6,358) Lebanese sovereign and Central Bank of Lebanon Other recoveries for the year Central Bank’s certificates of deposits 74,974 (3,933) 71,041 50,911 (40,447) 10,464 Impairment allowance recovered – banks and financial institutions (Note 19) - (99) Bank placements - - - 49,842 - 49,842 Impairment allowance recovered – financial instruments at amortised cost (Note 25) (699) (736) Treasury bills 42,657 (24,271) 18,386 15,181 (1,347) 13,834 (19,957) (14,867) Eurobonds 165,851 (10,071) 155,780 78,184 (3,132) 75,052 209,748 135,362

283,482 (38,275) 245,207 194,118 (44,926) 149,192 Other sovereign 13.0. | PERSONNEL EXPENSES Treasury bills 15,443 (12) 15,431 10,950 - 10,950 Other governmental securities - - - - (88) (88) 2014 2013 LBP Million LBP Million

Eurobonds 144 (3) 141 177 - 177 Salaries and related benefits 503,882 402,392 15,587 (15) 15,572 11,127 (88) 11,039 Social security contributions 42,119 36,343 Private sector and other securities End of service benefits (Note 39) 34,013 21,741 Banks and financial institutions debt instruments 1,197 (28) 1,169 5,558 (103) 5,455 Transportation 19,287 17,544 Corporate and other debt instruments 78 - 78 253 (1,963) (1,710) Schooling 7,316 7,060 1,275 (28) 1,247 5,811 (2,066) 3,745 Medical expenses 5,054 4,696 300,344 (38,318) 262,026 211,056 (47,080) 163,976 Food and beverage 6,993 5,899 During 2013, the Group discounted long-term placements at the Central Bank of Lebanon, which resulted in a gain of LBP 49,842 Training and seminars 6,557 5,724 million. Others 7,350 8,016 632,571 509,415

10.0. | NET GAIN ON SALE OF SUBSIDIARIES During 2013, the Group sold all its participation in Agence amounted to LBP 444 million. In addition, the Group received Saradar d’Assurances sal. The gain resulting from this transaction LBP 331 million in proceeds from the liquidation of Société Linea sal.

11.0. | OTHER OPERATING INCOME 2014 2013 LBP Million LBP Million Profit sharing agreements 3,519 3,761 Accruals and provisions written back 2,633 2,929 Income from disposal of assets acquired against debts 57 - Release of provision for end of service benefits (Note 39) 239 27 Net provision recoveries (Note 39) 897 2,307 Disposal of assets held for sale (Note 30) 11,544 - Other income 4,418 3,885 23,307 12,909

During 2011, the Group entered into profit sharing agreements and 33% of Global Com Holding sal profits up to December under which it become entitled to 30% of CGI’s profits for a 31, 2016. The Group’s share of these profits for the year 2014 period of 5 years ending during the second quarter of 2016 amounted to LBP 3,519 million (2013: LBP 3,761 million).

100 101 financial statements BANK AUDI ANNUAL REPORT 2014

14.0. | OTHER OPERATING EXPENSES 15.0 | INCOME TAX 2014 2013 The components of income tax expense for the year ended December 31 are detailed as follows: LBP Million LBP Million 2014 2013 Operating leases 49,670 40,995 LBP Million LBP Million Professional fees 32,278 27,855 Current tax Board of Directors’ fees 5,388 4,007 Current income tax 152,470 124,043 Advertising fees 43,160 52,169 Adjustment in respect of current income tax of prior years 6,559 115 Taxes and similar disbursements 21,264 20,026 Other taxes treated as income tax 11,977 2,616 171,006 126,774 Outsourcing services 30,563 22,853 Deferred tax Premium for guarantee of deposits 21,932 18,991 Relating to origination and reversal of temporary differences (12,981) (12,063) Information technology 27,269 24,826 158,025 114,711 Donations and social aids 7,822 4,792

Provisions for risks and charges (Note 39) 4,094 7,210 The tax rates applicable to the parent and subsidiaries vary the accounting results have been adjusted for tax purposes. Travel and related expenses 15,674 12,574 from 0% to 40% in accordance with the income tax laws of Such adjustments include items relating to both income and Telephone and mail 15,026 12,383 the countries where the Group operates. For the purpose of expense and are based on the current understanding of the determining the taxable results of the subsidiaries for the year, existing tax laws and regulations and tax practices. Electricity, water and fuel 10,690 9,226 Maintenance 9,803 8,742 The components of operating profit before tax, and the differences between income tax expense reflected in the financial statements Insurance premiums 9,005 7,805 and the calculated amounts are shown in the table below: Facilities services 9,400 8,165 2014 2013 LBP Million LBP Million

Subscription to communication services 9,080 8,638 Operating profit before tax 686,110 574,429 Office supplies 7,816 6,930 Income tax 157,196 131,534 Receptions and gifts 5,414 7,804 Increase resulting from: Electronic cards expenses 10,999 5,182 Non-deductible expenses 12,567 12,430 Regulatory charges 8,040 5,577 Non-deductible provisions 22,194 7,226 Documentation and miscellaneous subscriptions 2,546 2,346 Unrealised losses on financial instruments 13,582 18,881 Others 17,856 7,675 Unearned commissions 7,680 5,385 374,789 326,771 Other non-deductibles 10,906 8,047 66,929 51,969

Decrease resulting from: Revenues previously subject to tax 3,022 20,764 Provision recoveries previously subject to tax 29,730 13,621 Exempted revenues 22,017 1,993 Unrealised gains on financial instruments 6,281 15,616 Other deductibles 10,605 7,466 71,655 59,460 Current income tax 152,470 124,043 Effective income tax rate 22.22% 21.59%

The movement of current tax liabilities during the year is as follows: 2014 2013 LBP Million LBP Million Balance at January 1 80,395 118,058 Charges for the year 171,006 126,774 Transfer from other components of equity 11,238 - Transfer to tax regularisation accounts (6,971) - Other transfers (4,548) (5,686) 170,725 121,088 Less taxes paid: Current year tax liability* 101,331 85,761 Prior years tax liabilities 43,354 69,425 Foreign exchange difference 3,821 3,565 148,506 158,751 Balance at December 31 102,614 80,395

* Represents taxes paid on interest received from Treasury bills and Central Bank’s certificates of deposits.

102 103 financial statements BANK AUDI ANNUAL REPORT 2014

Deferred taxes recorded in the Consolidated Statement of Financial Position result from the following items: 16.0. | PROFIT FROM DISCONTINUED OPERATIONS 2014 On July 26, 2012, the directors of Banaudi Holding Limited, sole activities involving surrender of operating license, restitution Other shareholder of Bank Audi SAM, decided to cease the activities of of the assets of the clients, transfer of credit in process and Deferred Tax Deferred Tax Income Comprehensive the subsidiary bank and to liquidate it and withdraw its banking cancellation of all arrangements concluded with the external Assets Liabilities Statement Income license. services providers, was completed during 2014. LBP Million LBP Million LBP Million LBP Million Provisions 10,434 (2,316) 3,844 - Bank Audi SAM exercised banking activities in Monaco under The results of Bank Audi SAM are as follows: banking license provided by local authorities. The cessation of Impairment allowance for loans and advances 23,298 - 7,552 - Bank Audi SAM Financial instruments at FVTOCI (2,606) 2,362 - (2,211) Carried forward taxable losses 7,401 - (1,090) - 2014 2013 LBP Million LBP Million Difference in depreciation rates (3,418) 5,339 (2,102) - Interest and similar income - 251 Defined benefit obligation 3,373 (76) - 521 Interest and similar expense (2) (8) Revaluation of real estate - 48,926 - (49,332) Net interest (expense) income (2) 243 Other temporary differences 5,243 - 4,777 - Fee and commission income - 2 43,725 54,235 12,981 (51,022) Fee and commission expense - (32)

2013 Net fee and commission expense - (30) Other Other operating income ‑ 6 Deferred Tax Deferred Tax Income Comprehensive Total operating income 40 219 Assets Liabilities Statement Income LBP Million LBP Million LBP Million LBP Million Total operating expenses - (470)

Operating profit (loss) 40 (251) Provisions 8,482 (1,847) 4,271 - Non-operating expenses - (349) Impairment allowance for loans and advances 16,729 - 653 - Profit (loss) for the period from discontinued operations 40 (600) Financial instruments at FVTOCI (1,070) 1,903 - 6,989 Carried forward taxable losses 9,140 - 8,615 - LBP LBP Difference in depreciation rates (3,282) 3,779 (3,213) - Earnings per share: Defined benefit obligation 2,323 - - (167) Basic and diluted from discontinued operations - (2) Other temporary differences 1,242 (4) 1,737 - 33,564 3,831 12,063 6,822

17.0. | EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for during the year. The Bank does not have arrangements that the year attributable to ordinary equity holders of the Bank by might result in dilutive shares. As such, diluted earnings per the weighted average number of ordinary shares outstanding share was not separately calculated.

The following table shows the income and share data used to calculate basic earnings per share:

2014 2013 LBP Million LBP Million Profit attributable to equity holders of the Bank 513,500 454,621 Less: dividends attributable to preferred shares (45,790) (39,007) Profit available to holders of ordinary shares 467,710 415,614 Weighted average number of shares outstanding 360,485,035 346,552,238 Basic and diluted earnings per share 1,297 1,199

There were no transactions involving common shares or potential common shares between the reporting date and the date of the completion of these consolidated financial statements which would require the restatement of earnings per share.

104 105 financial statements BANK AUDI ANNUAL REPORT 2014

18.0. | CASH AND BALANCES WITH CENTRAL BANKS 19.0. | DUE FROM BANKS AND FINANCIAL INSTITUTIONS 2014 2013 2014 2013 LBP Million LBP Million LBP Million LBP Million

Current accounts 1,823,108 1,348,439 Cash on hand 353,479 329,293 Time deposits 1,590,016 2,437,863 Central Bank of Lebanon Checks for collection 150,546 177,285 Current accounts 413,587 304,468 Other amounts due 45,573 47,654 Time deposits 9,304,365 6,367,815 Accrued interest 544 318 Accrued interest 123,035 54,501 Less: impairment allowance (895) (901) 9,840,987 6,726,784 3,608,892 4,010,658 Other central banks Current accounts 1,042,351 850,470 The movement of the impairment allowance was as follows: Time deposits 2,010,161 1,285,560 Accrued interest 409 1 2014 2013 LBP Million LBP Million

3,052,921 2,136,031 Balance at January 1 901 998 13,247,387 9,192,108 Recoveries (Note 12) - (99) Foreign exchange difference (6) 2 Obligatory Reserves 895 901

- In accordance with the regulations of the Central Bank of all banks operating in Lebanon are required to deposit with Lebanon, banks operating in Lebanon are required to deposit the Central Bank of Lebanon interest-bearing placements with the Central Bank of Lebanon an obligatory reserve representing 15% of total deposits in foreign currencies, 20.0. | LOANS TO BANKS AND FINANCIAL INSTITUTIONS AND REVERSE REPURCHASE calculated on the basis of 25% of sight commitments and regardless of nature. AGREEMENTS 15% of term commitments denominated in Lebanese Pounds. This is not applicable for investment banks which - Subsidiary banks operating in foreign countries are also subject 2014 2013 are exempted from obligatory reserve requirements on to obligatory reserve requirements determined based on the LBP Million LBP Million commitments denominated in Lebanese Pounds. Additionally, banking regulations of the countries in which they operate. Loans and advances 245,980 332,333 Reverse repurchase agreements 2,671,865 324,903 The following table summarises the Group’s placements in central banks available against the obligatory reserves as of December 31: Accrued interest 10,898 709 2,928,743 657,945 2014 2013

Lebanese Foreign Lebanese Foreign Reverse repurchase agreements held by the Group as of December 31, 2014 comprise the following: Pounds Currencies Total Pounds Currencies Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Local Average Collateral Collateral Central Bank of Lebanon Currency Balance Interest Rate Type Value Current accounts 213,956 - 213,956 188,254 - 188,254 Million LBP Million LBP Million LBP Million LBP Million Time deposits 74,993 3,522,350 3,597,343 42,570 3,311,729 3,354,299 USD 800 1,216,455 5.29% BDL CD 1,454,436 288,949 3,522,350 3,811,299 230,824 3,311,729 3,542,553 TRY 2,235 1,455,410 11.08% Treasury bills 1,455,410 Other central banks 2,671,865 2,909,846

Current accounts - 424,806 424,806 - 309,654 309,654 Time deposits - 1,724,079 1,724,079 - 1,283,618 1,283,618 - 2,148,885 2,148,885 - 1,593,272 1,593,272 288,949 5,671,235 5,960,184 230,824 4,905,001 5,135,825

106 107 financial statements BANK AUDI ANNUAL REPORT 2014

21.0. | DERIVATIVE FINANCIAL INSTRUMENTS Notional Amount by Term to Maturity Positive Fair Negative Notional Within 3 to12 1 to 5 Over 5 The tables below show the positive and negative fair values specific amount of a financial instrument at a fixed price, either Value Fair Value Amount 3 Months Months Years Years of derivative financial instruments, together with the notional at a fixed future date or at any time within a specified period. December 31, 2013 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million amounts analysed by the term to maturity. The notional amount Derivatives held for trading is the amount of a derivative’s underlying asset, reference rate Swaps or index and is the basis upon which changes in the value Forward foreign exchange contracts 13,358 5,949 2,101,999 1,699,419 255,883 146,697 - of derivatives are measured. The notional amounts indicate Swaps are contractual agreements between two parties to Forward precious metals contracts 1 4 1,357 1,357 - - - the volume of transactions outstanding at year-end and are exchange movements in interest or foreign currency rates, as Currency swaps 22,602 45,769 1,839,336 1,345,799 493,537 - - indicative of neither the market risk nor the credit risk. well as the contracted upon amounts for currency swaps. Precious metals swaps 1,901 105 99,113 93,033 6,080 - - Credit risk in respect of derivative financial instruments In a currency swap, the Group pays a specified amount in one Currency options 90,299 76,985 6,065,578 1,326,452 4,045,045 694,081 - arises from the potential for a counterparty to default on its currency and receives a specified amount in another currency. Interest rate swaps 2,856 - 1,065,145 - - 793,201 271,944 contractual obligations and is limited to the positive market Currency swaps are mostly gross-settled. value of instruments that are favourable to the Group. Indices swaps and options - - 157 157 - - - A credit default swap (CDS) is a credit derivative between two Credit default swaps 3,535 1,025 1,809,609 644,779 589,687 575,143 - Forwards and Futures counterparties, whereby they isolate the credit risk of at least Equity options 1,508 - 1,508 1,508 - - - one third party and trade it. Under the agreement, one party Forwards and futures contracts are contractual agreements to makes periodic payments to the other and receives the promise Total 136,060 129,837 12,983,802 5,112,504 5,390,232 2,209,122 271,944 buy or sell a specified financial instrument at a specific price of a payoff if the third party defaults. The former party receives Derivatives held to hedge net and date in the future. Forwards are customised contracts credit protection and is said to be the “buyer”, while the other investments in foreign operations transacted in the over-the-counter market. Futures contracts party provides credit protection and is said to be the “seller”. Forward foreign exchange contracts - 134 194,745 - 194,745 - - are transacted in standardised amounts on regulated exchanges The third party is known as the “reference entity”. Currency swaps - 3,752 133,823 - 133,823 - - and are subject to daily cash margin requirements. - 3,886 328,568 - 328,568 - - The notional amount of credit default swaps represents the Options carrying value of certain time deposits held by the Group as of Derivatives used as cash flows hedge December 31, 2014 and 2013. Interest rate swaps 2 743 36,687 1,615 4,844 30,228 - Options are contractual agreements that convey the right, but 136,062 134,466 13,349,057 5,114,119 5,723,644 2,239,350 271,944 not the obligation, for the purchaser either to buy or to sell a The Group has positions in the following types of derivatives:

Notional Amount by Term to Maturity Derivative Financial Instruments Held for Trading Purposes Positive Fair Negative Notional Within 3 to12 1 to 5 Over 5 Most of the Group’s derivative trading activities relate to deals derivatives entered into for risk management purposes which Value Fair Value Amount 3 Months Months Years Years with customers which are normally offset by transactions with do not meet the IFRS 9 hedge accounting criteria. December 31, 2014 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million other counterparties. Also included under this heading are any Derivatives held for trading Forward foreign exchange contracts 7,246 7,275 880,757 745,982 134,775 - - Derivative Financial Instruments Held for Hedging Purposes Forward precious metals contracts 31 22 3,893 3,893 - - - The Group uses derivatives for hedging purposes in order to During 2014, the Group renewed its currency swap contracts Currency swaps 22,037 32,827 4,062,244 3,462,363 554,417 45,464 - reduce its exposure to credit and market risks. This is achieved designated to hedge the net investment in its subsidiaries in Precious metals swaps 1,865 716 106,174 104,031 2,143 - - by hedging specific financial instruments, portfolios of fixed Cyprus, France, Kingdom of Saudi Arabia and Qatar. Since rate financial instruments and forecast transaction, as well as these hedging relationships qualified for hedge accounting in Currency options 62,998 67,966 6,458,718 4,028,639 2,412,180 17,899 - strategic hedging against overall financial position exposures. accordance with IAS 39 and also qualify for hedge accounting Interest rate swaps 5,209 2,851 1,714,013 8,660 169,710 1,389,914 145,729 in accordance with the criteria set in IFRS 9, they are regarded as Interest rate options 816 816 1,334,603 - 155,627 926,554 252,422 During 2014, the Group hedged USD 600 million of its continuing hedging relationships. The notional amount of these net investment in Odea Bank A.Ş. through currency option contracts amounted to LBP 234,740 million as of December Credit default swaps 2,458 - 2,235,511 424,971 1,416,972 393,568 - contracts. The notional amount of these contracts amounted to 31, 2014 (2013: LBP 328,568 million). The positive fair value Equity options 11,504 3,709 30,038 - - 30,038 - LBP 904,500 million (USD 600 million) as of December 31, 2014 of some of these contracts amounted to LBP 13,918 million Total 114,164 116,182 16,825,951 8,778,539 4,845,824 2,803,437 398,151 and is comprised of USD 400 million hedged through capped while the negative fair value of other contracts reached LBP 121 Derivatives held to hedge net calls and USD 200 million hedged through currency collars. At million (2013: negative fair value of LBP 3,886 million) and investments in foreign operations year-end, the positive fair value of these contracts amounted to was transferred to “Foreign Currency Translation Reserve” in LBP 69,045 million (USD 45.8 million). The Bank designated only equity to offset gains on translation of the net investment in Currency swaps 13,918 121 234,740 - 234,740 - - the intrinsic value of these options as the hedging instrument. the subsidiaries. Currency options 69,045 - 904,500 301,500 - 603,000 - 82,963 121 1,139,240 301,500 234,740 603,000 - No ineffectiveness from hedges of net investments in foreign operations was recognised in profit or loss during the year. 197,127 116,303 17,965,191 9,080,039 5,080,564 3,406,437 398,151

108 109 financial statements BANK AUDI ANNUAL REPORT 2014

Information pertaining to the effect of applying hedge accounting for hedged items and hedging instruments is summarised as 23.0. | LOANS AND ADVANCES TO CUSTOMERS AT AMORTISED COST follows: 2014 Effect of Change in Balances Retail and Time Value Recognised in Corporate and Personal Public Hedging Hedged Notional Positive Fair Negative Fair Recognised FCTR during SME Banking Sector Total Instrument Currency Amount Value Value in OCI 2014 LBP Million LBP Million LBP Million LBP Million

Hedged Item LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Overdraft accounts 3,140,370 888,216 19,197 4,047,783 Odea Bank A.Ş. – effect of foreign currency Loans 16,896,863 5,185,761 202,024 22,284,648 fluctuation within a predefined range Capped calls TRY 603,000 67,909 - (788) 15,162 Odea Bank A.Ş. – effect of extreme Discounted bills and commercial paper 221,784 8,366 7,431 237,581 foreign currency fluctuation Collars TRY 301,500 1,136 - 1,136 (23,829) 20,259,017 6,082,343 228,652 26,570,012 Bank Audi France sa – effect of Impairment allowance (508,371) (168,252) (2,709) (679,332) foreign currency fluctuation Currency swap EUR 107,281 12,556 - - 14,081 Unrealised interest (87,646) (27,696) - (115,342) Banaudi Holding – effect of foreign currency fluctuation Currency swap EUR 11,003 1,340 - - 1,445 19,663,000 5,886,395 225,943 25,775,338

Audi Capital (KSA) – effect of foreign currency fluctuation Currency swap SAR 41,397 22 - - (288) 2013 Audi Qatar – effect of Retail and foreign currency fluctuation Currency swap QAR 75,059 - 121 - 9 Corporate and Personal Public SME Banking Sector Total 82,963 121 348 6,580 LBP Million LBP Million LBP Million LBP Million

Overdraft accounts 3,283,516 724,358 37,830 4,045,704 Loans 14,356,480 3,795,889 237,056 18,389,425 22.0. | FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Discounted bills and commercial paper 223,270 9,089 6,409 238,768 2014 2013 17,863,266 4,529,336 281,295 22,673,897 LBP Million LBP Million

Impairment allowance (409,770) (111,090) (3,780) (524,640) Lebanese sovereign and Central Bank of Lebanon Unrealised interest (63,814) (20,621) - (84,435) Central Bank certificates of deposits 98,008 19,118 Treasury bills 169,262 138,265 17,389,682 4,397,625 277,515 22,064,822

Eurobonds 128,710 123,690 The breakdown and movement of the impairment allowance during the year are as follows: 395,980 281,073 2014 Other sovereign Retail and Treasury bills and bonds 1,158 1,843 Corporate and Personal Public Eurobonds 898 - SME Banking Sector Total 2,056 1,843 LBP Million LBP Million LBP Million LBP Million

Private sector and other securities Balance at January 1 409,770 111,090 3,780 524,640 Banks and financial institutions 48,574 218,898 Add: Loans and advances to customers 12,043 47,844 Charges for the year (Note 12) 151,304 75,722 - 227,026 Corporate debt instruments - 13,692 Transfers (20,479) 585 - (19,894) Mutual funds 53,119 61,033 Less: Equity instruments 5,050 3,598 Recoveries (Note 12) (3,404) (2,542) (970) (6,916) 118,786 345,065 Write-offs (3,008) (9,358) - (12,366) 516,822 627,981 Foreign exchange difference (25,812) (7,245) (101) (33,158)

The classification of the above instruments according to the type of interest is as follows: Balance at December 31 508,371 168,252 2,709 679,332 Individual impairment 349,749 119,539 610 469,898 2014 2013 LBP Million LBP Million Collective impairment 158,622 48,713 2,099 209,434 Fixed interest 508,371 168,252 2,709 679,332

Lebanese sovereign and Central Bank of Lebanon 395,980 281,073 Other sovereign 1,990 1,843 Private sector and other securities 12,043 61,535 410,013 344,451 Variable interest Other sovereign 66 - Non-interest bearing Private sector and other securities 106,743 283,530 516,822 627,981

110 111 financial statements BANK AUDI ANNUAL REPORT 2014

2013 24.0. | LOANS AND ADVANCES TO RELATED PARTIES AT AMORTISED COST Retail and 2014 Corporate and Personal Public SME Banking Sector Total Retail and LBP Million LBP Million LBP Million LBP Million Corporate and Personal

SME Banking Total Balance at January 1 336,669 101,342 3,732 441,743 LBP Million LBP Million LBP Million Add: Overdraft accounts 362 27,663 28,025 Charges for the year (Note 12) 119,663 24,440 1,230 145,333 Loans 18,179 63,803 81,982 Transfers 520 (649) 295 166 18,541 91,466 110,007 Less:

Recoveries (Note 12) (5,462) (78) (1,503) (7,043) Write-offs (9,251) (5,146) - (14,397) 2013 Foreign exchange difference (32,369) (8,819) 26 (41,162) Retail and Balance at December 31 409,770 111,090 3,780 524,640 Corporate and Personal SME Banking Total Individual impairment 249,777 75,554 1,508 326,839 LBP Million LBP Million LBP Million Collective impairment 159,993 35,536 2,272 197,801 Overdraft accounts 25,454 21,113 46,567 409,770 111,090 3,780 524,640 Loans 10,718 57,544 68,262

The movement of unrealised interest during the year is as follows: 36,172 78,657 114,829

2014 Retail and Corporate and Personal SME Banking Total LBP Million LBP Million LBP Million Balance at January 1 63,814 20,621 84,435 Add: Unrealised interest applied on non-performing loans 27,151 7,893 35,044 Less: Unrealised interest written off (305) (92) (397) Unrealised interest recovered (Note 12) (1,242) (410) (1,652) Foreign exchange difference (1,772) (316) (2,088) Balance at December 31 87,646 27,696 115,342

2013 Retail and Corporate and Personal SME Banking Total LBP Million LBP Million LBP Million Balance at January 1 44,827 15,357 60,184 Add: Unrealised interest applied on non-performing loans 23,583 6,231 29,814 Less: Unrealised interest written off (2,361) (197) (2,558) Unrealised interest recovered (Note 12) (318) (313) (631) Foreign exchange difference (1,917) (457) (2,374) Balance at December 31 63,814 20,621 84,435

Bad loans and related provisions and unrealised interest (2013: LBP 16,955 million). Besides, amounts recovered which fulfil certain requirements have been transferred to from off‑balance sheet accounts during 2014 amounted to off-balance sheet accounts. The gross balance of these loans LBP 10,690 million (2013: 6,358 million) (Note 12). transferred during 2014 amounted to LBP 12,762 million

112 113 financial statements BANK AUDI ANNUAL REPORT 2014

25.0. | FINANCIAL ASSETS AT AMORTISED COST 26.0. | FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 2014 2013 LBP Million LBP Million The Group classified the following instruments in private sector The tables below list those equity instruments and dividends Lebanese sovereign and Central Bank of Lebanon securities at fair value through other comprehensive income as received: it holds them for strategic reasons. Central Bank’s certificates of deposits 4,481,896 4,848,530 2014 Treasury bills 1,537,535 1,839,167 Cumulative Eurobonds 3,699,108 5,061,094 Changes in 9,718,539 11,748,791 Fair Value Fair Value Dividends LBP Million LBP Million LBP Million Other sovereign AZA Holding SAL - - 6,807 Treasury bills 3,706,404 2,987,822 LIA Insurance sal 38,239 5,134 3,042 Eurobonds 229,986 105,317 Visa NC – Class “C” 25,270 17,995 141 Other governmental securities 74,987 102,068 Phoenicia – Aer Rianta Co. SAL 10,729 - 18,079 4,011,377 3,195,207 Banque de l’Habitat SAL 14,857 9,500 311 Private sector and other securities Solidere International Limited 6,009 (4,220) - Banks and financial institutions debt instruments 629,249 740,271 Liban Lait SAL 5,232 - - Corporate debt instruments 219,596 344,620 Saraya Aqaba Real Estate Development 3,953 - - Loans related to investments in equity instruments 168 168 MasterCard Inc. Class “B” 5,000 4,244 25 849,013 1,085,059 Kafa Holding SAL 2,049 - - Kafalat 1,474 1,015 - 14,578,929 16,029,057 International payment Network SAL 1,453 683 91 Less: impairment allowance (5,186) (6,022) Arab Trade Finance Program 1,577 2 - 14,573,743 16,023,035 Abdel Wahab 618 Holding SAL 1,203 - - Fransabank SAL 959 (222) 60 Societe ABC SAL 3,302 1,588 261 The movement of the impairment allowance was as follows: C-Mobile Group Holding Ltd. 1 (10,877) - Balance at January 1 6,022 7,065 Other equity instruments 14,399 2,685 3,303 Recoveries (Note 12) (699) (736) 135,706 27,527 32,120 Write-offs - (228) During 2014, the Group sold its investment in AZA Holding SAL (Note 47) and was reclassified to retained earnings net of the Foreign exchange differences (137) (79) for a total consideration of USD 94,708 thousands (equivalent effect of taxes amounting to LBP 11,238 million which was to LBP 142,773 million). The cumulative change in fair value booked under current tax liabilities. Balance at December 31 5,186 6,022 upon the sale transaction amounted to LBP 112,382 million

The classification of the above instruments according to the type of interest is as follows: 2013 2014 2013 Cumulative LBP Million LBP Million Changes in Fixed interest Fair Value Fair Value Dividends LBP Million LBP Million LBP Million Lebanese sovereign and Central Bank of Lebanon 9,718,539 11,748,791 AZA Holding SAL 132,873 102,483 6,062 Other sovereign 3,812,007 2,982,947 LIA Insurance sal 32,199 - 2,173 Private sector and other securities 840,498 1,079,037 BankMed SAL 7.75% series “1” preferred shares 15,075 - 1,168 14,371,044 15,810,775 Visa NC – Class “C” 21,102 14,482 67 Variable interest Phoenicia – Aer Rianta Co. SAL 10,729 - 16,585 Private sector and other securities 3,329 - Banque de l’Habitat SAL 13,575 7,936 372 Other sovereign 199,370 212,260 Solidere International Limited 6,421 (4,823) - 202,699 212,260 Liban Lait SAL 5,232 - - 14,573,743 16,023,035 Saraya Aqaba Real Estate Development 4,385 4 - MasterCard Inc. Class “B” 4,791 4,077 1

Kafa Holding SAL 2,049 - - Kafalat 1,820 1,224 - International payment Network SAL 1,453 683 122 Arab Trade Finance Program 2,735 756 - Abdel Wahab 618 Holding SAL 1,202 - - Fransabank SAL 1,221 - 55 Societe ABC SAL 2,354 1,132 185 C-Mobile Group Holding Ltd. 1 (10,877) - Other equity instruments 13,258 2,366 2,016 272,475 119,443 28,806

