ANNUAL REPORT 07

At BLOM BANK, our mission has always been to spread “Peace of Mind” in the region and all around the world through our international network. The universal banking services provided by our group and our concern to maximize customer satisfaction consti tute the key elements for the success of our mission.

Dr. Naaman AZHARI - Chairman of BLOM BANK GROUP Mr. Saad AZHARI - Chairman and General Manager of BLOM BANK S.A.L SUMMARY

CHAIRMAN’S LETTER 09 GROUP CHART 11 EVOLUTION OF MAIN INDICATORS 12 FINANCIAL RATIOS 13 BLOM BANK CUSTOMER DEPOSITS EVOLUTION 14 STRONG AND CONTINUOUS GROWTH FOR THE LAST 5 YEARS 15 BLOM BANK SAL BOARD OF DIRECTORS 18 BLOM BANK’S MAJOR SHAREHOLDERS AND GENERAL MANAGEMENT 19 BLOM BANK ORGANIZATIONAL CHART 21 MANAGEMENT DISCUSSION AND ANALYSIS 1. OPERATING ENVIRONMENT 25 2. OVERVIEW 30 3. EVOLUTION OF TOTAL ASSETS 31 4. SOURCES OF FUNDS 32 5. USES OF FUNDS 35 6. LIQUIDITY 46 7. PROFITABILITY 47 8. DIVIDEND DISTRIBUTION AND PREFERRED SHARES REVENUES 58 9. CAPITAL ADEQUACY RATIO 58 10. INTEREST RATE RISK 59 11. RISK MANAGEMENT AND BASEL II PREPARATIONS 59 12. UNIVERSAL BANKING SERVICES 61 13. INFORMATION SYSTEMS AND TECHNOLOGY 64 14. PEOPLE DEVELOPMENT 67 15. BANK’S OPERATIONAL EFFICIENCY 68 16. REGIONAL EXPANSION 68 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF BLOM BANK SAL 74 CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2007 75 CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007 76 CONSOLIDATED CASH FLOWS STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 78 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 83 BLOM BANK’S WORLDWIDE CORRESPONDENT BANKS 164 BLOM BANK GROUP DIRECTORY 166 Mr. Saad AZHARI - Chairman and General Manager of BLOM BANK S.A.L

08 CHAIRMAN’S LETTER

True to its record, BLOM BANK has remained at the forefront of the Lebanese banking system in 2007. It proved itself once again to be a solid and successful financial institution, earning the highest level of profits among Lebanese banks at $204.7 million. This was 13.53% higher than the 2006 level, and it was largely a product of its managerial and financial efficiency as reflected in an effective cost to income ratio of 34.6% -- the lowest among the leading banks. The banks’ consolidated balance sheet also saw a significant increase, rising by 17% each for assets and deposits to reach $16,628 million and $13,737 million respectively. Also significant was the increase in loans -- especially to service clients in regional markets -- to $2,772 million that lifted the loans to deposits ratio from 16.9% to 20.2%. All this has happened within an operating framework that maintained high levels of liquidity and strong asset quality to better manage risk and to ensure clients’ “peace of mind”. Thus immedi ate net liquidity in Lebanese Pounds and foreign currencies stood at a comfortable 105.9% and 63.2% respectively; whereas the ratios of gross non-performing loans and loan loss reserves were a respectable 7.9% and 95.55%. Also, in terms of capital adequacy and its new risk adjustments according to the standardized approach, BLOM Bank’s ratios reached healthy values of 29.05% and 14.6% according to Basel I and Basel II respectively.

These achievements of BLOM BANK did not translate to the highest profitability in absolute meas ures only, but also included relative measures. In terms of returns on average assets and equity, BLOM retained the highest ratios among leading Lebanese banks at 1.33% and 15.65% respectively. This was reflected in financial markets, as the price of BLOM’s GDR (Global Depository Receipts) increased by 50.5% to close the year 2007 at $90.2. In addition, the Bank’s General Assembly of Shareholders on the 9th of April 2008 approved as follows the distribution of dividends for the finan cial year 2007: preferred shares 2002 issue received $15 each, and their corresponding 2004 and 2005 issues $8.5 and $9.5 respectively; whereas each of the listed common shares and GDRs got the equivalent of $3.65 per share.

This commendable performance under difficult circumstances in the Lebanese economy attracted several awards and marks of excellence in 2007 from reputable ranking and rating institutions. The Bank was awarded “Best Bank in Lebanon” from Global Finance; “Highest Financial Strength Rating at BBB” from Capital Intelligence; “Highest National Rating at Aa1.lb” from Moody’s; “Best Trade Finance”, “Best Foreign Exchange”, and “Best Customer Internet” Bank from Global Finance; “Best Use of Technology in the Middle East” from The Banker Middle East; and “Best Deal of the Year” from the Banker.

Despite the climate of political uncertainty, Lebanon’s economy managed to grow by 3% in real terms in 2007. Also noteworthy was a solid fiscal performance that saw net debt – at $39.1 billion – fall as a ratio of Gross Domestic Product to 162% and primary surplus rise as a similar ratio to 3%, an outcome of improving tax revenues and Paris III donor support.

And, true to its history, the Lebanese banking sector was the backbone of the economy in 2007, continuing undeterred its healthy domestic growth and foreign expansion. All the basic indicators from the financials of its domestic operations were up: assets increased by 10.6% to $82.2 billion; deposits by 11.4% to $67.5 billion; loans by 11.7% to $23.9 billion; and capital by 10.5% to $6.3 billion. And the banking system has crowned these accomplishments by continuing its sustained profitability, with net profits increasing by 11.8% to $850 million. But perhaps the current defining feature of the Lebanese banking sector is its foreign expansion. The result is that there are currently 17 Lebanese banks with presence in 20 foreign countries encompassing more than 150 banking units and corresponding to around 15% of banks’ total activities. Of course, the banking system’s performance was greatly facilitated by the supervisory oversight of Banque du Liban (BdL). Regulatory directives from BdL ensured that banks have remained well capitalized, at more than 12% according to Basel II; and also ensured that banks have stayed away from the asset classes that engendered the credit crises in the US and elsewhere in late 2007. In addition, BdL continued its sound monetary management of the economy, preserving the exchange rate peg and amassing more than $12 billion in foreign reserves, ensuring in the process both liquidity and stability in financial markets.

09 In this context, BLOM BANK’s success rests on a two-pronged strategy of geographical expansion and service diversification, so as to evolve the bank to a regional, universal Bank. BLOM BANK currently stands to be the Lebanese bank with the largest overseas activities, where overseas assets and profits represent 36% and 24% of total assets and profits respectively. It is pres ent in ten countries: Lebanon (BLOM BANK), Syria (Bank of Syria and Overseas, BSO), Jordan (BLOM BANK), Egypt (BLOM BANK EGYPT), UAE (BLOM BANK FRANCE), France, England, and Romania (BLOM BANK FRANCE), Cyprus (BLOM BANK), and Switzerland (BLOM BANK (SWITZERLAND)). The Bank also obtained a license to open a Representative Office in Abu Dhabi in 2007; and has been granted licenses to operate an investment company in Saudi Arabia, BLOMINVEST Saudi Arabia, in mid 2008, and to start a private and corporate bank in Qatar in late 2008. Also, in rela tion to expansion in individual countries, BSO opened a new branch in Aleppo in 2007 that increased the number of branches to 10, expected to increase to 20 in 2008; two new branches were opened in Jordan, and two more are planned to open in 2008, raising the total to 7. In addition, BLOM BANK EGYPT continued with its robust expansion, increasing its number of branches to 20 in 2007 and aiming to raise it to 30 in 2008. And not to forget Lebanon, four addition al branch es were inaugurated in 2007, and we look forward to add more new branches in 2008, mainly in the areas of Furn El Cheback, Dekwaneh, Sodeco, Choueifat, and Abbasya.

As important, geographic diversification has been coupled with a process of product and services diversification to support the Bank’s universal banking model. BLOM BANK’s banking services now include retail, corporate, investment, asset management, Islamic, and private banking, in addition to insurance. This has also led to diversification in the sources of income, where fee income now con stitutes 24% of operating income, increasing in 2007 by 19.4% compared to an increase by 11.4% in net interest income. In turn, the sources of interest income have undergone diversification and more balance as well, comprising 42% from inter-bank deposits, 29% from government securities, and 29% from customer loans. In this respect also, the activities of BLOMINVEST BANK, the investment arm of BLOM BANK, have been upgraded and widened as a conduit to increase diversification of servic es and income. One prominent product of such widened specialization by BLOMINVEST has been in the area of asset management, where it established a balanced growth fund, the BLOM Cedars Balanced Fund, the first of its kind in Lebanon combining both fixed income assets and equities.

And last but not least, a notable undertaking by the Bank has been the development of a corporate governance code in 2007, to be applied starting 2008. The Bank is fully aware of the importance of such a code, not only for the healthy functioning of the institution but also for the confidence and trust that it sheds to all stakeholders. As a result, the code is built to the highest standards, as proposed by the Basel Committee, and covers all crucial elements that make up an effective governing system. Notable among them are those that relate to the Board of Directors, its role (effective governance over the Bank for the benefit of shareholders), structure (majority of independent directors), and committees (audit, risk management, strategy, and nomination and remuneration). In addition, it covers elements of transparency and stakeholders relations, ranging from the adoption of internationally recognized accounting standards, public disclosure rules, code of conduct and banking ethics, to staff, customers, and suppliers relations.

In conclusion, I would like to pledge that BLOM BANK will continue in its geographical and business expansion while remaining true to its core values of safety, outstanding customer service, long-term shareholder value, and responsible corporate citizenship in each of our countries of presence. I would also like to thank the managers and staff for their dedication and hard work.

Saad Azhari Chairman and General Manager

10 BLOM BANK GROUP CHART

BLOM BANK GROUP CHART

99.99% BLOM BANK FRANCE S.A. 100% BLOM BANK (S WITZERLAND ) S.A.

Head Office: Paris Head Office: Geneva Branches: London • Dubai • Sharjah Romania (6) ) e c i f f 99% BLOM BANK QATAR L.L.C * O e v i t

a Head Office: Doha t n e s e r 99.37% BLOM BANK EGYPT S.A.A. p e R ( i

b Head Office: Cairo a 99.97% BLOM EGYPT SECURITIES h Branches: Egypt (24) D u b

A Head Office: Cairo • ) n a m

m 33.33% A n i s e

h 66.64% c

n 99.88% BLOMINVEST BANK S.A.L. BLOM DEVELOPMENT BANK S.A.L. a . r L b 50% . 6 t ( A u . r n

i Head Office: Beirut Head Office: Beirut S a e d B r K : o e J N c i • f A f e O B n o d Z a M e e 10% BLOMINVEST SAUDI ARABIA * O e H r L F B s

u Head Office: Riyadh c s a m a D • 88.56% S.A.L. 34% s AROPE INSURANCE u r p y

C Head Office: Beirut • )

s Branches Lebanon (9) e h c n a r B 3 5 ( n o n a

b 10% AROPE SYRIA e

L Syria International Insurance : s e

h Head Office: Damascus c

n Branch Aleppo a r B

39.00% BANK OF SYRIA & OVERSEAS S.A.A. 5%

Head Office: Damascus Branches: Syria (12)

* Under Establishment

11 EVOLUTION OF MAIN INDICATORS FINANCIAL RATIOS

EVOLUTION OF MAIN INDICATORS (in millions)

2007 2006 Change 06/07

TOTAL ASSETS LBP 25,067.014 21,424.611 17.00% USD 16,628.202 14,212.014 17.00%

CUSTOMER DEPOSITS LBP 20,708.516 17,690.381 17.06% USD 13,736.992 11,734.913 17.06%

TOTAL NET LIQUIDITY LBP 15,839.111 15,946.895 -0.68% USD 10,506.873 10,578.371 -0.68%

SHAREHOLDERS’ EQUITY LBP 2,063.185 1,880.387 9.72% USD 1,368.614 1,247.355 9.72%

CAPITAL FUNDS LBP 2,092.409 1,916.544 9.18% USD 1,387.999 1,271.339 9.18%

TOTAL LOANS AND ADVANCES LBP 4,179.307 2,996.698 39.46% USD 2,772.343 1,987.859 39.46%

NET INCOME AFTER TAX LBP 308,586 271.804 13.53% USD 204.70 180.301 13.53%

12 FINANCIAL RATIOS (in % or USD)

2007 2006

LIQUIDITY RATIOS Net liquidity in LBP 105.93% 109.8% Net immediate liquidity 63.24% 78.26% Liquid assets over total assets 63.19% 74.39%

LOANS TO DEPOSITS RATIOS LBP 9.98% 7.96% F/C 22.11% 18.96% Total 20.18% 16.94%

ASSETS QUALITY - NOT INCLUDING GENERAL PROVISION Net doubtful loans over total loans 1.68% 2.02% Provision over doubtful loans 80.40% 82.35% Provision over total loans 8.19% 8.85% Gross doubtful loans/ Gross total loans 7.92% 10.25%

CAPITAL ADEQUACY RATIOS Before dividend distribution 31.53% 39.50% After dividend distribution 29.05% 36.35%

PROFITABILITY RATIOS Return on average equity 15.65% 16.81% Return on average assets 1.33% 1.38% Earnings per share USD 8.22 USD 7.29 USD Dividend per common share USD 3.65 USD 3.32 USD Dividend payout ratio 44.39% 45.98% Retention Ratio 55.61% 54.02% Net asset value per common share USD 48.77 USD 44.41 USD

13 CUSTOMER DEPOSITS EVOLUTION STRONG AND CONTINUOUS GROWTH FOR THE LAST 5 YEARS

Customer Deposits Evolution (in USD Millions)

16000 ) D S U f o s n

o 14000 i

l 13,737 l i m n i ( s t i s o p e 12000 11,735 D

10,161 10000

8,992

8000 7,686

6,215 6000 5,525 5,056

4,330 4000 3,861 3,333

2,686

2000 1,605 1,259 871 504 595

0 Years 6 7 1 2 3 4 95 6 7 8 9 0 01 02 03 04 05 0 0 99 9 9 9 9 99 99 99 99 00 0 0 0 0 0 0 0 1 19 19 19 1 1 1 1 1 2 2 2 2 2 2 2 2

14 Strong and Continuous Growth for the Last 5 Years

Total assets (in USD Millions)

18,000 16,628 16,000 14,212 14,000 11,918 12,000 10,835 10,000 8,786 8,000

6,000

4,000

2,000

0 2003 2004 2005 2006 2007

Net profits (in USD Millions) 250 204.7 200 180.30

150 136.85

100 88.3 91.15

50

0 2003 2004 2005 2006 2007

Tier I & Tier II capital (in USD Millions) 1600

1400 1,388.00 1,271.34 1200

1000 957.8 790.61 800 638.38 600

400

200

0 2003 2004 2005 2006 2007

15

BLOM BANK S.A.L BOARD OF DIRECTORS BLOM BANK S.A.L MAJOR SHAREHOLDERS AND GENERAL MANAGEMENT

Chairman of the BLOM BANK Group Dr. Naaman AZHARI BLOM BANK S.A.L Board of Directors

Chairman and General Manager Mr. Saad AZHARI

Directors

H.E. Sheikh Ghassan SHAKER, Grand Officier de la Légion d’Honneur Sheikh Salim Boutros EL- KHOURY

Mr. Samer AZHARI Group Secretary General H.E Me. Youssef Selim TAKLA

Mr. Habib RAHAL General Manager Mr. Joseph Emile KHARRAT

Mr. Nicolas Nicolas SAADE Dr. Fadi OSSEIRAN

18 Mr. Marwan JAROUDI BLOM BANK S.A.L Major Common Shareholders

% of Total Common Shares* Bank of New York** 34.37 % Banorabe Holding*** 11.4 % AZA Holding (Azhari Family over 50%) 9.33 % Azhari Family 2.86 % Actionnaires Unis (Azhari Family over 50%) 1.83 % Shaker Holdings S.A.L. (Shaker Family) 5.39 % Mrs. Nada Aoueini 5 % Jaroudy Family 4.92 % Saade Family 2.81 % Khoury Family 2.02 % Others 20.07 %

* Total common shares: 21,500,000 ** Starting 1998, and after the issuance of Global Depositary Receipts (GDR) by BLOM BANK Shareholders, the Bank of New York as Depositary, became shareholder on the Bank’s register. *** The major shareholders of Banorabe Holding are the same as in BLOM BANK S.A.L (except Bank of New York and AZA Holding).

Dr. Naaman AZHARI - Chairman of the Group Mr. Samer AZHARI - Group Secretary General

BLOM BANK General Management

Mr. Saad AZHARI - Chairman and General Manager Mr. Habib RAHAL - General Manager Mr. Amr AZHARI - General Manager

Chairman’s Advisors

Mr. Fawaz KAYAL - Sheikh Fahim MOADAD**

Mr. Elias ARACTINGI - Planning & Organization Department, Retail Banking Department

(** Fomerly Vice Governor of the Central Bank of Lebanon)

General Management Consultants

Mr. Georges SAYEGH Mr. Adnan SALLAKH

19 BLOM BANK GENERAL MANAGEMENT BLOM BANK’S ORGANIZATINAL CHART

BLOM BANK S.A.L Central Departments & Units

DEPARTMENTS & UNITS * MANAGEMENT

Accounting Mr. Talal BABA - Senior Manager Administration Mr. Samih ZEINEDDINE - Senior Manager Anti Money Laundering Unit Mr. Malek COSTA - Head of Unit Back Office Operations Mr. Mekhael KAZZI - Senior Manager Communication & Investor Relations Dr. Gladys YOUNES - Manager Corporate Unit Mr. Samir KASSIS - Senior Manager Credit Mr.Moustapha GHALAYINI - Senior Manager Engineering Mr. Mohamed BIZRI - Manager Follow Up Mr. Riad TABBARAH - Senior Manager Foreign Exchange Mr. Wassim KHODR - Manager Human Resources Dr Pierre ABOU EZZE - Senior Manager Information Systems Mr. Antoine LAWANDOS - Senior Manager Information System Security Unit Ms. Aya YAMOUT - Head of Unit Internal Audit Mr. Ramzi TARABICHI - Senior Manager Internal Audit /Group Inspection Mr. Naoum RAPHAEL - Senior Manager International Affairs & Treasury Mr. Grégoire AZAR - Senior Manager IT Operations Mr. Mohamed SOUBRA - Senior Manager Legal Me. Aimee SAYEGH - Senior Manager Marketing Mr. Michel GHANEM - Manager Marketing Overseas Mr. Fouad SAID - Senior Manager Marketing Overseas Mr. Marcel ABOU JAOUDE - Manager Recovery & General Management Secretariat Unit Mr. Charles HADDAD - Head of Unit Regional Marketing Mr. Elias MOKHACHEN - Senior Manager Regional Marketing Mr. Georges CHEDID - Senior Manager Retail Credit Mr. Imad KADI - Manager Retail Marketing Mrs. Jocelyne CHAHWAN - Senior Manager Risk Management Mr. Gerard RIZK - Manager Strategic Planning & Organization Mr. Rabih HALABI - Manager Trade Finance Mr. Jacques SABOUNGI - Senior Manager

* By alphabetical order

20 BLOM BANK’S ORGANIZATIONAL CHART

SHAREHOLDERS

BOARD OF DIRECTORS

BOARD COMMITTEES Board Audit Committee Board Risk Management Committee Consulting, Strategy & Corporate Governance Committee Nomination & Renumeration Committee

DEPARTMENTS/ UNITS MANAGEMENT COMMITTEES

Accounting Executive Committee

Administration Credit Committee 1

Anti-Money Laundering Unit Credit Committee 2

Back Office Operations Exceptional Credit Committee

Communication & Investor Relations Follow-up Credit Risk Committee Corporate Unit Provisions Committee

Credit Retail Credit Committee

Engineering Assets & Liabilities Committee

Follow Up Investment & Treasury Committee

Foreign Exchange Marketing Committee

Human Resources Information Technology Committee

Information Systems Human Resources Committee

Information System Security Unit Legal Committee

Internal Audit Internal Audit Committee

Internal Audit /Group Inspection Compliance Committee International Affairs & Treasury Operations & Internal Procedures Committee

IT Operations Foreign Branches & Subsidaries Committee

Legal Purchasing & Maintenance Committee

Marketing Information System Securitiy Committee Marketing Overseas (2) Recovery & General Management Secretariat Unit EXTERNAL AUDITORS Regional Marketing (2) Retail Credit Ernst & Young-Semaan, Gholam & Co. Retail Marketing Risk Management SOLICITORS Branch Managers

Strategic Planning & Organization H.E. ME. Mohamad JAROUDI 53 in Lebanon, Me. Georges ABOU ZAMEL 1 in Cyprus Trade Finance Me. Antoine MERHEB 1 in Damascus Free Zone 6 in Jordan 1 Chief Representative in Abu Dhabi

21

MANAGEMENT DISCUSSION & ANALYSIS 2007 Management discussion & analysis 2007

1. OPERATING ENVIRONMENT

1. OPERATING ENVIRONMENT

Despite the political tensions, the economy recovered slowly in the year 2007 after the overwhelming adverse effects of the July 2006 war. This was driven mainly by the strong external assistance that Lebanon received from the Paris III International Donor Conference in January 2007. The Lebanese government presented an ambitious five-year pro gram to Paris III, designed to address the country’s fiscal deficit, maintain macro economic stability, promote privatization and improve living standards. While the financial assistance was part ly made available, the economic reforms are still on the agenda, waiting for an end to the political impasse.

Backed by the success of the Paris III conference and the financial support received, real GDP growth bounced back to the positive rate of 3% after a clear contraction due to the destructive events of July 2006. This growth was further promoted by the good performance of the construc tion, financial and services sectors. Despite the increase in international commodity prices and the weakening of the US dollar, inflation retreated slightly to 6% in 2007, down from the high of 7% caused by the supply shortages during the 2006 conflict.

The trade and current account deficits widened up as exports and especially imports were buoyant in 2007. Total exports increased by 23.4% to $2.8 billion and imports went up 25.7% reaching $11.8 billion. As a result of the higher trade deficit and the particular drop in foreign direct investment (FDI), the balance of payments declined to $2 billion from $3 billion in the previous year. The net foreign assets at the central Bank declined by $580M and the foreign debt stood at $21.3 billion, representing 89.1% of GDP.

The country’s budget deficit improved by 24.5% to $2.3 billion in 2007, driven by strong VAT revenues , increasing telecom revenues as well as the Paris III grants. Nevertheless, the gaping holes in expenditures remain increasing interest payments and transfers to EDL. Consequently, the ratio of gross public debt to GDP stabilized at 173%.

25 1. OPERATING ENVIRONMENT

Financial markets showed strong resilience and monetary stability was sustained by the exchange rate peg. The average interbank rate stood at an average of 4.2% in 2007, down from 4.6% a year earlier as the impact of the 2006 conflict slowly faded away. Money demand remained robust with broad money increasing by 12.5% in 2007 compared to 8.4% in 2006. Dollarization widened in 2007, registering ratios higher than those prior to the July 2006 conflict . As such, deposit dollarization increased from 76% in 2006 to 78.1% while dollarization of loans went up from 84% to 84.5%. Interest rates on the Lebanese Pound declined slightly in 2007 to 7.4% helped by the favourable effects of Paris III and monetary stability that outweighed any adverse effect from the international global credit crisis. Interest rates in USD widened from 4.71% to 4.75% as they were slightly affected by higher political risk. The value of cleared check jumped by 19.17% to $38.7 billion in 2007. Lebanese Pound denominated cleared checks accounted for 23% of total cleared checks’ value while foreign currency denominated cleared check represented 77% of the total value.

In the banking sector, the consolidated balance sheets of the commercial banks mirrored the strong momentum of the sector. As such, the balance sheet of domestic banks stood at $82.2 billion in 2007, with a yearly increase of 10.7%. The sector’s high profitability was reflected in a 12% increase over the previous year to $847M while its capitalisation went up 10.5% to $6.3 billion. Customer deposits and loans rose by 11.4% and 11.7% to $67.5 billion and $23.9 billion respectively.

The stock market recovered in 2007 despite the political impasse and global financial markets turbulence. In fact, after a 9.5% decline in 2006, the BLOM Stock Index (BSI), Lebanon’s benchmark index, picked up by 27% in 2007 to close at 1501.7. Market capitalisation increased 32.5% to $10.2 B while total market turnover dropped by 51% to $991.8 million. On the other side, the Eurobond market stayed dormant and witnessed very limited trading throughout the year.

With the continuing political stalemate, the country’s rating started to slip with Standard & Poor’s downgrading Lebanon’s long term foreign currency sovereign securities from B- to CC+ while Moody’s maintained its B3 rating. In the absence of an active parliament, many actions that was present on the Paris III reform agenda have been suspended, with the outlook of the economy closely depending on a possible solution to the political impasse in the country.

26 Management discussion & analysis 2007

Key Indicators

USD Millions or % 2006 2007 % Change GDP Growth Rate 0.0% 3.0% 300 b.p. Estimated Inflation 7.0% 6.0% -100 b.p. Balance of Payments $2,749.5 $2,036.6 (25.9%) Trade Deficit $7,117 $9,004 26.5% Budget Deficit $3,040 $2,294 (24.5%) LP/USD $1,507.5 $1,507.5 0.0% External Debt $20,430 $21,249 4.0% Gross Public Debt $40,466 $42,060 3.9% Gross FX Reserves $12,975 $12,395 (4.47%) Banks’ Assets $74,293 $82,255 10.72% BLOM Stock Index 1,185 1,502 26.8%

Notes: Data included in “BLOM’s Environment” are based on several sources. - Public finance, public debt, interest payments and cost of debt are based on the Ministry of Finance’s publications. - Trade balance, FX reserves, cleared checks, balance of payments and banking sector’s performance are based on Banque du Liban’s publications. - GDP figures are based on IMF estimations. - Stock market data, interbank rate, domestic interest spread and average eurobonds yield are based on calculations performed by the Economic Research Department at BLOMINVEST BANK s.a.l.

27

2. OVERVIEW 3. EVOLUTION OF TOTAL ASSETS

2. OVERVIEW

BLOM BANK accomplished in 2007 another successful year, marked by a solid financial position, a diversification of services on offer and an increasing regional presence.

BLOM BANK’s strong stand as the leading banking group in Lebanon was reflected by the number of awards accredited to it in the year 2007:

- “Best Bank in Lebanon” from Global Finance-February 2008 - “Best Trade Finance in the Middle East” from Banker Middle East-January 2008 - “Best Trade Finance Bank in Lebanon” from Global Finance-December 2007 - “Best Foreign Exchange Bank in Lebanon” from Global Finance-December 2007 - “Best Consumer Internet Bank” from Global Finance- July 2007 - “Best Bank in Lebanon” from Global Finance- April 2007 - “Deal of the Year in Lebanon” from the Banker-April 2007 - “Best use of Technology in the Middle East” from the Banker Middle East- May 2007

BLOM BANK continued to maintain the highest financial ratings in Lebanon. As such, the Bank has been rated by Capital Intelligence, a Middle East-specialized rating agency, “BBB-” , which is the highest financial strength rating in Lebanon and has received the highest national score rating “Aa1.lb” from Moody’s.

In 2007, BLOM BANK confirmed its position as the most profitable bank of Lebanon, with net profits reaching $204.7m and as one of the largest banks in the country with total assets of $16.6bn and total customer deposits of $13.7bn at year end 2007.