114 115 financial statements BANK AUDI ANNUAL REPORT 2014

27.0. | INVESTMENTS IN ASSOCIATES 28.0. | PROPERTY AND EQUIPMENT Office 2014 2013 Buildings and Equipment Office Related Leasehold Motor and Computer Machinery Other Fixed Country of Ownership Cost Ownership Cost Lands Improvements Improvements Vehicles Hardware and Furniture Assets Total Incorporation % LBP Million % LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Investments Cost or revaluation: Assurex sal Lebanon 23.82% 9,738 23.82% 8,890 At January 1, 2014 69,754 439,320 132,998 2,704 173,418 104,626 9,670 932,490 Syrian Arab for Insurance sal Syria 36.00% 3,873 36.00% 4,915 Additions 75 19,544 20,699 751 26,578 5,912 2 73,561 Pin-Pay sal Lebanon 37.04% 687 35.50% 365 Disposals - (4,479) (336) (219) (5,770) (589) - (11,393) Capital Outsourcing Ltd. (Dubai) UAE 37.50% 4,324 37.50% 4,325 Revaluation** 112,598 270,498 - - - - - 383,096 18,622 18,495 Transfers* - (139,949) - - - - - (139,949) Related loans Foreign exchange difference (160) (12,592) (6,478) (132) (4,570) (2,902) (927) (27,761) Capital Outsourcing Ltd. (Dubai) UAE 9,140 9,625 December 2014 182,267 572,342 146,883 3,104 189,656 107,047 8,745 1,210,044 Pinpay Lebanon - 495 Depreciation: At January 1, 2014 - 133,361 61,607 1,343 94,380 58,845 7,118 356,654 27,762 28,615 Depreciation during the year - 12,851 18,879 378 23,918 8,527 121 64,674

Disposals - (4,184) (309) (113) (5,762) (589) - (10,957) Pursuant to the revaluation of its real estate property, Assurex The loans granted to Capital Outsourcing Ltd. mature in June Transfers* - (139,949) - - - - - (139,949) sal recorded a revaluation reserve of LBP 19,086 million. The 2016 to the extent of LBP 2,204 million and in December 2021 Foreign exchange difference - (2,079) (2,303) (55) (2,111) (1,662) (709) (8,919) Group share of this reserve amounted to LBP 4,546 million and to the extent of LBP 6,926 million. Interest income on these was recorded in other comprehensive income during 2013. loans for the year ended December 31, 2014 amounted to At December 31, 2014 - - 77,874 1,553 110,425 65,121 6,530 261,503 LBP 182 million (2013: LBP 319 million). Net book value: During April 2013, the General Assembly of Pin-Pay sal decided At December 31, 2014 182,267 572,342 69,009 1,551 79,231 41,926 2,215 948,541 to increase the capital of the company by LBP 2.25 billion During 2013, Capital Outsourcing Ltd. made a partial early representing 9,000 common shares. The Group’s share of this redemption of the loans extended by the Group. * This transfer relates to the accumulated depreciation at December 31, 2014 that was eliminated against the gross carrying amount of the re-valued assets. increase amounted to LBP 829 million. The Group’s investments accounted for under the equity ** Revaluation recognised in other comprehensive income due to the change in accounting policy to revaluation model. method are not listed on public exchanges. Office The following table illustrates the summarised financial information of these investments: Buildings and Equipment Office Related Leasehold Motor and Computer Machinery Other Fixed Lands Improvements Improvements Vehicles Hardware and Furniture Assets Total 2014 2013 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Cost or revaluation: Share of associates’ statement of financial position At January 1, 2013 59,604 432,662 111,147 3,517 128,162 99,601 16,766 851,459 Current assets 26,455 26,970 Additions 10,440 26,262 33,100 303 47,915 13,011 721 131,752 Non-current assets 24,912 36,733 Disposals - (1,849) (2,322) (775) (2,516) (1,202) (1) (8,665) Current liabilities (10,415) (11,842) Transfers - - - - 2 (2) - - Non-current liabilities (20,892) (31,586) Foreign exchange difference (290) (17,755) (8,927) (341) (145) (6,782) (7,816) (42,056) Net assets 20,060 20,275 At December 31, 2013 69,754 439,320 132,998 2,704 173,418 104,626 9,670 932,490 Share of associates’ revenues Depreciation: Share of associates’ revenues 8,881 15,941 At January 1, 2013 - 125,223 52,372 2,087 77,223 54,841 11,003 322,749 Share of associates’ profits 373 1,169 Depreciation during the year - 13,840 11,728 353 17,677 8,111 1,014 52,723

Disposals - (1,849) (2,300) (730) (2,472) (1,178) - (8,529) Transfers ------Foreign exchange difference - (3,853) (193) (367) 1,952 (2,929) (4,899) (10,289) At December 31, 2013 - 133,361 61,607 1,343 94,380 58,845 7,118 356,654 Net book value: At December 31, 2013 69,754 305,959 71,391 1,361 79,038 45,781 2,552 575,836

Revaluation of Land and Buildings Pursuant to the decision of the Board of Directors held on Fair value of the land and buildings and related improvements September 3, 2014, the Group changed its accounting policy was determined using the market comparable method. This for measuring land and buildings and related improvements means that valuations performed by the valuers are based on from the cost model to the revaluation model. Management market prices, significantly adjusted for differences in the nature, determined that these constitute a single class of asset under location or condition of the specific property. As at the date of IFRS 13, based on the nature, characteristics and risks of the revaluation, the properties’ fair values are based on valuations property. These assets classified under Level 3 in the fair value carried out by independent valuers accredited by the local hierarchy. regulators in the countries in which the properties are situated.

116 117 financial statements BANK AUDI ANNUAL REPORT 2014

Significant Unobservable Valuation Input 30.0. | NON-CURRENT ASSETS HELD FOR SALE Significant increase (decreases) in the fair value estimation within reconciliation of fair value between January 1, 2014 and The Group occasionally takes possession of properties in for LBP 4,983 million. Management completed the sale of a range of 5% relative to the adopted fair value measurement December 31, 2014 is provided in the property and equipment settlement of loans and advances. The Group is in the process of this investment during 2014. The resulting gain amounting would result in a higher (lower) value of revaluation recognised table presented above for the year 2014. selling these properties and are, as such, included in non‑current to LBP 11,544 million was booked under “Other Operating in other comprehensive income by LBP 24,346 million. The assets held for sale. Gains or losses on disposal and revaluation Income”. losses are recognised in the Consolidated Income Statement for The Group changed the accounting policy with respect to If land and buildings and related improvements were measured the year. Besides, as at December 31, 2012, the Group recognised the measurement of land and buildings and related improvements using the cost model, the carrying amounts as of December 31, assets and liabilities from three subsidiaries which represented during 2014, therefore the fair value of the land and buildings 2014 would have been as follows: During 2013, the Group purchased 47,250 shares comprising non-core businesses. Management completed the sale of these was not measured at January 1, 2013 and December 31, 2013. 30% of the capital of Elite Insurance and Reinsurance Company disposal groups during 2013. Buildings and Related 2014 2013 Land Improvements LBP Million LBP Million Properties Properties

Acquired in Other Acquired in Other Cost as at January 1 69,669 441,793 Settlement Disposal Settlement Disposal Accumulated depreciation - (139,949) of Debts Groups Total of Debts Groups Total Net book value at December 31 69,669 301,844 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cost:

At January 1 14,991 4,983 19,974 15,743 34,941 50,684 29.0. | iNTANGIBLE FIXED ASSETS Additions 4,932 - 4,932 121 4,983 5,104 Key Computer Transfers ------Money Software Other Total Disposals (149) (4,983) (5,132) - (34,941) (34,941) LBP Million LBP Million LBP Million LBP Million Foreign exchange difference (679) - (679) (873) - (873)

Cost: At December 31 19,095 - 19,095 14,991 4,983 19,974 At January 1, 2014 1,584 139,204 438 141,226 Impairment: Additions 23 38,358 77 38,458 At January 1 656 - 656 630 - 630 Transfers (613) - - (613) Foreign exchange difference (71) - (71) 26 - 26 Disposals - (4,195) - (4,195) At December 31 585 - 585 656 - 656 Foreign exchange difference (281) (5,514) (34) (5,829) Net book value: At December 31, 2014 713 167,853 481 169,047 Amortisation: At December 31 18,510 - 18,510 14,335 4,983 19,318

At January 1, 2014 118 58,731 118 58,967 Amortisation during the year 13 23,520 69 23,602 Disposals - (4,068) - (4,068) 31.0. | OTHER ASSETS Foreign exchange difference (29) (2,064) (13) (2,106) 2014 2013 At December 31, 2014 102 76,119 174 76,395 LBP Million LBP Million Net book value: Advances on acquisition of tangible fixed assets 63,915 47,674 At December 31, 2014 611 91,734 307 92,652 Advances on acquisition of intangible fixed assets 22,831 13,862

Prepaid charges 78,623 48,759 Key Computer Electronic cards and regularisation accounts 27,164 21,108 Money Software Other Total Trade receivables related to non-banking operations 6,913 6,342 LBP Million LBP Million LBP Million LBP Million

Advances to staff 13,099 20,494 Cost: Hospitalisation and medical care under collection 24,372 19,294 At January 1, 2013 4,402 91,151 291 95,844 Advances on investments 59,548 11,212 Additions 6 54,322 162 54,490 Disposals (1,151) (5) - (1,156) Deferred tax assets (Note 15) 43,725 33,564 Foreign exchange difference (1,673) (6,264) (15) (7,952) Interest and commissions receivable 3,518 2,198 At December 31, 2013 1,584 139,204 438 141,226 Funds management fees 2,560 3,157 Amortisation: Fiscal stamps, bullions and commemorative coins 3,273 2,129 At January 1, 2013 2,235 43,982 27 46,244 Management and advisory fees receivable 2,140 1,733 Amortisation during the year 13 16,023 56 16,092 Tax regularisation account 11,562 22,555 Disposals (1,151) (5) - (1,156) Due on sale of AZA Holding (Note 26) 142,773 - Foreign exchange difference (979) (1,269) 35 (2,213) Miscellaneous debtors and other debtor accounts 30,520 24,503 At December 31, 2013 118 58,731 118 58,967 536,536 278,584 Net book value:

At December 31, 2013 1,466 80,473 320 82,259

118 119 financial statements BANK AUDI ANNUAL REPORT 2014

32.0. | GOODWILL 33.0. | DUE TO CENTRAL BANKS Lebanon Switzerland Egypt Sudan Total 2014 2013 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Cost: Subsidised loan 437,858 251,534 At January 1, 2014 54,716 48,005 105,913 2,510 211,144 Accrued interest 527 508 Impairment - - (3,015) - (3,015) 438,385 252,042 Foreign exchange difference - (4,715) (5,805) (136) (10,656) Repurchase agreements 90,443 196,180 At December 31, 2014 54,716 43,290 97,093 2,374 197,473 528,828 448,222

Lebanon Switzerland Egypt Sudan Total LBP Million LBP Million LBP Million LBP Million LBP Million Subsidised Loans Cost: During 2013, the Group signed a credit agreement with the decision. The loan amounted to LBP 132,612 million as of At January 1, 2013 54,716 46,731 118,899 2,500 222,846 Central Bank of Lebanon based on the provisions of Decision No. December 31, 2014 (2013: same). 6116 dated March 7, 1996 relating to the facilities which can be Foreign exchange difference - 1,274 (12,986) 10 (11,702) granted by BDL to banks. The loan amounted to LBP 305,246 Interest expense on these loans amounted to LBP 5,295 million At December 31, 2013 54,716 48,005 105,913 2,510 211,144 million as of December 31, 2014 (2013: LBP 118,922 million). and LBP 3,839 million for the years ended December 31, 2014 and 2013, respectively.

For the purpose of impairment testing, goodwill is allocated to The online brokerage CGU in Egypt (Arabeya Online) is a During 2009, the Group signed a credit agreement with the the Cash-generating Units (CGUs) which represent the lowest separate legal entity performing brokerage activities to its Central Bank of Lebanon based on the provisions of the same level within the Group at which the goodwill is monitored for customers and is reported under Retail and Personal Banking internal management purposes. The cost of equity assigned to business segment and MENAT geographic segment. Due to Repurchase Agreements an individual CGU and used to discount its future cash flows the adverse events witnessed in Egypt, the volume of trading can have a significant effect on its valuation. The cost of equity activities has drastically dropped in that market and, accordingly, During 2014, the Group entered into repurchase agreements against pledging Turkish Treasury bills as collateral. The terms of these percentage is generally derived from an appropriate capital the earnings of this CGU were significantly affected. As a result, agreements are as follows: asset pricing model, which itself depends on inputs reflecting an impairment loss on goodwill amounting to USD 2 million a number of financial and economic variables including the (equivalent to LBP 3,015 million) has been recognised during 2014 2013 risk rate in the country concerned and a premium to reflect the the year ended December 31, 2014. The recoverable amount of LBP Million LBP Million inherent risk of the business being evaluated. this cash-generating unit is its value in use. Central banks 90,443 196,180 Carrying value of collateral 101,860 204,799 Management judgment is required in estimating the future The following CGUs include in their carrying value goodwill cash flows of the CGUs. These values are sensitive to cash that is a significant proportion of total goodwill reported by the Interest expense 11,323 9,812 flows projected for the periods for which detailed forecasts are Group. These CGUs do not carry on their statement of financial Annual interest rate 8.25% 3.75% - 3.83% available, and to assumptions regarding the term sustainable position any intangible assets with indefinite lives, other than Maturity date January 2015 January 2014 pattern of cash flows thereafter. While the acceptable range goodwill. The following schedule shows the discount and within which underlying assumptions can be applied is governed terminal growth rates used for CGUs subject to impairment by the requirement for resulting forecasts to be compared with testing. 34.0. | DUE TO BANKS AND FINANCIAL INSTITUTIONS actual performance and verifiable economic data in future years, the cash flow forecasts necessarily and appropriately 2014 2013 reflect Management’s view of future business prospects. LBP Million LBP Million Current accounts 261,033 282,592 2014 2013 Term loans 1,090,170 1,007,723 Discount Terminal Discount Terminal Time deposits 336,802 303,751 Rate Growth Rate Rate Growth Rate Accrued interest 7,346 5,846 % % % %

1,695,351 1,599,912 Cash-generating units

Commercial and Private Banking – Lebanon 16.00 2.00 17.00 2.00 Included in term loans above, is an amount of LBP 405,571 The commitments arising from bank facilities received are Private Banking – Switzerland 10.00 2.00 10.00 2.00 million (2013: LBP 434,939 million) representing loans granted disclosed in Note 51 to these consolidated financial statements. from various supranational entities for the purpose of financing Commercial Banking – Egypt 17.00 3.00 16.00 3.00 small and medium-sized enterprises in the private sector with Commercial Banking – Sudan 22.00 2.00 22.00 2.00 annual interest rates ranging from 1.32% to 5.68%. Online Brokerage – Egypt 17.00 3.00 16.00 4.00

The key assumptions described above may change as economic and market conditions change. The Group estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of either unit to decline below the carrying amount.

120 121 financial statements BANK AUDI ANNUAL REPORT 2014

35.0. | CUSTOMERS’ DEPOSITS 36.0. | DEPOSITS FROM RELATED PARTIES

2014 2014 Retail and Retail and Corporate and Personal Public Corporate and Personal SME Banking Sector Other Total SME Banking Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Sight deposits 2,530,734 5,093,109 112,480 16,417 7,752,740 Sight deposits 18,984 62,401 81,385 Time deposits 12,715,052 22,833,546 336,322 783 35,885,703 Time deposits 321,467 176,118 497,585 Saving accounts 4,703 7,753,670 - - 7,758,373 Saving accounts - 887 887 Certificates of deposits 83,722 1,244,919 - - 1,328,641 Other deposits and margin accounts 6,459 305 6,764 Margins on LC’s and LG’s 262,953 56,471 2,188 - 321,612 346,910 239,711 586,621 Other margins 57,816 176,232 - - 234,048 Deposits pledged as collateral 65,212

Other deposits 45,124 86,968 - - 132,092 2013 15,700,104 37,244,915 450,990 17,200 53,413,209 Retail and Deposits pledged as collateral 4,372,324 Corporate and Personal

SME Banking Total 2013 LBP Million LBP Million LBP Million Retail and Sight deposits 21,242 191,101 212,343 Corporate and Personal Public Time deposits 317,388 222,105 539,493 SME Banking Sector Other Total LBP Million LBP Million LBP Million LBP Million LBP Million Saving accounts - 1,153 1,153 Sight deposits 1,989,518 4,906,209 42,946 4,309 6,942,982 Other deposits and margin accounts 3,865 736 4,601 Time deposits 10,535,291 21,917,220 303,037 - 32,755,548 342,495 415,095 757,590 Saving accounts 5,563 4,682,109 - - 4,687,672 Deposits pledged as collateral 48,546

Certificates of deposits 65,610 995,427 - - 1,061,037 Margins on LC’s and LG’s 259,517 58,263 - - 317,780 Other margins 62,330 132,892 - - 195,222 Other deposits 60,172 97,804 - - 157,976 12,978,001 32,789,924 345,983 4,309 46,118,217 Deposits pledged as collateral 3,537,437

Sight deposits include balances of bullion amounting to at maturity according to the full discretion of the Group either LBP 70,457 million (2013: LBP 76,301 million) which were in cash or in Lebanese government Eurobonds denominated carried at fair value through profit or loss. in US Dollars and having the same nominal amount. As these deposits are linked to the credit risk of the Lebanese Republic, Time deposits include balances amounting to LBP 2,235,511 the Group separated the embedded derivative and accounted million as at December 31, 2014 (2013: LBP 1,809,609 million) for it at fair value through profit or loss. that pay a preferential (simple) interest rate. The principal is settled

122 123 financial statements BANK AUDI ANNUAL REPORT 2014

37.0. | DEBT ISSUED AND OTHER BORROWED FUNDS 38.0. | OTHER LIABILITIES

2014 2013 2014 2013 LBP Million LBP Million LBP Million LBP Million

Subordinated loans 753,750 527,625 Current tax liabilities (Note 15) 102,614 80,395 Issued bills 86,100 - Accrued expenses 123,938 103,775 Accrued interests 14,605 9,476 Miscellaneous suppliers and other payables 33,655 71,754 854,455 537,101 Credit balances of factoring clients 53,493 97,188

Operational taxes 52,884 48,147 The Group signed subordinated loans agreements with a 2014 and 2013, respectively. The loans are subordinated, Employee accrued benefits 8,394 3,821 nominal value of USD 150 million and USD 350 million during unsecured and subject to the following conditions: Unearned commissions and premiums 56,854 44,326

Loan Nominal Amount Maturity Interest Rate Frequency Deferred tax liabilities (Note 15) 54,235 3,831

Electronic cards and regularisation accounts 15,598 6,726 Loan 1 USD 350,000,000 October 16, 2023 6.75% Quarterly Social security dues 4,845 7,015 Loan 2 USD 112,500,000 April 11, 2024 6.55% + Libor 6m Semi-annually Due to National Institute for Guarantee of Deposits 1,445 14,783 Loan 3 USD 37,500,000 April 11, 2024 6.55% + Libor 6m Semi-annually Other credit balances 12,025 21,010

519,980 502,771 The principal of the loans is to be repaid at maturity. Any principal amount of the loans prepaid may not be re-borrowed. Prepayment on the loans is applicable as follows:

Loan 1 The Group, at its sole discretion and after obtaining approval of the Central Bank of Lebanon, has the right to prepay all bonds (entirely and not partially) according to the following:

- First time, after five years from issuance and upon payment of interest thereafter.

- Without regard to the dates set above and according to the following: • At any time after one year from the date of issuance, in the • At any time after one year from the date of issuance for event of amendments to local and international laws and reasons related to the amendment of Lebanese taxation regulations, the subordinated bonds cannot be computed laws. within the private funds of the Group (Tier II);

Loans 2 and 3 The Group shall, on any interest payment date or not less than 30 days’ prior written notice, have the right to prepay the entire outstanding principal amount of the loan, in whole but not in part, together with accrued but unpaid interest thereon, and all other amounts payable, and subject to the approval of the Central Bank of Lebanon:

- In the event of a change in Lebanese law or regulation - Subject to the payment of a premium of 2.00% of the resulting in an increase in the withholding tax rate applicable outstanding principal amount of the loans to be prepaid, at to payments of interest on the loans to more than 5.00% the option of the Group, on any interest payment date at any above the rate in effect on the date of the disbursement, no time after the fifth anniversary of the date on which the loan penalty or premium shall be payable in connection with any is disbursed. prepayment following changes in taxation; or

Besides, during 2014, the Group issued bills denominated in Turkish Lira to domestic investors in the amount of LBP 86,100 million. These bills mature on August 21, 2015 and pay semi-annual interest of 9.75%.

124 125 financial statements BANK AUDI ANNUAL REPORT 2014

39.0. | PROVISIONS FOR RISKS AND CHARGES 2013 2014 2013 Foreign LBP Million LBP Million Lebanon Countries Total Provisions for risks and charges 48,147 42,035 LBP Million LBP Million LBP Million

End of service benefits 105,814 90,847 Balance at January 1, 2013 58,833 13,909 72,742 153,961 132,882 Charge for the year (Note 13) 17,405 4,336 21,741 Paid during the year (789) (3,200) (3,989)

Provisions for Risks and Charges 2014 2013 Actuarial loss (gain) on obligation 3,116 (2,538) 578 LBP Million LBP Million Provision released (Note 11) - (27) (27)

Provision for contingencies 18,986 18,965 Foreign exchange difference - (198) (198) Provision for legal claims 1,517 1,760 Balance at December 31, 2013 78,565 12,282 90,847 Provision for bonus 23,252 17,654

Other provisions 4,392 3,656 The amount provided during the year is as follows: 48,147 42,035

2014 2013 The movement of provision for risks and charges is as follows: LBP Million LBP Million 2014 2013 Current service cost 7,661 10,793 LBP Million LBP Million Interest on obligation 6,688 3,730

Balance at January 1 42,035 38,571 Past service cost 19,664 7,218 Add: Total charge for the year (Note 13) 34,013 21,741 Charge for operating expenses (Note 14) 4,094 7,210

Charge for loans written off 2,391 4,507 Defined benefit plans in Lebanon constitute more than 80% of the Group required obligation. The key assumptions used in the Charge for personnel expenses 31,655 19,724 calculation of Lebanese retirement benefit obligation are as follows: 38,140 31,441 2014 2013 Less: Economic assumptions Paid during the year 24,882 16,952 Discount rate (p.a.) 8.50% 8.50% Net provisions recoveries (Note 11) 897 2,307 Salary increase (p.a.) Transfer to other liabilities 2,843 3,416 Employees 6% 6% Foreign exchange difference 3,406 5,302 Senior Managers 8% 8% 32,028 27,977 Expected annual rate of return on NSSF contributions 5% 5% Balance at December 31 48,147 42,035 3-year average as 3-year average as Treatment of bonus a % of basic a % of basic

End of Service Benefits Demographic assumptions Banking entities operating in Lebanon have two defined and level of these end of service benefits provided depends Earliest of age 64 Earliest of age 64 benefit plans covering all of their employees. The first requires on the employees’ length of service, the employees’ salaries or completion of 20 or completion of 20 contributions to be made to the National Social Security Fund and other requirements outlined in the Workers’ Collective Retirement age contribution years contribution years whereby the entitlement to and level of these benefits depend Agreement. The first plan also applies to non‑banking entities Pre-termination mortality None None on the employees’ length of service, the employees’ salaries operating in Lebanon. Defined benefit plans for employees at Pre-termination turnover rates (age related with average of) 2.00% 2.00% and contributions paid to the fund among other requirements. foreign subsidiaries and branches are set in line with the laws Under the second plan, no contributions are required to and regulations of the respective countries in which these be made, however a fixed end of service lump sum amount subsidiaries are located. The movement of provision for staff A quantitative sensitivity analysis for significant assumptions is shown as below: should be paid for long service employees. The entitlement to retirement benefit obligation is as follows: Discount Rate Future Salary Increase 2014 % Increase % Decrease % Increase % Decrease Foreign LBP Million LBP Million LBP Million LBP Million Lebanon Countries Total Impact on net defined benefit obligation – 2014 (5,521) 6,235 4,729 (4,480) LBP Million LBP Million LBP Million Impact on net defined benefit obligation – 2013 (4,575) 5,041 2,941 (2,812) Balance at January 1, 2014 78,565 12,282 90,847

Charge for the year (Note 13) 30,259 3,754 34,013 The sensitivity analysis above was determined based on a method that extrapolates the impact on net defined benefit obligation as Paid during the year (3,662) (578) (4,240) a result of 50 basis point changes in key assumptions occurring at the end of the reporting period. Actuarial (gain) loss on obligation (5,361) 5,396 35 Provision released (Note 11) (83) (156) (239) Advances paid (13,367) - (13,367) Foreign exchange difference - (1,235) (1,235) Balance at December 31, 2014 86,351 19,463 105,814

126 127 financial statements BANK AUDI ANNUAL REPORT 2014

40.0. | SHARE CAPITAL AND WARRANTS ISSUED ON SUBSIDIARY CAPITAL 4. The Extraordinary General Assembly of shareholders held on April 15, 2013 also decided to increase the Bank’s capital by LBP 2,922 million through the issuance of 2,250,000 preferred shares divided into 1,500,000 series “G” preferred shares and 750,000 series “H” preferred shares with a nominal value of LBP 1,299 under the following terms: Share Capital Preferred Shares Series “G” The share capital of Bank Audi sal as at December 31 is as follows: - Number of shares: 1,500,000. 2014 2013 Number of Number of - Share’s issue price: USD 100. Stock Exchange Listing Shares LBP Million Shares LBP Million - Share’s nominal value: LBP 1,299.

Ordinary shares Beirut 283,511,087 467,793 247,255,293 321,185 - Issue premium : Calculated in USD as the difference between USD 100 and the counter value of the par value per share based on Global depository receipts London SEAQ and Beirut 116,238,117 191,793 102,493,911 133,139 the exchange rate at the underwriting dates. 399,749,204 659,586 349,749,204 454,324 - Benefits: Annual non-cumulative dividends of USD 4 per share for the year 2013, and USD 6 for each subsequent year. Preferred shares series “E” Beirut 1,250,000 2,063 1,250,000 1,623 - Repurchase right: The Bank has the right to repurchase the shares in 5 years after issuance, as well as to call them off by that date. Preferred shares series “F” Beirut 1,500,000 2,475 1,500,000 1,949 Preferred Shares Series “H” Preferred shares series “G” Beirut 1,500,000 2,475 1,500,000 1,949 - Number of shares: 750,000. Preferred shares series “H” Beirut 750,000 1,237 750,000 974 - Share’s issue price: USD 100. 5,000,000 8,250 5,000,000 6,495 - Share’s nominal value: LBP 1,299. 404,749,204 667,836 354,749,204 460,819 - Issue premium : Calculated in USD as the difference between USD 100 and the counter value of the par value per share based on the exchange rate at the underwriting dates. 1. The Extraordinary General Assembly of shareholders held This capital increase was divided into two issuances the on August 26, 2014 decided to increase the Bank’s capital first (40,000,000 shares) of which was reserved for the - Benefits: Annual non-cumulative dividends of USD 4.5 per share for the year 2013, and USD 6.5 for each subsequent year. by LBP 64,950 million through the issuance of 50,000,000 Bank’s shareholders of ordinary shares, while the second - Repurchase right: The Bank has the right to repurchase the shares in 7 years after issuance, as well as to call them off by that date. ordinary shares with a nominal value of LBP 1,299 per share. (10,000,000 shares) was reserved for the Bank’s shareholders and new investors. The issuance had the following terms: The Extraordinary General Assembly of shareholders held on June 21, 2013 validated and ratified the capital increases according to - Number of shares: 50,000,000 (of which 11,018,762 were converted to GDRs). the aforementioned terms for preferred shares series “G” and “H”. - Share’s issue price: USD 6. 5. Pursuant to the resolution of the Extraordinary General Assembly of shareholders held on April 10, 2012, the Bank issued - Share’s nominal value: LBP 1,299. preferred shares series “F” under the following terms: - Issue premium : Calculated in USD as the difference between USD 6 and the counter value of the par value per share based on the exchange rate at the underwriting dates. - Number of shares: 1,500,000. - Share’s issue price: USD 100. - Benefits: Annual dividends starting from the year 2014 results inclusive. - Share’s nominal value: LBP 1,254 (later became LBP 1,299 upon increasing the nominal value). - Warrants right: 3 warrants per newly issued share exercisable in one month during the first semester of the year 2019. The warrant holder has the right to exchange it against share in Odea Bank A.Ş. by paying USD 0.95 per share. - Issue premium: Calculated in USD as the difference between USD 100 and the counter value of the par value per share based on the exchange rate at the underwriting dates. The Extraordinary General Assembly of shareholders held on September 23, 2014 validated and ratified the capital increases - Benefits: Annual non-cumulative dividends of USD 4 per share for the year 2012, and USD 6 for each subsequent year. according to the aforementioned terms. - Repurchase right: The Bank has the right to repurchase the shares in 5 years after issuance, as well as to call them off by that date.

2. The Extraordinary General Assembly of shareholders held Issue premium – common shares and LBP 1,755 million from The Extraordinary General Assembly of shareholders held on June 22, 2012 validated and ratified the capital increases according to on September 23, 2014 decided to increase the Bank’s the Issue premium – preferred shares. The Extraordinary the aforementioned terms. capital by LBP 142,067 million through the increase of General Assembly of shareholders held on December 4, nominal value per share from LBP 1,299 to LBP 1,650 by 2014 validated and ratified the capital increases according 6. Pursuant to the resolution of the Extraordinary General Assembly of shareholders held on March 2, 2010, the Bank issued transferring the amount of LBP 140,312 million from the to the aforementioned terms. 1,250,000 preferred shares series “E” according to the following terms:

3. In its meeting dated April 15, 2013 the Extraordinary General LBP 187 million, by converting an additional amount of - Number of shares: 1,250,000. Assembly of shareholders decided to cancel the series “D” LBP 63 million from general reserves and LBP 124 million - Share’s issue price: USD 100. preferred shares totalling 12,500,000 shares which have a from the Issue premium – preferred shares to share capital, - Share’s nominal value: LBP 1,225 (later became LBP 1,299 upon increasing the nominal value). nominal value of LBP 15,675 million and to simultaneously so that the nominal value per share after the cancellation replenish the share capital accounts by transferring the same and capital increase amounted to LBP 1,299. The Bank had - Issue premium: Calculated in USD as the difference between USD 100 and the counter value of the par value per share based on amount from general reserves. As a result and avoiding issued preferred shares series “D” pursuant to the resolution the exchange rate at the underwriting dates. decimals in the share nominal value, the Bank increased of the Extraordinary General Assembly held on September 5, - Benefits: Annual dividends of USD 6 per share, non cumulative (for 2010 was set to USD 4 per share). its capital up to LBP 457,897 million, thus an increase of 2005, under the following terms: - Repurchase right: The Bank has the right to repurchase the shares in 5 years after issuance, as well as to call them off by that date.