In 2007 also, BLOM BANK continued with its strategy of geographic and business services diversification. Foreign expansion not only spreads the risk of operating mainly in Lebanon, but also takes advantage of the economic and business opportunities opening up in the regional economies and of their liberal financial policies. In this respect, 2007 saw the Bank operate in ten countries: Lebanon, Syria, Egypt, Jordan, UAE, France, Switzerland, England, Cyprus and Romania. In addition, the Bank has developed further its retail network by open ing new branches in Egypt, Jordan and Syria. In Lebanon, the Bank inaugurated in 2007 four new branches in the areas of Tabaris (Beirut), Jbeil, Mina El Hosn and Hamra Street (Retail Branch). In addition, BLOM BANK was recently awarded licenses to establish an investment bank in Saudi Arabia, BLOMINVEST Saudi Arabia, as well as a representative office in Abu Dhabi (UAE) and a commercial and private bank in Qatar, BLOM BANK Qatar in QFC.

30 Management discussion & analysis 2007

The other component of the strategy is to diversify business activities towards a universal banking mode l. As a result, the bank has expanded the operations of its investment arm, Blominvest Bank, by enhancing its private and investment banking and capital market activities, in addition to introducing asset and wealth management services. The latter aim at establishing funds and investment vehicles for retail and high net-worth investors that are diversified in their asset composition and geog raphy. The first of such funds is the Cedars Balanced Growth Fund that combines Lebanese fixed income and equity assets. The aim of the services diversification is a diversification in the sources of income that gives increasing share for non-interest income

AROPE Insurance, BLOM BANK’s subsidiary, has also witnessed a year of growth and expan sion, marked by the opening of three additional branches in Lebanon as well as one branch in Aleppo (Syria) through AROPE Syria. In 2008, AROPE is projected to continue its aggressive policy of expansion and will be the first to penetrate Egypt’s commercial insurance sector through “Arope Egypt for Life Insurances” and “Arope Egypt for Property Insurances”.

3. EVOLUTION OF TOTAL ASSETS

The Bank witnessed a strong growth in assets in 2007. Indeed, total assets increased by USD2,416 million to reach USD16,628 million in 2007, thus registering a rise of 17% over the year 2006. A large part of the growth in assets was denominated in foreign currency as a result of the high rate of dollarization and overseas deposits growth. In addition, BLOM bank successfully increased its market share in terms of total assets among Lebanese banks from 18.67% in the year 2006 to 20.22% in 2007.

Evolution of Total Assets (in USD Millions)

16,000 16,628 14,212 12,000 10,835 11,918 8,786 8,000 7,146

4,000

0 2002 2003 2004 2005 2006 2007

31 4. SOURCES OF FUNDS

4. SOURCES OF FUNDS

Sources of funding fall into four main categories: customer deposits, capital funds (Tier I & Tier II), banks and financial institutions and other liabilities. The Bank’s main source of funds came in the form of customer deposits which accounted for 82.61% of total funding in 2007. Tier I and Tier II capital constituted 8.35% of total funds for 2007, while the share of banks and financial institutions amounted at 6.21% in 2007.

Breakdown of sources of funds 2006 2007

2.38% 2.83% 6.11% 6.21%  Customer Deposits 8.35% 8.95%  Tier I & Tier II Capital

 Banks & Financial Institutions

 Other Liabilities 82.53% 82.61%

4.1 Customer Deposits

Customer deposits increased by 17%, up from USD 11,735 million in 2006 to reach USD 13,737 million in 2007. This increase is even higher than last year’s 15.49% growth of deposits and much larger than the 11.4% growth of the market, once again giving evidence for BLOM BANK’S outgrowth of the market.

As a result of the Bank’s network of expansion locally and regionally, foreign currencies’ share of total deposits went up, standing at 84.07% of total deposits for the year 2007, slightly up from 82.38% in 2006 and much larger than 76.35% in 2005. The increase in the share of foreign currency deposits out of total deposits can then be mainly attributed to the Bank’s regional and international growth.

32 Management discussion & analysis 2007

Evolution of Customer Deposits (in USD Millions)

16,000 13,737

12,000 10,161 11,735 7,686 8,992 8,000 6,215

4,000

0 2002 2003 2004 2005 2006 2007

BLOM BANK’s market share in terms of customer deposits in the Lebanese banking sector accounted for 20.35% in 2007, up from 19.3% in 2006.

Fiduciary deposits reached USD 2,626.293 million in 2007, increasing 42.7% year-on-year.

33 4. SOURCES OF FUNDS 5. USES OF FUNDS

4.2 Capitalization (Tier I & Tier II Capital)

Tier I Capital increased by 9.72% to USD 1,368.614 million at the end of 2007 compared to an increase of 39.49% at the end of 2006. Tier I increase can be mainly attributed to retained prof its of the year 2007 amounting to USD 204.7 million before dividend distribution.

Tier II capital continued its decreasing trend, falling by 19.2% at the end of 2007 to USD 19.385 million as a result of a 30% drop in the cumulative change in fair value due to the decline in financial assets prices.

Tier I and Tier II Capital (in USD Millions)

1600 1,247.35 1,368.61 1200 894.25 800 696.51 553.73 484.85 400 84.5 84.7 94.1 63.6 24.0 19.4 0 2002 2003 2004 2005 2006 2007

 Tier I Capital  Tier II Capital

34 Management discussion & analysis 2007

5. USES OF FUNDS

BLOM BANK’s strategy stresses the maintenance of high asset quality and a strong portfolio of investments. The risk component, which has always been the Bank’s primary consideration while assessing the uses of funds, is reflected in the return on assets ratio, at 1.33% in 2007.

The share of Lebanese Pound Treasury Bills as well as other government debt securities in foreign currencies to total assets stood at 20.27% in 2007, up from 16.22% in 2006. Nevertheless, the share of cash and deposits at the Central Bank to total assets dropped to 25.25% in 2007 from 29.16% in 2006, while the share of bonds and financial instruments with fixed income rose to 4.65% in 2007, up from 1.80% in 2006. On the other hand, loans granted to customers constituted 16.67% of total assets in 2007, up from ratio of 13.99% in 2006. The Bank placements with other banks and financial institutions amounted to 30.07% of total assets in 2007 compared to 36.19% in 2006

Breakdown of uses of funds

2006 2007

2.64% 16.67% 3.09%  Lebanese Treasury Bills 13.99% 16.22% 20.27% 4.65% and other government bonds 1.80%

 Cash and Central Banks

 Banks and Financial Institutions

 Bonds and Financial 36.19% 30.07% Instruments with Fixed Income 29.16% 25.25%

 Loans to Customers

 Others

35 5. USES OF FUNDS

5.1 Cash and Central Bank

Cash and central banks reserves stood at USD 4,199 million in 2007, up 1.33% from last year. The share of subscription in certificates of deposit amounted to 43.86% of total cash and bal ances with central banks, down from 57.91% in 2006. Central Banks reserves accounted for the largest share in 2007, standing at 54.12% of total cash and balances with central banks as compared to 40.60% in 2006; while cash represented the remaining 2.02%, slightly up from its contribution of 1.49% in 2006.

The cash and central banks category includes non-interest bearing balances held by the Bank at the Lebanese Central Bank (Banque Du Liban) in compliance with the obligatory reserve requirements for all banks operating in Lebanon on commitments in Lebanese Pounds (calculat ed on the basis of 25% of sight and 15% of term commitments). The requirement also applies to inter est bearing placements at the rate of 15% of total deposits in foreign currencies, as well as the certificates of deposit issued by the Central Bank of Lebanon.

Distribution of Cash and Central Banks (In USD Millions) End of Year 2007 End of Year 2006

Amount % Amount %

Cash 85 2.02 62 1.49 Central banks 2,272 54.12 1,682 40.60 Certificates of Deposit 1,842 43.86 2,400 57.91 Total 4,199 100.00 4,144 100.00

36 Management discussion & analysis 2007

5.2 Lebanese Treasury Bills and Other Governmental Bills and Bonds

The Bank’s portfolio of Lebanese Treasury Bills and other governmental debt securities increased by USD 46.2% to reach USD 3,370million in 2007 from USD 2,305 million in 2006. Nevertheless, the share of Lebanese pounds denominated treasury bills dropped to 47.13 % of the total portfolio as compared to 57.50% in 2006. On the other hand, the foreign currency-denominated government bills constituted 52.87% of the total in 2007 as compared to 42.50% in 2006.

The treasury portfolio according to the new IFRS (International Financial Reporting Standards) classification that was adopted starting 1st January 2005 shows the following:

Distribution of the Treasury Portfolio ( Lebanese Treasury Bills & other Governmental Bills and Bonds )

(In USD Millions) At December 31, 2007 At December 31, 2006

Investments held for trading 51.04 33.531 Treasury Bills and Bonds 50.10 32.843 Accrued Interest 0.937 0.688

Available for sale Investments 3,318.988 2,271.557 Treasury Bills and Bonds 3,291.218 2,240.045 Accrued Interest 65.822 47.080 Unrealized Premiums 3.744 1.868 Unrealized Discounts (41.796) (17.436)

Total 3,370.032 2,305.088

Distribution of the Treasury Bills and other Governmental Bills

2007 2006

Lebanese Treasury Bills 42.50% 52.87% Other Governmental Bonds in Foreign Currencies

47.13% 57.50%

37 5. USES OF FUNDS

5.3 Bonds and financial instruments with fixed income

Bonds and financial instruments with fixed income registered a significant 202% growth in 2007, up to USD 773 million in 2007 from USD 256 million a year earlier as the Bank opted for a diversification of its investments in high yielding instruments that are rated BBB or above.

This caption includes bonds and certificates of deposit that are classified as follows: - Held for trading - Available for sale - Loans and receivables

Distribution of Bonds and Financial Instruments with Fixed Income

(in USD Millions) At December 31, 2007 At December 31, 2006

Trading 44.255 0 Bonds 43.739 0 Accrued Interest 0.516 0

Available for Sale 578.563 92.538 Bonds 573.164 91.450 Less: provision for Impairment 0 0 Accrued Interest 5.399 1.088

Held To Maturity 0 0 Bonds 0 0 Accrued Interest 0 0

Loans & Receivables 150.077 163.582 Certificates of Deposit 145.386 159.755 Accrued Interest 4.691 3.826

Total 772.895 256.120

38 Management discussion & analysis 2007

5.4 Banks and Financial Institutions

The bank’s deposits at banks and financial institutions decreased by 2.82% in 2007 to USD 4.999 billion as compared to USD 5.144 billion 2006. This small decrease resulted from the Bank’s investments in fixed income instruments. Nonetheless, those deposits continued to represent the largest shares of the Bank’s assets, accounting for 30.07% of the total in 2007 as compared to 36.17% in 2006.

Time deposits constituted 95.65% of total deposits with banks and financial institutions in 2007, slightly down from 96.12% in 2006. Like for previous years, more than 99% of the current and time deposits are denominated in foreign currencies.

5.5 Loans and Advances to Customers

The Bank is following a conservative loan strategy in order to maintain a high asset quality. This strategy has been reflected by a ratio of net loans and advances to total deposits which has been successfully maintained at low levels, standing at 20.2% in 2007. Outstanding loans reached USD 2,772 million at the end of 2007, increasing 39.46% from last year driven by growth in regional loans. In comparison, local loans grew by 11.7% in 2007.

BLOM BANK’s market share in terms of total loans and advances reached 11.6% in 2007, up from 9.28% in 2006.

Evolution of Total Loans and Advances (In USD Millions)

3,000 2,772

2,500 1,988 2,000 1,670 1,500 1,352 1,164 996 1,000

500

0 2002 2003 2004 2005 2006 2007

39 5. USES OF FUNDS

The Credit risk classification of the Bank’s Loans portfolio is as follows :

Credit Risk Classification of Total Net Loan Portfolio

(in USD Millions) 2007 2006

Regular Accounts 2,691.25 1,894.94 Special Attention Accounts 46.12 59.97 Net Non-Performing Accounts 14.62 28.50 Net Doubtful Accounts 46.56 40.16 Net Provisions for Commercial Loans not Classified (26.55) (35.71) Bad Debt Accounts 0.00 0.00 Total 2,772 1,987.66

The above loan classification is in accordance to the Central Bank of Lebanon’s (Banque Du Liban’s) classification under decree N0 7159 dated November, 10th, 1998 and the decree relat ed to bad debt classification dated December 2001. Below is a briefing about the basis of loan classification defining each category’s characteristics.

- Regular Accounts

A- Unconditional: Covers accounts which display regular movements sufficient to repay the loan in accordance with the repayment schedule. The latest financial statements should be available and adequate collateral should be taken to cover the loan.

B- Incomplete file: as in point (A), adequate collateral and repayment on schedule are fore seen. However, the file is considered incomplete because the client is late in submitting his finan cial statements.

- Special Attention Accounts

Display signs of irregular movements or exceed the credit limit on a continuous basis. Recent financial statements are unavailable and adverse economic conditions may affect the bor rower’s ability to repay the debt. Collateral has not been evaluated for the last 3 years. Such an account may be considered recoverable.

However, it should be closely monitored for a year, at the end of which the account is reclassified if the previously mentioned conditions are not regularized.

40 Management discussion & analysis 2007

- Non-performing Accounts

Covers loans which display most or all of the following: - a significant drop in the client’s profitability - a drop in the flow of cash into the account for a period exceeding 2 years, and thus resulting in repetitive delays in repayment exceeding a period of 3 months. - a noticeable depreciation in the value of the collateral provided and repetitive delays in repayment for a period not exceeding three months. - credit facilities are not used – partially or in whole – for the purpose specified in the loan agreement.

The credit risk committee will review the repayment schedule with the client and will keep the account under close observation. However, interest and commissions will be classified as unrealized until the account is regularized.

- Doubtful Accounts

Represents loans which display all of the conditions of a non-performing account in addition to having a complete lack of credit movement into the account for a period of 6 months and a delay in payments of the rescheduled loan which exceeds 3 months from the date of maturity. The Bank will make a partial provision for the loan and consider interest and commission as unrealized.

- Bad Debt Accounts

Includes all “Doubtful Accounts” which are considered unrecoverable due to the lack of a collateral or the loss of contact with the client. In this case, interest ceases to be accrued and a provision of 100% of the principal amount of the loan is made. The account is under litigation until a ruling by the court is made, after which it is written-off.

The improving quality of the loan portfolio was further highlighted by a decrease in the Bank’s ratio of gross doubtful debts to gross total loans to 7.92% in 2007 from 10.25% in 2006. The coverage of doubtful accounts dropped to 91.57% in 2007 from 98.04% in 2006

Provisions and unrealized interest for doubtful debts and non-performing accounts decreased by USD 5.304 million to reach USD 226.984 million at the end of 2007. The amount includes pro visions for commercial loans not classified at the end of 2007 after deducting the amount of USD 9 million of provisions for doubtful loans no more required and transferring provisions written-off amounting to USD 34.56 million.

41 5. USES OF FUNDS

The ratio of foreign currency loans with respect to total loans went up to 92.12% in 2007 from 91.72% in 2006 while the ratio of foreign currency loans to foreign currency deposits increased to 22.11% in 2007, up from 18.86% in 2006.

The breakdown of the loan portfolio by maturities shows that medium and long term loans with maturities exceeding one year constituted 28.5% of the bank’s outstanding net commercial loans in 2007 as compared to 17.57% in 2006, whereas short term loans, with maturities of less than one year, constituted 71.5% of the total net commercial loans, compared to 82.43% in 2006.

As for the breakdown of the loan portfolio by economic sectors, it appears that the highest share of loans was granted to trade and services activities, followed by construction and manufacturing. Loans to the agriculture sector witnessed a slight increase to 0.71% of the total loan portfolio in 2007 from 0.60% in 2006. Loans granted to the manufacturing sector dropped to 10.42% in 2007 down from 13.01% in 2006 while trade loans decreased also from 30.37% in 2006 to 24.22% in 2007 with 7.41% of the portfolio granted to retail trade and 16.81% to wholesale trade. Loan portfolio to the services sector slightly improved to 20.69% in 2007, up from 20.21% a year earlier. The construction sector witnessed a strong boom in 2007, driven mainly by the post-war reconstruction projects, and accounted for 16.73% of the loan portfolio for the year 2007, up from 7.19% in 2006. Loans given to freelance professions dropped further to 8.08% in 2007 from 12.65% in 2006. Finally, consumer loans recorded a significant increase to 19.15% in 2007, up from 15.99% in 2006.

Distribution of Loans by Economic Sector 2006 2007

 Agriculture and Forestry

Manufacturing 13.01% 30.37% 10.42% 0.60%  Trade 0.71% 24.22%

 Services 15.99% 19.15%  Construction 8.08%  Freelance Professions 12.65% 20.21% 20.69%  Consumer Loans 7.19% 16.73%

42 Management discussion & analysis 2007

The analysis of the loan portfolio by type of collateral reveals that the commercial loans secured by mortgages accounted for the largest share of the 2007 portfolio, despite a small drop from 29.30% in 2006 to 28.07% in 2007. Similarly, advances against personal guarantees decreased, representing 11.96% of the total loans portfolio in 2007, down from 16.60% in 2006. Advances against cash collateral dropped also to 17.09% in 2007 from 19.78% in 2006. On the other hand, the share of LC financing went up to 2.86% in 2007, up from 1.62% in 2006 and syndicated loans stood at 0.27% in 2007, up from nil a year earlier. Retail loans recorded an important increase in 2007, with its share in the total loan portfolio going up to 19.15% in 2007 from 15.99% in 2006. Loans to members of staff increased to 0.20% from 0.13% while loans to directors and related parties accounted for 2.44%, up from 0.04%. Overdraft also increased in 2007, representing 17.96% of the total loans portfolio in 2007 from 16.36% in 2006.

Distribution of Loans by Type of Collateral 2006 2007

 Advanced Against Personal Guaranties 16.36% 29.30% 17.96%  LC Financing 0.04% 2.44% 28.07% 0.13% 0.20%  Syndicated Loans 15.99% Advanced Against Cash  19.15% Collateral 0.00% 0.27%  Retail Loans 11.96% 16.60% Loans to Member of Saff 19.78%  1.62% 17.09% 2.86% Loans to Directors

 Overdraft

 Commercial Loans Secured by Mortages

43

6. LIQUIDITY 7. PROFITABILITY

6. LIQUIDITY

BLOM BANK’s ability to maintain high liquidity levels, minimizing risks and ensuring high quality of assets, has been at the centre of liquidity management and core objectives of the Group. The Bank has successfully maintained ample liquidity in 2007, despite a light drop in its ratio. As such, the Lebanese Pound liquidity ratio (including Lebanese government Treasury Bills) stood at 105.93% in 2007 compared to 109.80% in 2006, reflecting high liquidity levels. Moreover, the immediate liquidity (cash & banks) in foreign currencies accounted for 63.24% of foreign currency deposits in 2007 compared to 78.26% in 2006, a small drop mainly due to the Bank’s regional expansion activities.

Maturity mismatch between assets and liabilities, which characterises the Lebanese banking sector, was also noticeable in BLOM BANK accounts. In 2007, the gap was negative in the maturities from zero to one month and from 1 to 3 months, amounting to USD 4,530 million and USD 1,872 million respectively. Afterwards, the maturity gaps turned back positive, reaching a maximum of USD 3,639 for maturities of 2 to 5 years.

Asset-Liabilities Maturity Gap (In USD Millions) Up to From From From From From Over Total 1 Month 1 to 3 3 to 6 6 Months 1 to 2 2 to 5 5 Years Months Months to 1 Year Years Years

Total Assets 6,861 1,015 833 705 1,776 3,687 1,751 16,628 Total Liabilities 11,391 2,887 517 266 42 48 1,477 16,628 & Shareholder’s Equities 2007 Liquidity Gap (4,530) (1,872) 316 439 1,734 3,639 274 0 2007 Cumulative Maturity Gap (4,530) (6,402) (6,086) (5,647) (3,913) (274) 0 0

46 Management discussion & analysis 2007

7. PROFITABILITY

BLOM BANK was ranked first by net profits in Lebanon in 2007. In fact, the Bank recorded net profits of USD 204.7 million for the year 2007, increasing 13.53% compared to the year 2006 where net profits reached USD 180.3 million.

Return-on-average equity stood at 15.65% in 2007, down from 16.81% a year earlier.

Return-on-average assets for the year 2007 amounted at 1.33%, slightly less than 1.38% in 2006 due to the larger growth in assets of 17% compared to a 13.53% rise in net profits.

Earning per share increased from USD 7.28 in 2006 to USD 8.22 in 2007.

Evolution of Net Income (In USD Millions)

250.00 204.7 200.00 180.30

150.00 136.85 91.15 100.00 83.60 88.30

50.00

0.00 2002 2003 2004 2005 2006 2007

47 7. PROFITABILITY

7.1 Net Interest Income

Net interest income registered a 12% increase in 2007 to USD 302.56 million. The growth came as a result of a 17.9% increase in interest and similar income to USD 988.89 million in 2007, despite a 20.6% increase in interest charges in 2007 to reach USD 686.326 million.

On the other hand, net interest revenue after provisions and doubtful loans, went up by 15.03% to reach USD 310.148 million in 2007 as compared to USD 269.620 million in 2006.

The growth of net interest income will be further elaborated through the breakdown of net interest income into interest and similar income, interests and similar charges, interest margin as well as net provisions for doubtful loans.

7.1.1 Interest and Similar Income

Interest and similar income witnessed a 17.9% increase in 2007, after a hike of 35.67% in 2006.

Average interest earning assets increased by 16.1% to reach USD 13,359 million in 2007 from USD 11,507 million in 2006.

The below table illustrates the breakdown of average earning assets by currency at the end of 2007:

Breakdown of Average Interest Earning Assets at the End of 2007 (In USD Millions) LBP Foreign Total Currencies

Lebanese Treasury Bills and Other Governmental Bills 1,367 1,248 2,615 Deposits with Banks and Central Banks 115 5,723 5,838 Bonds and Other Financial Instruments with Fixed 585 1,996 2,581 Income Including Certificates of Deposit Loans and Advances 190 2,135 2,325 Total 2,257 11,102 13,359

48 Management discussion & analysis 2007

In 2007, the weights of interest and similar income components remained very similar to those of the year 2006. Lebanese and other government bills accounted for 19.57% of total average interest earning assets in 2007, decreasing modestly from 21.13% in 2006. The average deposits with banks and central banks stood at 43.70% of the total in 2007, up from 42.25% in 2006. The share of bonds and other financial instruments with fixed income, including certificates of deposits, accounted for 19.32%, down from 20.57% a year earlier while the weight of loans and advances increased to 17.40% in 2007, compared to 16.04% in 2006.

The breakdown of Interest and Similar Income is detailed in the following table:

Breakdown of Interest and Similar Income (In USD Millions) End of 2007 End of 2006

Amount % of Total Amount % of Total

Lebanese Treasury Bills 230.407 23.30% 214.092 25.52% and Other Governmental Bills Deposits with Banks and Central Banks 324.262 32.79% 249.140 29.69% Bonds and Other Financial Instruments 231.026 23.36% 215.388 25.67% with Fixed Income Including Certificates of Deposit Loans and Advances Including Related Parties 203.193 20.55% 160.401 19.12% Total 988.888 100.00% 839.021 100.00%

The breakdown of interest and similar income reveals a decrease in the share of Lebanese Treasury Bills and other government bills to 23.30% in 2007 compared to 25.52% in 2006. On the other hand, the portion of income generated from deposits with banks and central banks increased to 32.79%, up from 29.69%; while the contribution of bonds and other financial instruments with fixed income (including certificates of deposit) stood at 23.36% in 2007, down from 25.67% a year earlier. Finally, interest income generated from loans and advances including related parties represented 20.55% of the total in 2007, increasing from 19.12% in 2006.

49 7. PROFITABILITY

Breakdown of Interest and Similar Income 2006 2007

 Deposits with Banks and Central Banks

19.12% 25.52% 20.55% 23.30%  Bonds and Other Financial Instruments with Fixed Income Including Certificates of Deposit

 Loans and Advances

25.67% 26.69% 23.36% 32.79%  Lebanese Treasury Bills and Other Governmental Bonds

7.1.2 Interest and Similar Charges

Interest and similar charges increased 20.6% to USD 686 million in 2007 up from USD 569 million in 2006, while average interest bearing liabilities went up by 16.9% to USD 12,870 million compared to USD 11,011 million a year earlier.

Deposits from customers including related parties accounted for the largest share of the average interest bearing liabilities, amounting to 97.40% in 2007 while deposits from banks and financial institutions represented the remaining 2.59%.

Average Interest Bearing Liabilities at the End of 2007 (In USD Millions) LBP Foreign Total Currencies

Deposits and Similar Accounts from Banks and Financial Institutions 3 331 334 Deposits from Customers Including Related Parties 2,168 10,368 12,536 Total 2,171 10,669 12,870

50 Management discussion & analysis 2007

The breakdown of the interest and similar charges shows a modest increase in the portion of deposits and similar accounts from banks and financial institutions to 1.85% in 2007, up from 1.56% in 2006 while the share of interest paid on customers’ deposits slightly retreated to 98.15% in 2007 compared to 98.44% in 2006. Finally, charges from notes and fixed income financial instruments remained nil for the second year on a row.

Breakdown of Interest and Similar Charges (In USD Millions) End of 2007 End of 2006

Amount % of Total Amount % of Total

Deposits & Similar Accounts 12.678 1.85% 8.851 1.56% from Banks & Financial Institutions Notes & Financial Instruments 0 0.00% 0 0.00% with Fixed Income Deposits from Customers 673.648 98.15% 560.017 98.44% Including Related Parties Total 686.326 100.00% 568.868 100.00%

Distribution of Loans by Type of Collateral 2006 2007

 Deposits from Customers Including Related Parties 1.56% 0.00% 1.85% 0.00%  Deposits and Similar Accounts from Banks & Financial Institutions

 Notes and Financial Instruments with Fixed Income

98.44% 98.15%

51 7. PROFITABILITY

7.1.3 Interest Margin (Before Provisions For Doubtful Loans)

The Bank’s Net Interest Income before provisions for doubtful loans rose by 11.4% in 2007 to USD 302.56 million, while the net interest margin before provisions on doubtful loans stood at 2.03% in 2007, down from 2.13% in 2006.

The ratio of interest charges to interest income increased to 69.4% up from 67.8% in 2006 due to a larger increase in interest charges as compared to interest income.

Net Interest Income (Before Provisions) (In USD Millions)

350 303 300 271

250

200 181 153 157 150 148

100

5

0 2002 2003 2004 2005 2006 2007

Net Interest Margin (in percent)

2.50% 2.34% 2.13% 2.13% 2.03% 1.75% 2.00% 1.77%

1.50%

1.00%

0.50%

0.00% 2002 2003 2004 2005 2006 2007

52 Management discussion & analysis 2007

Net Interest Margin (in percent)

72.0% 71.25% 70.91% 71.0% 70.66% 70.40% 70.0% 69.40% 69.0% 67.81% 68.0%

67.0%

66.0% 2002 2003 2004 2005 2006 2007

7.1.4 Net Provisions for Doubtful Loans

The net provisions for doubtful loans increased from USD 0.536 million in 2006 to a positive balance of USD 7.585 million in 2007.

53 7. PROFITABILITY

7.2 Non-Interest Income

Non-interest income increased by 21.6% year-on-year, amounting at USD 92.35 million in 2007 compared to USD 75.960 million in 2006.