- Number of shares: 12,500,000 (after the stock split). 7. Common shares transferred to Global Depository Receipts during 2014 amounted to 2,725,444 (2013: 476,260). - Share’s issue price: USD 100. - Share’s nominal value: LBP 1,000 (subsequently increased to LBP 1,254 due to the increase of the share’s nominal value). - Issue premium : Calculated in USD as the difference between USD 100 and the counter value of the par value per share based on the exchange rate at the underwriting dates. - Benefits: Annual dividends of USD 7.75 per share, non cumulative. - Repurchase right: The Bank has the right to purchase the shares in 5 years after issuance, as well as to call them off by that date.

128 129 financial statements BANK AUDI ANNUAL REPORT 2014

Warrants Issued on Subsidiary Shares 41.0. | ISSUE PREMIUMS 2014 2013 As mentioned above, during 2014 and in conjunction with the A warrant holder may exercise any or all of the warrants held LBP Million LBP Million capital increase held during the year, the Bank issued 172.5 during the exercise period. The shares to be made available for , Issue premium – common shares 883,582 659,206 million warrants entitling the holders, during the exercise delivery by the Bank pursuant to the exercise of the warrants period, to purchase Odea Bank shares at an exercise price of shall be fully paid and shall rank pari passu with shares of the Issue premium – preferred shares 745,500 747,255 USD 0.95 per share. The exercise period is expected to be the same class in issue on the exercise date, including the right to 1,629,082 1,406,461 30-day period commencing on May 15, 2019. The warrants are participate in full in all dividends payable on or after the exercise in registered form, detachable and freely tradable. Each warrant date. The movements on the issue premiums are detailed as follows as at December 31, 2014 and 2013: was valued at USD 0.1 upon issuance. 2014 - The increase in Issue premium – common shares for the year - Pursuant to the resolution of the Extraordinary General ended December 31, 2014 amounting to LBP 387,300 million Assembly of shareholders dated April 15, 2013 related to the Number of results from the issuance of 50,000,000 common shares cancellation of preferred shares series “D”, the Bank decreased Warrants Cost pursuant to resolution of the Extraordinary General Assembly the issue premium of preferred shares by LBP 172,762 and Outstanding LBP Million of shareholders dated August 26, 2014. transferred an amount of LBP 124 million from the issue

Balance at January 1 - - premium of preferred shares to the share capital accounts of Issued during the year 172,500,000 26,004 - Pursuant to the resolution of the Extraordinary General preferred shares series “G” and “H”. Purchased during the year (20,207,201) (10,133) Assembly of shareholders dated September 23, 2014 related to the increase of the share nominal value from LBP 1,299 to - The increase in the issue premium of preferred shares for the Sold during the year 2,641,004 1,324 LBP 1,650, the Bank transferred the amount of LBP 140,312 year ended December 31, 2013 amounting to LBP 336,265 Balance at December 31 154,933,803 17,195 million from the Issue premium – common shares and million resulted from the issuance of 1,500,000 preferred LBP 1,755 million from the Issue premium – preferred shares shares series “G” and 750,000 preferred shares “H”.

Paid Dividends to the share capital accounts of common and preferred shares. In accordance with the resolution of the General Assembly of shareholders held on April 14, 2014 dividends of LBP 249,906 million were distributed as follows: 42.0. | CASH CONTRIBUTION TO CAPITAL

2014 In previous years, agreements were entered between the Bank - The shareholders have the right to use these contributions to and its shareholders whereby the shareholders granted cash settle their share in any increase of capital; Distribution Number of per Share Total contributions to the Bank amounting to USD 48,150,000 Shares LBP Million LBP Million (equivalent to LBP 72,586 million) subject to the following - No interest is due on the above contributions;

conditions: Preferred shares series “E” 1,250,000 9,045 11,306 - The above cash contributions are considered as part of Tier 1 Preferred shares series “F” 1,500,000 9,045 13,567 - These contributions will remain placed as a fixed deposit as capital for the purpose of determining the Bank’s capital Preferred shares series “G” 1,500,000 6,030 9,045 long as the Bank performs banking activities; adequacy ratio; and Preferred shares series “H’ 750,000 6,784 5,089 - If the Bank incurs losses and has to reconstitute its capital, - The right to these cash contributions is for the present and Common shares and Global Depository Receipts 349,749,204 603 210,899 these contributions may be used to cover the losses if needed; future shareholders of the Bank. 249,906

In accordance with the resolution of the General Assembly of shareholders held on April 8, 2013, dividends were distributed as follows: 2013 Distribution Number of per Share Total Shares LBP Million LBP Million Preferred shares series “D” 12,500,000 1,168 14,604 Preferred shares series “E” 1,250,000 9,045 11,306 Preferred shares series “F” 1,500,000 6,030 9,045 Common shares and Global Depository Receipts 348,550,907 603 210,176 245,131

130 131 financial statements BANK AUDI ANNUAL REPORT 2014

43.0. | NON-DISTRIBUTABLE RESERVES Other Reserves

Reserves Unrealised In accordance with decision 362 of the Council of Money currency maintained by the subsidiary bank in Syria should be Appropriated Gain on Sale Reserve for Gain on Fair Reserve for and Credit of Syria, unrealised accumulated foreign exchange appropriated in non-distributable reserve. Legal for Capital of Treasury General Value through Foreclosed Other profits from the revaluation of the structural position in foreign Reserve Increase Shares Banking Risks Profit or loss Assets Reserves Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Balance at January 1, 2014 390,517 53,217 23,082 449,440 21,430 6,329 15,530 959,545 44.0. | DISTRIBUTABLE RESERVES Appropriation of 2013 profits 55,615 113 - 48,521 383 536 - 105,168 Loss on Sale Treasury shares transactions - - (22,942) - - - - (22,942) General of Subsidiary Cost of Non-controlling interest share of reserves (365) - - - - - (28,251) (28,616) Reserves Warrants Capital Issued Total Unrealised foreign exchange gains ------37,773 37,773 LBP Million LBP Million LBP Million LBP Million

Transfers between reserves - - - - (349) - - (349) Balance at January 1, 2014 591,366 - (1,843) 589,523 Balance at December 31, 2014 445,767 53,330 140 497,961 21,464 6,865 25,052 1,050,579 Appropriation of 2013 profits 23,372 - - 23,372 Non-controlling interest share of reserves 8,212 - - 8,212

Warrant transactions - (1,314) - (1,314) Reserves Unrealised Appropriated Gain on Sale Reserve for Gain on Fair Reserve for Issue of common shares - - (2,817) (2,817) Legal for Capital of Treasury General Value through Foreclosed Other Balance at December 31, 2014 622,950 (1,314) (4,660) 616,976 Reserve Increase Shares Banking Risks Profit or Loss Assets Reserves Total

LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Balance at January 1, 2013 337,255 44,626 22,936 393,899 4,679 3,725 5,840 812,960 Loss on Sale Appropriation of 2012 profits 53,629 8,591 - 55,541 21,277 2,604 9,690 151,332 General of Subsidiary Cost of Reserves Warrants Capital Issued Total Entities deconsolidated during the year (251) ------(251) LBP Million LBP Million LBP Million LBP Million Treasury shares transactions - - 146 - - - - 146 Balance at January 1, 2013 553,075 - (1,669) 551,406 Non-controlling interest share of reserves (116) ------(116) Appropriation of 2012 profits 18,825 - - 18,825 Transfers between reserves - - - - (4,526) - - (4,526) Transfer to capital increase (15,738) - - (15,738) Balance at December 31, 2013 390,517 53,217 23,082 449,440 21,430 6,329 15,530 959,545 Entities deconsolidated during the year (2,894) - - (2,894) Non-controlling interest share of reserves (13,365) - - (13,365) Legal Reserve Reserve for Unrealised Revaluation Gains Issue preferred shares “G” and “H” - - (174) (174) on Financial Assets at Fair Value through The Lebanese Commercial Law and the Bank’s articles of Profit or Loss Transfers between reserves 51,470 - - 51,470 association stipulate that 10% of the net annual profits be Other movements (7) - - (7) transferred to legal reserve. In addition, subsidiaries and As per the Banking Control Commission circular No. 270 dated branches are also subject to legal reserve requirements based on September 19, 2011, banks operating in Lebanon are required Balance at December 31, 2013 591,366 - (1,843) 589,523 the rules and regulations of the countries in which they operate. to appropriate in a special reserve from their annual net profits This reserve is not available for dividend distribution. the value of gross unrealised profits on financial assets at fair The Bank and different subsidiaries transferred to legal reserve value through profit or loss. This reserve is not available for an amount of LBP million 55,615 (2013: LBP 53,629 million) as dividend distribution until such profits are realised and released required by the laws applicable in the countries in which they to general reserves. operate. Reserves for General Banking Risks Reserves Appropriated for Capital Increase According to the Bank of Lebanon’s regulations, banks The Group transferred LBP 113 million from 2014 profits (2013: are required to appropriate from their annual net profit a LBP 8,591 million) to reserves appropriated for capital increase. minimum of 0.2 percent and a maximum of 0.3 percent This amount represents the net gain on the disposal of fixed of total risk‑weighted assets and off-balance sheet assets acquired in settlement of debt, in addition to reserves accounts based on rates specified by the Central Bank of on recovered provisions for doubtful loans and debts previously Lebanon to cover general banking risks. The consolidated written off, whenever recoveries exceed booked allowances. ratio should not be less than 1.25 percent of these risks by the year 2017 and 2 percent by the year 2027. This Gain on Sale of Treasury Shares reserve is part of the Group’s equity and is not available for distribution. These gains arise from the Global Depository Receipts (GDRs) owned by the Group. Based on the applicable regulations, the Reserve for Foreclosed Assets Group does not have the right to distribute these gains. The net loss arising from the Treasury GDRs amounted to The reserve for foreclosed assets represents appropriation LBP 22,942 million for the year ended December 31, 2014 against assets acquired in settlement of debt in accordance with (2013: gain of LBP 146 million). the circulars of the Lebanese Banking Control Commission. Appropriations against assets acquired in settlement of debt shall be transferred to unrestricted reserves upon the disposal of the related assets.

132 133 financial statements BANK AUDI ANNUAL REPORT 2014

45.0. | PROPOSED DIVIDENDS Cumulative Changes in Fair Value In its meeting held on March 19, 2015, the Board of Directors share and GDR. Proposed dividends related to preferred shares The cumulative changes as at December 31, 2014 represent the fair value differences from the revaluation of financial assets of the Bank resolved to propose to the annual Ordinary General amounted to LBP 45,790 million. These dividends are subject to measured at fair value through other comprehensive income. The movement of the cumulative changes in fair value is as follows: Assembly the distribution of dividends of LBP 603 per common the General Assembly’s approval.

Change in Deferred 46.0. | TREASURY SHARES Fair Value Tax Net LBP Million LBP Million LBP Million 2014 2013 Balance at January 1, 2014 122,416 (2,973) 119,443 Other comprehensive income 22,599 (2,211) 20,388 Number of Cost Number of Cost GDRs LBP Million GDRs LBP Million Non-controlling interest share of reserves 78 - 78 Balance at January 1 9,221,885 114,327 1,897,535 20,245 Transfer (216) 216 - Purchase of Treasury shares 514,973 5,112 7,738,634 97,737 Sale of financial assets at FVTOCI (112,382) - (112,382) Balance at December 31, 2014 32,495 (4,968) 27,527 Sale of Treasury shares (9,240,523) (114,510) (414,284) (3,655) Balance at January 1, 2013 96,767 (9,962) 86,805 Balance at December 31 496,335 4,929 9,221,885 114,327 Other comprehensive income 25,647 6,989 32,636

Non-controlling interest share of reserves 2 - 2 47.0. | OTHER COMPONENTS OF EQUITY Balance at December 31, 2013 122,416 (2,973) 119,443

2014 Group Share Change in the Fair Value of Time Value of Hedging Instruments Foreign Actuarial Loss of Associates’ Change in Real Estate Cumulative Currency on Defined Other Time Value IFRS 9 (2013) stipulates that the Group may separate the to the hedged item, amounted to LBP 27,206 million for the Revaluation Changes in Translation Benefit Comprehensive of Hedging intrinsic value and the time value of a purchased option contract year ended December 31, 2014 and was recognised in other Reserve Fair Value Reserve Obligation Income Instruments Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million and designate only the change in the intrinsic value as the comprehensive income and accumulated in this reserve account. hedging instrument. The Group exercised this option with a Amortisation of the time value at the date of designation, in

Balance at January 1, 2014 20,375 119,443 (399,804) (13,641) 4,546 - (269,081) view to enhance hedge effectiveness. The change in fair value addition to other costs of hedging, amounted to LBP 27,554 Other comprehensive income 333,764 20,388 (167,747) 486 - 348 187,239 of the time value of these options, to the extent that it relates million for the year ended December 31, 2014. Non-controlling interest share of reserves (165) 78 12,667 - - - 12,580 Entities under equity method - - 2,701 - - - 2,701 Sale of financial assets at FVTOCI - (11,382) - - - - (11,382) Balance at December 31, 2014 353,974 27,527 (552,183) (13,155) 4,546 348 (178,943)

2013 Group Share Foreign Actuarial Loss of Associates’ Change in Real Estate Cumulative Currency on Defined Other Time Value Revaluation Changes in Translation Benefit Comprehensive of Hedging Reserve Fair Value Reserve Obligation Income Instruments Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Balance at January 1, 2013 20,375 86,805 (173,759) (12,896) - - (79,475) Other comprehensive income - 32,636 (260,131) (745) 4,546 - (223,694) Non-controlling interest share of reserves - 2 34,086 - - - 34,088 Balance at December 31, 2013 20,375 119,443 (399,804) (13,641) 4,546 - (269,081)

Real Estate Revaluation Reserve Effective December 31, 2014, the Group made a voluntary December 30, 1993 and Decree Number 5451 dated July 26, change in its accounting policy for subsequent measurement 1994. The revaluation differences amounted to LBP 16,600 of two classes of property and equipment being i) Land and ii) million. Another LBP 2,000 million relate to the revaluation of Building and building improvements from cost to revaluation some of the Group’s assets in 1994 and LBP 1,775 million is due model. The revaluation surplus amounted to LBP 383,096 million to the reclassification of real estate revaluation differences made and was booked net of deferred taxes of LBP 49,332 million. during 2011 by the National Bank of Sudan.

During the year 1995, the Group re-valued certain real estate properties based on the provisions of Law Number 282 dated

134 135 financial statements BANK AUDI ANNUAL REPORT 2014

48.0. | NON-CONTROLLING INTEREST Summarised Statement of Financial Position National Bank of Sudan Bank Audi Syria sa 2014 2013 LBP Million LBP Million 2014 2013 2014 2013

LBP Million LBP Million LBP Million LBP Million Capital 118,323 118,329 ASSETS Capital reserves 55,265 34,861 Cash and balances with central banks 39,713 38,697 196,950 179,288 Retained earnings (14,876) 2,772 Due from banks and financial institutions 21,288 124 9,425 12,692 Profit for the year 14,625 4,497 Due from head office, sister, related banks and financial institutions 50,603 86,402 110,866 77,208 Other components of equity (110,076) (97,496) Loans and advances to customers at amortised cost 201 21,386 137,132 195,672 63,261 62,963 Financial assets at amortised cost 31,029 32,560 18,827 83,200

Investment in subsidiaries and associates - - 2,437 3,556 Material Partially Owned Subsidiaries National Bank of Sudan Bank Audi Syria sa Property and equipment 2,475 2,740 8,965 13,540 Intangible assets 256 213 661 925 2014 2013 2014 2013 Non-current assets held for sale - - 703 970 Proportion of equity interests held by 23.44% 23.44% 53% 53% Other assets 3,182 3,246 4,169 2,494 non-controlling interests TOTAL ASSETS 148,747 185,368 490,135 569,545

LIABILITIES Summarised Statement of Profit or Loss Due to banks and financial institutions - - 21,746 22,263 National Bank of Sudan Bank Audi Syria sa Due to head office, sister, related banks and financial institutions 4,257 25,570 63 82 2014 2013 2014 2013 Customers’ deposits 45,157 51,310 375,961 451,959 LBP Million LBP Million LBP Million LBP Million

Deposits from related parties - - 10,561 13,681 Net interest income 4,629 7,550 7,250 10,434 Other liabilities 3,379 11,049 2,690 3,792 Net fee and commission income 4,488 4,125 3,911 4,269 Provisions for risks and charges 931 480 2,036 2,245 Net gain on financial assets at fair value 4,730 587 23,178 39,876 through profit or loss TOTAL LIABILITIES 53,724 88,409 413,057 494,022 Net gain on sale of financial assets at TOTAL SHAREHOLDERS’ EQUITY 95,023 96,959 77,078 75,523 - - (3) 33 amortised cost Of which: non-controlling interest 22,273 22,727 40,851 40,027 Other operating income 268 665 33 67 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 148,747 185,368 490,135 569,545 Total operating income 14.115 12,927 34,369 54,679

Summarised Cash Flow Information Net credit gains (losses) 1,038 1,501 (2,640) (41,550) National Bank of Sudan Bank Audi Syria sa Total operating expenses (4,145) (4,220) (9,320) (9,900) 2014 2013 2014 2013 Non-operating revenues (expenses) - 57 24 (2) LBP Million LBP Million LBP Million LBP Million Profit before tax 11,008 10,265 22,433 3,227 Operating activities 7,586 7,929 37,546 60,156 Income tax (538) (797) - - Investing activities (328) 1,093 20,707 (26,910) Profit for the period 10,470 9,468 22,433 3,227 Financing activities (1,564) (5,417) - (5) Attributable to non-controlling interest 2,454 2,219 11,889 1,711 5,694 3,605 58,253 33,241

Dividends paid to non-controlling interest 1,970 1,845 - -

49.0. | CASH AND CASH EQUIVALENTS 2014 2013 LBP Million LBP Million Cash and balances with central banks 1,521,054 1,664,983 Due from banks and financial institutions 3,431,465 3,976,277 Loans to banks and financial institutions and reverse repurchase agreements 1,455,858 406,488 Due to banks and financial institutions (1,215,689) (667,093) Due to banks under repurchase agreements (90,443) (196,179) 5,102,245 5,403,375

136 137 financial statements BANK AUDI ANNUAL REPORT 2014

50.0. | FAIR VALUE OF FINANCIAL INSTRUMENTS 2013 The fair values in this note are stated at a specific date and Accordingly, these fair values do not represent the value of Level 1 Level 2 Level 3 Total may be different from the amounts which will actually be these instruments to the Group as a going concern. Financial LBP Million LBP Million LBP Million LBP Million paid on the maturity or settlement dates of the instrument. In assets and liabilities are classified according to a hierarchy that FINANCIAL ASSETS many cases, it would not be possible to realise immediately the reflects the significance of observable market inputs. The three Derivative financial instruments 62,788 73,274 - 136,062 estimated fair values given the size of the portfolios measured. levels of the fair value hierarchy are defined below. Financial assets at fair value through profit or loss Quoted Market Prices – Level 1 Lebanese sovereign and Central Bank of Lebanon Central Bank’s certificates of deposits - 19,118 - 19,118 Financial instruments are classified as Level 1 if their value is available, and the price represents actual and regularly occurring Treasury bills - 138,265 - 138,265 observable in an active market. Such instruments are valued market transactions on an arm’s length basis. An active market by reference to unadjusted quoted prices for identical assets is one in which transactions occur with sufficient volume and Eurobonds 123,690 - - 123,690 or liabilities in active markets where the quoted price is readily frequency to provide pricing information on an ongoing basis. Other sovereign Treasury bills and bonds 1,843 - - 1,843 Valuation Technique Using Observable Inputs – Level 2 Private sector and other securities Financial instruments classified as Level 2 have been valued market, that other market participants would use in their Corporate debt instruments 11,991 1,701 - 13,692 using models whose most significant inputs are observable valuations, including interest rate yield curve, exchange rates, Loans and advances to customers - 47,844 - 47,844 in an active market. Such valuation techniques and models volatilities, and prepayment and defaults rates. Banks and financial institutions 218,898 - - 218,898 incorporate assumptions about factors observable in an active Mutual funds 16,318 44,715 - 61,033 Valuation Technique Using Significant Unobservable Inputs – Level 3 Equity instruments 3,582 - 16 3,598 376,322 251,643 16 627,981 Financial instruments are classified as Level 3 if their valuation external evidence demonstrating an executable exit price. Financial assets designated at fair value through other incorporates significant inputs that are not based on observable Unobservable input levels are generally determined based on comprehensive income market data (unobservable inputs). A valuation input is observable inputs of a similar nature, historical observations or considered observable if it can be directly observed from other analytical techniques. Private sector and other securities transactions in an active market, or if there is compelling Equity instruments 5,795 182,716 83,964 272,475 444,905 507,633 83,980 1,036,518 Fair Value Measurement Hierarchy of the Group’s Financial Assets and Liabilities Carried at Fair Value: FINANCIAL LIABILITIES 2014 Derivative financial instruments 60,351 74,115 - 134,466 Level 1 Level 2 Level 3 Total Customers’ deposits - sight 76,301 - - 76,301 LBP Million LBP Million LBP Million LBP Million 136,652 74,115 - 210,767 FINANCIAL ASSETS There were no transfers between Level 1 and 2 during 2014 (2013: the same). Derivative financial instruments 90,840 105,151 1,136 197,127 Financial assets at fair value through profit or loss The movement of items recurrently measured at fair value categorised within Level 3 during the year is as follows: Lebanese sovereign and Central Bank of Lebanon 2014 Central Bank’s certificates of deposits - 98,008 - 98,008 Treasury bills - 169,262 - 169,262 Financial Financial Instruments Eurobonds 128,710 - - 128,710 Instruments at Fair Value Other sovereign at Fair Value through Other Treasury bills and bonds 1,158 - - 1,158 through Profit Comprehensive and loss Income Derivatives Total Eurobonds 898 - - 898 LBP Million LBP Million LBP Million LBP Million Private sector and other securities FINANCIAL ASSETS Loans and advances to customers - 12,043 - 12,043 Balance at January 1, 2014 16 83,964 - 83,980 Banks and financial institutions 48,574 - - 48,574 Re-measurement recognised in other Mutual funds 16,675 36,444 - 53,119 comprehensive income - (7,859) 1,136 (6,723) Equity instruments 5,039 - 11 5,050 Re-measurement recognised 201,054 315,757 11 516,822 in the income statement (5) - - (5) Financial assets designated at fair value through other comprehensive income Purchases - 3,646 - 3,646 Private sector and other securities Sales - (1,990) - (1,990) Equity instruments 1,182 56,746 77,778 135,706 Foreign exchange difference - 17 - 17 293,076 477,654 78,925 849,655 Balance at December 31, 2014 11 77,778 1,136 78,925 FINANCIAL LIABILITIES Derivative financial instruments 83,311 32,992 - 116,303 Customers’ deposits - sight 70,457 - - 70,457 153,768 32,992 - 186,760

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2013 The fair value of financial instruments that are carried at amortised cost as of December 31, 2014 is as follows: Financial 2014 Financial Instruments Unrealised Instruments at Fair Value Fair Value Book Value Gain (Loss) at Fair Value through Other LBP Million LBP Million LBP Million

through Profit Comprehensive and loss Income Derivatives Total FINANCIAL ASSETS LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 13,250,296 13,247,387 2,909

FINANCIAL ASSETS Due from banks and financial institutions 3,608,930 3,608,892 38 Balance at January 1, 2013 20 70,275 - 70,295 Loans to banks and financial institutions and reverse repurchase agreements 2,928,926 2,928,743 183 Re-measurement recognised in other Loans and advances to customers at amortised cost 26,286,674 25,775,338 511,336 comprehensive income - 11,610 - 11,610 Loans and advances to related parties at amortised cost 110,108 110,007 101 Re-measurement recognised in the income statement (4) - - (4) Financial assets at amortised cost 14,644,739 14,573,743 70,996 Purchases - 1,142 - 1,142 60,829,673 60,244,110 585,563 Foreign exchange difference - 937 - 937 FINANCIAL LIABILITIES Balance at December 31, 2013 16 83,964 - 83,980 Due to central banks 438,385 438,385 - Due to banks and financial institutions 1,695,345 1,695,351 6 Due to banks under repurchase agreements 90,443 90,443 - Assets and Liabilities Carried at Fair Value Using a Valuation Technique with Significant Observable Inputs (Level 2) Customers’ deposits 53,334,849 53,342,752 7,903 Deposits from related parties 586,660 586,621 (39) Derivatives Government Bonds, Certificates of Deposits and Derivative products are valued using a valuation technique Other Debt Instruments Debt issued and other borrowed funds 854,596 854,455 (141) with market observable inputs. The most frequently applied The Group values these unquoted debt securities using 57,000,278 57,008,007 7,729 valuation techniques include forward pricing and swap models, discounted cash flow valuation models where the lowest level using present value calculations. The models incorporate various input that is significant to the entire measurement is observable inputs including the credit quality of counterparties, foreign in an active market. These inputs include assumptions regarding The breakdown by major class of financial assets is as follows: exchange spot and forward rates and interest rate curves. current rates of interest, commodity prices, implied volatilities, and credit spreads. 2014 Unrealised Fair Value Book Value Gain (Loss) LBP Million LBP Million LBP Million Assets and Liabilities Carried at Fair Value Using a Valuation Technique with Significant

Unobservable Inputs (Level 3) Net loans and advances to customers at amortised cost Corporate and SME 20,172,366 19,663,000 509,366 Equity Shares of Non-listed Entities The Group’s strategic investments are generally classified at fair inputs. The applied valuation technique uses a Monte Carlo Retail and Personal Banking 5,888,230 5,886,395 1,835 value through other comprehensive income and are not traded in simulation which requires inputs that cannot be pinned down Public sector 226,078 225,943 135 active markets. These are investments in private companies, for with precision, given the lack of sufficient liquidity in the which there is no or only limited sufficient recent information to USD/TRY options markets and the Turkish Lira yield curve, 26,286,674 25,775,338 511,336 determine fair value. The Group determined that cost adjusted particularly beyond the shortest maturities. In addition, the Net loans and advances to related parties at amortised cost to reflect the investee’s financial position and results since initial valuation need to reflect the substantial volatility skew that recognition represents the best estimate of fair value. exists between USD puts and USD calls with comparable deltas, Corporate and SME 18,541 18,541 - and specifically the fact that the implied volatility of USD calls Retail and Personal Banking 91,567 91,466 101 is substantially greater than that of USD puts, even when their Derivatives 110,108 110,007 101 Collars held by the Group for hedging purposes are valued deltas and tenures are equal. using a valuation technique with significant unobservable Financial assets classified at amortised cost Lebanese sovereign and Central Bank 9,802,889 9,718,539 84,350 Other sovereign 3,993,883 4,011,377 (17,494) Comparison of Carrying and Fair Values for Financial Assets and Liabilities not Held at Fair Value Private sector and other securities 847,967 843,827 4,140 14,644,739 14,573,743 70,996 The fair values included in the table below were calculated for Other institutions may use different methods and assumptions disclosure purposes only. The fair valuation techniques and for their fair value estimations, and therefore such fair value assumptions described below relate only to the fair value of disclosures cannot necessarily be compared from one institution the Group’s financial instruments not measured at fair value. to another.