Breakdown of Non-Interest Income (In USD Millions) 2007 2006 % Change

Amount % of Total Amount % of Total x

Net commission 63.998 69.30 54.861 72.23 16.65 Net income from 26.313 28.49 17.775 23.40 48.03 financial operations Other income 2.040 2.21 3.322 4.37 (38.59) Total 92.351 100.00 75.958 100.00 21.6

Net commissions maintained the largest share of the total non-interest income, accounting for 69.30%, decreasing slightly from 72.23% in 2006. Net income from financial operations represented 28.49% of total non-interest income in 2007, registering a rise of 48% compared to 2006 due to the active private banking and asset management operations. Other net income accounted for 2.21% of the total, decreasing 38.59% year-on-year.

Constituents of Non-Interest Income 2006 2007

4.37% 2.21%  Net Commissions 28.49% 23.40%  Net Income From Financial Operations

 Other Income

72.23% 69.30%

54 Management discussion & analysis 2007

7.3 Staff and Operating Expenses

Staff and operating expenses reached USD 139.6 million in 2007, registering a 14.85% increase year-on-year.

Staff (salaries and related benefits) increased by 14.89% in 2007 to USD 85.66 million while operating expenses went up by 14.79% to reach USD 53.94 million. Staff expenses accounted for the largest share of staff and operating expenses with 61.36% of the total while operating expenses stood at 38.64% of the total.

BLOM BANK is successfully maintaining a low cost-to-income ratio, reflecting the Bank’s cost-containment policy. In fact, cost-to-income ratio dropped further to 34.63% in 2007 compared to 35.31% in 2006 .

Distribution of Staff and Operating Expenses (In USD Millions) 2007 2006 % Change

Amount % of Total Amount % of Total x

Staff Expenses 85.66 61.36 74.56 61.34 14.89 Operating Expenses 53.94 38.64 46.99 38.66 14.79 Total 139.60 100.00 121.55 100.00 14.85

Cost to Income Ratio

55%

50% 47.34%

45% 42.56% 40.93% 39.77% 40% 38.37% 38.09% 38.58% 36.80% 35.10% 34.11% 34.63% 35%

30%

25% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

55

8. DIVIDEND DISTRIBUTION &PREFERRED SHARES REVENUES 9. CAPITAL ADEQUACY RATIOS 10. INTEREST RATE RISK 11. RISK MANAGEMENT & BASEL II PREPARATIONS

8. DIVIDEND DISTRIBUTION &PREFERRED SHARES REVENUES

During BLOM BANK’s Annual General Assembly, on April 9th, 2008, the distribution of dividends for the year 2007 was approved. Preferred shares, issue 2002, will yield USD 15, while the pre ferred shares, issue 2004, will pay USD 8.5 and their corresponding 2005 issue will give USD 9.5. As for the common stocks and Global Depositary Receipts (GDR), each will pay a dividend of LBP 5,500 per share.

9. CAPITAL ADEQUACY RATIOS

The Bank’s capital adequacy ratio reached 31.53% (before dividend distribution) at the end of 2007, a ratio which is almost four times the international ratio of 8% required by the Basel Commission. For Tier I capital alone, the capital adequacy ratio stood at 31.07% at the end of 2007. After dividend distribution, the capital adequacy ratio reached 29.05% for Tier I &Tier II and 28.60% for Tier I alone.

Capital Adequacy Ratios (After Dividend Distribution )

40.00% 36.10% 35.00%

35.33% 35.00% 33.23% 30.71% 29.88% 29.76% 29.05% 30.00% 28.22%

27.34% 28.60% 25.00% 26.06% 28.02%

20.00%

15.00% 2002 2003 2004 2005 2006 2007

Tier I Capital Tier I + Tier II Capital

58 Management discussion & analysis 2007

10. INTEREST RATE RISK

Interest rate risk arises from adverse movements in interest rates, affecting the interest earning assets and liabilities of the bank. Interest rate risk is well managed through the continuous re- pricing of assets and liabilities. Most assets and liabilities are repriced within one year. With the major parts of the Bank’s deposits re-priced within the 3 months interval, interest rate risk continues to be concentrated within this period, while the biggest part of Bank’s treasury bills and governmental bonds portfolio being re-priced after the 3 months period.

The bank’s interest rate sensitivity position based on contractual re-pricing arrangements as of December 31,2007 is as follows:

Interest-Rate Sensitivity Position at the end of 2007 (In USD Millions) Up to From From From From From Over Non-sensitive to 1 Month 1 to 3 3 to 6 6 Months 1 to 2 2 to 5 5 Years interest rate risk Months Months to 1 Year Years Years

Total Assets 5,641 878 753 656 1,774 3,778 1,460 1,689 Total Liabilities 10,647 2,634 488 184 31 48 38 2,559 and Shareholder’s Equilty Interest Rate Sensitivity (5,006) (1,756) 265 472 1,743 3,730 1,422 (870) Gap for 2007 Cumulative Interest Rate (5,006) (6,762) (6,497) (6,025) (4,282) (552) 870 0 Sensitive Gap

11. RISK MANAGEMENT & BASEL II PREPARATIONS

BLOM BANK’s responsibility for establishment of effective risk management practices and culture lies with the Board of Directors as does the setting up of the bank’s risk appetite and tolerance levels. The Board of Directors delegates through its Risk Management Committee the day-to-day responsibility for establishing and monitoring of risk management processes across the bank’s group to the Head of Risk Management, who is directly appointed by the Board of Directors and works closely with the bank’s Executive Senior Management in Beirut.

59 11. RISK MANAGEMENT & BASEL II PREPARATIONS 12. UNIVERSAL BANKING SERVICES

In addition to the Group’s Risk Management in Beirut, risk managers and/or risk officers were assigned within the Group’s foreign subsidiaries or branches to report to the department and Executive Senior Management in a manner that ensures: - Standardization of risk management functions and systems across the Group. - Regional consistency of conducted business in line with the Board’s approved risk appetite.

As regards to Basel II capital adequacy ratio calculations, the Risk Management Department started, since December 2004’s consolidated balances, to issue internal reports to Executive Management and the Board revealing multiple scenarios of capital charges’ calculations for credit and market risks under the Standardized approaches and for operational risk under the Basic Indicator approach. In addition, the bank has submit ted to the Lebanese Banking Control Commission two Quantitative Impact Studies for the Basel 2 capital adequacy calculations for June and December 2007 balances, and is maintaining a ratio well above the minimum international requirement of 8%.

In December 2006, the bank acquired, through an enterprise-wide license, the Moody’s KMV Risk Advisor, a state-of-the-art credit analysis and rating system for corporate and commer cial borrowers, in order to aid the bank in moving at a later stage to internal ratings-based meas ure ments under Basel II. The credit risk team is responsible for the implementation and administration of the Moody’s Risk Advisor system along with the generation of internal rat ings for all analyzed credit files.

In terms of market risk, the department is responsible for generating internal reports quantifying the Bank’s liquidity risk and earnings at risk due to extreme movements in interest rates, while daily monitoring the sensitivity of the bank’s trading portfolio of fixed income securities to changes in market prices and/or market parameters. All abovementioned reports as well as interest rate sensitivity and liquidity gaps are reported to Executive Senior Management and to regulatory authorities on a monthly basis. This is done in line with the bank’s Asset & Liability Management (ALM) policy which assigns authority for its formu lation, revision and administration to the Asset/Liability Management Committee (ALCO) of BLOM BANK s.a.l. The market risk team is responsible for monitoring compliance with all limits set in the ALM Policy and is also in the process of implementing the newly acquired (October 2007) Asset & Liability Management system “Focus ALM” by Sungard, which provides for ALM analysis from both static and dynamic perspectives including stress testing and extensive scenario analysis.

60 Management discussion & analysis 2007

As for operational risk, the department conducted a series of operational risk assess ments on head office departments and functions and on local and foreign branches, resulting in a set of amendments on operational procedures and system processes. In addition, a loss incident reporting system has been introduced to record losses across the bank’s operat ing activities, as the bank builds up an operational risk database in line with regulatory and Basel 2 directives. The operational risk team is responsible for continuously introducing mod ifications on the bank’s core banking application in relation to s pecific branch opera tions and control measures. At the same time, Risk Management has broken down the bank’s internal accounts according to Basel 2 designated business lines with losses apportioned accordingly and in preparation for later moving on to the more advanced approaches of operational risk measurements.

11.1 Corporate Governance

The Board of Directors of BLOM BANK sal approved a Corporate Governance Code at the end of 2007. The Code applies to BLOM BANK sal and its Lebanese subsidiaries and affil iates. It complies not only with Lebanese laws and regulations, but also with the Basel Committee directives on Corporate Governance for Banks. The Code covers shareholders rights and key ownership functions as well as their constitution. It also clarifies the Board’s structure and composition, its role, duties and func tions. Issues related to Board meetings, practices and committees are discussed as well as those related to management committees and the internal control system. The Code highlights the importance of stakehold ers relations with the Bank’s own human resources as well as with customers and suppliers, and also the prominence of banking ethics in the conduct of business. The Code is designed to enforce transparency and clarity of reporting lines in guiding the Bank’s operations, policies and strategies, and in helping deliver the highest quality of service to the Bank’s clients and value to its shareholders.

12. UNIVERSAL BANKING SERVICES

In line with its policy of maximizing customers’ satisfaction and increasing shareholders’ value, BLOM BANK has sustained the diversification of its products and services. BL0M BANK GROUP provides the following universal banking services that suit all customers needs: - Commercial corporate banking - Private and investment banking - Retail banking - Islamic banking - Insurance products & services

61 12. UNIVERSAL BANKING SERVICES

12.1 Commercial and Corporate Banking

BLOM BANK continues to apply a conservative lending policy. Throughout 2007, the bank expanded its credit portfolio to corporate and commercial customers especially in projects finance and real estate developments. In addition, the bank has financed several hotel proj ects in Beirut Central District (BCD) and other promising touristic areas. BLOM BANK has also catered for the commercial sector, in particular trade and working capital financing. Furthermore, the bank’s policy is to expand even further in regional countries to satisfy the needs of the Lebanese and Arab expatriates in those countries. With the collaboration of IFC, BLOM has extended unique soft loans to customers affect ed by the July 2006 war with the objective of helping them overcome the consequences of this war and enabling them to recover their prewar financial status.

12.2 Private and investment banking

BLOM BANK provides private banking services such investment consulting and portfolio management through both its investment-banking arm BLOMINVEST Bank Sal and its Geneva-based affiliate BLOM Bank Switzerland. Some of these services are listed below: - Investment Products: includes a variety of investment funds and structural products focusing on Lebanese and foreign instruments. The first, BLOM Cedars Balanced Fund, launched in early 2008 and is considered the first investment vehicle of its kind in Lebanon for its equity and fixed-income investments. - Project Finance : consists of extending medium and long term financing and in participating in bank loan syndications. - Treasury & Capital Market Services: includes brokering on the Beirut Stock Exchange (BSE), advising on trades in international equities, trading in debt securities and dealing in the foreign exchange markets. - Investment Banking: participates in the underwriting and distribution of Lebanese and other debt instruments and provides advices on mergers and acquisitions and privatisa - tion. - Asset & Portfolio Management: covers management of portfolios of shares, bonds and term placements in all currencies. - Research Department : produces weekly and quarterly reports on the Lebanese econ omy, and analyzes leading Lebanese economic sectors. In addition, it provides country reports on regional economies, especially those where BLOM Bank has a presence. It publishes as well the BLOM Stock Index (BSI), Lebanon’s first financial market index that covers all stocks quoted on the BSE, and conducts equity research on major Lebanese and region al companies.

62 Management discussion & analysis 2007

12.3 Retail Banking

As of December 31, 2007, BLOM BANK offered more than 110 retail products, classified in different families:

- Payment cards: BLOM BANK offers a wide range of payment cards that target different customers, provide different methods of payments and meet different purposes. As such, BLOM Visa comes in Classic, Gold and Corporate; also the Bank offers Internet cards dedicated for Internet users, Platinum and Platinum Black cards as well as Mini cards. In addi tion, the Bank has been the pioneer in launching the first Titanium MasterCard in Lebanon. In 2007, BLOM introduced the Alfa BLOM Mastercard, a first of its kind in Lebanon and the Middle East, offering to its holders free minutes on the Alfa Active and Alfa Classic lines. Also in 2007, a new card “Watan” was launched for the Lebanese army, internal security and national security forces.

- Rewards programs: BLOM Golden Points Loyalty program enables customers to win a variety of gifts -such as airline tickets, free stays at the finest hotels, electronics and much more- by accumulating Golden points with every $100 purchases using the card. In addition to this, BLOM Gifts Loyalty program allows cardholder to win valuable gifts for purchases at certain merchants over a period of 6 months.

- Consumer loans: BLOM BANK customers can take advantage of a number of consumer loans on offer such as KARDI for personal loans, SAYARATI for car loans, DARATI or Housing CPH for house loans and PC loans.

- Saving plans: BLOM BANK offers DAMANATI, a retirement saving plan denominated in US Dollar coupled with life insurance. Moreover, WALADI a savings program dedicated to child’s education, coupled with life insurance is also offered to the Bank’s customers.

- E-banking: BLOM BANK offers to its customers phone banking services such as “Allô BLOM” ( a 24-hour customer service) as well as internet banking services such as e- BLOM. In addition, the Bank provides free of charge SMS ALERT services, enabling customers to be alerted whenever the balance of accounts changes or whenever a transaction is being performed.

63 12. UNIVERSAL BANKING SERVICES 13. INFORMATION SYSTEM & TECHNOLOGY

12.4 Islamic banking

Blom Development Bank (BDB), a full fledged Islamic bank , was established in February 2006 and started operation in march 2007. BDB carries out all its banking and investment transactions in compliance with provision of the Islamic Shari’a and pursuant to the instructions and regulations issued by Banque Du Liban and the direction of its Shari’a Board consisting of the three prominent shari’a scholars. BDB business covers all spectrum of banking services including , acceptance of deposits provision of various Islamic financing solutions in the form of Murabaha, Ijara , Tawaruk , Forward lease , Wakala and istisna’a. Since its inception, BDB established relationships with major Islamic Banks and Investment Companies operating in the region and played a major role in developing products which suits the requirements of its clientele; On the Retail side “Al Yassir” Restricted Investment Account was introduced aiming at providing depositors with monthly profit distri bution resulting from Sharia compliant short-term investments concluded with rated Islamic institutions. Furthermore, “Mowasalati”, car Murabaha finance as well as “Manzili” home Murabaha finance, were initiated aiming at providing Islamic wary customers with Islamic solutions to finance their acquisitions of cars and homes based on Murabaha structure which could be later adjusted to suit an Ijara structure as per customers’ requirements. On the international financing front, BDB participated with other regional Islamic Banks in raising funds in favor of major corporations operating in the Gulf and played a major role in the issuance of two Islamic Sukuk transactions, namely: the Wakala Sukuk to” Berber Cement co “ and the Ijara Sukuk to “Dar Al Arkan”

On the collective investment front , BDB is currently exploring lot of investment opportunities in several asset classes and is in the process of developing products carrying acceptable returns compared to the risks involved and shall, during the course of next year’s launch such products to savvy investors.

12.5 Insurance Products & Services

Life and non-life insurance products and services are offered through our subsidary Arope Insurance in Lebanon. Our second insurance subsidary, Arope Syria, provides as well insurance services in Syria.

13. INFORMATION SYSTEMS & TECHNOLOGY

In today’s technology-driven world, it is a well-known fact that “if you are standing still, you are falling behind”. That is the reason why we are constantly seeking to grow and evolve our

64 Management discussion & analysis 2007

business by proactively using powerful information technologies.

Thus, we have been putting Information Technology, Finance and Relationship Management in partnership using leading-edge technology deployments in order to enhance customers’ experiences, enrich products and services portfolio, achieve Enterprise Application Integration (EAI), streamline business processes by transforming them into STP (Straight Through Processing) mode, address national and international compliance and regulatory requirements (such as Basel II and others…) and improve systems availability and reliability.

13.1 Customer Relationship Management

During this year, we kept on developing our eBlom suite, which encompasses advanced electronic customer relationship management (eCRM) services. Through the eBlom initia - tive, we have been interacting with our customers however, wherever and whenever they desire.

Our eBlom suite of integrated electronic banking delivery channels consists of:

- eBlom – ALLO BLOM – the Bank’s Interactive Voice Response System

- eBlom – Internet Banking – our online banking service that offers a wide array of serv - ices in a high level of trust and security enabled by a public key infrastructure (PKI) and digital certificates as a second factor for authentication.

- eBlom – SMS Alerts – a real-time alerting system based on delivering messages to our customers’ mobile phones to inform them, instantly, about events in relation with their accounts or cards.

- eBlom – Contact Center – our contact center is available 24 hours a day all year long and is benefiting from continuous enhancements based on CTI and IP telephony to achieve seamless integration with the Bank’s CRM application.

- eBlom – Self Service – using the bank Network of ATMs deployed all over Lebanon and where additional services are being constantly planned and added.

- eBlom –Live Information Broadcasting System – a system that enables the bank to broadcast in real-time over large LCD screens deployed at the branches live and updates information covering stock quotes, foreign exchange quotes, news feeds ect...

65 13. INFORMATION SYSTEM & TECHNOLOGY 14. PEOPLE DEVELOPMENT

13.2 Targeted Marketing Systems

In addition, we identified the need to provide customer-facing employees with a powerful tool that would allow them to present new products and services to customers during their presence at the branch. Consequently, we introduced “T.I.P.S.” which stands for Targeted Information Processing System and which includes a teller lead referral system cou pled with a back-office marketing management system. The aim of this tool is to increase our marketing campaigns efficiency by improving the hit rate of marketing campaigns by offering customers new products and services that are tailored to their needs. In addition, this system has the ability to send instant SMS messages containing information pertaining to our marketing campaigns while the customer is visiting his/her branch.

13.3 Enterprise Application Integration (EAI)

Moreover, as a financial institution that has been around for over 55 years, we have in place well defined business processes and rules that allow us to deliver banking products and serv ices to our customers and to manage our internal operations. However, we identified the need to re-organize these business processes in order to achieve a higher degree of automa tion. To this end, we decided to adopt the Service Oriented Architecture (SOA) framework to achieve the highest degree of integration between our different applications through the use of web-services and of a powerful and flexible workflow engine thus achieving straight- through processing (STP) throughout our different systems.

This EAI framework was applied to many processes, in particular, our consumer loan process ing system consisting of a loan origination system, a loan assessment system, and a loan granti ng system. This high degree of automation has allowed us to drastically reduce the time to process a car loan from origination to final approval and to increase the volume of our car loan activity, and consequently sustain our uncontestable leadership position in the car loan market. The success of the EAI framework implementation has led us to plan the movement of many of the bank’s business processes into this system during the coming year.

13.4 Advanced Electronic Payment Systems

On the other hand, and based on our recently deployed EFT SWITCH we have completely in- sourced our ATM driving, management and monitoring activities. In addition, we became an active player in the POS market thus gaining more and more on POS market share.

On the cards issuing side, we continued to develop our Information Systems infrastructure in order to keep adding more features to our existing cards products and loyalty programs, in addition to introducing new types of payment cards including Visa prepaid cards with online refill capability, Visa EURO Cards, Credit cards with grace period, BLOM MasterCard cards,

66 Management discussion & analysis 2007

Co-branded cards; and we also started issuing EMV cards. In addition, we introduced an online card fraud monitoring system capable of sending real-time alerts to the bank call cen ter agents, thus enabling for immediate action and insight as well as reporting and tracking should a fraud pattern be detected. This card fraud monitoring system drastically reduced fraud losses and incidences.

13.5 Basel II Compliance

Regarding the Basel II rules and regulations, we have taken several measures in order to be compliant with these regulations and, in particular, we have completed the implementation of a system from MOODYS for corporate and commercial credit risk rating, and we start ed the implementation of an Assets and Liabilities management and Funds Transfer Pricing system in partnership with SUNGARD.

13.6 Systems High Availability

Finally, it is worth noting that we have constantly in mind our information security and availability, where we are looking very closely at ensuring the highest possible availabil ity for our systems, raising employees’ awareness through the development of Information Security Policies and Procedures and addressing security threats and systems failure incidents pro-actively through implementing advanced preventive and detective controls and online monitoring systems and procedures

14. PEOPLE DEVELOPMENT

The Bank has proceeded with its policy of growth through development and training of employees by organizing intensive in-house and external training sessions as well as the recruitment of a young and skilled workforce. In 2007, the number of the Bank’s employees reached 2,759 compared to 2,216 in 2006.

In 2007, BLOM BANK expanded further its range of services, launching the asset manage ment department, responsible for promoting structured products, besides developing other business lines such as investment banking and brokerage.

67 13. INFORMATION SYSTEM & TECHNOLOGY 14. PEOPLE DEVELOPMENT 15. BANK’S OPERATIONAL EFFICIENCY 16. REGIONAL EXPANSION

Regarding training activities and development of human resources, BLOM BANK organized and sponsored the participation of its employees in various seminars and workshops. The Bank has also in place special training programs such as: - Manager Training Program (MTP): a five-year program where the Manager Training Officer (MTO) gets exposed to the different departments and entities within the Bank before being assigned to a managerial position - Fast Track Program (FTP): a five-year program which promotes a fast career path for the employees.

In 2007, the Bank conducted 6,444 employees training sessions for a total of 45,785 hours. Training sessions involved employees from all BLOM and BLOMINVEST departments and covered various topics related to banking techniques, management, marketing, information technology as well as language courses.

15. BANK’S OPERATIONAL EFFICIENCY

In 2007, the net profit by branch decreased by 7.55% to USD 1,898,148 while the net profit per employee also dropped by 8.87% to USD 74,302 compared to USD 81,538 a year earlier.

Bank’s Operational Efficiency Indicators 2007 2006

Number of Employees 2,759 2,216 Number of Branches 108 88 USD Net Profit per Employee 74,302 81,538 USD Average Assets per Employee 5,154,766 6,416,773 USD Average Assets per Branch 131,685,185 161,586,009 USD Net Profit per Branch 1,898,148 2,053,273

16. REGIONAL EXPANSION

BLOM BANK pursued its aggressive expansion policy, inaugurating new branches within the Lebanese territory and expanding further regionally.

On the local front, in 2007, BLOM BANK opened four additional branches in the areas of Tabaris (Beirut), Jbeil, Mina El Hosn as well as a retail branch in Hamra Street. The Bank is looking forward to expanding further its local network and is planning to inaugurate new branches within the year On the regional front, two new branches have been inaugurated in Jordan during the year 2007 while two others should be opened in the incoming year, rising the total number of BLOM BANK branches in Jordan to six.

68 Management discussion & analysis 2007

BSO (Bank of Syria and Overseas) is also expanding in Syria and opened, in 2007, a new branch in Aleppo. BSO is focusing on developing its branches network within Syria in 2008 and the Bank has set the robust objective to increase the number of its branches from 10 to 20 by the end of the year 2008.

BLOM BANK EGYPT is also expanding its network in Egypt and the number of branches in oper ation has increased from 9 branches in 2006 to 20 branches in 2007. On another note, the five branches located in Romania and previously affiliated to BLOM BANK EGYPT, have been consolidated with BLOM BANK FRANCE in December 2007. In 2008, the Bank is looking forward to bringing the number of its branches in Egypt to 30, in line with BLOM BANK group’s robust expansion strategy.

On another note, BLOM BANK was awarded license to establish a representative office in Abu Dhabi by the end of 2007 while BLOMINVEST BANK received the approval to launch in January 2008 an investment bank in Saudi Arabia named BLOMINVEST Saudi Arabia. In April 2008, the Bank expanded further and was granted a license to establish a commercial and private bank in Qatar, financial center, BLOM BANK QATAR. In addition BLOM BANK FRANCE has applied for a bank license in Algeria.

All in all, in the incoming years, BLOM BANK is looking forward to penetrating new Arab markets enhancing its market accessibility and developing further its international network.

69

CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF THE BLOM BANK SAL CONSOLIDATED INCOME STATEMENT Year ended 31 December 2007

74 CONSOLIDATED INCOME STATEMENT Year ended 31 December 2007 NOTES 2007 Restated 2006 LL million LL million Interest and similar income 1,490,749 1,264,824 Lebanese and other governmental treasury bills and bonds – available for sale 341,600 319,473 Lebanese and other governmental treasury bills and bonds – trading 5,738 3,271 Deposits and similar accounts with banks and financial institutions 488,825 375,578 Bonds and other financial assets with fixed income – non trading 347,724 323,649 Bonds and other financial assets with fixed income – trading 303 1,049 Bonds and other financial assets with fixed income – fair value through profit or loss 245 - Loans and advances to customers 305,553 241,703 Loans and advances to related parties 761 101

Interest and similar charges (1,034,637) (857,569) Deposits and similar accounts from banks and financial institutions (19,112) (13,342) Deposits from customers and other credit balances (1,010,636) (838,657) Deposits from related parties (4,889) (5,570)

Net interest received 456,112 407,255

Net provisions less recoveries on loans and advances 4 11,435 (808) Provisions for loans and advances (20,026) (19,660) Recovery of provisions for loans and advances 31,461 18,852

Revenues from shares and financial assets with variable income 969 1,123

Net commissions 5 89,380 76,989 Commissions received 96,007 81,804 Commissions paid (6,627) (4,815)

Profit from financial operations 49,376 45,505 Profit from trading investments 6 3,843 10,381 Profit from non-trading investments 7 18,469 10,037 Profit from foreign exchange operations 27,064 25,087

Loss on financial operations (9,708) (18,706) Loss on trading investments 6 (1,820) (3,796) Loss on non-trading investments 7 - (514) Loss on foreign exchange operations (7,888) (14,396)

Net profit from financial operations 39,668 26,799

Other operating income 8 24,618 22,394

Other operating expenses 9 (14,446) (11,675)

General and administrative expenses (210,450) (183,238) Salaries and related benefits 10 (129,133) (112,399) General operating expenses 11 (81,317) (70,839)

Depreciation and amortization of tangible and intangible assets 12 (18,350) (16,143)

Net provisions less recoveries on financial fixed assets - 395

Provision for contingent liabilities 13 (13,350) (1,458)

Profit before tax 365,586 321,633

Income tax (57,000) (49,829)

Profit for the year 308,586 271,804

Basic/ diluted earnings per share attributable to equity holders of the parent for the year (in LL) 14 12,395 10,969 Attributable to: Equity holders of the parent 303,472 269,604 Minority interest 5,114 2,200 The accompanying notes 1 to 56 form part of these consolidated financial statements. 308,586 271,804 75 CONSOLIDATED BALANCE SHEET At 31 December 2007

CONSOLIDATED BALANCE SHEET At 31 December 2007 NOTES 2007 Restated 2006 LL million LL million

ASSETS Cash and balances with the Central Banks 15 6,330,031 6,246,406 Lebanese and other governmental treasury bills and bonds 16 5,080,323 3,474,920 Bonds and financial assets with fixed income 17 1,165,140 386,100 Shares, securities and financial assets with variable income 18 11,725 8,403 Banks and financial institutions 19 7,536,533 7,754,284 -Current accounts 327,558 300,789 -Time deposits 7,208,975 7,453,495 Loans and advances to customers (*) (**) 20 4,179,307 2,996,698 -Commercial loans 3,228,892 2,388,501 -Other loans to customers 848,043 521,241 -Overdraft accounts 11,932 8,190 -Net debtor accounts against creditor and cash collateral accounts 14,308 10,826 -Advances to related parties 5,940 7,400 -Doubtful debts (net) 70,192 60,540 Bank acceptances 21 245,357 173,260 Investments and loans to related parties 22 27,208 3,220 Tangible fixed assets 23 272,642 219,372 Intangible fixed assets 24 4,459 2,845 Other assets 25 34,216 33,715 Regularization accounts and other debit accounts 26 119,487 61,408 Goodwill 27 60,586 63,980

TOTAL ASSETS 25,067,014 21,424,611

* Of which substandard loans 20 36,285 34,456 ** After deduction of: Provision for doubtful debts and provision for commercial and consumer loans not classified at the balance sheet date 20 259,209 264,156 Unrealized interest on: 20 82,968 87,593 -Substandard loans 14,238 13,899 -Doubtful debts 68,730 73,694 OFF-BALANCE SHEET ITEMS Financial assets sold with an option to repurchase 143,647 - Engagements received 42 7,088,518 5,467,773 Bad loans fully provided for 20 28,312 43,905 Foreign currencies to deliver against foreign currencies to receive 43 2,939,186 2,144,617 10,199,663 7,656,295

The consolidated financial statements were authorized for issue in accordance with a resolution of the board of directors on 18 March 2008.