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The fair value of financial instruments that are carried at amortised cost as of December 31, 2013 is as follows: Assets and Liabilities for which Fair value is Disclosed Using a Valuation Technique with 2013 Significant Observable Inputs (Level 2) and/or Significant Unobservable Inputs (Level 3) Unrealised For financial assets and financial liabilities that are liquid in an active market. These inputs include assumptions regarding Fair Value Book Value Gain (Loss) or have a short term maturity (less than three months), the current rates of interest and credit spreads. LBP Million LBP Million LBP Million Group assumed that the carrying values approximate the fair

FINANCIAL ASSETS values. This assumption is also applied to demand deposits Loans and Advances to Customers Cash and balances with central banks 9,191,435 9,192,108 (673) which have no specific maturity and financial instruments For the purpose of this disclosure, fair value of loans and with variable rates. advances to customers is estimated using discounted cash flows Due from banks and financial institutions 4,010,713 4,010,658 55 by applying current rates for new loans with similar remaining Loans to banks and financial institutions and reverse repurchase agreements 658,753 657,945 808 Deposits with Banks and Loans and Advances to maturities and to counterparties with similar credit quality. Loans and advances to customers at amortised cost 22,371,602 22,064,822 306,780 Banks For the purpose of this disclosure, there is minimal difference Loans and advances to related parties at amortised cost 114,756 114,829 (73) Deposits from Banks and Customers between fair value and carrying amount of these financial In many cases, the fair value disclosed approximates carrying Financial assets at amortised cost 16,142,357 16,023,035 119,322 assets as they are short term in nature or have interest rates value because these financial liabilities are short term in nature 52,489,616 52,063,397 426,219 that re-price frequently. The fair value of deposits with or have interest rates that re-price frequently. The fair value FINANCIAL LIABILITIES longer maturities are estimated using discounted cash flows for deposits with long term maturities, such as time deposits, applying market rates for counterparties with similar credit are estimated using discounted cash flows, applying either Due to central banks 252,042 252,042 - quality. market rates or current rates for deposits of similar remaining Due to banks and financial institutions 1,600,010 1,599,912 (98) maturities. Due to banks under agreements 196,180 196,180 - Government Bonds, Certificates of Deposits and Customers’ deposits 46,066,544 46,041,916 (24,628) Other Debt Securities Debt Issued and Other Borrowed Funds The Group values these unquoted debt securities using Fair values are determined using discounted cash flows valuation Deposits from related parties 757,809 757,590 (219) discounted cash flow valuation models where the lowest level models where the inputs used are estimated by comparison Debt issued and other borrowed funds 537,101 537,101 - input that is significant to the entire measurement is observable with quoted prices in an active market for similar instruments. 49,409,686 49,384,741 (24,945) 2014

The breakdown by major class of financial assets is as follows: Level 1 Level 2 Level 3 Total 2013 LBP Million LBP Million LBP Million LBP Million Unrealised FINANCIAL ASSETS Fair Value Book Value Gain (Loss) LBP Million LBP Million LBP Million Cash and balances with central banks 353,479 12,896,817 - 13,250,296 Net loans and advances to customers at amortised cost Due from banks and financial institutions - 3,608,930 - 3,608,930 Corporate and SME 17,522,078 17,389,682 132,396 Loans to banks and financial institutions and reverse repurchase agreements - 2,928,926 - 2,928,926 Retail and Personal Banking 4,570,516 4,397,625 172,891 Public sector 279,008 277,515 1,493 Net loans and advances to customers - - 26,286,674 26,286,674 22,371,602 22,064,822 306,780 Corporate and SME - - 20,172,366 20,172,366 Net loans and advances to related parties at amortised cost Retail and Personal Banking - - 5,888,230 5,888,230 Corporate and SME 35,896 36,172 (276) Public sector - - 226,078 226,078 Retail and Personal Banking 78,860 78,657 203 Net loans and advances to related parties - - 110,108 110,108 114,756 114,829 (73) Corporate - - 18,541 18,541 Financial assets classified at amortised cost Retail and Personal Banking - - 91,567 91,567 Lebanese sovereign and Central Bank 11,870,024 11,748,791 121,233 Other sovereign 3,178,880 3,195,207 (16,327) Financial assets classified at amortised cost 5,103,536 9,532,965 8,238 14,644,739 Private sector and other securities 1,093,453 1,079,037 14,416 Lebanese sovereign and Central Bank 3,730,266 6,072,623 - 9,802,889 16,142,357 16,023,035 119,322 Other sovereign 646,846 3,347,037 - 3,993,883 Private sector and other securities 726,424 113,305 8,238 847,967

5,457,015 28,967,638 26,405,020 60,829,673 FINANCIAL LIABILITIES Due to central banks - 438,385 - 438,385 Due to banks and financial institutions - 1,695,345 - 1,695,345 Due to banks under repurchase agreements - 90,443 - 90,443 Customers’ deposits - 53,334,849 - 53,334,849 Deposits from related parties - 586,660 - 586,660 Debt issued and other borrowed funds - 854,596 - 854,596 - 57,000,278 - 57,000,278

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2013 2014 Level 1 Level 2 Level 3 Total Banks Customers Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million FINANCIAL ASSETS Guarantees and contingent liabilities Cash and balances with central banks 329,293 8,862,142 - 9,191,435 Financial guarantees 293,015 1,615,811 1,908,826 Due from banks and financial institutions - 4,010,713 - 4,010,713 Other guarantees 92,300 686,962 779,262 Loans to banks and financial institutions and reverse repurchase 385,315 2,302,773 2,688,088 agreements - 658,753 - 658,753 Commitments Documentary credits - 706,121 706,121 Net loans and advances to customers - - 22,371,602 22,371,602 Loan commitments - 4,615,772 4,615,772 Corporate and SME - - 17,522,078 17,522,078 Of which revocable - 3,685,006 3,685,006 Retail and Personal Banking - - 4,570,516 4,570,516 Of which irrevocable - 930,766 930,766 Public sector - - 279,008 279,008 - 5,321,893 5,321,893

Net loans and advances to related parties - - 114,756 114,756 2013 Corporate and SME - - 35,896 35,896 Banks Customers Total Retail and Personal Banking - - 78,860 78,860 LBP Million LBP Million LBP Million

Financial assets classified at amortised cost 7,458,933 8,675,186 8,238 16,142,357 Guarantees and contingent liabilities Lebanese sovereign and Central Bank 5,146,221 6,723,803 - 11,870,024 Financial guarantees 246,191 1,519,107 1,765,298 Other sovereign 1,320,119 1,858,761 - 3,178,880 Other guarantees 137,484 723,035 860,519 Private sector and other securities 992,593 92,622 8,238 1,093,453 383,675 2,242,142 2,625,817 7,788,226 22,206,794 22,494,596 52,489,616 Commitments Documentary credits - 570,906 570,906 FINANCIAL LIABILITIES Loan commitments - 3,754,997 3,754,997 Due to central banks - 252,042 - 252,042 Of which revocable - 2,998,416 2,998,416 Due to banks and financial institutions - 1,600,010 - 1,600,010 Of which irrevocable - 756,581 756,581 Due to banks under repurchase agreements - 196,180 - 196,180 - 4,325,903 4,325,903 Customers’ deposits - 46,066,544 - 46,066,544 Deposits from related parties - 757,809 - 757,809 Guarantees Debt issued and other borrowed funds - 537,101 - 537,101 - 49,409,686 - 49,409,686 Guarantees are given as security to support the performance of a customer to third parties. The main types of guarantees provided are: - Financial guarantees given to banks and financial institutions on behalf of customers to secure loans, overdrafts, and other 51.0. | CONTINGENT LIABILITIES, COMMITMENTS AND LEASING ARRANGEMENTS banking facilities; and - Other guarantees are contracts that have similar factures to the financial guarantee contracts but fail to meet the strict definition Credit-related Commitments and Contingent Liabilities of a financial guarantee contract under IFRS. These include mainly performance and tender guarantees. To meet the financial needs of customers, the Group enters amounts of credit-related commitments and contingent Documentary Credits into various commitments, guarantees and other contingent liabilities. Nominal principal amounts represent the amount at liabilities, which are mainly credit-related instruments including risk should the contracts be fully drawn upon and clients default. Documentary credits commit the Group to make payments to third parties, on production of documents, which are usually reimbursed both financial and non-financial guarantees and commitments As a significant portion of guarantees and commitments is immediately by customers. to extend credit. Even though these obligations may not be expected to expire without being withdrawn, the total of the recognised on the statement of financial position, they do nominal principal amount is not indicative of future liquidity Loan Commitments contain credit risk and are therefore part of the overall risk of requirements. the Group. The table below discloses the nominal principal Loan commitments are defined amounts (unutilised credit lines the Group has no right to withdraw the loan commitment once or undrawn portions of credit lines) against which clients can communicated to the beneficiary. borrow money under defined terms and conditions. In addition to the above, the Group has issued letters of intent Revocable loan commitments are those commitments that in the amount of LBP 12,548,128 million as of December 31, can be unconditionally cancelled at any time subject to notice 2014 (2013: LBP 7,191,032 million). These letters of intent do requirements according to their general terms and conditions. not represent loan commitments on behalf of the Group. Irrevocable loan commitments result from arrangements where

Legal Claims Litigation is a common occurrence in the banking industry due for any adverse effects which the claims may have on its financial to the nature of the business. The Group has an established standing. At year-end, the Group had several unresolved legal protocol for dealing with such legal claims. Once professional claims. Based on advice from legal counsel, Management advice has been obtained and the amount of damages believes that legal claims will not result in any material financial reasonably estimated, the Group makes adjustments to account loss to the Group.

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Operating Lease and Capital Expenditure Commitments 53.0. | RELATED PARTY TRANSACTIONS 2014 2013 Parties are considered to be related if one party has the ability to the level of the Group, key Management personnel includes the LBP Million LBP Million control the other party or exercise significant influence over the members of the Bank’s Board of Directors and Group Executive

Capital expenditure commitments 25,786 18,047 other party in making financial or operational decisions, or one Committee. Operating lease commitments – Group as lessee 63,176 66,037 other party controls both. The definition includes subsidiaries, Within one year 23,922 19,197 associates, key Management personnel and their close family Loans to related parties (a) were made in the ordinary course members, as well as entities controlled or jointly controlled by of business, (b) were made on substantially the same terms, One to five years 36,620 42,861 them. including interest rates and collateral, as those prevailing at the More than five years 2,634 3,979 same time for comparable transactions with others, and (c) did 88,962 84,084 Key Management personnel are defined as those persons not involve more than a normal risk of collectability or present having authority and responsibility for planning, directing and other unfavourable features.

Commitments Resulting from Credit Facilities Received controlling the activities of the Group, directly or indirectly. At The Group has the following commitments resulting from the credit facilities received from non-resident financial institutions: Related party balances included in the Group’s Statement of Financial Position are as follows as of December 31: 2014 2013 - The net past due loans (after the deduction of provisions) Tier 1 capital. LBP Million LBP Million should not exceed 5 percent of the net credit facilities granted. - Sustaining a liquidity ratio exceeding 115 percent.

- The provision for past due loans which includes specific and - Sustaining a capital adequacy exceeding the minimum ratio Loans and advances 110,007 114,829 collective provisions and unrealised interest should not fall as per the regulations applied by the Central Bank of Lebanon Of which: granted to key Management personnel 62,093 54,547 below 70 percent of the past due loans. and the requirements of the Basel agreements to the extent it Indirect facilities 6,238 3,732 - The net doubtful loans should not exceed 20 percent of the is applied by the Central Bank of Lebanon. Deposits 586,621 757,590 Other Commitments and Contingencies Cash collateral received against loans 37,863 62,327

Financial assets at amortised cost include Lebanese government the countries in which they operate. Management believes Related party balances included in the Group’s Income Statement are as follows for the year ended December 31: Treasury bills amounting to LBP 133,759 million (2013: that adequate provisions were recorded against possible review 2014 2013 LBP 133,736 million) pledged to the Central Bank of Lebanon results to the extent that they can be reliably estimated. LBP million LBP million against credit facilities. They also include Turkish Treasury bills amounting to LBP 101,860 million (2013: LBP 204,799 million) For the past years, Syria has been witnessing a period of political Interest income on loans 2,364 8,362 pledged against repurchase agreements (Note 33). and civil unrest together with adverse events which can affect Interest expense on deposits 25,951 21,060 the economic environment of future periods. As part of its

The Bank’s books in Lebanon remain subject to the review of the collective provisioning process, Management performs stress tax authorities for the period from January 1, 2012 to December tests on the loan portfolio exposed to the Syrian market risks Subsidiaries 31, 2013 and the review of the National Social Security Fund and, as a result, the necessary provisions are booked. The (NSSF) for the period from September 30, 2011 to December Group’s Management continues to monitor and decrease its Transactions between the Bank and its subsidiaries meet the the Group’s financial statements. The following table shows 31, 2013. In addition, the subsidiaries’ books and records are loan portfolio (Note 48) and evaluate the impact of these events definition of related party transactions. However, where these information related to the significant subsidiaries of the Bank. subject to review by the tax and social security authorities in on a regular basis. are eliminated on consolidation, they are not disclosed in

Percentage of Ownership Country of Principal Functional 52.0. | ASSETS UNDER MANAGEMENT 2014 2013 Incorporation Activity Currency Bank Audi France sa 100.00% 100.00% France Banking (Commercial) EUR Assets under management include client assets managed or deposited with the Group. For the most part, the clients decide how these assets are to be invested. Audi Investment Bank sal 100.00% 100.00% Lebanon Banking (Investment) LBP Audi Private Bank sal 100.00% 100.00% Lebanon Banking (Private) LBP 2014 2013 LBP Million LBP Million Banque Audi (Suisse) SA 100.00% 100.00% Switzerland Banking (Private) CHF Bank Audi Syria sa* 47.00% 47.00% Syria Banking (Commercial) SYP Assets under management 12,933,370 12,286,291 National Bank of Sudan 76.56% 76.56% Sudan Banking (Commercial) SDG

Bank Audi sae 100.00% 100.00% Egypt Banking (Commercial) EGP Audi Capital (KSA) 99.99% 99.99% Saudi Arabia Financial Services SAR Bank Audi LLC Qatar 100.00% 100.00% Qatar Banking Services QAR Societe Libanaise de Factoring sal 94.85% 94.85% Lebanon Factoring LBP Odea Bank A.Ş. 100.00% 100.00% Turkey Banking (Commercial) TRY Infi Gamma Holding sal 99.97% 99.97% Lebanon Investment US$ Audi Investments Holding sal 100.00% 100.00% Lebanon Investment US$

* Bank Audi sal established Bank Audi Syria sa and retained de facto control over it.

Associates The Group provides banking services to its associates and to transactions are conducted on the same terms as third-party entities under common directorships. As such, loans, overdrafts, transactions. Summarised financial information for the Group’s interest and non-interest bearing deposits and current accounts associates is set out in Note 27 to these financial statements. are provided to these entities, as well as other services. These

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Key Management Personnel reflect the business strategy and market environment of the comprises qualitative and quantitative statements of risk Group, as well as the level of risks that the Group is willing to appetite that includes limits by asset quality and concentration. Total remuneration awarded to the members of the Bank’s by the Board Remuneration Committee as part of the latest accept. Board of Directors and Group Executive Committee represents pay round decisions. Figures are provided for the period that Information independently compiled from all business lines and the awards made to those individuals that have been approved individuals met the definition of key Management personnel. Risk appetite and limits are formalised in a document which risk-taking units is examined and processed in order to identify is reviewed by the Executive Committee and the Board Group and measure the risk profile. The results are reported and 2014 2013 Risk Committee and approved by the Board. This document presented on a regular basis to Management and to the Board. LBP Million LBP Million Short-term benefits 49,182 33,043 Post-employment benefits 19,485 2,010 55.0. | CREDIT RISK

Credit risk is the risk that the Group will incur a loss because its Once approved by the Credit Committee, facilities are disbursed Short-term benefits comprise of salaries, bonuses, attendance fees and other benefits. customers or counterparties fail to discharge their contractual when all requirements set by the respective committee are met obligations. Credit risk appetite and limits are set at the Group and documents intended as security are reviewed and verified level by the Board and are communicated to the entities which, by the Credit Administration function. 54.0. | RISK MANAGEMENT in turn, formulate their own limits in line with the Group’s risk appetite. Monitoring The Group is exposed to various types of risks, some of which Executive Committee The Group maintains continuous monitoring of the quality of are: Credit Limits its portfolio. Timely reports are sent to the Executive Committee The mandate of the Group Executive Committee is to support and to the Board, detailing credit risk profile including follow‑up - Credit risk: the risk of default or deterioration in the ability of the Board in the implementation of its strategy, to support the The Group controls credit risk by setting limits on the amount accounts, large exposures, risk ratings and concentration by a borrower to repay a loan. Group CEO in the day-to-day management of the Group, and of risk it is willing to accept for individual counterparties and industry, geography and group of obligors. to develop and implement business policies for the Group and for geographical and industry concentration, and by monitoring - Market risk: the risk of loss in balance sheet and off-balance issue guidance for the Group within the strategy approved by exposures in relation to such limits. These limits include the Recovery and Restructuring sheet positions arising from movements in market prices. the Board. The Executive Committee is involved in drafting and following: The Group assesses impaired loans by evaluating the exposure Movements in market prices include changes in interest rates submitting to the Board the risk policies and risk appetite. to loss, on a case by case basis. They are directly managed by the (including credit spreads), exchange rates and equity prices. Financial Institutions Recovery and Restructuring department which is responsible for Asset Liability Committee Percentage floors and absolute limits are set on the Group’s formulating a workout strategy in coordination with the Legal - Liquidity risk: the risk that the Group cannot meet its financial placements with highly rated financial institutions. and Compliance department. Credit committees are responsible obligations when they come due in a timely manner and at The Asset Liability Committee (ALCO) is a Management for approving these workout strategies. reasonable cost. committee responsible in part for managing market risk Sovereign Exposure and Other Financial Instruments exposures, liquidity, funding needs and contingencies. It is the Limits are placed on sovereign exposures and other financial Provisioning Policy - Operational risk: the risk of loss resulting from inadequate responsibility of this committee to set up strategies for managing instruments according to their ratings. or failed internal processes, people and systems, or from market risk and liquidity exposures and ensuring that Treasury As part of the conservative approach to sustain the quality of external events. implements those strategies so that exposures are managed in Loans and Advances to Customers the Group’s loan portfolio, an evaluation of loan loss provisions a manner consistent with the risk policy and limits approved by The Group sets limits per country, economic sector, tenure of is made on a regular basis. As such, all adversely classified - Other risks faced by the Group include concentration risk, the Board. the loan, rating, and group of obligors among others in order to accounts are reviewed and the Recovery and Restructuring reputation risk, legal risk and business/strategic risk. undue risk concentrations. department makes recommendations for specific provisions Internal Audit against the accounts. These recommendations are submitted Risks are managed through a process of ongoing identification, Credit Granting and Monitoring Processes to the Remedial Committee for approval before they are measurement monitoring, mitigation and control and reporting All risk management processes are independently audited by implemented. In this regard, mainly for tax reasons, specific to relevant stakeholders. The Group ensures that risk and the Internal Audit department at least annually. This includes The Group has set clearly established processes related to loan approval from the regulatory authority might be necessary rewards are properly balanced and in line with the risk appetite the examination of both the adequacy and effectiveness of origination, documentation and maintenance of extensions of depending on the regulatory environment of the concerned that is approved by the Board of Directors. risk control procedures. Internal audit discusses the results of credits. entity. its assessments with Management and reports its findings and Board of Directors recommendations to the Audit Committee of the Board. Initiation Besides, impairment is assessed on a collective basis for loans Initiation of the credit facilities is done by the business originating that are not individually impaired. The Board of Directors (the Board) is ultimately responsible for Risk Management function which is shared between branches and the Corporate In the normal course of business, some loans may become identifying and setting the level of acceptable risks to which and Commercial departments. unrecoverable. Such loans would then be required to be partially the Group is exposed and, as such, defines the risk appetite Risk Management is a function independent from business or fully written off after taking into consideration the following for the Group. In addition, the Board approves risk policies and lines and headed by the Chief Risk Officer. The function has Analysis guidelines: procedures. Periodic reporting is made to the Board on existing the responsibility to ensure that risks are properly identified, Credit analysis is performed within the business originating and emerging risks in the Group. A number of Management measured, monitored, controlled and reported to heads of function and is reviewed independently by the Credit Risk a) The loan is written off with proper approval when: committees and departments are also responsible for various business lines, Senior Management, ALCO, the Board Risk Management department which, in turn, prepares a written - All efforts to recover the bad debt have failed; levels of risk management, as set out below. Committee and the Board. In addition, the function works risk opinion about the credit facilities and submits it to the - The borrower’s bankruptcy or inability to repay is established; closely with Senior Management to ensure that proper controls respective credit committees. - Legal remedies have proved to be futile and/or cost Board Group Risk Committee are set in order to mitigate risks. The Risk Management prohibitive. function at the Group level has the responsibility to draft risk Approval The role of the Board’s Group Risk Committee (BGRC) is to oversee policies and principles for final adoption at the entity level. In Credit committees are responsible for the approval of facilities b) Requests for write-offs are to be submitted to the Remedial the risk management framework and assess its effectiveness, addition, it is in charge of monitoring and aggregating risks up to the limit assigned to them. The Group has various levels of Committee for approval. Approved write-offs are notified to review and recommend to the Board the group risk policies and across the Group. credit approving authorities, depending on the nature and limit the Executive Committee and then to the Board. risk appetite, monitor the group risk profile, review stress tests of the requested facilities, namely: scenarios and results, and provide access for the Group Chief Risk Monitoring and Control Risk Officer (CRO) to the Board. The BGRC meets at least every - The Board of Directors quarter in the presence of the Group CRO. The primary drivers behind monitoring and controlling risks are - The Executive Committee the risk appetite and limits approved by the Board. These limits - Other credit committees, depending on the limit and region.

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Derivative Financial Instruments Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or Credit risk arising from derivative financial instruments is, at any geographical location. time, limited to those with positive fair values, as recorded in the Statement of Financial Position. In the case of credit derivatives, In order to undue excessive concentrations of risk, the Group’s the Group is also exposed to or protected from the risk of Risk Appetite and Limits document includes specific guidelines default of the underlying entity referred by the derivative. and limits to maintain a diversified portfolio.

Management of Risk Concentration Credit-related Commitments Risks Credit concentrations arise when a number of counterparties The Group makes available to its customers guarantees, which are engaged in similar business activities in the same geographic may require payments on their behalf. Such guarantees expose region or have similar economic features that would cause the Group to risks similar to balance sheet exposure and they their ability to meet contractual obligations to be similarly are mitigated by the same control processes and policies. affected by changes in economic, political and other conditions.

Analysis to Maximum Exposure to Credit Risk and Collateral and Other Credit Enhancements The following table shows the maximum exposure to credit risk by class of financial asset. It further shows the total fair value of collateral, capped to the maximum exposure to which it relates and the net exposure to credit risk.

2014 Guarantees Received from Maximum Cash Collateral Banks and Financial Real Other Netting Net Credit Exposure and Margins Securities Institutions Estate Guarantees Agreements Exposure LBP Million LBP Million LBP Million LBP million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 12,893,908 ------12,893,908 Due from banks and financial institutions 3,608,892 ------3,608,892 Loans to banks and financial institutions and reverse repurchase agreements 2,928,743 - - 2,672,313 - - - 256,430 Derivative financial instruments 194,669 ------194,669 Financial assets at fair value through profit or loss 458,653 ------458,653

Loans and advances to customers at amortised cost 25,775,338 3,019,935 679,747 156,806 7,200,636 1,324,852 2,996 13,390,366 Corporate and SME 19,663,000 1,959,165 357,358 155,240 5,450,751 864,785 2,996 10,872,705 Retail and Personal Banking 5,886,395 1,058,409 322,389 1,566 1,749,885 459,781 - 2,294,365 Public sector 225,943 2,361 - - - 286 - 223,296

Loans and advances to related parties at amortised cost 110,007 37,863 119 - 12,472 699 - 58,854 Debtors by acceptances 340,480 17,934 - 2,882 4,212 3,644 - 311,808 Financial assets at amortised cost 14,573,743 - - - - - 2,235,511 12,338,232

Contingent liabilities 2,614,947 123,250 9,715 32,611 19,232 41,865 800 2,387,474 Letters of credit 706,121 32,606 - 8,737 982 6,701 - 657,095 Letters of guarantee given to banks and financial institutions 293,015 ------293,015 Letters of guarantee given to customers 1,615,811 90,644 9,715 23,874 18,250 35,164 800 1,437,364

Total 63,499,380 3,198,982 689,581 2,864,612 7,236,552 1,371,060 2,239,307 45,899,286

Guarantees received from banks, financial institutions and customers Utilised collateral 3,198,982 689,581 2,864,612 7,236,552 1,371,060 15,360,787 Surplus of collateral before undrawn credit lines 1,238,554 967,871 297,516 9,951,706 751,049 13,206,696 4,437,536 1,657,452 3,162,128 17,188,258 2,122,109 28,567,483

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 4,615,772 million as at December 31, 2014.

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2013 Guarantees Received from Maximum Cash Collateral Banks and Financial Real Other Netting Net Credit Exposure and Margins Securities Institutions Estate Guarantees Agreements Exposure LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 8,862,815 ------8,862,815 Due from banks and financial institutions 4,010,658 ------4,010,658 Loans to banks and financial institutions and reverse repurchase agreements 657,945 - - 324,903 - - - 333,042 Derivative financial instruments 132,527 ------132,527 Financial assets at fair value through profit or loss 563,350 ------563,350

Loans and advances to customers at amortised cost 22,064,822 2,741,234 996,302 192,562 5,113,896 1,449,190 7,436 11,564,202 Corporate and SME 17,389,682 1,797,054 745,786 190,891 3,356,436 1,053,955 7,436 10,238,124 Retail and Personal Banking 4,397,625 942,020 250,516 1,671 1,757,460 395,235 - 1, 050,723 Public sector 277,515 2,160 - - - - - 275,355

Loans and advances to related parties at amortised cost 114,829 50,786 - 1,085 21,993 1,834 - 39,131 Debtors by acceptances 262,689 9,036 - - 3,243 7,744 - 242,666 Financial assets at amortised cost 16,023,035 - - - - - 1,812,073 14,210,962

Contingent liabilities 2,336,204 177,710 - 4,808 77 45,983 - 2,107,626 Letters of credit 570,906 16,517 - 60 - 9,850 - 544,479 Letters of guarantee given to banks and financial institutions 246,191 4,408 - - - - - 241,783 Letters of guarantee given to customers 1,519,107 156,785 - 4,748 77 36,133 - 1,321,364

Total 55,028,874 2,978,766 996,302 523,358 5,139,209 1,504,751 1,819,509 42,066,979

Guarantees received from banks, financial institutions and customers Utilised collateral 2,978,766 996,302 523,358 5,139,209 1,504,751 11,142,386 Surplus of collateral before undrawn credit lines 607,217 1,461,858 229,257 6,608,950 1,619,852 10,527,134 3,585,983 2,458,160 752,615 11,748,159 3,124,603 21,669,520

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 3,3,754,997 million as at December 31, 2013.

Analysis to Maximum Exposure to Credit of the counterparty. The balances shown represent the notional In addition to the above, the Group also obtains guarantees foreclosure or repossession. Such activities include extended Risk and Collateral and Other Credit amount of these types of guarantees held by the Group. from parent companies for loans to their subsidiaries, personal payment arrangements, deferring foreclosure, modification, Enhancements guarantees for loans to companies owned by individuals, loan rewrites and/or deferral of payments pending a change in Real Estate (Commercial and Residential) second degree mortgages, and assignments of insurance or circumstances. Collateral and Other Credit Enhancements The Group holds, in some cases, a first degree mortgage over bills proceeds and revenues which are not reflected in the above The amount and type of collateral required depends on an residential property (for housing loans) and commercial property table. Restructuring policies and practices are based on indicators or assessment of the credit risk of the counterparty. Guidelines are (for commercial loans). The value shown above reflects the fair criteria which, in the judgment of local Management, indicate implemented regarding the acceptability of types of collateral value of the property limited to the related mortgaged amount. Restructured Loans that repayment will probably continue. The application of these and valuation parameters. Restructuring activity aims to manage customer relationships, policies varies according to the nature of the market and the Netting Agreements maximise collection opportunities and, if possible, avoid type of the facility. Management monitors the market value of collateral, requests The Group makes use of netting agreements where there is a additional collateral in accordance with the underlying legally enforceable right to offset in the event of counterparty 2014 2013 agreement, and monitors the market value of collateral default and where as a result there is a net exposure for credit LBP Million LBP Million obtained during its review of the adequacy of the allowance for risk. However, there is no intention to settle these balances on a impairment losses. net basis under normal circumstances, and they do not qualify Corporate and SME 471,259 276,072 for offset. The amounts above represent available netting Retail and Personal Banking 58,060 22,561 The main types of collateral obtained are as follows: agreements in the event of default of the counterparty. 529,319 298,633

Securities This includes netting agreements for loans and advances to The balances shown above represent the fair value of the customers and financial assets at amortised cost. In addition, Credit Rating System as well as qualitative factors, such as observations on securities. derivatives may also be settled net when there is a netting The Group assesses the quality of its credit portfolio using the management quality, operating environment and company agreement in place providing for this in the event of default, following credit rating methods: standing. These rating models include a Corporate model, Letters of Credit/Guarantees reducing the Group’s exposure to counterparties on derivative SME model, as well as a Project Finance model. During 2014, The Group holds, in some cases, guarantees, letters of credit and asset positions. The reduction in risk is the amount of liability (i) External ratings from approved credit rating agencies for the Group stated rolling out the Facility Risk Rating (FRR) similar instruments from banks and financial institutions which held. financial institutions and financial assets. model to rate facilities taking into account the Obligator enable it to claim settlement in the event of default on the part (ii) Internal rating models that take into account financial, Risk Rating, but also available credit risk mitigant.