76 CONSOLIDATED BALANCE SHEET At 31 December 2007 NOTES 2007 Restated 2006 LL million LL million

LIABILITIES AND EQUITY LIABILITIES Banks and financial institutions 28 1,555,914 1,308,844 -Current accounts 186,913 159,362 -Time deposits 1,369,001 1,149,482 Customers' deposits 29 20,708,516 17,690,381 -Sight deposits 2,341,594 1,897,765 -Time deposits 9,589,749 7,874,196 -Saving accounts 7,862,422 7,180,465 -Credit accounts and cash margins against debit accounts 812,788 662,696 -Related parties’ accounts 101,963 75,259 Engagements by acceptances 21 245,357 173,260 Other liabilities 30 194,460 141,067 Regularization accounts and other credit accounts 31 189,792 129,869 Provisions for risks and charges 32 80,566 64,646

TOTAL LIABILITIES 22,974,605 19,508,067 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENT Share capital 33 240,000 240,000 Revaluation reserves 23 14,727 14,727 Reserve for general banking risks 34 69,503 59,324 Reserves and premiums 35 1,221,804 1,162,790 Cumulative changes in fair values 36 14,497 21,430 Treasury shares 37 (36,122) (52,108) Retained earnings 176,454 121,606 Profit for the year 303,472 269,604 2,004,335 1,837,373 MINORITY INTEREST 88,074 79,171

TOTAL EQUITY 2,092,409 1,916,544

TOTAL LIABILITIES AND EQUITY 25,067,014 21,424,611 OFF-BALANCE SHEET ITEMS Financing commitments given to: 44 359,374 307,186 -Financial intermediaries 21,043 13,051 -Customers 338,331 294,135 Bank guarantees given to: 44 786,996 689,528 -Financial intermediaries 196,378 96,098 -Customers 590,618 593,430 Commitments on term financial instruments 43 34,142 17,659 Financial assets bought with an option to resell 143,647 - Fiduciary deposits, assets under management and custody accounts 46 3,959,136 2,774,360 Foreign currencies to receive against foreign currencies to deliver 43 2,942,549 2,146,755 8,225,844 5,935,488

The consolidated financial statements were authorized for issue in accordance with a resolution of the board of directors on 18 March 2008.

The accompanying notes 1 to 56 form part of these consolidated financial statements.

77 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007

CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 NOTES 2007 Restated 2006 LL million LL million

OPERATING ACTIVITIES Profit before tax 365,586 321,633 Adjustments for: Depreciation and amortization of tangible and intangible fixed assets 12 18,350 13,725 Provision for impairment of assets taken in recovery of debts 23 - 2,418 Write-back of provision for impairment of assets taken in recovery of debts 23 (1,044) (3,121) Provision for end of service indemnity, net 32 2,491 5,498 Provision for complementary taxes and contingent liabilities related to a subsidiary bank, net 32 13,142 1,370 (Write-back of provision) provision for risk and charges, net 32 (240) 434 Provision for outstanding claims and IBNR reserves, net 32 2,507 169 (Write-back of various provisions) provisions for risks and charges, net (607) 1,322 (Write-back of provision) provision for doubtful loans and advances, net 4 (11,435) 808 Provision for impairment of investment in a non consolidated subsidiary 44 5 Unrealized loss on shares, securities and financial assets with variable income held for trading 6 129 3,010 Profit from sale of shares, securities and financial assets with variable income not held for trading 7 (3,034) (472) Unrealized profit on investments related to unit-linked contracts 25 (2,910) (902) Profit from sale of certificates of deposit – Central Banks 7 (14,558) (9,265) Profit from sale of Lebanese and other governmental treasury bills and bonds not held for trading (201) (484) Unrealized profit from Lebanese and other governmental treasury bills and bonds held for trading 6 (2,152) (9,595) (Profit) loss on disposal of tangible and intangible fixed assets (37) 80 Provision for doubtful sundry debtors 26 189 - Other equity transactions 300 - Foreign currency translation reserve realized upon sale of branches in Romania 2 (7,169) - 359,351 326,633

Changes in operating assets and liabilities: Lebanese and other governmental treasury bills and bonds held for trading (24,249) (23,401) Shares, securities and financial assets with variable income held for trading (1,693) 7,138 Bonds and other financial assets with fixed income held for trading (66,714) - Loans and advances to customers (1,171,174) (479,524) Banks and financial institutions-debit (409,095) 339,099 Other assets 2,409 (9,027) Regularization accounts and other debit accounts (58,281) (8,881) Banks and financial institutions-credit 91,021 (4,224) Customers' deposits 3,018,135 2,372,892 Other liabilities 48,930 (12,097) Regularization accounts and other credit accounts 59,923 34,998

Cash from operations 1,848,563 1,865,408 Taxes paid 30 (53,953) (45,515) End of service indemnities paid 32 (2,694) (703) Provision for risks and charges paid 32 (54) (464)

Net cash from operating activities 1,791,862 1,818,726

78 NOTES 2007 Restated 2006 LL million LL million

INVESTING ACTIVITIES Lebanese and other governmental treasury bills and bonds not held for trading (1) (457,574) (815,611) Balances with the Central Banks (term accounts and certificates of deposit) (1) (484,133) 423,178 Investments and loans to related parties (24,032) (144) Purchase of tangible and intangible fixed assets (84,136) (49,576) Shares, securities and financial assets with variable income not held for trading 1,694 3,478 Bonds and other financial assets with fixed income not held for trading (714,664) 37,981 Cash proceeds from the disposal of tangible and intangible fixed assets 15,367 16,293 Purchase of an additional equity interest in a subsidiary 3 - (4,031)

Net cash used in investing activities (1,747,478) (388,432)

FINANCING ACTIVITIES Issuance of common shares 33 - 30,000 Sale (purchase) of treasury shares, net 12,818 (52,044) Premium from issuance of common shares - 374,059 Dividends paid 37&38 (147,245) (117,002) Minority interest, net (773) 15,267 Share in a subsidiary’s equity before consolidation - 219

Net cash (used in) from financing activities (135,200) 250,499

Effect of exchange rate changes 19,432 22,570

(Decrease) increase in cash and cash equivalents (71,384) 1,703,363

Cash and cash equivalents as of 1 January 8,924,912 7,221,549

Cash and cash equivalents as of 31 December 39 8,853,528 8,924,912

(1) Non cash transactions in the investing activities include a decrease in certificates of deposit-Central Banks in the amount of LL 1,109,280 million (2006: increase in the amount of LL 800,784 million) against an increase in Lebanese and other governmental treasury bills and bonds not held for trading for the same amount (2006: decrease in the amount of LL 800,784 million) during 2007.

The accompanying notes 1 to 56 form part of these consolidated financial statements.

79 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007

Attributable to equity holders of the parent

Share Revaluation Reserve for general Reserves capital reserves banking risks and premiums LL million LL million LL million (Note 35) LL million

At 31 December 2005 (as previously reported) 210,000 14,727 50,719 725,783

Correction of an error (note 40) - - - - At 31 December 2005 (as restated) 210,000 14,727 50,719 725,783 Net movement in cumulative changes in fair values (note 36) - - - - Currency translation difference - - 255 19,641 Profit for the year- 2006 (restated) - - - - Total income and expenses for the year - - 255 19,641 Dividends’ distributions (note 38) - - - - Appropriation of 2005 profits - - 8,350 42,636 Issuance of common shares net of issuance costs (note 33) 30,000 - - 374,059 Purchase of treasury shares, net - - - - Gain on sale of treasury shares - - - 64 Decrease in minority interest due to acquisition by the bank - - - - Other - - - 607 Minority interest in share capital increase of subsidiaries - - - - Dividends on treasury shares - - - -

At 31 December 2006 240,000 14,727 59,324 1,162,790 Net movement in cumulative changes in fair values (note 36) - - - - Currency translation difference - - 305 10,962 Profit for the year- 2007 - - - - Total income and expenses for the year - - 305 10,962 Dividends’ distributions (note 38) - - - - Appropriation of 2006 profits - - 9,874 58,020 Sale of treasury shares, net - - - - Net loss on sale of treasury shares - - - (3,168) Increase in minority due to decrease in majority share - - - - Minority interest in dividends distribution in a subsidiary - - - - Dividends on treasury shares - - - - Foreign currency translation reserve realized upon sale of branches in Romania (note 2) - - - (7,169) Other - - - 369

At 31 December 2007 240,000 14,727 69,503 1,221,804

80 Minority Total interest equity

Cumulative Treasury Retained earnings Profit for the year Total LL million LL million changes shares LL million LL million LL million in fair value LL million LL million

81,067 - 99,238 202,188 1,383,722 60,163 1,443,885

- - (11,844) - (11,844) - (11,844) 81,067 - 87,394 202,188 1,371,878 60,163 1,432,041

(59,637) - - - (59,637) (19) (59,656) - - 398 - 20,294 3,885 24,179 - - - 269,604 269,604 2,200 271,804 (59,637) - 398 269,604 230,261 6,066 236,327 - - - (118,223) (118,223) - (118,223) - - 32,979 (83,965) ------404,059 - 404,059 - (52,108) - - (52,108) - (52,108) - - - - 64 - 64 - - - - - (2,334) (2,334) - - (386) - 221 (2) 219 - - - - - 15,278 15,278 - - 1,221 - 1,221 - 1,221 21,430 (52,108) 121,606 269,604 1,837,373 79,171 1,916,544

(7,006) - - - (7,006) (264) (7,270) 73 - 452 - 11,792 4,826 16,618 - - - 303,472 303,472 5,114 308,586 (6,933) - 452 303,472 308,258 9,676 317,934 - - - (148,391) (148,391) - (148,391) - - 53,319 (121,213) - - - - 15,986 - - 15,986 - 15,986 - - - - (3,168) - (3,168) - - - - - 2,141 2,141 - - - - - (2,871) (2,871) - - 1,146 - 1,146 - 1,146 - - - - (7,169) (45) (7,214) - - (69) - 300 2 302 14,497 (36,122) 176,454 303,472 2,004,335 88,074 2,092,409

The accompanying notes 1 to 56 form part of these consolidated financial statements.

81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACTIVITIES 2. SIGNIFICANT ACCOUNTING POLICIES

1. ACTIVITIES

BLOM Bank SAL (the "Bank"), a Lebanese joint stock company, was incorporated in 1951 and registered under No 2464 at the commercial registry of Beirut and under No 14 on the banks’ list published by the Bank of Lebanon. The headquarters of the Bank are located in Verdun, Rashid Karameh Street, Beirut, Lebanon.

The Bank, together with its subsidiaries, BLOM INVEST Bank SAL, Arope Insurance SAL, Syria International Insurance (Arope Syria) SA, BLOM Bank France SA, BLOM Bank (Switzerland) SA, Bank of Syria and Overseas SA, BLOM Bank Egypt SAE, BLOM Egypt Securities SAE, BLOM Development Bank SAL and BLOM Invest- Saudi Arabia (under establishment) (the Group), provide all banking activities (commercial, investing and private), as well as insurance and brokerage activities.

On 1 January 2006, the Bank’s branch in Cyprus started to be treated as a local branch and not as an international banking unit.

On 14 February 2008, the Central Bank of the United Arab Emirates licensed BLOM Bank SAL to open a representative office and operate in the United Arab Emirates. This license is valid for five years.

On 12 July 2007, the Bank’s board of directors approved on the establishment of a bank in the state of Qatar to be located in Qatar Financial Center with share capital of US$ 10 million, whereby the Bank will subscribe in 99% of its capital. On 18 February 2008, the Bank obtained the approval of the Central Bank of Lebanon on the establishment provided that the Bank pro vides the Central Bank of Lebanon and the Banking Control Commission with the approval of the regulatory authorities in Qatar.

2. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and general accounting plan for banks in Lebanon and the regulations of the Bank of Lebanon and the Banking Control Commission.

84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The consolidated financial statements are prepared under the historical cost convention as modified for the restatement of certain tangible real estate properties in Lebanon according to the provisions of law No 282 dated 30 December 1993, and for the measurement at fair value of derivatives, Lebanese and other governmental treasury bills and bonds, bonds and financial assets with fixed income, and shares, securities and financial assets with variable income held for trading and available for sale, and investments related to unit-linked contracts (fair value through profit or loss).

The consolidated financial statements have been presented in million of Lebanese Lira (LL million), which is the functional currency of the Bank. Balances denominated in other currencies have been presented in thousands.

Changes in accounting policies

The Group has adopted IFRS 7 Financial Instruments: Disclosures and amendments to IAS 1 Presentation of Financial Statements effective for the year ended 31 December 2007 which has resulted in amended and additional disclosures relating to financial instruments and associated risks, capital and capital management.