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(iii) Application scorecards for retail borrowers, which help (d) Substandard loans include borrowers with incapacity to 2013 assessing their creditworthiness in an objective manner and repay from identified cash flows. Also included under Past Due and Impaired streamline the decision-making process. this category are those with recurrent late payments and (iv) Supervisory ratings comprising six main categories: financial difficulties. Neither Past Due (a) Regular includes borrowers demonstrating good to (e) Doubtful loans where full repayment is questioned even Past Due nor but not Doubtful excellent financial condition, risk factors, and capacity after asset liquidation of collateral. It also includes loans Impaired Impaired Substandard and Bad Total to repay. These loans demonstrate regular and timely stagnating for over 6 months and debtors who are unable LBP Million LBP Million LBP Million LBP Million LBP Million payment of dues, adequacy of cash flows, timely to repay restructured loans. Cash and balances with central banks 8,862,815 - - - 8,862,815 presentation of financial statements, and sufficient (f) Finally, bad loans with no or little expected inflows from Due from banks and financial institutions 4,010,320 - - 1,239 4,011,559 collateral/guarantee when required. business or assets. This category also includes borrowers Loans to banks and financial institutions and reverse (b) Follow-up represents a lack of documentation related to who witness significant delays and are insolvent. repurchase agreements 657,945 - - - 657,945 a borrower’s activity, an inconsistency between facilities’ Derivative financial instruments 132,527 - - - 132,527 type and related conditions. Credit Quality (c) Follow-up and regularisation includes credit worthy The table below shows the credit quality by class of asset for Financial assets at fair value through profit or loss 563,350 - - - 563,350 borrowers requiring close monitoring without being all financial assets exposed to credit risk, based on the Group’s Loans and advances to customers at amortised cost 21,499,510 525,461 12,161 636,765 22,673,897 impaired. These loans might be showing weaknesses; internal credit rating system. The amounts presented are gross Loans and advances to related parties at amortised insufficient or inadequate cash flows; highly leveraged; of impairment allowances. cost 114,829 - - - 114,829 deterioration in economic sector or country where the facility is used; loan rescheduling more than once since Financial assets at amortised cost 16,021,521 - - 7,536 16,029,057 initiation; or excess utilisation above limit. 51,862,817 525,461 12,161 645,540 53,045,979 Loans and advances 2014 Corporate and SME 16,963,367 414,139 9,028 512,904 17,899,438 Past Due and Impaired Retail and Personal Banking 4,372,624 111,322 3,133 120,914 4,607,993 Neither Past Due Public sector 278,348 - - 2,947 281,295 Past Due nor but not Doubtful 21,614,339 525,461 12,161 636,765 22,788,726 Impaired Impaired Substandard and Bad Total

LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 12,893,908 - - - 12,893,908 The aging analysis of past due but not impaired loans and advances to customers at amortised cost as at December 31 is as follows: Due from banks and financial institutions 3,608,461 - - 1,326 3,609,787 Loans to banks and financial institutions and reverse 2014 repurchase agreements 2,928,743 - - - 2,928,743 Less than 30 31 to 60 61 to 90 More than Derivative financial instruments 194,669 - - - 194,669 Days Days Days 90 Days Total Financial assets at fair value through profit or loss 458,653 - - - 458,653 LBP Million LBP Million LBP Million LBP Million LBP Million Loans and advances to customers at amortised cost 25,163,573 584,767 7,892 813,780 26,570,012 Corporate and SME 67,856 181,287 43,727 132,780 425,650 Loans and advances to related parties at amortised Retail and Personal Banking 82,067 67,469 5,969 3,612 159,117 cost 110,007 - - - 110,007 149,923 248,756 49,696 136,392 584,767 Financial assets at amortised cost 14,571,877 - - 7,052 14,578,929

59,929,891 584,767 7,892 822,158 61,344,708 2013 Loans and advances Less than 30 31 to 60 61 to 90 More than Corporate and SME 19,238,580 425,650 4,779 608,549 20,277,558 Days Days Days 90 Days Total LBP Million LBP Million LBP Million LBP Million LBP Million Retail and Personal Banking 5,807,722 159,117 3,113 203,857 6,173,809

Public sector 227,278 - - 1,374 228,652 Corporate 82,263 89,278 76,923 165,675 414,139 25,273,580 584,767 7,892 813,780 26,680,019 Retail and Personal Banking 60,506 25,486 8,803 16,527 111,322 142,769 114,764 85,726 182,202 525,461

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The classification of loans and advances to customers and related parties at amortised cost as in accordance with the supervisory ratings is as follows:

2014 2013 Gross Unrealised Impairment Net Gross Unrealised Impairment Net Balance Interest Allowances Balance Balance Interest Allowances Balance LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Regular 23,334,312 - - 23,334,312 Regular 20,384,370 - - 20,384,370 Follow up 988,344 - - 988,344 Follow up 593,383 - - 593,383 Follow up and regularisation 1,535,691 - - 1,535,691 Follow up and regularisation 1,162,047 - - 1,162,047 Substandard 7,892 (2,221) - 5,671 Substandard 12,161 (2,150) - 10,011 Doubtful 346,029 (10,663) (128,581) 206,785 Doubtful 370,650 (39,940) (135,528) 195,182 Bad 467,751 (102,458) (341,317) 23,976 Bad 266,115 (42,345) (191,311) 32,459 26,680,019 (115,342) (469,898) 26,094,779 22,788,726 (84,435) (326,839) 22,377,452 Collective impairment - - (209,434) (209,434) Collective impairment - - (197,801) (197,801) 26,680,019 (115,342) (679,332) 25,885,345 22,788,726 (84,435) (524,640) 22,179,651

The classification of the Group financial instruments and balances due from banks and financial institutions as per international ratings is as follows:

2014 Sovereign and Central Banks Non-sovereign AAA to AA- A+ to BBB- BB+ to B- Unrated Total AAA to AA- A+ to BBB- BB+ to B- Unrated Total Grand Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 246,275 1,769,560 10,878,073 - 12,893,908 - - - - - 12,893,908 Due from banks and financial institutions - - - - - 449,915 2,711,428 108,401 339,148 3,608,892 3,608,892 Loans to banks and financial institutions and reverse - - 1,226,246 - 1,226,246 - 1,455,858 246,639 - 1,702,497 2,928,743 repurchase agreements Financial assets at fair value through profit or loss - 2,056 395,980 - 398,036 - 48,574 - 12,043 60,617 458,653 Financial assets at amortised cost 34,569 517,235 13,147,083 31,029 13,729,916 174,476 547,785 101,985 19,581 843,827 14,573,743 280,844 2,288,851 25,647,382 31,029 28,248,106 624,391 4,763,645 457,025 370,772 6,215,833 34,463,939

2013 Sovereign and Central Banks Non-sovereign AAA to AA- A+ to BBB- BB+ to B- Unrated Total AAA to AA- A+ to BBB- BB+ to B- Unrated Total Grand Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 535,224 1,199,569 7,128,022 - 8,862,815 - - - - - 8,862,815 Due from banks and financial institutions - - - - - 530,143 2,983,043 64,361 433,111 4,010,658 4,010,658 Loans to banks and financial institutions and reverse - - - - - 11,348 472,243 126,241 48,113 657,945 657,945 repurchase agreements Financial assets at fair value through profit or loss - 1,843 281,073 - 282,916 - 230,889 - 49,545 280,434 563,350 Financial assets at amortised cost 118,475 674,660 14,112,281 32,560 14,937,976 299,850 627,713 131,642 25,854 1,085,059 16,023,035 653,699 1,876,072 21,521,376 32,560 24,083,707 841,341 4,313,888 322,244 556,623 6,034,096 30,117,803

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The Group controls credit risk by setting credit limits on the amount of risk it is willing to accept by geographic location. The distribution of financial assets by geographic region as of December 31 is as follows:

2014 North Rest of Rest of the Lebanon Turkey MENA Europe America Asia Africa World Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 10,043,703 1,843,299 1,111,891 248,494 - - - - 13,247,387 Due from banks and financial institutions 285,917 724,875 275,892 1,205,880 1,078,720 29,106 8 8,494 3,608,892 Loans to banks and financial institutions and reverse repurchase agreements 1,268,506 1,639,080 21,157 - - - - - 2,928,743 Derivative financial instruments 29,133 16,772 370 95,366 55,486 - - - 197,127 Financial assets at fair value through profit or loss 401,029 2,056 36,307 77,430 - - - - 516,822 Loans and advances to customers at amortised cost 7,598,968 11,651,447 5,307,900 683,493 40,317 77,856 186,904 228,453 25,775,338 Loans and advances to related parties at amortised cost 76,358 - 33,432 217 - - - - 110,007 Debtors by acceptances 197,330 35,766 31,449 37,186 1,521 6,841 28,999 1,388 340,480 Financial assets at amortised cost 9,839,474 507,799 3,715,034 255,923 69,245 122,328 - 63,940 14,573,743 Financial assets at fair value through other comprehensive income 87,006 - 16,974 1,424 30,300 - - 2 135,706 29,827,424 16,421,094 10,550,406 2,605,413 1,275,589 236,131 215,911 302,277 61,434,245

2013 North Rest of Rest of the Lebanon Turkey MENA Europe America Asia Africa World Total LBP million LBP million LBP million LBP million LBP million LBP million LBP million LBP million LBP million Cash and balances with central banks 6,926,240 1,254,972 670,503 340,393 - - - - 9,192,108 Due from banks and financial institutions 317,064 762,242 411,754 1,791,229 658,510 34,720 - 35,139 4,010,658 Loans to banks and financial institutions and reverse repurchase agreements 48,112 526,883 15,071 67,879 - - - - 657,945 Derivative financial instruments 9,373 62,998 130 63,561 - - - - 136,062 Financial assets at fair value through profit or loss 286,371 1,843 52,793 286,974 - - - - 627,981 Loans and advances to customers at amortised cost 7,578,277 8,142,755 4,941,143 684,765 70,519 86,968 530,039 30,356 22,064,822 Loans and advances to related parties at amortised cost 81,259 - 33,339 231 - - - - 114,829 Debtors by acceptances 111,143 31,126 46,279 22,390 706 540 50,505 - 262,689 Financial assets at amortised cost 11,863,715 673,122 2,866,517 168,149 48,381 327,886 - 75,265 16,023,035 Financial assets at fair value through other comprehensive income 228,977 - 15,130 2,445 25,923 - - - 272,475 27,450,531 11,455,941 9,052,659 3,428,016 804,039 450,114 580,544 140,760 53,362,604

158 159 financial statements BANK AUDI ANNUAL REPORT 2014

Industrial Analysis

2014 Financial Services Retail and Construction Manufacturing Services and Brokerage Government Consumers Wholesale and Materials and Petroleum` and Utilities Agriculture Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 353,479 12,893,908 ------13,247,387 Due from banks and financial institutions 3,608,892 ------3,608,892 Loans to banks and financial institutions and reverse repurchase agreements 2,928,743 ------2,928,743 Derivative financial instruments 111,040 - 5,631 72,896 3,155 3,906 134 365 197,127 Financial assets designated at fair value through profit and loss 106,639 398,036 - - 12,147 - - - 516,822 Loans and advances to customers at amortised cost 1,585,272 10,009 5,867,813 3,202,716 4,152,920 4,825,244 5,773,220 358,144 25,775,338 Loans and advances to related parties at amortised cost - - 89,959 - 11,307 - 8,741 - 110,007 Debtors by acceptances 46,571 - 589 193,370 6,841 87,785 5,038 286 340,480 Financial assets at fair value through other comprehensive income 101,661 - 5,012 41 2,699 2,867 23,426 - 135,706 Financial assets at amortised cost 789,751 13,729,916 - - - 32,474 21,602 - 14,573,743 9,632,048 27,031,869 5,969,004 3,469,023 4,189,069 4,952,276 5,832,161 358,795 61,434,245

2013 Financial Services Retail and Construction Manufacturing Services and Brokerage Government Consumers Wholesale and Materials and Petroleum and Utilities Agriculture Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Cash and balances with central banks 329,293 8,862,815 ------9,192,108 Due from banks and financial institutions 4,010,658 ------4,010,658 Loans to banks and financial institutions and reverse repurchase agreements 657,945 ------657,945 Derivative financial instruments 18,266 - 64,184 8,576 4,075 33,534 3,979 3,448 136,062 Financial assets designated at fair value through profit and loss 286,049 282,916 - - 48,509 3,290 7,217 - 627.981 Loans and advances to customers at amortised cost 1,466,944 3,822 4,711,811 3,255,934 3,348,179 4,187,201 4,861,850 229,081 22,064,822 Loans and advances to related parties at amortised cost 6 - 78,483 - 10,956 567 24,817 - 114,829 Debtors by acceptances 27,249 - 8,296 109,801 4,922 78,881 33,434 106 262,689 Financial assets at amortised cost 758,051 14,943,998 12,127 - 82,540 88,106 138,213 - 16,023,035 Financial assets at fair value through other comprehensive income 262,347 - 5 - 1,386 4,396 4,341 - 272,475 7,816,808 24,093,551 4,874,906 3,374,311 3,500,567 4,395,975 5,073,851 232,635 53,362,604

56.0. | MARKET RISK Market risk is defined as the potential loss in both on balance are set and limits monitored in order to ensure the avoidance sheet and off-balance sheet positions resulting from movements of large, unexpected losses and the consequent impact on the in market risk factors such as foreign exchange rates, interest Group’s safety and soundness. rates and equity prices. Tools developed in-house by a centralised unit of specialists offer The Market Risk unit’s responsibilities are to identify, measure, a holistic view of risk exposures and are customised to meet the report, and monitor all potential and actual market risks to which requirements of all end users (Group Risk, Senior Management, the Group is exposed. The purpose is to introduce transparency Business Lines and Legal Compliance). Stress scenarios include around the Treasury, investment portfolio, and asset and the various manifestations of the credit crisis that are relevant liability risk profile through consistent and comprehensive risk to the Group’s exposures, as well as scenarios related to the measurements, aggregation, management and analysis. Policies Group’s environment.

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Currency Risk Foreign exchange (or currency) risk is the risk that the value of In addition to regulatory limits, the Board has set limits on a portfolio will fall as a result of changes in foreign exchange positions by currency. These positions are monitored to ensure rates. The major sources of this type of market risk are imperfect they are maintained within established limits. correlations in the movements of currency prices and fluctuations in interest rates. Therefore, exchange rates and relevant interest rates are acknowledged as distinct risk factors.

The following tables present the breakdown of assets and liabilities by currency:

2014 2013 LBP USD EUR TRY Other Total LBP USD EUR TRY Other Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

ASSETS ASSETS Cash and balances with central banks 818,392 10,043,410 990,535 233,391 1,161,659 13,247,387 Cash and balances with central banks 497,550 6,682,153 1,107,961 79,560 824,884 9,192,108 Due from banks and financial institutions 50,279 1,992,866 496,230 565,807 503,710 3,608,892 Due from banks and financial institutions 85,947 2,711,081 427,797 394,220 391,613 4,010,658 Loans to banks and financial institutions and reverse Loans to banks and financial institutions and reverse repurchase agreements 42,259 1,349,248 81,378 1,455,858 - 2,928,743 repurchase agreements 48,268 193,709 91,066 324,902 - 657,945 Derivative financial instruments 471 98,928 52,897 5,379 39,452 197,127 Derivative financial instruments - 63,215 44,072 2,436 26,339 136,062 Financial assets at fair value through profit or loss 267,269 159,396 19,295 1,158 69,704 516,822 Financial assets at fair value through profit or loss 157,383 165,774 57,006 1,843 245,975 627,981 Loans and advances to customers at amortised cost 1,765,668 11,877,836 3,164,422 5,878,913 3,088,499 25,775,338 Loans and advances to customers at amortised cost 1,561,410 10,971,012 2,450,084 4,175,895 2,906,421 22,064,822 Loans and advances to related parties at amortised cost 30,281 75,776 1,293 - 2,657 110,007 Loans and advances to related parties at amortised cost 28,969 84,157 1,265 - 438 114,829 Debtors by acceptances - 268,144 54,569 3,855 13,912 340,480 Debtors by acceptances - 173,670 76,720 - 12,299 262,689 Financial assets at amortised cost 5,972,159 4,703,012 66,753 316,156 3,515,663 14,573,743 Financial assets at amortised cost 6,675,130 6,125,440 73,413 673,122 2,475,930 16,023,035 Financial assets at fair value through other Financial assets at fair value through other comprehensive income 67,163 58,965 559 - 9,019 135,706 comprehensive income 56,434 204,588 1,554 - 9,899 272,475 Investments in associates 10,425 13,465 - - 3,872 27,762 Investments in associates 9,254 14,446 - - 4,915 28,615 Property and equipment 622,202 691 1,145 76,163 248,340 948,541 Property and equipment 302,915 2,091 1,329 73,750 195,751 575,836 Intangible fixed assets 48,231 172 511 37,406 6,332 92,652 Intangible fixed assets 39,933 - 1,233 34,069 7,024 82,259 Non-current assets held for sale 1,125 11,333 568 3,995 1,489 18,510 Non-current assets held for sale 1,108 10,804 643 - 6,763 19,318 Other assets 107,729 257,054 10,655 63,070 98,028 536,536 Other assets 82,964 79,163 27,897 8,358 80,202 278,584 Goodwill - 54,715 (427) - 143,185 197,473 Goodwill - 54,715 (483) - 156,912 211,144 Total assets 9,803,653 30,965,011 4,940,383 8,641,151 8,905,521 63,255,719 Total assets 9,547,265 27,536,018 4,361,557 5,768,155 7,345,365 54,558,360 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES AND SHAREHOLDERS’ EQUITY Due to central banks 438,385 - - - - 438,385 Due to central banks 252,042 - - - - 252,042 Due to banks and financial institutions 38,526 1,033,170 286,686 32,893 304,076 1,695,351 Due to banks and financial institutions 29,919 1,188,284 177,391 2,870 201,448 1,599,912 Due to banks under repurchase agreements - - - 90,443 - 90,443 Due to banks under repurchase agreements - - - 156,382 39,798 196,180 Derivative financial instruments 1,160 32,415 43,515 12,932 26,281 116,303 Derivative financial instruments - 24,411 28,294 55,155 26,606 134,466 Customers’ deposits 6,672,921 27,753,416 5,111,923 6,219,782 7,655,167 53,413,209 Customers’ deposits 6,937,614 25,558,715 3,926,353 4,157,274 5,538,261 46,118,217 Deposits from related parties 89,283 437,664 14,069 5,935 39,670 586,621 Deposits from related parties 82,034 599,701 12,149 258 63,448 757,590 Debt issued and other borrowed funds - 764,927 - 89,528 - 854,455 Debt issued and other borrowed funds - 537,101 - - - 537,101 Engagements by acceptances - 268,144 54,569 3,855 13,912 340,480 Engagements by acceptances - 173,670 76,720 - 12,299 262,689 Other liabilities 167,328 100,677 13,545 88,664 149,766 519,980 Other liabilities 131,785 131,500 11,584 83,137 144,765 502,771 Provisions for risks and charges 89,669 1,003 7,285 25,003 31,001 153,961 Provisions for risks and charges 80,509 7,143 2,400 18,293 24,537 132,882 Shareholders’ equity 2,560,405 2,388,428 (64,737) (254,920) 417,355 5,046,531 Shareholders’ equity 1,982,442 1,939,352 (95,360) (243,790) 481,866 4,064,510 Total liabilities and shareholders’ equity 10,057,677 32,779,844 5,466,855 6,314,115 8,637,228 63,255,719 Total liabilities and shareholders’ equity 9,496,345 30,159,877 4,139,531 4,229,579 6,533,028 54,558,360

162 163 financial statements BANK AUDI ANNUAL REPORT 2014

Hedged Currency Swap The Group’s Exposure to Currency Risk Hedging Currency Notional Amount Maturity Forward Hedged Item Instrument Exposure LBP Million Date Price The Group is subject to currency risk on financial assets and of the currency rate against the Lebanese Pound, with all liabilities that are listed in currencies other than the Lebanese other variables held constant, first on the income statement Bank Audi France sa Currency swap EUR 107,281 June 22, 2015 1.3589 Pounds. Most of these financial assets and liabilities are listed in (due to the potential change in fair value of currency sensitive Banaudi Holding Currency swap EUR 11,003 June 10, 2015 1.3647 US Dollars, Euros and Turkish Liras. non‑trading monetary assets and liabilities) and equity (due to Audi Capital (KSA) Currency swap SAR 41,397 June 9, 2015 0.2666 the impact of currency translation gains/losses of consolidated The table below shows the currencies to which the Group subsidiaries and the change in fair value of currency swaps used Audi Qatar Currency swap QAR 75,059 June 6, 2015 0.2741 had significant exposure at December 31 on its non-trading to hedge net investment in foreign subsidiaries). A negative monetary assets and liabilities and its forecast cash flows. The amount reflects a potential net reduction in income or equity, numbers represent the effect of a reasonably possible movement while a positive amount reflects a net potential increase. Assessment of Hedge Effectiveness Criteria Interest Rate Sensitivity The Group establishes that an economic relationship exists The table below shows the sensitivity of interest income and 2014 2013 between the hedged item and the hedging instruments since shareholders’ equity to reasonably possible parallel changes in Increase in Effect on Profit Effect on Profit the hedging instruments have fair value changes that offset the interest rates, all other variables being held constant. Currency before Tax Effect on Equity before Tax Effect on Equity changes in the value of the net investment resulting from the Currency Rate % LBP Million LBP Million LBP Million LBP Million hedged risk. The effect of credit risk does not dominate the The impact of interest rate changes on net interest income is due value changes that result from that economic relationship. The to assumed changes in interest paid and received on floating

USD 1% (6,825) 9,765 (9,231) 2,685 analysis of the possible behaviour of the hedging relationship rate financial assets and liabilities and to the reinvestment EUR 1% (624) (5,169) 1,110 (242) during its term indicates that it is expected to meet the risk or refunding of fixed rated financial assets and liabilities at EGP 1% - 2,678 - 2, 936 management objective. the assumed rates. The result includes the effect of hedging instruments and assets and liabilities held at December 31, TRY 1% - 13,907 - 12,488 The hedge ratio is being designated based on actual amounts 2014 and 2013. The change in interest income is calculated

of the hedged item and hedging instrument. The notional over a 1-year period. The impact also incorporates the fact that Hedging Net Investments amounts of the options and forward described above are on a some monetary items do not immediately respond to changes par with the components of net investment hedged. Hence, the in interest rates and are not passed through in full, reflecting A foreign currency exposure arises from net investments in a short put option maturing in one month and the strategy hedge ratio is 100%. sticky interest rate behaviour. The pass-through rate and lag subsidiaries that have a different functional currency from that is automatically rolled over for 36 months ending in January in response time are estimated based on historical statistical of the Bank. The risk arises from the fluctuation in spot exchange 2017. The roll-over strike prices of the calls and put depend analysis and are reflected in the outcome. rates between the functional currency of the subsidiaries and on whether the spot range has been trending up or down in Interest Rate Risk branches, and the Bank’s functional and presentation currency the past month. The strikes of each collar may be set either There is no direct effect for the change in interest rates on equity which causes the amount of the net investment to vary. Such “widely” if the USD has been weakening, or a “narrow” range Interest rate risk arises from the possibility that changes in interest pursuant to the early adoption of IFRS9 (2013) in 2014 whereby a risk may have a significant impact on the Group’s financial if USD has been strengthening. The Group designated only the rates will affect future profitability or the fair value of financial no debt instruments can be classified at fair value through other statements. In order to mitigate this risk, the Group has entered change in the intrinsic value as the hedging instrument. instruments. The Group is exposed to interest rate risk as a result comprehensive income. into foreign currency derivative contracts to enhance its risk of mismatches of interest rate re-pricing of assets and liabilities. profile and manage the effect of foreign currency translation. This strategy hedges the changes in the USD/TRY spot exchange Positions are monitored on a daily basis by Management and, rate beyond the narrow range delimited by the strike price whenever possible, hedging strategies are used to ensure Hedge of Net Investment in Odea Bank of the bought call option and the strike price of the sold put positions are maintained within established limits. option. As such, it protects against significant variations of the The Hedged Item TRY during the month, but not against limited variations The During the month of January 2014, the Bank decided to hedge Group forgoes any profit on the net investment should the TRY Sensitivity of Net Interest Income USD 600 million component of its net investment in Odea price appreciate beyond the strike price of the written put. In 2014 2013 through currency option contracts. return, however, maximum downside protection is assured. The risk is hedged from January 2014 to January 2017. Change LBP LBP LBP LBP The Hedging Instruments and Hedged Risk in Basis Million Million Million Million During January 2014, the Group entered in a series of capped Sources of Ineffectiveness Points Increase Decrease Increase Decrease calls deals with prime rated financial institutions for a total For the capped calls, since the hedge is effective over a range, LBP ± 100 (5,369) 5,369 (4,360) 4,360 notional amount of USD 400 million. Each capped call deal ineffectiveness arises if the Turkish Lira exchange rate goes USD ± 50 (1,242) 1,242 7,978 (7,978) comprises a combination of a long plain vanilla call option below the strike of the bought call option (where changes in on USD/TRY and a short exotic call option with a knock “in” foreign exchange position will not be offset by the hedge), or EUR ± 25 (4,780) 4,780 (1,231) 1,231

feature, both legs having different strike prices. On average, above the strike price of the sold call option, in case the “knock and for all the deals, this strategy is translated in a protection in” feature is triggered (where part of the depreciation will not The effect of any future associated hedges made by the Group is not accounted for. The sensitivity of equity was calculated for an against the upside of the USD against TRY triggered when be captured). As for the collars, ineffectiveness exists when the increase in basis points whereby a similar decrease has an equal and offsetting effect. USD/TRY hits 2.26 and continues until it touches 3.23 which USD/TRY exchange rate ranges between the strike price of the acts as a barrier. In case of this occurrence, the protection will bought call option and the strike price of the sold put option. be capped at USD/TRY of 2.89. The Group designated only the change in the intrinsic value as the hedging instrument. Hedge of Net Investment in Other Subsidiaries

For this strategy, the hedged risk is the change in the USD/TRY During 2014, the Group renewed its currency swap contracts spot exchange rate within the range of prices falling between designated to hedge the net investment in its subsidiaries in strike price of the long call option and the barrier price. The risk Cyprus, France, Kingdom of Saudi Arabia and Qatar. The hedged is hedged from January 2014 to January 2017 where the deals risk is the risk of weakening EUR, SAR, and QAR exchange mature and settle. rate versus the USD that will result in changes in the value of the Group’s net investment in its subsidiaries. The swaps are The remaining USD 200 million were hedged through zero-cost renewed on annual basis for a period of one year. collars each comprising a combination of a long call option and

164 165 financial statements BANK AUDI ANNUAL REPORT 2014

The Group’s interest sensitivity position based on contractual The expected re-pricing and maturity dates may differ re‑pricing arrangements is shown in the table below. significantly from the contractual dates particularly with regard to the maturity of customer demand deposits.

2014 Up to 1 1 to 3 3 Months to Total Less than 1 to 5 Over 5 Total More than Non-interest Month Months 1 Year 1 Year Years Years 1 Year Bearing Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million ASSETS Cash and balances with central banks 2,233,810 1,538,708 563,099 4,335,617 4,287,849 1,520,316 5,808,165 3,103,605 13,247,387 Due from banks and financial institutions 3,147,391 153,408 43,228 3,344,027 - - - 264,865 3,608,892 Loans to banks and financial institutions and reverse repurchase agreements 1,558,135 736,143 619,589 2,913,867 4,500 - 4,500 10,376 2,928,743 Derivative financial instruments 62,357 18,919 34,543 115,819 71,790 2,534 74,324 6,984 197,127 Financial assets at fair value through profit or loss 28,806 16,132 3,139 48,077 148,040 213,962 362,002 106,743 516,822 Loans and advances to customers at amortised cost 5,406,108 6,779,736 7,090,053 19,275,897 4,953,475 1,402,374 6,355,849 143,592 25,775,338 Loans and advances to related parties at amortised cost 48,886 1,243 48,180 98,309 2,398 168 2,566 9,132 110,007 Debtors by acceptances 7,223 3,121 30,792 41,136 - - - 299,344 340,480 Financial assets at amortised cost 363,726 746,041 2,030,423 3,140,190 7,001,988 4,239,474 11,241,462 192,091 14,573,743 Financial assets at fair value through other comprehensive income ------135,706 135,706 Investments in associates - - 9,139 9,139 - - - 18,623 27,762 Property and equipment ------948,541 948,541 Intangible fixed assets ------92,652 92,652 Non-current assets held for sale ------18,510 18,510 Other assets ------536,536 536,536 Goodwill ------197,473 197,473 Total assets 12,856,442 9,993,451 10,472,185 33,322,078 16,470,040 7,378,828 23,848,868 6,084,773 63,255,719 LIABILITIES AND SHAREHOLDERS’ EQUITY Due to central banks - - 132,612 132,612 247 304,999 305,246 527 438,385 Due to banks and financial institutions 769,472 221,679 344,623 1,335,774 159,844 167,071 326,915 32,662 1,695,351 Due to banks under repurchase agreements 90,443 - - 90,443 - - - - 90,443 Derivative financial instruments 41,206 24,314 18,182 83,702 5,946 186 6,132 26,469 116,303 Customers’ deposits 31,363,191 10,905,350 5,688,765 47,957,306 1,726,545 8,123 1,734,668 3,721,235 53,413,209 Deposits from related parties 248,061 91,513 43,808 383,382 129,133 - 129,133 74,106 586,621 Debt issued and other borrowed funds - 89,528 226,125 315,653 527,625 - 527,625 11,177 854,455 Engagements by acceptances 7,223 3,121 30,792 41,136 - - - 299,344 340,480 Other liabilities 53,710 - - 53,710 - - - 466,270 519,980 Provisions for risks and charges ------153,961 153,961 Shareholders’ equity ------5,046,531 5,046,531 Total liabilities and shareholders’ equity 32,573,306 11,335,505 6,484,907 50,393,718 2,549,340 480,379 3,029,719 9,832,282 63,255,719 Interest rate sensitivity gap (19,716,864) (1,342,054) 3,987,278 13,920,700 6,898,449 (3,747,509) Cumulative gap (19,716,864) (21,058,918) (17,071,640) (3,150,940) 3,747,509 -

166 167 financial statements BANK AUDI ANNUAL REPORT 2014

2013 Up to 1 1 to 3 3 Months to Total Less than 1 to 5 Over 5 Total More than Non-interest Month Months 1 Year 1 Year Years Years 1 Year Bearing Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million ASSETS Cash and balances with central banks 475,005 426,751 608,276 1,510,032 4,415,700 603,000 5,018,700 2,663,376 9,192,108 Due from banks and financial institutions 2,716,710 71,062 15,959 2,803,731 - 27 27 1,206,900 4,010,658 Loans to banks and financial institutions and reverse repurchase agreements 417,007 136,408 103,951 657,366 - - - 579 657,945 Derivative financial instruments 9,685 26,091 79,426 115,202 20,107 - 20,107 753 136,062 Financial assets at fair value through profit or loss 81,194 48,565 28,946 158,705 53,471 132,275 185,746 283,530 627,981 Loans and advances to customers at amortised cost 5,046,875 5,827,122 5,160,206 16,034,203 4,390,941 1,550,693 5,941,634 88,985 22,064,822 Loans and advances to related parties at amortised cost 53,830 5,338 35,503 94,671 6,268 3,754 10,022 10,136 114,829 Debtors by acceptances 38,780 86,780 72,177 197,737 - - - 64,952 262,689 Financial assets at amortised cost 169,600 943,446 1,909,009 3,022,055 6,397,075 6,425,060 12,822,135 178,845 16,023,035 Financial assets at fair value through other comprehensive income - - 13,327 13,327 - - 259,148 272,475 Investments in associates ------28,615 28,615 Property and equipment ------575,836 575,836 Intangible fixed assets ------82,259 82,259 Non-current assets held for sale ------19,318 19,318 Other assets - - - - 188 1,085 1,273 277,311 278,584 Goodwill ------211,144 211,144 Total assets 9,008,686 7,571,563 8,026,780 24,607,029 15,283,750 8,715,894 23,999,644 5,951,687 54,558,360 LIABILITIES AND SHAREHOLDERS’ EQUITY Due to central banks - - - - 132,612 118,921 251,533 509 252,042 Due to banks and financial institutions 510,699 304,272 619,908 1,434,879 - - - 165,033 1,599,912 Due to banks under repurchase agreements 161,419 31,648 3,113 196,180 - - - - 196,180 Derivative financial instruments 10,296 19,285 37,429 67,010 17,798 - 17,798 49,658 134,466 Customers’ deposits 26,039,637 8,672,142 3,680,030 38,391,809 1,644,355 2,233 1,646,588 6,079,820 46,118,217 Deposits from related parties 177,817 118,256 41,772 337,845 149,941 - 149,941 269,804 757,590 Debt issued and other borrowed funds - - - - 527,625 - 527,625 9,476 537,101 Engagements by acceptances 38,780 86,780 72,177 197,737 - - - 64,952 262,689 Other liabilities 95,116 - 1,066 96,182 - - - 406,589 502,771 Provisions for risks and charges ------132,882 132,882 Shareholders’ equity ------4,064,510 4,064,510 Total liabilities and shareholders’ equity 27,033,764 9,232,383 4,455,495 40,721,642 2,472,331 121,154 2,593,485 11,243,233 54,558,360 Interest rate sensitivity gap (18,025,078) (1,660,820) 3,571,285 12,811,419 8,594,740 (5,291,546) Cumulative gap (18,025,078) (19,685,898) (16,114,613) (3,303,194) 5,291,546 -

Prepayment Risk Equity Price Risk 57.0. | LIQUIDITY RISK Prepayment risk is the risk that the Group will incur a financial Equity price risk is the risk that the value of a portfolio will fall Liquidity risk is defined as the risk that the Group will could be used to secure additional funding if required. loss because its customers and counterparties repay or request as a result of a change in stock prices. Risk factors underlying encounter difficulty in meeting obligations associated repayment earlier than expected, such as fixed rate mortgages this type of market risk are a whole range of various equity (and with financial liabilities that are settled by delivering cash The Group maintains a portfolio of marketable and diverse when interest rates fall. index) prices corresponding to different markets (and currencies/ or another financial asset. Liquidity risk arises because of assets that can be liquidated in the event of an unforeseen maturities) in which the Group holds equity-related positions. the possibility that the Group might be unable to meet its interruption of cash flow. As per applicable regulations, the Market risks that lead to prepayments are not material with payment obligations when they fall due under both normal Group must retain obligatory reserves with the central banks respect to the markets where the Group operates. Accordingly, The Group sets tight limits on equity exposures and the types and stress circumstances. To limit this risk, management has where the Group entities operate. the Group considers prepayment risk on net profits as of equity instruments that traders are allowed to take positions arranged diversified funding sources in addition to its core not material after considering any penalties arising from in. Nevertheless, depending on the complexity of financial deposit base, and adopted a policy of managing assets with The liquidity position is assessed and managed under a variety prepayments. instruments, equity risk is measured in first cash terms, such liquidity in mind and of monitoring future cash flows and of scenarios, giving due consideration to stress factors relating as the market value of a stock/index position, and also in liquidity on a daily basis. The Group has developed internal to both the market in general and specifically to the Group. price sensitivities, such as sensitivity of the value of a portfolio control processes and contingency plans for managing The Group maintains a solid ratio of highly liquid net assets to changes in the underlying asset price. These measures are liquidity risk. This incorporates an assessment of expected in foreign currencies to deposits and commitments in foreign applied to an individual position and/or to a portfolio of equities. cash flows and the availability of high grade collateral which currencies taking market conditions into consideration.

168 169 financial statements BANK AUDI ANNUAL REPORT 2014

The Group stresses the importance of customers’ deposits as by using the advances to deposits ratio, which compares loans 2013 source of funds to finance its lending activities. This is monitored and advances to customers as a percentage of client’s deposits. Less than 1 to 3 3 to 12 1 to 5 Over 5 Loans to Deposits 1 Month Months Months Years Years Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million 2014 2013 FINANCIAL ASSETS % %

Cash and balances with central banks 3,066,548 328,099 615,326 4,844,503 1,004,503 9,858,979 Year-end 47 47 Due from banks and financial institutions 3,972,232 77,161 15,959 - 26 4,065,378 Maximum 48 47 Loans to banks and financial institutions and reverse Minimum 46 39 repurchase agreements 388,124 3,056 219,309 - 72,586 683,075 Average 47 43 Derivative financial instruments 9,109 26,017 79,265 20,232 1,439 136,062 Financial assets at fair value through profit or loss 343,268 50,078 37,044 95,273 179,552 705,215 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities Loans and advances to customers at amortised cost 3,597,575 3,449,031 5,566,885 7,700,676 2,503,139 22,817,306 The table below summarises the maturity profile of the Group’s commitments. Repayments which are subject to notice are Loans and advances to related parties at amortised cost 54,351 3,232 37,211 17,590 6,770 119,154 financial assets and liabilities as of December 31, based on treated as if notice were to be given immediately. Concerning contractual undiscounted cash flows. The contractual maturities deposits, the Group expects that many customers will not Debtors by acceptances 74,097 101,387 87,205 - - 262,689 have been determined based on the period remaining to reach request repayment on the earliest date the Group could be Financial assets at amortised cost 417,856 1,093,658 2,570,847 9,013,454 7,786,004 20,881,819 maturity as per the Statement of Financial Position actual required to pay. Total financial assets 11,923,160 5,131,719 9,229,051 21,691,728 11,554,019 59,529,677 FINANCIAL LIABILITIES The table does not reflect the expected cash flows indicated by the Group’s deposit retention history. Due to central banks - - - 145,885 129,379 275,264 2014 Due to banks and financial institutions 645,651 268,348 408,662 197,155 114,808 1,634,624 Less than 1 to 3 3 to 12 1 to 5 Over 5 1 Month Months Months Years Years Total Due to banks under repurchase agreements 196,209 - - - - 196,209 LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Derivative financial instruments 59,897 19,251 37,425 17,893 - 134,466 FINANCIAL ASSETS Customers’ deposits 32,475,970 8,739,638 3,699,182 2,475,821 3,226 47,393,837 Cash and balances with central banks 4,556,486 485,798 809,890 7,621,841 1,971,682 15,445,697 Deposits from related parties 439,896 121,284 44,745 185,277 - 791,202 Due from banks and financial institutions 3,412,323 162,641 34,072 - - 3,609,036 Debt issued and other borrowed funds 11,039 - 18,953 601,771 - 631,763 Loans to banks and financial institutions and reverse Engagements by acceptances 74,097 101,387 87,205 - - 262,689 repurchase agreements 1,508,289 639,715 827,902 39,488 85,245 3,100,639 Total financial liabilities 33,902,759 9,249,908 4,296,172 3,623,802 247,413 51,320,054 Derivative financial instruments 71,441 18,816 31,491 72,845 2,534 197,127

Financial assets at fair value through profit or loss 128,283 5,198 13,082 193,350 348,965 688,878 The table below shows the contractual expiry by maturity of the guarantee contracts, the maximum amount of the guarantee Loans and advances to customers at amortised cost 4,908,007 4,180,542 7,234,810 8,503,576 2,752,109 27,579,044 Group’s contingent liabilities and commitments. Each undrawn is allocated to the earliest period in which the guarantee could Loans and advances to related parties at loan commitment is included in the time band containing be called. amortised cost 43,594 2,912 43,334 16,203 10,947 116,990 the earliest date it can be drawn down. For issued financial Debtors by acceptances 92,006 93,012 137,847 17,615 - 340,480 2014 Financial assets at amortised cost 573,419 761,854 3,080,285 8,815,330 5,187,701 18,418,589 Total financial assets 15,293,848 6,350,488 12,212,713 25,280,248 10,359,183 69,496,480 On Less than 3 3 to 12 1 to 5 More than Demand Months Months Years 5 Years Total FINANCIAL LIABILITIES LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million

Due to central banks 988 2,903 121,815 148,840 186,972 461,518 Financial guarantees 987,666 49,502 479,632 372,364 19,662 1,908,826 Due to banks and financial institutions 728,896 298,475 392,160 189,960 119,457 1,728,948 Other guarantees 507,930 34,731 172,471 53,080 11,050 779,262 Due to banks under repurchase agreements 90,443 - - - - 90,443 Documentary credits 293,647 89,610 162,247 160,617 - 706,121 Derivative financial instruments 67,281 24,332 17,897 5,756 1,037 116,303 Loan commitments 3,201,857 31,528 737,403 644,984 - 4,615,772 Customers’ deposits 35,860,413 10,857,174 5,315,615 1,974,347 11,211 54,018,760 4,991,100 205,371 1,551,753 1,231,045 30,712 8,009,981 Deposits from related parties 316,952 93,032 46,901 154,675 - 611,560

Debt issued and other borrowed funds 8,904 4,197 124,776 687,705 296,032 1,121,614 Engagements by acceptances 92,006 93,012 137,847 17,615 - 340,480 2013 Total financial liabilities 37,165,883 11,373,125 6,157,011 3,178,898 614,709 58,489,626 On Less than 3 3 to 12 1 to 5 More than Demand Months Months Years 5 Years Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million Financial guarantees 582,615 277,186 745,471 117,662 42,364 1,765,298 Other guarantees 860,519 - - - - 860,519 Documentary credits 132,257 202,085 207,532 28,824 208 570,906 Loan commitments 3,661,620 684 5,457 84,044 3,192 3,754,997 5,237,011 479,955 958,460 230,530 45,764 6,951,720

170 171 financial statements BANK AUDI ANNUAL REPORT 2014

Maturity Analysis of Assets and Liabilities The table below summarises the maturity profile of the Group’s effective maturities, as indicated by the Group’s deposit retention assets and liabilities. The contractual maturities of assets and history and the availability of liquid funds. The maturity profile liabilities have been determined on the basis of the remaining is monitored by Management to ensure adequate liquidity is period at the Statement of Financial Position date to the maintained. contractual maturity date and do not take account of the

The maturity profile of the assets and liabilities at December 31, 2014 is as follows:

Less than 1 to 3 3 Months Total Less than 1 to 5 Over 5 Total More than Amount without 1 Month Months to 1 Year 1 Year Years Years 1 Year Maturity Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million ASSETS Cash and balances with central banks 4,163,267 337,700 618,445 5,119,412 6,255,683 1,518,813 7,774,496 353,479 13,247,387 Due from banks and financial institutions 3,409,849 162,576 36,467 3,608,892 - - - - 3,608,892 Loans to banks and financial institutions and reverse repurchase agreements 1,504,138 584,578 806,458 2,895,174 23,200 10,369 33,569 - 2,928,743 Derivative financial instruments 71,441 18,816 31,491 121,748 72,845 2,534 75,379 - 197,127 Financial assets at fair value through profit or loss 76,063 16,968 5,771 98,802 145,773 214,078 359,851 58,169 516,822 Loans and advances to customers at amortised cost 4,425,521 1,320,461 4,096,979 9,842,961 10,304,711 5,627,666 15,932,377 - 25,775,338 Loans and advances to related parties at amortised cost 48,978 3,002 35,257 87,237 7,431 7,168 14,599 8,171 110,007 Debtors by acceptances 92,006 93,012 137,847 322,865 17,615 - 17,615 - 340,480 Financial assets at amortised cost 412,167 659,184 2,390,863 3,462,214 6,563,337 4,548,192 11,111,529 - 14,573,743 Financial assets at fair value through other comprehensive income ------135,706 135,706 Investments in associates - - - - 5,069 4,070 9,139 18,623 27,762 Property and equipment ------948,541 948,541 Intangible fixed assets ------92,652 92,652 Non-current assets held for sale ------18,510 18,510 Other assets 366,179 12,545 11,241 389,965 19,496 126 19,622 126,949 536,536 Goodwill ------197,473 197,473 Total assets 14,569,609 3,208,842 8,170,819 25,949,270 23,415,160 11,933,016 35,348,176 1,958,273 63,255,719 LIABILITIES AND SHAREHOLDERS’ EQUITY Due to central banks 987 2,903 116,879 120,769 139,248 178,368 317,616 - 438,385 Due to banks and financial institutions 532,703 112,920 541,487 1,187,110 428,635 79,266 507,901 340 1,695,351 Due to banks under repurchase agreements 90,443 - - 90,443 - - - - 90,443 Derivative financial instruments 67,281 24,332 17,897 109,510 5,756 1,037 6,793 - 116,303 Customers’ deposits 35,188,560 10,518,970 5,961,665 51,669,195 1,735,890 8,124 1,744,014 - 53,413,209 Deposits from related parties 316,559 92,816 48,113 457,488 129,133 - 129,133 - 586,621 Debt issued and other borrowed funds 7,810 - 92,895 100,705 527,625 226,125 753,750 - 854,455 Engagements by acceptances 92,006 93,012 137,847 322,865 17,615 - 17,615 - 340,480 Other liabilities 360,081 35,926 38,295 434,302 2,841 - 2,841 82,837 519,980 Provision for risks and charges ------153,961 153,961 Shareholders’ equity ------5,046,531 5,046,531 Total liabilities and shareholders’ equity 36,656,430 10,880,879 6,955,078 54,492,387 2,986,743 492,920 3,479,663 5,283,669 63,255,719 Liquidity gap (22,086,821) (7,672,037) 1,215,741 20,428,417 11,440,096 (3,325,396) Cumulative gap (22,086,821) (29,758,858) (28,543,117) (8,114,700) 3,325,396 -

172 173 financial statements BANK AUDI ANNUAL REPORT 2014

The maturity profile of the assets and liabilities at December 31, 2013 is as follows:

Less than 1 to 3 3 Months Total Less than 1 to 5 Over 5 Total More than Amount without 1 Month Months to 1 Year 1 Year Years years 1 Year Maturity Total LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million LBP Million ASSETS Cash and balances with central banks 2,736,641 327,712 613,351 3,677,704 4,556,251 628,860 5,185,111 329,293 9,192,108 Due from banks and financial institutions 3,917,548 77,124 15,958 4,010,630 - 28 28 - 4,010,658 Loans to banks and financial institutions and reverse repurchase agreements 369,309 21,762 218,763 609,834 - 48,111 48,111 - 657,945 Derivative financial instruments 9,108 26,017 79,265 114,390 20,232 1,440 21,672 - 136,062 Financial assets at fair value through profit or loss 297,710 48,433 29,045 375,188 53,603 134,558 188,161 64,632 627,981 Loans and advances to customers at amortised cost 2,681,882 2,408,945 4,011,330 9,102,157 9,136,285 3,826,380 12,962,665 - 22,064,822 Loans and advances to related parties at amortised cost 64,968 296 37,811 103,075 7,737 4,017 11,754 - 114,829 Debtors by acceptances 74,097 101,387 87,205 262,689 - - - - 262,689 Financial assets at amortised cost 174,514 692,399 1,629,375 2,496,288 6,657,823 6,868,924 13,526,747 - 16,023,035 Financial assets at fair value through other comprehensive income ------272,475 272,475 Investments in associates ------28,615 28,615 Property and equipment ------575,836 575,836 Intangible fixed assets ------82,259 82,259 Non-current assets held for sale ------19,318 19,318 Other assets 166,695 3,702 20,496 190,893 29,655 1,309 30,964 56,727 278,584 Goodwill ------211,144 211,144 Total assets 10,492,472 3,707,777 6,742,599 20,942,848 20,461,586 11,513,627 31,975,213 1,640,299 54,558,360 LIABILITIES AND SHAREHOLDERS’ EQUITY Due to central banks - - - - 133,118 118,924 252,042 - 252,042 Due to banks and financial institutions 468,330 199,445 515,040 1,182,815 229,585 187,512 417,097 - 1,599,912 Due to banks under repurchase agreements 196,180 - - 196,180 - - - - 196,180 Derivative financial instruments 59,897 19,251 37,425 116,573 17,893 - 17,893 - 134,466 Customers’ deposits 27,509,368 9,699,977 7,123,990 44,333,335 1,782,648 2,234 1,784,882 - 46,118,217 Deposits from related parties 257,411 121,371 228,862 607,644 149,946 - 149,946 - 757,590 Debt issued and other borrowed funds - - - - 537,101 537,101 - 537,101 Engagements by acceptances 74,097 101,387 87,205 262,689 - - - - 262,689 Other liabilities 275,027 36,021 53,649 364,697 95 81 176 137,898 502,771 Provision for risks and charges ------132,882 132,882 Shareholders’ equity ------4,064,510 4,064,510 Total liabilities and shareholders’ equity 28,840,310 10,177,452 8,046,171 47,063,933 2,850,386 308,751 3,159,137 4,335,290 54,558,360 Liquidity gap (18,347,838) (6,469,675) (1,303,572) 17,611,200 11,204,876 (2,694,991) Cumulative gap (18,347,838) (24,817,513) (26,121,085) (8,509,885) 2,694,991 -

174 175 financial statements BANK AUDI ANNUAL REPORT 2014

58.0. | OPERATIONAL RISK The regulatory capital as of December 31 is as follows: Operational risk is the risk of loss arising from system failure, management responsibility at the operational level, and the Including Net Income for the Year Excluding Net Income for the Year Less Proposed Dividends human error, fraud or external events. When controls fail to requirement to be able to price and value independently any perform, operational risks can cause damage to reputation, proposed transaction. 2014 2013 2014 2013 have legal or regulatory implications, or lead to financial loss. LBP Million LBP Million LBP Million LBP Mllion Incidents are reported, analysed and fed into a risk map also Tier 1 capital 3,758,215 3,069,255 3,984,876 3,278,970 The operational risk management framework is implemented originating from other sources such as control self assessments, by an independent Operational Risk Management team, in key risk indicators or audit reports. This risk map is then used as Of which: common Tier 1 2,998,878 2,315,505 3,225,538 2,525,220 coordination with other essential elements of the Group’s control a tool to follow up on outstanding issues and as the basis for Tier 2 capital 802,206* 626,230 802,206* 626,230 framework such as Internal Audit or Corporate Information reporting operational risk to Management and to the Board. Total capital 4, 560,421 3,695,485 4, 787,082 3,905,200 Security and Business Continuity. Insurance coverage is used as an external mitigant and is Central to this framework are tried-and-tested principles such commensurate with activity, both in terms of volume and The capital adequacy ratio as of December 31 is as follows: as redundancy of mission-critical systems, segregation of characteristics. duties, strict authorisation procedures, daily reconciliation, risk Including Net Income for the Year Excluding Net Income for the Year Less Proposed Dividends 2014 2013 2014 2013

59.0. | CAPITAL MANAGEMENT Capital adequacy – Common Tier 1 8.16% 7.17% 8.78% 7.82% By maintaining an actively managed capital base, the Group’s eligible capital with its Statement of Financial Position assets Capital adequacy – Tier 1 10.23% 9.50% 10.85% 10.15% objectives are to cover risks inherent in the business, to retain and off‑balance sheet commitments at a weighted amount to sufficient financial strength and flexibility to support new reflect their relative risk. Capital adequacy – Total capital 12.42% 11.44% 13.03% 12.09% business growth, and to meet national and international * Since the regulatory approvals for including the allowed effect of the asset revaluation in Tier 2 capital are still in process, the Tier 2 capital and total regulatory capital requirements at all times. The adequacy of To satisfy Basel III capital requirements, the Central Bank of capital ratios as of December 31, 2014 do not include the effect of the revaluation surplus resulting from adopting the revaluation model for measuring the Group’s capital is monitored using, among other measures, Lebanon has set the minimum ratios of regulatory capital to land and buildings. the rules and ratios established by the Central Bank of Lebanon risk-weighted assets to be achieved gradually by year-end 2015 according to the provisions of Basic Circular No. 44. These as follows: ratios measure capital adequacy by comparing the Group’s The Group manages its capital structure and makes adjustments capital structure, the Group may adjust the amount of dividends to it in the light of changes in economic conditions and the risk payment to shareholders, return capital to shareholders or issue characteristics of its activities. In order to maintain or adjust the capital securities. Common Tier 1 Tier 1 Total Capital Ratio Capital Ratio Capital Ratio Year ended December 31, 2013 6.0% 8.5% 10.5% Year ended December 31, 2014 7.0% 9.5% 11.5% Year ended December 31, 2015* 8.0% 10.0% 12.0%

* Ratios include a Capital Conservation Buffer of 2.5% which must be through Common Equity Tier 1 capital. 2014 2013 LBP Million LBP Million Risk-weighted assets Credit risk 33,371,604 29,243,183 Market risk 679,624 599,126 Operational risk 2,680,287 2,469,396 Total risk-weighted assets 36,731,515 32,311,705

176 177 04 | group structure

Following the beat of your active lifestyle. GROUP STRUCTURE BANK AUDI ANNUAL REPORT 2014

1.0. | shareholding structure 2.0. | corporate structure

The following table sets out the composition of the holders of common shares as at March 31, 2015: The major subsidiaries and branches abroad of Bank Audi sal as at December 31, 2014 are:

Country Percentage Shareholders/Groups of Shareholders (Ultimate Economic Ownership) Ownership1 (%)

FRH Investment Holding sal Lebanon 9.60 100.00% Banaudi Holding ltd Audi family2 Lebanon 6.90

Banaudi International 1 2 100.00% 100.00% Banque Audi (Suisse) SA Sheikha Suad Hamad Al Saleh Al Homaizi Kuwait 5.94 Holding ltd1 Sheikh Dhiab Bin Zayed Al Nehayan United Arab Emirates 4.97 99.99% Bank Audi France sa 99.80% Audi Capital Gestion SAM Levant Finance 2 Limited Lebanon 4.74 Al Sabbah family2 Kuwait 4.71 99.99% Audi Private Bank sal 94.85% SOLIFAC sal Investment and Business Holding sal Lebanon 3.44

2 1 Al Hobayb family Kingdom of Saudi Arabia 2.55 100.00% Bank Audi LLC (Qatar) International Finance Corporation I.F.C. — 2.50 1 Ali Ghassan El Merhebi family Lebanon 2.35 100.00% Bank Audi sae (Egypt) Said El-Khoury family Lebanon 2.30 Bank Audi sal 99.89% Odea Bank A.Ş.1 Executives and employees3 Lebanon 4.42

Others — 16.51 99.99% Audi Capital (KSA) cjsc1 Deutsche Bank Trust Company Americas4 — 29.08 Jordan Branches 1 Total shareholding5 100.00 47.00% Bank Audi Syria sa 99.99% Audi Capital (Syria) LLC

76.56% National Bank of Sudan

99.99% Audi Investment Bank sal 99.97% Infi Gamma Holding sal1

Arabeya Online 90.00% for Securities Brokerage1

Audi Investments 99.99% Holding sal

Banking Holding Factoring Financial intermediation/brokerage Notes:

1 Percentage ownership figures represent common shares owned by the named shareholders and are expressed as a percentage of the total number of common shares issued and outstanding. As at the date hereof, the Bank (and its affiliates) is the custodian of shares and/or GDRs representing 69.6% of the Bank’s common shares.

2 Sheikha Suad Hamad Al Saleh Al Homaizi is a member of the Board. The Audi family, Al Sabbah family and Al Hobayb family include the following members of the Board: (i) Raymond Wadih Audi and Marc Jean Audi, (ii) Mariam Nasser Sabbah Al Nasser Al Sabbah, and (iii) Abdullah Al Hobayb, respectively.

3 Excluding members of the Audi family accounted for in a separate row above.

4 As at the date hereof, Deutsche Bank Trust Company Americas, in its capacity as depositary under the Bank’s GDR Program, owned 116,238,117 common shares represented by GDRs.

5 As at the date hereof, the total number of common shares was 399,749,204. 1 Represents the economic ownership of the Bank with direct and/or indirect ownership through subsidiaries.

180 181 GROUP STRUCTURE BANK AUDI ANNUAL REPORT 2014

3.0. | GROUP HIGH LEVEL CHART

Group Geographical Presence

KINGDOM OF LEBANON FRANCE EGYPT SAUDI ARABIA

Audi Capital External Auditors Bank Audi sal Bank Audi France sa Bank Audi sae (KSA) cjsc Shareholders External Solicitors Audi Investment Arabeya Online SWITZERLAND QATAR Bank sal Brokerage

Board Committees Banque Audi Corporate Secretariat Board of Directors Audi Private Bank sal SUDAN Bank Audi LLC (Suisse) sa

Chairman National Bank Risk Corporate JORDAN MONACO UAE Executive Audit Committee Remuneration Governance of Sudan Committee Committee Committee & Nomination Chief Executive Officer Committee Bank Audi sal – Audi Capital Bank Audi sal – Jordan Branches Gestion sam Abu Dhabi Representative Office SYRIA TURKEY

Bank Audi Syria sa Odeabank A.Ş.

Group Business Lines Standing Management Committees Group Support Functions Audi Capital (Syria) llc

• Asset Liability Committee Private Banking Regional Expansion • credit Committee Banking Retail Banking • Information Technology Strategic Risk Management Committee Other financial e-Payment Solutions services (brokerage, & Card Services • Financial Institutions Committee Internal Audit investments etc.)

• anti-money Laundering Committee Islamic Banking Legal & Compliance • Disclosure Committee

Corporate Banking • real Estate Committee Finance

• Corporate Social Responsibility Investment Banking Committee Operations

182 183 GROUP STRUCTURE

4.0. | ORGANISATION CHART

BOARD OF DIRECTORS CHAIRMAN OF THE BOARD GROUP CHIEF EXECUTIVE OFFICER Raymond W. Audi Samir N. Hanna

VICE-CHAIRMAN GROUP STRATEGY GROUP EXECUTIVE OF THE BOARD DIRECTOR COMMITTEE Marwan M. Ghandour Freddie C. Baz

GROUP AUDIT COMMITTEE GROUP CORPORATE GROUP RETAIL GROUP INTERNAL AUDIT BANKING BANKING Mahmoud M. Majzoub Khalil I. Debs Imad I. Itani

GROUP RISK COMMITTEE GROUP PRIVATE GROUP CAPITAL BANKING MARKETS Philippe R. Sednaoui Michel E. Aramouni

REMUNERATION COMMITTEE GROUP ISLAMIC GROUP e-PAYMENT BANKING SOLUTIONS & CARD SERVICES Imad I. Itani Randa T. Bdeir

CORPORATE GOVERNANCE & NOMINATION COMMITTEE GROUP RISK GROUP FINANCE Adel N. Satel Tamer M. Ghazaleh

GROUP LEGAL GROUP CREDIT & COMPLIANCE Elia S. Samaha Chahdan E. Jebeyli

GROUP INFORMATION GROUP RESEARCH TECHNOLOGY Marwan S. Barakat Danny N. Dagher

GROUP CORPORATE SECRETARIAT Farid F. Lahoud

184 05 | management

Allowing purchases with the touch of a button. management BANK AUDI ANNUAL REPORT 2014

BANK AUDI sal Group Management

General Managers Group Financial Institutions & Correspondent Banking

Mr. Samir N. HANNA Group Chief Executive Officer Mr. Khalil G. GEAGEA Group Head of Financial Institutions & Correspondent Banking Dr. Freddie C. BAZ Group Strategy Director Tel: (961-1) 964817. Fax: (961-1) 989494. Dr. Imad I. ITANI Group Head of Retail Banking E-mail: [email protected]

Mr. Chahdan E. JEBEYLI Group Chief Legal & Compliance Officer Mr. Joseph A. NADER Deputy Group Head of Financial Institutions & Correspondent Banking Mr. Adel N. SATEL Group Chief Risk Officer Tel: (961-1) 977644. Fax: (961-1) 989494. Mr. Elia S. SAMAHA Group Chief Credit Officer E-mail: [email protected]

Regulatory Relations Investor Relations

Mr. Gaby G. KASSIS General Manager Ms. Sana M. SABRA Investor Relations Tel: (961-1) 977496. Fax: (961-1) 999399. E- mail: [email protected]

Assistant General Managers

Mr. Michel E. ARAMOUNI Group Capital Markets Dr. Marwan S. BARAKAT Group Chief Economist & Head of Research Mrs. Randa T. BDEIR Group Head of e-Payment Solutions & Card Services Mr. Antoine G. BOUFARAH Special Projects Mr. Danny N. DAGHER Group Chief Information Officer Mr. Khalil I. DEBS Group Head of Corporate Banking Mr. Tamer M. GHAZALEH Group Chief Financial Officer Mr. Joseph I. KESROUANI Head of Business Development – South America & Africa

Central Departments

Mr. Marwan O. ARAKJI Deputy Head of Group Retail Banking Mrs. Bassima G. HARB Head of Regional Corporate Banking & Structured Finance Mr. Farid F. LAHOUD Group Corporate Secretary Mr. Mahmoud M. MAJZOUB Group Head of Internal Audit Mr. Elie A. NAHAS Group Head of Real Estate

188 189 management BANK AUDI ANNUAL REPORT 2014

BANK AUDI sal AUDI INVESTMENT BANK sal Country Management

Mr. Marc J. AUDI General Manager – Country Manager BOARD OF DIRECTORS Member Member Mr. Hassan A. SALEH Assistant General Manager – Chief Operating Officer of the Audit of the Risk Committee Committee Dr. Imad I. ITANI Chairman & General Manager Mr. Michel E. ARAMOUNI Member • Branches Network Management Mr. Khalil I. DEBS Member Mrs. Wafaa’ S. DAOUK Assistant General Manager – Network Manager Mr. Georges S. DOUMITH Member • • Chair Mr. Salam G. NADDA Assistant General Manager – Network Manager Mr. Rami S. JISR Member • Mrs. Ghina M. DANDAN Network Manager Mr. Farid F. LAHOUD Member • Mr. Maurice H. SAYDE Member • Chair Mr. Rabih E. BERBERY Network Manager Bank Audi sal Member Mr. Kamal S. TABBARA Network Manager Mrs. Marie-Josette A. AFTIMOS Secretary of the Board Mr. Abdo M. ABI-NADER Senior Regional Manager Mrs. Lina T. CHERIF Senior Regional Manager

Mrs. Carole S. ABOU JAOUDE Regional Manager Mr. Najib A. CHEAIB Regional Manager MANAGEMENT Mr. Georges K. KARAM Regional Manager Mrs. Roula I. MIKHAEL Regional Manager Dr. Imad I. ITANI Chairman & General Manager Mrs. Joumana A. NAJJAR Regional Manager Mr. Fadi V. SAADE Regional Manager Mr. Rami S. JISR General Manager

Central Departments

Mr. Ibrahim M. SALIBI Assistant General Manager – Head of Corporate & Commercial Banking

Mr. Ramzy S. ABOUEZZEDDINE Head of Marketing & Communications Mr. Hani A. BIDAWI Branches Transformation Director Mr. Georges J. BOUSTANY Head of Remedial Management Mrs. Grace E. EID Head of Retail Banking Mr. Pierre Y. HARFOUCHE Regional Management Director Mr. Mahmoud A. KURDY Chief Financial Officer Mrs. Nayiri H. MANOUKIAN Acting Head of Human Resources Mr. Assaad G. MEOUCHY Head of Branch Network Management

190 191 management BANK AUDI ANNUAL REPORT 2014

AUDI PRIVATE BANK sal BANQUE AUDI (SUISSE) SA

BOARD OF DIRECTORS BOARD OF DIRECTORS Member Member of the Audit of the Risk Committee Committee H.E. Mr. Raymond AUDI Honorary Chairman Mr. Fady G. AMATOURY Chairman Mr. Toufic R. AOUAD Member • Member Member of the Dr. Khalil M. BITAR Member • Chair of the Audit Remuneration Committee Committee Mrs. Wafaa S. DAOUK Member Dr. Marwan GHANDOUR Chairman Dr. Joe A. DEBBANE Member • Mr. Dominique ROCHAT Vice-chairman • Mr. Georges S. DOUMITH Member • Chair • Mr. Marc AUDI Member • Mr. Salam G. NADDA Member • Dr. Freddie BAZ Member Mr. Philippe R. SEDNAOUI Member Mr. Pierre DE BLONAY Member • Bank Audi sal Member Mr. Michel CARTILLIER Member • Chair Mr. Samir HANNA Member • Mr. Jean-Pierre JACQUEMOUD Member • Mr. Pierre RESPINGER Member • Chair management

Mr. Fady G. AMATOURY Chairman & General Manager MANAGEMENT Mr. Toufic R. AOUAD General Manager Mr. Philippe SEDNAOUI General Manager – Chief Executive Officer Mrs. Christiane AUDI Head of Private Banking Mr. Elie BAZ Head of Forex & Treasury Mr. Jean-Marc CODORELLO Head of Business Management Mrs. Mireille GAVARD Corporate Secretary Mr. Christopher JOHNSON Chief Financial Officer Mr. Michel NASSIF Chief Investment Officer Mr. Wolfram PIETSCH Head of Operations & IT

192 193 management BANK AUDI ANNUAL REPORT 2014

BANK AUDI FRANCE sa BANK AUDI sal - JORDAN BRANCHES

BOARD OF DIRECTORS MANAGEMENT Member of the Member Executive Credit of the Audit Committee Committee Mr. Yousef A. ENSOUR General Manager Dr. Freddie C. BAZ Chairman • Mr. Samer I. AL ALOUL Deputy General Manager Mrs. Sherine R. AUDI Member & General Manager • H.E. Mr. Raymond W. AUDI Member Mr. Antoine G. BOUFARAH Member (since March 2015) Mr. Maurice H. SAYDE Member • Mr. Pierre A. SOULEIL Member • Bank Audi sal Member (represented by Mr. Samir N. HANNA)

MANAGEMENT Member of the Executive Credit Committee Mrs. Sherine R. AUDI General Manager •

Mr. Noel J. HAKIM Deputy General Manager •

Mr. Emile G. GHAZI Assistant General Manager – • Head of Corporate Banking

194 195 management BANK AUDI ANNUAL REPORT 2014

BANK AUDI SYRIA sa BANK AUDI sae (EGYPT)

BOARD OF DIRECTORS BOARD OF DIRECTORS Member of the Member of Member of Member Nomination & the Corporate Member the Corporate of the Risk Remuneration Governance of the Audit Member Governance, Member Committee Committee Committee Committee of the Nomination & Member of the Member Executive Remuneration of the Risk High Credit of the Audit Dr. Georges A. ACHI Chairman • Chair Committee Committee Committee Committee Committee Dr. Ahmad M. ABBOUD Deputy Chairman Chairman & Mr. Hatem A. SADEK • Chair • • Chair H.E. Mr. Raymond W. AUDI Member • Managing Director Dr. Freddie C. BAZ Member • • Deputy Chairman & Mr. Mohamed A. FAYED • • Mr. Bassel S. HAMWI Member • Managing Director Mr. Samir N. HANNA Member • Deputy Mr. Yehia K. YOUSSEF • Mr. Elia S. SAMAHA Member Managing Director Mr. Adnan N. TAKLA Member • Chair • • H.E. Mr. Raymond W. AUDI Member Mrs. Rana T. ZEIN Member • Chair • • Chair Dr. Freddie C. BAZ Member • • Chair Dr. Marwan M. GHANDOUR Member • Chair • Chair Mr. Samir N. HANNA Member • Mr. Maurice H. SAYDE Member • Dr. Mohamed E. TAYMOUR Member • • • ADVISORS TO THE BOARD

Mr. Abdulateef A. AL-RAJIHI Mr. Ahmed F. IBRAHIM Secretary of the Board Mrs. Nada N. ASSAAD Mrs. Yasmina R. AZHARI Mr. Mohamed Said Z. ZAIM

Management

Mr. Hatem A. SADEK1 Chairman & Managing Director MANAGEMENT Mr. Mohamed A. FAYED1 Deputy Chairman & Managing Director Mr. Antoine G. EL-ZYR Chief Executive Officer Mr. Yehia K. YOUSSEF1 Deputy Managing Director Mr. Abdulrahman M. ABRASH Deputy Chief Executive Officer 1 Member of the Executive Committee. Mrs. Nadia S. BAKRI Head of Corporate Banking Division Mr. Shadi N. KHOURY Head of Branch Network Management & EBCS Department

196 197 management BANK AUDI ANNUAL REPORT 2014

ARABEYA ONLINE FOR SECURITIES BROKERAGE (EGYPT)

Business LINES BOARD OF DIRECTORS

Mr. Assem K. AWWAD Senior General Manager – Head of Corporate & Commercial Banking Mr. Hisham A. TAWFIK Chairman Mr. Mostafa A. GAMAL Senior General Manager – Head of Treasury & Capital Markets Mr. Michel E. ARAMOUNI Member Mr. Danny N. DAGHER Member Mr. Mohamed L. AHMED General Manager – Head of Branch Network Mr. Mohamed A. FAYED Member Mr. Ehab E. DORRA General Manager – Head of Retail Banking Mr. Ashraf I. RASHED Member Mrs. Maha A. HASSAN Deputy General Manager – Head of Mortgage Mr. Ayman M. SADEK Member Mr. Mohamed R. LATIF General Manager – Head of Financial Institutions Mr. Hatem A. SADEK Member

Mr. Khaled F. EL DAFRAWY Deputy General Manager – Head of Small & Medium Enterprises Mr. Walid M. HASSOUNA Deputy General Manager – Head of Islamic Banking

MANAGEMENT Support Functions Mr. Hisham A. TAWFIK Chairman Mr. Mohamed M. BEDIER1 Senior General Manager – Chief Financial Officer Mrs. Amany A. SHAMS EL-DIN1 Senior General Manager – Chief Operating Officer Mr. Ayman M. SADEK Managing Director Mr. Ashraf I. RASHED Managing Director/Branches Mr. Walid K. EL-WATANY General Manager – Head of Human Resources Mr. Maher M. HAMED General Manager – Chief Information Officer Mr. Ahmed F. IBRAHIM General Manager – Head of Strategic Support

Ms. Heba M. GABALLA Deputy General Manager – Head of Marketing & Communication

Risk Function

Mr. Afdal E. NAGUIB1 Senior General Manager – Chief Risk Officer

Mr. Bassel E. KELADA General Manager – Head of Retail Credit (Group)

Control Functions

Mr. Mohamed A. EL GUEZIRY General Manager – Head of Internal Audit

Mr. Hesham F. RAGAB Senior General Counsel – Head of Legal Affairs

Mr. Ali M. AMER Assistant General Manager – Head of Compliance

1 Member of the Executive Committee.

198 199 management BANK AUDI ANNUAL REPORT 2014

NATIONAL BANK OF SUDAN AUDI CAPITAL (KSA) cjsc

BOARD OF DIRECTORS BOARD OF DIRECTORS Member Member Member of Member Member of the of the Audit of the Risk the Executive of the Audit Remuneration Committee Committee Committee Committee Committee Dr. Imad I. ITANI Chairman • Chair Mr. Abdullah I. AL HOBAYB Chairman • Chair Mr. Elnour A. ELHILU Member • • Dr. Marwan M. GHANDOUR Member • Chair • Mr. Osman A. MALIK Member Mr. Samir N. HANNA Member • Mr. Adel N. SATEL Member • • Chair Mr. Philippe R. SEDNAOUI Member Mr. Yehia K. YOUSSEF Member • Chair • Dr. Asem T. ARAB Independent member • Dr. Khalil A. KORDI Independent member • Ms. Mona A. DAABOUL Secretary of the Board

MANAGEMENT Member of MANAGEMENT the Executive Committee Mr. Fadi M. CHEHADE General Manager • Mr. Faisal M. SHAKER Chief Executive Officer & Head of Private Banking Mr. Nicolas A. CHIKHANI Chief Operating Officer (since August 2014) Mr. Moawia A. MOHAMAD ALI Deputy General Manager • Mr. Youssef H. NIZAM Chief Investment Officer (since November 2014)

Mr. Ammar H. BAKHEET Executive Director – Asset Management Mr. Elie A. NAHAS Executive Director – Real Estate

Mr. Tony G. ABOU FAYSSAL Finance Manager

Mr. Musaad F. AL SUDAIRY Acting Head Investment Banking (since August 2014)

Mr. Raafat F. EL-ZOUHEIRY Compliance Manager & Money Laundering Reporting Officer

200 201 management BANK AUDI ANNUAL REPORT 2014

AuthorisedBANK by AUDI the QFC Regulatory LLC (QATAR) Authority AUDI CAPITAL GESTION SAM (MONACO) License No. 00027

BOARD OF DIRECTORS BOARD OF DIRECTORS Member of the Executive Credit Mr. Philippe SEDNAOUI Chairman Committee Mr. Fouad HAKIM Managing Director H.E. Mr. Raymond W. AUDI Chairman Banque Audi (Suisse) SA Member Mr. Fady G. AMATOURY Member & Managing Director • Chair (represented by Mr. Jean-Pierre JACQUEMOUD) Mr. Khalil I. DEBS Member • Mr. Rashed Nasser S. AL-KAABI Member Mr. Elia S. SAMAHA Member • Mr. Philippe R. SEDNAOUI Member MANAGEMENT

Mr. Fouad HAKIM Managing Director

MANAGEMENT Member of the Executive Credit Committee Mr. Fady G. AMATOURY Managing Director

Mr. Hani R. ZAOUK General Manager •

202 203 management

ODEA BANK A.Ş.

BOARD OF DIRECTORS

Member of Member Member Member the Corporate Member of the of the Credit of the Audit Governance of the Risk Remuneration Committee Committee Committee Committee Committee Mr. Samir HANNA Chairman • Chair Dr. Marwan GHANDOUR Vice-chairman • Chair • Chair • Chair • H.E. Mr. Raymond AUDI Member Dr. Freddie BAZ Member • Alternate • Mr. Khalil DEBS Member • Dr. Imad ITANI Member • Alternate Mrs. Ayşe KORKMAZ Member • • • Member, Chief Mr. Hüseyin ÖZKAYA • Executive Officer Mr. Hatem SADEK Member Mr. Elia SAMAHA Member • Chair

MANAGEMENT

Mr. Hüseyin ÖZKAYA General Manager – Chief Executive Officer

Mr. Erol SAKALLIOĞLU Assistant General Manager, Deputy General Manager – Commercial Banking

Mr. Yalçin AVCI Assistant General Manager – Corporate Banking Mr. Aytaç AYDIN Assistant General Manager – Operations & Central Administration, Chief Operating Officer Mr. Gökhan ERKIRALP Assistant General Manager – Treasury & Capital Markets Mr. Naim HAKIM Assistant General Manager – Financials Mr. Fevzi Tayfun KÜÇÜK Assistant General Manager – Business Solution & Transactional & Direct Banking Mr. Cem MURATOĞLU Assistant General Manager – Retail Banking Mr. Alpaslan YURDAGÜL Assistant General Manager – Financial Institutions & Investment Banking

204 06 | addresses

Connecting you to a world of opportunities. ADDRESSES (LEBANON) BANK AUDI ANNUAL REPORT 2014

Nabatieh Ashrafieh – Saydeh MOUNT LEBANON Ghazir Rabieh LEBANON Office 2000 Bldg., Shibli Bldg., Istiklal Street. Haddad Bldg., Main Road, Kfarhebab. Rabieh First Entrance, Street No. 5. Hassan Kamel El-Sabbah Street. Tel: (961-1) 200753-4, 202943, Ain El-Remmaneh Tel: (961-9) 851720-1-2-3. Tel: (961-4) 405950, 410336, 419881, Tel: (961-7) 767812-3-4, 761241. 204971-3, 320825. Etoile Center, El-Areed Street. Fax: (961-9) 856376. 521265, 525096, 525296. Bank Audi sal Fax: (961-7) 767816. Fax: (961-1) 204972. Tel: (961-1) 292870-1-2-3-4. Branch Manager: Ms. Michele P. Nader Fax: (961-4) 416105. Member of the Association Branch Manager: Mrs. Zeina H. Kehil Branch Manager: Mr. Fadi E. Chedid Fax: (961-1) 292869. Branch Manager: Mrs. Yolla Y. Hajjar of Banks in Lebanon Branch Manager: Mrs. Roula E. Fayad Ghobeyri Capital: LBP 667,836,186,600 (as at December 2014) Saida – South Badaro Hoteit Bldg., Shiyah Blvd., Roueiss Consolidated shareholders’ equity: Moustapha Saad Street. Ibrahim Ghattas Bldg., Badaro Street. Ajaltoun Mousharrafieh Square. Hoteit Bldg., Hady Nasrallah Blvd. LBP 5,046,530,217,869 (as at December 2014) Tel: (961-7) 728601-2-3-4, 723673, Tel: (961-1) 387395-6-7-9. Bou Shaaya & Khoury Center, El-Midane. Tel: (961-1) 541125-6, 541534. Tel: (961-1) 541146-7-8. C.R. 11347 Beirut 752264, 752426, 752642. Fax: (961-1) 387398. Tel: (961-9) 234619, 234620-1. Fax: (961-1) 272342. Fax: (961-1) 541149. List of Banks No. 56 Fax: (961-7) 752704. Branch Manager: Mrs. Nayla S. Hanna Fax: (961-9) 234439. Branch Manager: Mrs. Ghada S. Al-Ameen Branch Manager: Mr. Ali A. Jaber Branch Manager: Mr. Mohamad M. Kalo Branch Manager: Mr. Antoine F. Boueiri Headquarters Basta Hadath Shiyah Shtaura Ouzai Street, Noueiri Quarter. Aley El-Ain Square, Main Road. Youssef Khalil Bldg., Bank Audi Plaza, Bab Idriss Daher Bldg., Main Road. Tel: (961-1) 661323-4-5-6. Beshara El-Khoury Road (near Aley Club), Aley. Tel: (961-5) 461916, 464050-1, Assaad El-Assaad Street. P.O. Box 11-2560 Beirut - Lebanon Tel: (961-8) 540745, Fax: (961-1) 651798. Tel: (961-5) 556902-3-4, 558904. 465726, 471853. Tel: (961-1) 541120-1-2. Tel: (961-1) 994000. Fax: (961-1) 990555. 542960-1-2, 545034. Branch Manager: Mr. Zahi K. Chatila Fax: (961-5) 558903. Fax: (961-5) 471854. Fax: (961-1) 541123. Customer helpline: (961-4) 727777. Fax: (961-8) 544853. Acting Branch Manager: Mrs. Olfat A. Hamza Branch Manager: Mr. Charles A. Berberi SOS Branch Manager: Swift: AUDBLBBX. Branch Manager: Mrs. Mona K. Cherro Beshara El-Khoury Mr. Hilal N. Zeineddine E-mail: [email protected] Banna & Sayrawan Bldg., Baabda Haret Hreik www.bankaudigroup.com Tripoli – El-Mina Beshara El-Khoury Street. Boulos Brothers Bldg., Damascus Intl. Road, Ahmad Abbas Bldg., Baajour Street, Sin El-Fil Mandarine Bldg., Riad El-Solh Street, Tel: (961-1) 664093-4-5. Tel: (961-5) 451452, 953237-8-9, 953240-1-3. Main Road. Hayek Street. Country Management El-Mina Blvd. Fax: (961-1) 664096. Fax: (961-5) 953236. Tel: (961-1) 277270, 278654, 278656-7. Tel: (961-1) 482335, 490301, 490365. Lebanon Tel: (961-6) 205100-1-2-6-8. Acting Branch Manager: Mrs. Leila K. Barakat Branch Manager: Mrs. Marthe A. Kanaan Fax: (961-1) 547265. Fax: (961-1) 510384. Fax: (961-6) 205103. Branch Manager: Mr. Nader M. Hajj Ali Branch Manager: Mr. Antoine Y. Asmar Bank Audi Palladium, Bab Idriss Branch Manager: Mr. Ziad M. Kabbara Bliss Bhamdoun P.O. Box: 11-2560 Beirut - Lebanon Kanater Bldg., Bliss Street. Main Road. Jal El-Dib Zalka Tel: (961-1) 994000. Fax: (961-1) 990555. Tyre Tel: (961-1) 361714-5, 361793-4-5. Tel: (961-5) 261285-6-7, 260132. Milad Sarkis Bldg., Main Road. Romeo & Juliette Bldg., Customer helpline: (961-4) 727777. Abou Saleh & Moughnieh Bldg., Fax: (961-1) 361796. Fax: (961-5) 261289. Tel: (961-4) 710391-2-3-4, 721028-9. Zalka Highway. Swift: AUDBLBBX. Main Road. Branch Manager: Ms. Afaf M. Khoury Branch Manager: Mr. Elias J. Daniel Fax: (961-4) 710395. Tel: (961-1) 875123-4-5, 901962. E-mail: [email protected] Tel: (961-7) 345196-7-8. Branch Manager: Mrs. Haifa A. Awad Fax: (961-1) 900274. www.bankaudi.com.lb Fax: (961-7) 345201. El-Horge Bourj Hammoud Branch Manager: Mrs. Karla M. Ghaoui Branch Manager: Mr. Georges K. Karam Khattab Bldg., Hamad Street. Mekheterian Bldg., Municipality Square. Jbeil branches Tel: (961-1) 660636, 660646, 660656. Tel: (961-1) 242631-2, 258146, 263325. Byblos Sun Bldg., Jbeil Roundabout. Zouk – Espace Zouk Fax: (961-1) 660686. Fax: (961-1) 265679. Tel: (961-9) 541410, 543890-1-2-3-4. Vega Center, Commercial Val de Zouk Center, Zouk Mikhael. Acting Branch Manager: Mrs. Iman M. Hankir Branch Manager: Mrs. Grace G. Nercessian Fax: (961-9) 543895. Zouk Mikhael Highway. Banking Network Tel: (961-9) 211138-9, 211140-1, Branch Manager: Mr. Chady F. Kassis Tel: (961-9) 210898-9, 210900-1, 216174-5. 226771-2-3-4. Hamra Broummana Fax: (961-9) 210897. Ashrafieh – Clover Fax: (961-9) 223603, 225505. Mroueh Bldg., Hamra Street. Lodge Center, Main Road. Jeita – Antoura Branch Manager: Mrs. Grace E. Moussa Clover Bldg., Charles Malek Avenue. Branch Manager: Mr. Pierre E. Harb Tel: (961-1) 341490-1-2-3-4-5-6-7, 346749, Tel: (961-4) 860163-4-6, 860451. Antoura Square. Tel: (961-1) 204825-6, 215492-3, 348352, 353206-7. Fax: (961-1) 344680. Fax: (961-4) 860167. Tel: (961-9) 235257-8-9. NORTH 332129-30. Corporate Branch Manager: Mr. Sami R. Samara Branch Manager: Mr. Tanios F. Nabhan Fax: (961-9) 235260. Fax: (961-1) 201992, 204827. Branch Manager: Mrs. Christiane Y. Akiki Banking Network Amyoun Branch Manager: Mrs. Raghida N. Bacha Mousseitbeh Dekwaneh Main Road. Ashrafieh – Main Branch Makassed Commercial Center, El-Nefaa, Main Road. Jounieh Tel: (961-6) 955600-1-2-3. Dora SOFIL Center, Charles Malek Avenue. Mar Elias Street. Tel: (961-1) 693790-1-2-4. La Joconde Center, Fouad Shehab Blvd. Fax: (961-6) 955604. Cité Dora 1, Dora Highway. Tel: (961-1) 200250-1-2-3-4-5, 200572-3, Tel: (961-1) 707331-2, 818277-8-9, 818280. Fax: (961-1) 693795. Tel: (961-9) 641660-1-2-3-4. Branch Manager: Mrs. Rana A. Khoury Tel: (961-1) 255686-7-8-9, 255691-2-3-4, 216810, 331813, 333094. Fax: (961-1) 303084. Branch Manager: Mr. Pierre A. Mezher Fax: (961-9) 644224. 258877, 259064-5-6-7-8, Fax: (961-1) 200724, 339092. Branch Manager: Ms. Nisrine A. Ismail Branch Manager: Mr. Emile J. Moukarzel Halba 259072-3-4-5-6, 254646. Network Manager – Corporate Banking: Dora – City Mall Main Road. Fax: (961-1) 255695, 259071. Mr. Salam G. Nadda Raousheh City Mall, Dora Highway. Jounieh – El-Shir Tel: (961-6) 692020-1-2-3. Senior Branch Manager: Majdalani Bldg., Raousheh Corniche. Tel: (961-1) 884114, 884081, 884098. Beaino Bldg., Fax: (961-6) 692024. Mrs. Hilda G. Sadek Bab Idriss Tel: (961-1) 786212-3, 805068, 864752. Fax: (961-1) 884115. Notre Dame du Liban Hospital Street. Branch Manager: Mr. Tannous N. Abi-Saab Bank Audi Plaza, Omar Daouk Street. Fax: (961-1) 805071. Assistant Branch Manager on Mission: Tel: (961-9) 638060-1-2, 915503. Gefinor Tel: (961-1) 977588. Branch Manager: Ms. Yousra I. Younes Mrs. Claude A. Habib Fax: (961-9) 915511. Shekka Gefinor Center, Clemenceau Street. Fax: (961-1) 999410, 971502. Branch Manager: Mrs. Nada S. Ghanem Main Road. Tel: (961-1) 743400-1-2-3-4-5-6. Network Manager – Corporate Banking: Saifi Dora – Vartanian Tel: (961-6) 545379, 545048, 545283. Fax: (961-1) 743412. Mrs. Ghina M. Dandan El-Hadissa Bldg., El-Arz Street, Saifi. Vartanian Center, Dora Highway. Khaldeh Fax: (961-6) 541526. Branch Manager: Mr. Mouayad A. Tabbara Senior Branch Manager: Tel: (961-1) 445117, 580530-1-6. Tel: (961-1) 250202, 250303, Lebanese Commercial Mall, Saida Highway. Branch Manager: Mr. Antoine T. Douaihy Mrs. Rania J. Tamraz Fax: (961-1) 580885. 250404, 250606. Fax: (961-1) 241647. Tel: (961-5) 801985-6-7-8. Hazmieh Branch Manager: Mrs. Rawan K. Baydoun Branch Manager: Mr. Wahib N. Ibrahim Fax: (961-5) 806405. Tripoli – Azmi Dar Assayad Bldg., Said Freiha Street, Verdun Branch Manager: Mr. Ghassan M. Kaed Bey Fayad Bldg., Hazmieh Roundabout. Verdun 2000 Center, Selim Salam Elyssar Azmi Street. Tel: (961-5) 450179, 451850, 452456, Rashid Karameh Avenue. Sharkawi Bldg., Selim Salam Avenue. Elyssar Main Road, Mazraat Yashouh. Mansourieh Tel: (961-6) 430132-3, 445590-1-2-3. 452494, 459213, 952904-5. Tel: (961-1) 790761-2, 805805, 861892, Tel: (961-1) 317102-3, 317116, 318824, Tel: (961-4) 913927-8-9, 916152-4. Kikano Bldg., Main Road. Fax: (961-6) 435348. Fax: (961-5) 457963. 814202, (961-3) 395500. 319295-6, 703196. Fax: (961-4) 913932. Tel: (961-4) 533610-1-2-3. Branch Manager: Mr. Georges A. Khodr Branch Manager: Mr. Ibrahim M. Harati Fax: (961-1) 865635, 861885. Fax: (961-1) 318657. Branch Manager: Mrs. Lizia E. Chidiac Fax: (961-4) 533614. Network Manager – Corporate Banking: Branch Manager: Mrs. Hind A. Ghalayini Branch Manager: Mr. Salam N. Dagher Tripoli – El-Bohsas Jnah Mrs. Wafaa S. Daouk Fanar Fattal Tower 1, Tahseen Khayat Bldg., Sodeco La Rose Center, Main Road. Mreijeh El-Bohsas Blvd. Khalil Moutran Street. Retail & Personal Alieh Bldg., Istiklal Street. Tel: (961-1) 879637-8, 879640, 870820. Mreijeh Plaza Center, Abdallah Yaffi Avenue. Tel: (961-6) 410200-1-2. Tel: (961-1) 844870-1-2-3. Banking Network Tel: (961-1) 612779, 612790-1-2-6. Fax: (961-1) 879641. Tel: (961-1) 477980-1-2-4. Fax: (961-6) 410799. Fax: (961-1) 844875. Fax: (961-1) 612793. Acting Branch Manager: Mr. Jihad W. Haddad Fax: (961-1) 477200. Acting Branch Manager: Branch Manager: Mrs. Elissar A. Halawi BEIRUT Branch Manager: Mrs. Josette F. Aramouni Branch Manager: Mr. Bassam M. Harake Mr. Tarek M. Kayal Furn El-Shebbak Mazraa Ashrafieh – Sassine Zarif Michel & Antoine Badaro Bldg., Naccash – Dbayeh Tripoli – Square 200 Wakf El-Roum Bldg., Saeb Salam Blvd. Bahri Center, Sassine Square. Salhab Center, Algeria Street. Damascus International Road. Naccash – Dbayeh Highway, East Side. Akkad Bldg., Square 200. Tel: (961-1) 305612, 311886-7, 311892-3. Tel: (961-1) 200640-1-2-3-4. Tel: (961-1) 747550-1-2. Tel: (961-1) 290713-4-5-6, 282105. Tel: (961-4) 521671-2-3-4-5. Tel: (961-6) 437343, 448840-2. Fax: (961-1) 316873, 300451. Fax: (961-1) 216685. Fax: (961-1) 747553. Fax: (961-1) 282104. Fax: (961-4) 521677. Fax: (961-6) 437383. SOS Branch Manager: Mrs. Mona J. Donio Branch Manager: Ms. Rita C. Haddad SOS Branch Manager: Mr. Makram N. Khalife SOS Branch Manager: Mrs. Aida T. Bechwati Branch Manager: Mrs. Georgina Y. Nakad Branch Manager: Mr. Nasser N. Chahal

208 209 ADDRESSES (LEBANON - FRANCE - JORDAN - SYRIA - EGYPT) BANK AUDI ANNUAL REPORT 2014

SOUTH Mecca Mall BRANCHES ALEPPO SWITZERLAND Mecca Mall Center (Ground Floor - Main EGYPT Abra Entrance), Mecca Street, Amman. DAMASCUS Regional Office – Nhouli & Solh Bldg., Main Road. Banque Audi (Suisse) SA Tel: (962-6) 5518736. Northern Area Bank Audi sae Tel: (961-7) 752267-8-9. Fax: (962-6) 5518724. Mohafaza (Main Branch) Baghdad Station, Ameen Al Rihani Street Fax: (961-7) 752271. 18, Cours des Bastions. Branch Manager: Mrs. Suha H. Abu-Ghosh Mohafaza Bldg., (next to Shabab Al Ouruba Club), Al Aziziyah. HEADQUARTERS Branch Manager: P.O. Box: 384. 1211 Geneva 12, Youssef Al-Azmeh Square. Tel: (963-21) 2279801-6. Mr. Abdo E. Andraos Switzerland. Jabal Hussein Tel: (963-11) 23888000. Fax: (963-21) 2279809. Pyramids Heights Office Park, Tel: (41-22) 704 11 11. Al-Husseini Center, Khaled Ben Walid Street, Fax: (963-11) 2247782. Regional Manager – North Cairo-Alexandria Desert Road, Km 22, Bent Jbeil Fax: (41-22) 704 11 00. Firas Circle, Jabal Hussein, Amman. Branch Manager: Mr. Bechara G. Charbel (Aleppo, Al Qameshli, Deir Al Zour): Sixth of October City. Ahmad Beydoun Bldg., Serail Square. E-mail: [email protected] Tel: (962-6) 5605252. Mr. Melhem J. Abou-Antoun P.O. Box 300 El Haram. Postal Code 12556. Tel: (961-7) 450900-1-2-5. www.bankaudipb.com Fax: (962-6) 5604242. Abu Rummaneh Tel: (20-2) 35343300. Fax: (961-7) 450904. Branch Manager: Mr. Mohamad M. Abu Anzeh Al-Jalaa 7 Street (facing Japanese Embassy), Aziziyah (Main Branch) Fax: (20-2) 35362120. Beirut Representative Office Abu Rummaneh. Baghdad Station, E-mail: [email protected] Marjeyoun (opening June 2015) Sweifieh Tel: (963-11) 3346408. Ameen Al Rihani Street www.bankaudi.com.eg Blvd Hay El-Serail, Jdeidet Marjeyoun. Bank Audi Plaza, Bab Idriss. Al Yanbouh Center, Abd El-Rahim Al-Hajj Fax: (963-11) 3346410. (next to Shabab Al Ouruba Club), Al Aziziyah. Acting Branch Manager: Mr. Marwan F. Massaad. P.O. Box: 11-2666 Beirut - Lebanon. Mohamad Street, Sweifieh, Amman. Branch Manager: Mr. Fadi B. Al-Kaed Tel: (963-21) 2279801-6. Head of Branch Network Tel: (961-1) 977 544. Tel: (962-6) 5865432. Fax: (962-6) 5853185. Fax: (963-21) 2288952. Mr. Mohamed L. Ahmed Saida – East Fax: (961-1) 980 535. Branch Manager: Mrs. Miran M. Sirriyeh Mazzeh Branch Manager: Mrs. Josepha Z. Hadaya Dandashli Bldg., Eastern Blvd. Mazzeh Highway Deputy Heads of Branch Network Tel: (961-7) 751885-6-7. Abdoun (next to Bakri Kadora school). Souk Al Intaj* Mr. Ahmad M. Abdel-Kader Saad Fax: (961-7) 751889. Moussa Nakho Complex, Queen Zain Tel: (963-11) 6626612. Bldg. No. 6810/5, Mr. Ashraf M. Ryad Acting Branch Manager: FRANCE Al-Sharaf Street, Abdoun, Amman. Fax: (963-11) 6626619. Souk Al Intaj Street, Mohafaza. Mr. Antoine Y. Azzi Tel: (962-6) 5935597. Fax: (962-6) 5935598. Branch Manager: Ms. Fadia N. Awad Regional Managers Bank Audi France sa Assistant Branch Manager: HOMS Mrs. Khaireya M. Akef Saida – Riad El-Solh Mr. George N. Twal Malki Al Hadara Area, Al Nuzha Square. Mr. Adel H. Gomaah Wakf El-Roum Catholic Bldg., Riad El-Solh Blvd. 73, Avenue des Champs-Elysées. Abdul Mona’em Riad Street Tel: (963-31) 2112215. Mr. Mohamed A. Hafeez Tel: (961-7) 720411-2, 733750-1-2-3-4. 75008 Paris, France. Al-Madina Al-Mounawara Street (next to “German Cultural Center - Goethe”). Fax: (963-31) 2162663. Mr. Mohammad H. Saad Fax: (961-7) 724561. Tel: (33-1) 53 83 50 00. Al-Ameer Complex, Al-Madina Tel: (963-11) 3739695. Branch Manager: Mr. Tony N. Nader Branch Manager: Fax: (33-1) 42 56 09 74. Al-Mounawara Street, Amman. Fax: (963-11) 3739503. Area Managers Mr. Mohamad M. Bizri E-mail: [email protected] Tel: (962-6) 5563850. Fax: (962-6) 5563851. Retail Branch Manager: Ms. Saria G. Ali LATTAKIA Mr. Mohamed M. Attia www.bankaudi.fr Acting Branch Manager: Bldg. 896/1, Old Port Area, Mrs. Sandra G. Cossery BEKAA Ms. Rihab A. Jadallah Kafarsouseh Al-Jazair Street, Slaybeh. Mr. Tamer N. Kamel Cham City Center, Street No. 2, Tel: (963-41) 486023. Ms. Eman A. Khazragy Jeb Jannine Wadi Saqra Kafarsouseh. Fax: (963-41) 486024. Mrs. Hanan M. Ouf Majzoub Bldg., Main Road. JORDAN Saqra Complex, Wadi Saqra Street, Amman. Tel: (963-11) 2111593. Coastal Area Manager (Lattakia and Tartous): Mr. Amr Y. Rizk Tel: (961-8) 661486-7-8. Tel: (962-6) 5672227. Fax: (963-11) 2111897. Mr. Mohamad M. Sahyouni Ms. Rasha M. Ramadan Fax: (961-8) 661481. Bank Audi sal - Fax: (962-6) 5652321. Branch Manager: Mr. Alaa A. Abbas Mr. Amgad I. El-Zawawy SOS Branch Manager: Jordan Branches Branch Manager: Mrs. Grace B. Atallah TARTOUS Mr. Joseph E. Makdessi Harika Salah Daniel Bldg., BRANCHES Headquarters Dabouq Abd El Kader Al Husseini Street, 8 March Street, Amn Al-Dawlah Square. Zahleh Bldg. 179, King Abdullah II Street, Amman. Al Harika Square. Tel: (963-43) 324876. GIZA Beshwati Bldg., El-Boulevard. Bldg. 26, Suleiman Al-Nabulsi Street, Tel: (962-6) 5333305. Fax: (962-6) 5332704. Tel: (963-11) 2217870. Fax: (963-43) 324866. Tel: (961-8) 813592-3-4-5. Abdali, Amman. Branch Manager: Mrs. Shada S. Abu-Saad Fax: (963-11) 2218420. Branch Manager: Mr. Firas N. Bashour Dokki (Main Branch) Fax: (961-8) 801921. P.O. Box 840006 Amman. 11184, Jordan. Acting Branch Manager: 104 El Nile Street, Dokki. Branch Manager: Mr. Robert J. Moubarak Tel: (962-6) 4604000. Irbid Mr. Abdulmajid M. Laham AL HASAKA Tel: (20-2) 33337100. Fax: (962-6) 4680015. Al Busoul Complex, Feras Al Ajlouni Street, Fax: (20-2) 37483818. NOVO NETWORK E-mail: [email protected] Al Qubbeh Circle, Irbid. Dummar Al Qameshli Regional Manager: Mr. Mohammad H. Saad www.bankaudi.com.jo Tel: (962-2) 7261550. Island No. 1, Cham Mall, Bldg. 116, Port Said Street City Mall Fax: (962-2) 7261660. Dummar Project. (facing public park), Al Qameshli. Mosaddak (Islamic Branch) City Mall, Dora. BRANCHES Branch Manager: Mr. Jihad A. Al-Zubi Tel: (963-11) 3142320. Tel: (963-52) 427222. 56 Mosaddak Street, Dokki. Fax: (963-11) 3142324. Fax: (963-52) 447616. Tel: (20-2) 37480241. Palladium Downtown Abdali (Main Branch) Aqaba Retail Branch Manager: Branch Manager: Mr. Abdulghani A. Al-Ali Fax: (20-2) 37480242. Bank Audi Palladium Bldg., Bab Idriss. Bldg. 26, Suleiman Al-Nabulsi Street, Dream Mall, Sharif Hussein Bin Ali Str., Aqaba. Mr. Hassan R. Baghdadi Branch Manager: Abdali, Amman. Tel: (962-3) 2063200. HAMA Mr. Mohammed A. Hussein Uruguay Street Tel: (962-6) 4604010. Fax: (962-3) 2063201. Kassaa Al Assi Square Downtown, Beirut. Fax: (962-6) 5604719. Branch Manager: Mr. Odeh T. Odeh Droubi Bldg., Al Akhtal Street, (behind Government Palace), Lebanon Branch Manager: Mrs. Samar B. Homsi Kassaa Street extension, facing Al Nawaeer (next to MTN). 60 Lebanon Street (Lebanon Tower), Zaitunay Bay Al Abbassyeen Square. Tel: (963-33) 2219561. Lebanon Square, Mohandesseen. Beirut Waterfront. Shmeissani Tel: (963-11) 4459160. Fax: (963-33) 2219567. Tel: (20-2) 33006400. Salah Center, SYRIA Fax: (963-11) 4459322. Acting Branch Manager: Fax: (20-2) 33026454. Al-Shareef Abdul Hameed Sharaf Street, Retail Branch Manager: Mr. Basem R. Lazkany Area Manager: Mr. Tamer N. Kamel Audi Investment Shmeissani, Amman. Bank Audi Syria sa Mr. Hani J. Dahdouh Tel: (962-6) 5606020. DARAA El Batal Ahmed Abdel Aziz Bank sal Fax: (962-6) 5604545. Headquarters Midan* Daraa Tourism Hotel 44 El Batal Ahmed Abdel Aziz Street, Bank Audi Plaza, Block B, Bab Idriss. Branch Manager: Mrs. Ghada A. Tawil Bardan Bldg., Al Kawkabi Avenue, (next to Police Headquarters). Mohandesseen. P.O. Box: 16-5110 Beirut - Lebanon. 1- Plaza 86 Bldg., Cham City Center, Street Corniche Street, Midan. Tel: (963-15) 211400. Tel: (20-2) 33332000. Fax: (20-2) 37480599. Tel: (961-1) 994000. Zahran No. 2, Kafarsouseh, Damascus. Fax: (963-15) 211407. Area Manager: Mr. Amgad I. El-Zawawy Fax: (961-1) 999406. Zahran Street, 6th Circle, P.O. Box 6228 Damascus, Syria. DAMASCUS REEF Branch Manager: Mr. Omar M. Salahi E-mail: [email protected] opposite Emmar Towers, Amman. Tel: (963-11) 23888000. El Haram (Islamic Branch) www.bankaudigroup.com Tel: (962-6) 4648834. Fax: (963-11) 2248510. Harasta* DEIR AL ZOUR* 42 El Haram Street, El Haram. Fax: (962-6) 4648835. E-mail: [email protected] Basal Area (next to Dacia Cars Agency), Al Nahr Street Tel: (20-2) 33864002, 33863708, Acting Branch Manager: Mr. Tarek F. Fadda www.bankaudisyria.com Harasta. (next to Nour Specialist Hospital). 33865056, 33864113. Audi Private Bank sal Fax: (20-2): 33865103. Le Royal Hotel 2- Mohafaza Bldg., Youssef Al-Azmeh Square, Jaramana SWEIDA Area Manager: Mr. Mohamed M. Attia Bank Audi Plaza, Block D, Bab Idriss, Beirut. Le Royal Hotel Complex, Damascus. Al Baladia Square, Al Muhwari Street. rd P.O. Box: 11-1121 Beirut - Lebanon. Zahran Street, 3 Circle, Jabal Amman, P.O. Box 6228 Damascus, Syria. Jaramana. Tel: (963-16) 228146. Tahrir Tel: (961-1) 954800-954900. Amman. Tel: (963-11) 23888000. Tel: (963 11) 5637272. Fax: (963-16) 228137. 94 Tahrir Street, Dokki. Fax: (961-1) 954880. Tel: (962-6) 4604004. Fax: (963-11) 2254197. Fax: (963-11) 5637279. Branch Manager: Mr. Nawras F. Kamel Tel: (20-2) 33319500. E-mail: [email protected] Fax: (962-6) 4680010. E-mail: [email protected] Retail Branch Manager: Fax: (20-2) 37486310. www.bankaudipb.com Branch Manager: Ms. Samar H. Toukan www.bankaudisyria.com Mr. Shadi E. Khouli * Temporarily closed. Branch Manager: Mr. Raymond Y. Sleiman

210 211 ADDRESSES (EGYPT - SUDAN - SAUDI ARABIA - QATAR - TURKEY) BANK AUDI ANNUAL REPORT 2014

CAIRO Garden City RED SEA Güneşli Mecidiyeköy 1 Aisha El Taymoria Street, Garden City. SAUDI ARABIA Bağlar Mahallesi, Mecidiyeköy Mahallesi, Mecidiye Caddesi, Makram Ebeid Tel: (20-2) 27928976-8. Fax: (20-2) 27928977. El Gouna Osmanpaşa Caddesi No. 65, 34209, No. 2, Şişli, Istanbul. 1 Makram Ebeid Street, Nasr City. Branch Manager: Mr. Hisham M. Oweida Service Area Fba-12e, El Balad District, Bağcilar, Istanbul. Tel: (90-212) 3555900. Tel: (20-2) 26731300. El Gouna, Hurghada. Audi Capital (KSA) cjsc Tel: (90-212) 4646000. Fax: (90-212) 3481878. rd Fax: (20-2) 22726755. Salah Salem Tel: (20-65) 3580096, (20-10) 66614840. 2908 Centria Bldg., 3 Floor, Prince Fax: (90-212) 3481840. Branch Manager: Mr. Tolga Buyukdikbaş Branch Manager: Mr. Omar M. Wally 15 Salah Salem Street, Heliopolis. Fax: (20-65) 3580095. Mohammad Bin Abdul Aziz Road (Tahlia). Branch Managers: (Commercial & Retail) Tel: (20-2) 24006400. Fax: (20-2) 22607168. Branch Manager: Mr. Hossam S. Zaki Postal Address: Unit No. 28, Mr. Ertug Sanli (Commercial); Abbass El-Akkad Area Manager: Mrs. Rasha M. Ramadan Ar Riyadh 12241-6055. Ms. Arzu Aydin (Retail) Şişli 70 Abbass El-Akkad Street, Sheraton Road P.O. Box: 250744 Riyadh 11391 Halaskargazi Caddesi, No. 169, Şişli, Istanbul. Nasr City. Maadi – Degla 23 Taksim El Hadaba El Shamaleya, Kingdom of Saudi Arabia. Kozyataği Tel: (90-212) 3734300. Tel: (20-2) 22708790, 22708740, 22708783. 1-B, 256 Street, Degla 167 Sheraton Road, Hurghada. Tel: (966-11) 2199300. Saniye Ermutlu Sokak, Fax: (90-212) 3481874. Fax: (20-2) 22708757. (behind Maadi Grand Mall), Maadi. Tel: (20-65) 3452017. Fax: (20-65) 3452015. Fax: (966-11) 4627942. G. Kemal Persentili Iş Merkezi, Branch Manager: Ms. Mehrzad Senefe Acting Branch Manager: Tel: (20-2) 25162094, 25195238. Branch Manager: Mrs. Nevine N. Eskander E-mail: [email protected] 34742, Kadiköy, Istanbul. (Retail) Mr. Ayman M. Farrag Fax: (20-2) 25162017. www.audicapital.com Tel: (90-216) 6657000. Branch Manager: Mr. Mohamed A. Kandil SOUTH SINAI Fax: (90-212) 3481839. Yeşilyurt Beirut Branch Managers: Sipahioğlu Caddesi, No. 2/B, 54 Demeshk Street, Heliopolis. New Maadi Naema Bay Ms. Arzu Ertekin (Commercial); Yeşilyurt, Istanbul. Tel: (20-2) 24567600. Fax: (20-2) 24508653. 1/2 El Laselky Street 207 Rabwet Naema Bay Street, QATAR Mr. Zafer Seyar (Corporate); Tel: (90-212) 4631100. Branch Manager: Mrs. Nesrine N. El-Balasy (intersection of Laselky Street and El Gazaer Sharm El Sheikh. Ms. Çağla Yavuzoğlu Yilmaz (Retail) Fax: (90-212) 3481875. Street - Facing Mo’men), New Maadi. Tel: (20-69) 3604514-5. Bank Audi LLC Branch Manager: Mr. Umut Kiliç (Retail) Shoubra Tel: (20-2) 25197901. Fax: (20-2) 25197921. Fax: (20-69) 3604520. Caddebostan 128 Shoubra Street, Shoubra. Branch Manager: Ms. Yasmin A. El-Sherbini Branch Manager: Mr. Mohamed K. Abbas Authorised by the QFC Regulatory Authority Bağdat Caddesi No. 270, Gaziosmanpaşa Tel: (20-2) 22075682. Fax: (20-2) 22075779. License No. 00027 Ak Apartmani No. 17-18, Sarigöl Mahallesi, Cumhuriyet Meydani, Branch Manager: Mr. Hesham A. Awaad SIXTH OF OCTOBER Göztepe, Istanbul. No. 16-17a, Gaziosmanpaşa, Istanbul. Arabeya Online for Qatar Financial Centre, 18th Floor, Tel: (90-216) 4686800. Tel: (90-212) 6001300. Zamalek Sixth of October Qatar Financial Centre Tower, Fax: (90-212) 3481850. Fax: (90-212) 3488188. 1B Hassan Sabry Street, Zamalek. Plot 2/23, Central District, Sixth of October. Securities Brokerage Diplomatic Area, Doha. Branch Manager: Ms. Seda Tokgöz (Retail) Branch Manager: Ms. Zekiye Karsavuran Tel: (20-2) 27285200. Fax: (20-2) 27375008. Tel: (20-2) 38270900. Fax: (20-2) 38353780. 12, El Shaheed Ismail Mohie El Din Street, Ard P.O. Box: 23270 Doha, Qatar. (Commercial & Retail) Branch Manager: Mrs. Ghada M. El-Garrahy Branch Manager: Mr. Karim M. Morsi El Golf, Heliopolis, Tel: (974) 44967365. Nişantaşi Cairo, Egypt. Fax: (974) 44967373. Valikonaği Caddesi, Altunizade Masaken Sheraton Pyramids Heights P.O. Box: 11341. E-mail: [email protected] No. 91-93/A & 91-93/1, Şişli, Istanbul. Kisikli Caddesi, Altunizade Mahallesi, 11 Khaled Ibn El Waleed Street, Pyramids Heights Office Park, Tel: (20-2) 24140025. www.bankaudipb.com Tel: (90-212) 3738100. No. 35/1, Üsküdar, Istanbul. Masaken Sheraton. Cairo-Alexandria Desert Road, Km 22, Fax: (20-2) 24180666. Fax: (90-212) 3481853. Tel: (90-212) 4001600. Tel: (20-2) 22683381, 22683397. Sixth of October. Hotline: 16225. Branch Manager: Ms. Hülya Küçük (Retail) Fax: (90-212) 3481886. Fax: (20-2) 22683433. Tel: (20-2) 35343712, 35343659. E-mail: [email protected] MONACO Branch Manager: Branch Manager: Ms. Christine R. Farag Fax: (20-2) 35362053. www.aolbeg.com Bostanci Vatan Mr. Mahmut Ekinci (Commercial & Retail) Branch Manager: Mr. Tarek A. Negm E-5 Karayolu, Yeşil Vadi Sokak, No. 1, Nady El Shams Audi Capital Ataşehir, Istanbul. Hadimköy 17 Abdel Hamid Badawy Street, Heliopolis. ALEXANDRIA Tel: (90-216) 5765339. Akçaburgaz Mahallesi, Hadimköy Yolu, Tel: (20-2) 26210943, (20-10) 68822192. SUDAN Gestion SAM Fax: (90-212) 3481861. No. 154-156, Esenyurt, Istanbul. Fax: (20-2) 26210945. Smouha Monte-Carlo Palace, Branch Manager: Ms. Seda Tokgöz Tel: (90-212) 8667800. Acting Branch Manager: Ms. Nancy N. Helmy 35 Victor Ammanuel Square, Smouha. National Bank 3-9 Boulevard des Moulins. Fax: (90-212) 3481885. Tel: (20-3) 4193700. Fax: (20-3) 4244510. MC - 98000 Monaco. Topkapi Vatan Branch Manager: Mukattam Branch Manager: Mr. Ismail M. Ghanem of Sudan Tel: (377) 97 97 65 11. E-5 Karayolu, Güney Yan Yol, Merkez Efendi Ms. Ayca Simsek (Commercial & Retail) Plot 6034, Street 9, Mukattam. Headquarters Fax: (377) 97 97 65 19. Mahallesi, Tercüman Sitesi Çarşi Binasi, Tel: (20-2) 25057040, 25053634. Sultan Hussein E-mail: [email protected] Zeytinburnu, Istanbul. Ataşehir Fax: (20-2) 25057566. 33 Sultan Hussein Street, Azarita. National Bank of Sudan Bldg., www.bankaudipb.com Tel: (90-212) 6652337. Barbaros Mahallesi, Halk Caddesi, No. 59, Area Manager: Ms. Eman A. Khazragy Tel: (20-3) 4880500. Fax: (20-3) 4877198. Block 1, Kasr Avenue, Khartoum. Fax: (90-212) 3481860. D:1 Ataşehir, Istanbul. Branch Manager: Mr. Mahmoud A. Khalaf P.O. Box 1183, Khartoum, Sudan. Branch Manager: Ms. Arzu Aydin Tel: (90-216) 5471200. Abbassia Tel: (249-183) 778154. TURKEY Fax: (90-212) 3481890. 109 Abbassia Street, Abbassia. Miami Fax: (249-183) 774997. Bebek Branch Manager: Ms. Pinar Turan (Retail) Tel: (20-2) 24664454, (20-10) 68841455-6. 489 Gamal Abdel Nasser Street, El Asafra E-mail: [email protected] Odea Bank A.Ş. Bebek Mahallesi Cevdetpaşa, Caddesi Fax: (20-2) 24664453. Bahary (facing Aziz Abaza School). www.nbs.com.sd No. 36, 34342, Beşiktaş, Istanbul. Kazasker Branch Manager: Tel: (20-3) 5505212-3, 5505227. Headquarters Tel: (90-212) 3624700. Şemsettin Günaltay Caddesi, No. 97/A, Mr. Mohamed S. Abdel-Fattah Fax: (20-3) 5505136. BRANCHES Fax: (90-212) 3481851. Suadiye Mahallesi, Kadiköy, Istanbul. Area Manager: Mrs. Hanan M. Ouf Maslak Mahallesi, Branch Manager: Tel: (90-216) 5791400. El Obour KHARTOUM (Main Branch) Ahi Evran Caddesi No. 11, Ms. Aylin Bakay Tercan (Retail) Fax: (90-212) 3481894. Shops 43, 44, 45, Golf City, El Obour City. Gleem National Bank of Sudan Bldg., Olive Plaza, Floors 6-7-8-9, 34398, Branch Manager: Ms. Çiler Durmaz (Retail) Tel: (20-2) 46104325, (20-10) 68822189. 1 Mostafa Fahmy Street, Gleem. Main Floor, Kasr Avenue, Khartoum. Şişli, Istanbul. Ikitelli Fax: (20-2) 46104324. Tel: (20-3) 5816000. Tel: (249-183) 774090. Tel: (90-212) 3048444. Ikitelli Organize Sanayi Bölgesi, Atatürk Maltepe Carrefoursa Branch Manager: Mr. Sami S. Osman Fax: (20-3) 5825866. Fax: (249-183) 779497. Fax: (90-212) 3048445. Bulvari Mahmut Torun Iş Merkezi, No. 54, Cevizli Mahallesi, Tuygay Yolu Caddesi, Branch Manager: Mr. Sherif S. El-Nozahy E-mail: [email protected] Başakşehir, Istanbul. No. 67, Maltepe, Istanbul. El Manial OMDURMAN www.odeabank.com.tr Tel: (90-212) 6920900. Tel: (90-216) 5151497. 90 El Manial Street, El Manial. DAQAHLIA Kabashi Bldg., Block 4-1, Fax: (90-212) 3481867. Fax: (90-212) 3481896. Tel: (20-2) 23629935-55. Al Mowrada Street, Omdurman. BRANCHES Branch Manager: Branch Manager: Mr. Sinan Mahmut Erdal Fax: (20-2) 23630099. Mansoura Tel: (249-187) 573231. Mr. Mehmet Toker (Commercial & Retail) Branch Manager: Ms. Marwa M. Sanad 26 Saad Zaghloul Street, Fax: (249-187) 555771. ISTANBUL Içerenköy Carrefoursa Toreil, Mansoura. Beşiktaş Içerenköy Mahallesi, Kayişdaği Caddesi, Triumph Tel: (20-50) 2281600. BAHRY Maslak Barbaros Bulvari, 23/A, Beşiktaş, Istanbul. No. 2, Özel Iş Yeri No. 133, 116 Othman Ibn Affan Street, Fax: (20-50) 2309782. Bldg. No. 98, Block 1, Maslak Mahallesi, Tel: (90-212) 3961500. Içerenköy, Istanbul. Plot 740 Heliopolis. Area Manager: Mr. Amr Y. Rizk Industrial Area, Bahry, North Khartoum. Ahi Evran Caddesi, Fax: (90-212) 3481879. Tel: (90-216) 4480315. Tel: (20-2) 26342243, 26352220. Tel: (249-185) 330669. Olive Plaza No. 11, Branch Manager: Ms. Aysun Özkan (Retail) Fax: (90-212) 3481897. Fax: (20-2) 26424900. GHARBIA Fax: (249-185) 336493. Zemin Kat 34398, Branch Manager: Ms. Pinar Turan Area Manager: Mrs. Sandra G. Cossery Şişli, Istanbul. Etiler Tanta PORTSUDAN Tel: (90-212) 3048100. Nispetiye Caddesi, No. 60/A-B, Etiler, Kadiköy Abd El Khalek Tharwat El Gueish Street & El Nahda Street, National Bank of Sudan Bldg. No. 4, Fax: (90-212) 3481835. Beşiktaş, Istanbul. Söğütlü Çeşme Caddesi, No. 46-48, 42 Abd El Khalek Tharwat Street, Downtown. Intersection, Tanta. Block 8, Portsudan Market Branch Managers: Tel: (90-212) 3591600. Kadiköy, Istanbul. Tel: (20-2) 23904866, 23910638. Tel: (20-40) 3389600. (next to Al-Baladia gardens). Mr. Ayhan Şahin (Commercial); Fax: (90-212) 3481872. Tel: (90-216) 5421300. Fax: (20-2) 23904162. Fax: (20-40) 3403100. Tel: (249-311) 822803. Mr. Kudret Uslu (Corporate); Branch Manager: Ms. Ayşen Kirtaş Fax: (90-212) 3481898. Branch Manager: Mr. George F. Badra Branch Manager: Mr. Amr A. Dorgham Fax: (249-311) 839970. Ms. Pemra Hiçsönmez (Retail) (Commercial & Retail) Branch Manager: Ms. Ebru Topdemir (Retail)

212 213 ADDRESSES (TURKEY - UNITED ARAB EMIRATES)

Kartal KOCAELI Kayseri Sanayi Ankara Caddesi, No. 88, Kartal, Istanbul. Anbar Mahallesi, Osman Kavuncu Bulvari, Tel: (90-216) 5865300. Izmit No. 394, Ankara Asfalti, 7 Km, Fax: (90-212) 3481895. Körfez Mahallesi, Süreyya Sokak, No. 22, Melikgazi, Kayseri. Branch Manager: Mr. Sinan Mahmut Erdal Izmit, Kocaeli. Tel: (90-352) 3261066. (Commercial & Retail) Tel: (90-262) 2812400. Fax: (90-212) 3481871. Fax: (90-262) 2812401. Branch Manager: ANKARA Branch Manager: Mr. Barbaros Hayrettin Mr. Oğuzhan Tuna (Commercial) Candemir (Commercial & Retail) Ankara DENIZLI Eskişehir Devlet Yolu (Dumlupinar Bulvari), 9 Gebze Km, B Blok, Zemin Kat No. 11, Hacihalil Mahallesi, Ismetpaşa Caddesi, Denizli Çankaya, Ankara. No. 34, Gebze, Kocaeli. Saltak Caddesi, M. Korkut Sokak, No. 2, Tel: (90-312) 2489800. Tel: (90-262) 6742400. Merkez Denizli, Denizli. Fax: (90-312) 2489801. Fax: (90-212) 3481873. Tel: (90-258) 2952000. Branch Managers: Branch Manager: Fax: (90-212) 3481883. Mr. Mustafa Bora Gencer (Commercial); Mr. Can Ünüvar (Commercial & Retail) Branch Manager: Ms. Gülhan Erol (Corporate); Mr. Çağri Erdem (Commercial & Retail) Mrs. Nurdan Şenocak (Retail) Izmit Çarşi Cumhuriyet Caddesi, No. 104, Izmit, Kocaeli. KONYA GOP Tel: (90-262) 2812500. GOP Mahallesi, Filistin Sokak, No. 2/A, Fax: (90-212) 3481889. Konya Çankaya, Ankara. Branch Manager: Ms. Nur Esin Keleş (Retail) Fevzi Çakmak Mahallesi, Kosgeb Caddesi, Tel: (90-312) 4553800. No. 3/C, Karatay, Konya. Fax: (90-212) 3481858. BURSA Tel: (90-332) 2216800. Branch Manager: Ms. Hülya Gürdal Fax: (90-212) 3481880. (Commercial & Retail) Bursa Branch Manager: Izmir Yolu, No. 116, No. 13-14, Nilüfer, Bursa. Ms. Muhsine Bahadir (Commercial & Retail) Söğütözü Vatan Tel: (90-224) 2753400. Söğütözü Mahallesi, 53 Caddesi, No. 12, Fax: (90-224) 2753401. ANTALYA Çankaya, Ankara. Branch Manager: Tel: (90-312) 2840218. Ms. Şebnem Cengiz (Commercial); Antalya Fax: (90-212) 3481862. Mr. Abdullah Gökhan Yilmaz (Retail); Mehmetçik Mahallesi, Aspendos Bulvari, No. Branch Manager: Ms. Hülya Gürdal (Retail) Ms. Ayşegül Özata (Retail) 71/1, Muratpaşa, Antalya. Tel: (90-242) 3207400. Ostim Nilüfer Vatan Fax: (90-212) 3481884. Serhat Mahallesi, 1171/1 Sokak No. 5, Orhaneli Yolu, Lefkoşe Caddesi, Branch Manager: Ostim Yenimalle, Ankara. No. 21/B-C-D-E, Nilüfer, Bursa. Mr. Ali Zafer Kaçar (Commercial & Retail) Tel: (90-312) 5927500. Tel: (90-224) 4525006. Fax: (90-212) 3481877. Fax: (90-212) 3481864. MUGLA Branch Manager: Branch Manager: Mr. Aytaç Hacioğlu (Commercial & Retail) Mr. Abdullah Gökhan Yilmaz (Retail) Bodrum Hasan Reşat Oncü Caddesi, No. 12, IZMIR GAZIANTEP Bodrum, Muğla. Tel: (90-252) 3115000. Izmir Gaziantep Fax: (90-212) 3481881. Anadolu Caddesi, No. 41/20A, Bayrakli, Izmir. Prof. Muammer Aksoy Bulvari, Branch Manager: Tel: (90-232) 4951500. Cazibe Iş Merkezi, No. 15/D, Ms. Asli Yilmaz (Commercial & Retail) Fax: (90-212) 3481837. ŞehitKamil, Gaziantep. Branch Managers: Tel: (90-342) 2117400. ESKIŞEHIR Mr. Orhan Timurhan (Commercial); Fax: (90-212) 3481859. Mr. Hüseyin Cem Taner (Corporate); Branch Manager: Ms. Gamze Acar (Retail); Eskişehir Ms. Nursel Esen (Retail) Mr. Ersoy Kiliç (Corporate) Hatboyu-1 Caddesi, 1/A Eskibağlar Mahallesi, Eskişehir. Bornova Vatan ADANA Tel: (90-222) 2131000. Ankara Caddesi 282/1, No. 6, Fax: (90-212) 3481891. Bornova, Izmir. Adana Branch Manager: Ms. Sultan Yazgan Tel: (90-232) 4866056. Cemalpaşa Mahallesi, Gazipaşa Bulvari, (Commercial & Retail) Fax: (90-212) 3481863. Gen Plaza Kat 7 No. 45/701 Seyhan, Adana. Branch Manager: Ms. Ebru Cindoğlu (Retail) Tel: (90-322) 4551600. MERSIN Fax: (90-212) 3481866. Alsancak Branch Managers: Mersin Cumhuriyet Bulvari, No. 176-A, Mr. Burak Baycik (Commercial); Camişerif Mahallesi, Kuvai Milliye Caddesi, Alsancak, Konak, Izmir. Ms. Banu Yaycioğlu (Retail) No. 20/A, Mersin. Tel: (90-232) 4981800. Tel: (90-324) 2418300. Fax: (90-212) 3481868. Adana Vatan Fax: (90-212) 3481882. Branch Manager: Ms. Ebru Cindoğlu (Retail) Belediye Evleri Mahallesi, Dr. Sadik Ahmet Branch Manager: Bulvari, No. 54/A, Çukurova, Adana. Mr. Ilyas Mert (Commercial & Retail) Hatay Tel: (90-322) 2398877. Arab Hasan Mahallesi, Inönü Caddesi, Fax: (90-212) 3481876. No. 285-293-A, Karabağlar, Izmir. Branch Manager: Ms. Banu Yaycioğlu Tel: (90-232) 2921200. UNITED ARAB EMIRATES Fax: (90-212) 3481887. KAYSERI Branch Manager: Ms. Nalan Pala (Retail) Bank Audi sal Kayseri Çarşi Mahallesi Bostanli Cumhuriyet Mahallesi, Serdar Caddesi, Representative Office Cemal Gürsel Caddesi, No. 532/A-B, No. 21, Melikgazi, Kayseri. Arab Monetary Fund Bldg., 9th Floor, Bostanli Mahallesi, Karşiyaka, Izmir. Tel: (90-352) 2210271. Corniche Street. Tel: (90-232) 4911000. Fax: (90-212) 3481870. P.O. Box 94409 Abu Dhabi, United Arab Emirates. Fax: (90-212) 3481892. Branch Manager: Tel: (971-2) 6331180. Fax: (971-2) 6336044. Branch Manager: Ms. Gülüm Gürle (Retail) Mr. Ismail Murat (Commercial & Retail) E-mail: [email protected]

214