Other accounting policies are consistent with those used in the previous year.

Future changes in accounting policies

Below is the list of standards issued but not yet effective for the year ended 31 December 2007:

IAS 1 (Revised): Presentation of Financial Statements IAS 23: Borrowing costs IFRS 8: Operating Segments IFRIC 9: Reassessment of Embedded Derivatives IFRIC 11: IFRS 2 – Group and Treasury Share Transactions IFRIC 12: Service Concession Arrangements IFRIC 13: Customer Loyalty Programmes IFRIC 14: IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Management do not expect the above standards to have a significant impact on the Group’s financial statements when implemented in future years.

85 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements comprise the financial statements of BLOM Bank SAL and its controlled subsidiaries drawn up to 31 December each year. The financial statements of subsidiaries are prepared for the same reporting year as the Bank, using consistent accounting policies.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Bank has the power to govern the financial and operating poli cies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate.

Minority interests represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the fair value of the share of the net assets acquired is recognized as goodwill. If the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. a discount on acquisition), the difference is recognized directly in the income statement in the year of acquisition.

The consolidated financial statements include the financial statements of BLOM Bank SAL and the subsidiaries listed in the following table: % EQUITY INTEREST Country Activities 2007 % 2006 % of incorporation BLOM Bank France SA (c) France Banking activities 99.998 99.998 BLOM Bank (Switzerland) SA (100% owned by BLOM Bank France SA) Switzerland Banking activities 99.998 99.998 BLOM Invset Bank SAL Lebanon Banking activities 99.875 99.875 BLOM Development Bank SAL Islamic banking (99.98% owned by BLOM Invest Bank SAL) Lebanon activities 99.980 99.980 Bank of Syria and Overseas SA (a) Syria Banking activities 39.000 39.000 Arope Insurance SAL Lebanon Insurance activities 88.560 88.560 Syria International Insurance (Arope Syria) SA (b) Syria Insurance activities 42.06 42.06 BLOM Bank Egypt SAE (c) Egypt Banking activities 99.371 99.371 BLOM Egypt Securities SAE (99.8% owned by BLOM Bank Egypt SAE) Egypt Brokerage activities 99.371 99.371

86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

(a) Effective 1 January 2004, the Group obtained control, by virtue of agreement with other investors, over Bank of Syria and Overseas SA, and consequently, the financial statements of Bank of Syria and Overseas SA have been consolidated with those of the Group. (b) Effective 1 January 2006, the Group obtained control, by virtue of agreement with other investors, over Syria International Insurance (Arope Syria) SA, and consequently, the financial statements have been consolidated with those of the Group. (c) In November 2007, Blom Bank Egypt SAE sold its branches in Romania to Blom Bank France SA. Consequently, the Group realized foreign currency translation reserve in the amount of LL 7,169 mil lion upon the sale of the branches in Romania.

Business combinations and goodwill

Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities but excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognized directly in the income statement in the year of acquisition.

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is meas - ured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annu - ally or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-gener - ating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated: - represents the lowest level within the Group at which the goodwill is monitored for internal man agement purposes; and - is not larger than a segment based on either the Group’s primary or secondary reporting format determined in accordance with IAS 14 Segment Reporting.

87 2. SIGNIFICANT ACCOUNTING POLICIES

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the opera - tion disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-gener - ating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and unamortized goodwill is recognized in the income statement.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized.

Trading investments

Trading investments include: - Lebanese and other governmental treasury bills and bonds, - Bonds and financial assets with fixed income, - Shares, securities and financial assets with variable income. These are initially recognized at cost (being the fair value given) and subsequently remeasured at fair value. All related realized or unrealized gains or losses are included in the consolidated income statement. Interest earned is included in interest and similar income while dividends received are included in revenues from shares and financial assets with variable income.

Non-trading investments These are classified as follows: - Available for sale, - Investments carried at fair value through profit or loss, - Investments carried at amortized cost (loans and receivable).

Non-trading investments include: - Certificates of deposit, - Lebanese and other governmental treasury bills and bonds, - Bonds and financial assets with fixed income, - Shares, securities and financial assets with variable income, - Investments and loans to related parties, - Investments related to unit-linked contracts. 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

All investments are initially recognized at cost, being the fair value of the consideration given including acquisition costs.

Premiums and discounts on non-trading investments are amortized using the effective interest rate method and are taken to interest income.

Available for sale

Available-for-sale financial investments are those investments which are designated as such or do not qualify to be classified as designated at fair value through profit or loss, held-to-maturity or loans and receivables.

After initial recognition, investments which are classified “available for sale” are normally remeasured at fair value. If the Group is not able to estimate the fair value, available for sale invest ments are then carried at cost, less provision for impairment in value. Fair value changes which are not part of an effective hedging relationship, are reported as a separate component of equity until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported as “cumulative changes in fair value” within equity, is included in the consolidated income statement for the period.

That portion of any fair value changes relating to an effective hedging relationship is recognized directly in the consolidated income statement.

Investments carried at fair value through profit or loss

Investments are classified as fair value through profit or loss account if the fair value of the invest - ment can be reliably measured and the classification as fair value through profit or loss account is as per the documented strategy of the Group. Investments classified as “Investments at fair value through profit or loss” upon initial recognition are remeasured at fair value with all changes in fair value being recorded in the consolidated income statement.

Investments carried at amortised cost

Debt instruments which do not meet the definition of held to maturity and which have fixed or determinable payments but are not quoted in an active market are carried at amortised cost, less provi sion for impairment in value.

89 2. SIGNIFICANT ACCOUNTING POLICIES

Derecognition of financial assets and financial liabilities

i. Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: - the rights to receive cash flows from the asset have expired; or - the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and - either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

ii. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Fair values

For investments and derivatives quoted in an active market, fair value is determined by reference to quoted market prices. Bid prices are used for assets and offer prices are used for liabilities.

For unquoted financial instruments, fair value is determined by reference to the market value of sim ilar investments, or is based on the expected discounted cash flows, or by using other techniques.

The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount payable on demand.

90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Due from banks and financial institutions

These are stated at fair value of consideration given less any amounts written off and allowance for impairment.

Loans and advances to customers

Loans and advances are stated at fair value of consideration given, net of suspended interest, provisions for doubtful debts, any amounts written off, and allowance for impairment.

Renegotiated loans

Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.

Investments in associates

The Group’s investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Losses in excess of the cost of the investment in an associate are recognized when the Group has incurred obligations on its behalf. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The income statement reflects the Group’s share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealized profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

91 2. SIGNIFICANT ACCOUNTING POLICIES

Tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation and any accumulated impairment in value. Certain of tangible real estate properties purchased prior to 1 January 1994 were restated for the changes in the general purchasing power of the Lebanese Lira according to the provisions of law No 282 dated 30 December 1993. The net surplus arising on revaluation is credited to the account of revaluation reserves recognized in shareholders’ equity.

Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates.

Depreciation is calculated on a straight line basis to write down the cost of tangible fixed assets to their residual values over their estimated useful lives. Freehold land is not depreciated. The estimated useful lives are as follows: 2007 2006

Buildings 50 years 40 years Vehicles 6.67 years 6.67 years Furniture, office installations and computer equipment 2 – 16.67 years 5 – 11.11 years

The impact of the depreciation expense due to the change in the estimated useful lives is accounted for prospectively.

An item of tangible fixed assets is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in ‘Other operating income’ or ‘Other operating expenses’ in the income statement in the year the asset is derecognised.

The carrying values of tangible fixed assets are reviewed for impairment to determine whether events for changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of the fair value less costs to sell and their value in use.

Expenditure incurred to replace a component of an item of tangible fixed assets that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of tangible fixed assets. All other expenditure is recognised in the income statement as the expense is incurred.

92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Collateral pending sale

The Group occasionally acquires real estate in settlement of certain loans and advances. Such real estate is stated at the lower of the amount of the related loans and advances and the current fair value of such assets based on the instructions of the Control Authorities. Gains or losses on disposal , and revaluation losses, are recognized in the consolidated income statement for the period.

Intangible fixed assets

Intangible assets are initially measured at cost. following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of the intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and tested for impairment whenever there is an indication that the intangible asset may be impaired. Intangible assets with indefinite useful lives are not amortized but tested for impairment annually and whenever there is an indication that the intangible asset may be impaired.

If the carrying value of the intangible asset is more than the recoverable amount, the intangible asset is considered impaired and is written down to its recoverable amount. The excess of carrying value over the recoverable amount is recognized in the income statement.

Impairement losses on intangible assets recognized in the income statement in previous periods, are reversed when there is an increase in the recoverable amount.

Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows:

Key money: the lesser of lease period or 5 years Software development cost: 2-5 years

Customer deposits

All customer deposits are carried at the fair value of the consideration received, less amounts repaid.

Taxation

(i) Current tax Taxation is provided for in accordance with the fiscal regulations of the respective countries in which the Bank and its branches and subsidiaries operate.

93 2. SIGNIFICANT ACCOUNTING POLICIES

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the bal - ance sheet date. The Bank’s profits from operations in Lebanon are subject to a tax rate of 15% after deducting the 5% tax on interest received according to Law no. 497/2003 dated 30 January 2003. Dividends are subject to a flat 10% tax, reducible to 5% provided that the Bank is listed on a regulated stock exchange.

(ii) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the income statement.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Provisions for risks and charges Provisions are recognized when the Group has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured.

Employees’ end-of-service benefits

The Group provides end of service benefits to its employees. The entitlement of these benefits are based upon the employees’ final salary, length of services and other local regulations where the Group operates. The expected costs of these benefits are accrued over the period of employment.

With respect to employees based in Lebanon, the Group makes contribution to the National Social Security Fund calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when due.

94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Treasury shares

Own equity instruments which are acquired (treasury shares) are deducted from equity and are accounted for at weighted average cost. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the Bank’s own equity instruments.

Derivatives Derivatives are stated at fair value. For the purposes of hedge accounting, hedges are classified into three categories: (a) fair value hedges which hedge the exposure to changes in the fair value of a recognized asset or liability; (b) cash flow hedges which hedge exposure to variability in cash flows of a recognized asset or liability or a forecasted transaction, and (c) hedges of the net investment in a foreign subsidiary bank. In relation to effective fair value hedges any gain or loss from remeasuring the hedging instrument to fair value, as well as related changes in fair value of the item being hedged, are recognized imme - diately in the consolidated income statement.

In relation to effective cash flow hedges, the gain or loss on the hedging instrument is recognized initial ly in equity and is transferred to the income statement in the period in which the hedged transaction impacts the income statement, or included as part of the cost of the related asset or liability.

In relation to effective hedges of the net investment in a foreign subsidiary bank, any gain or loss from remeasuring the hedging instrument to fair value is recognized immediately in equity and is transferred to the income statement once the investment is sold.

For those hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair value of the hedging instrument are taken directly to the consolidated income statement for the period.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or is revoked by the Group. For effective fair value hedges of financial instruments with fixed maturities any adjustment arising from hedge accounting is amortised over the remaining term to maturity. For effective cash flow hedges, any cumulative gain or loss on the hedging instrument recognized in equity remains in equity until the hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the consolidated income statement.

95 2. SIGNIFICANT ACCOUNTING POLICIES

Fiduciary assets Assets held in a fiduciary capacity are not treated as assets of the Group and accordingly are recorded as off balance sheet items.

Off balance sheet items Off balance sheet balances include commitments which may take place in the Group’s normal operations such as commitments for loan granting, letters of guarantees, and letters of credit, without deducting the margins collected and related to these commitments.

Offsetting Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

Financial guarantees In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements at fair value, in ‘Other liabilities’, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amortised premium and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is taken to the income statement in ‘Provisions for loans and advances’. The premium received is recognised in the income statement in ‘Commission received’ on a straight line basis over the life of the guarantee.

Revenue recognition Interest income and fees that are considered part of the effective interest is recognized using the effective yield method unless there is doubt of uncollectibility. The recognition of interest income is suspended when loans become impaired, such as when overdue by more than 90 days.

Notional interest is recognized on impaired loans and other financial assets based on the rate used to discount future cash flows to their net present value. Other fees receivable are recognized as the services are provided. Dividend income is recognized when the right to receive payment is established.

When the Group enters in interest rate swap contracts to change the interest rate from fixed to variable (or vice-versa), interest income or expense is adjusted by the net difference resulting from the swap.

96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Foreign currencies The consolidated financial statements are presented in Lebanese Lira which is the Bank’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated into Lebanese Lira or other functional currencies at rates of exchange prevailing at the balance sheet date. Any gains or losses are taken to the consolidated income statement.

Translation gains or losses on non-monetary items carried at fair value are included in equity as part of the fair value adjustment on securities available-for-sale, unless part of an effective hedging strategy.

Translation of financial statements of foreign entities The assets and liabilities of foreign branches and subsidiaries are not deemed an integral part of the head office’s operations and are translated at rates of exchange ruling at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Any exchange differences are taken directly to a foreign currency translation adjustment reserve.

Cash and cash equivalents

Cash and cash equivalents as referred to in the Cash Flow Statement comprise balances with original maturities of a period of three months including: cash and balances with the Central Banks, deposits with banks and financial institutions, deposits due to banks and financial institutions, and treasury bills.

Repurchase and resale agreements

Assets sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognized in the balance sheet. Amounts received under these agreements are treated as liabilities and the differ ence between the sale and the repurchase price is treated as interest expense using the effective yield method. Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognized in the balance sheet. Amounts paid under these agreements are treated as assets and the difference between the purchase and resale price is treated as interest income using the effective yield method.

97 2. SIGNIFICANT ACCOUNTING POLICIES

Impairment and uncollectibility of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that financial assets may be impaired. If such evidence exists, any impairment loss is recognized in the consolidated income statement. Impairment is determined as follows: (a) for assets carried at amortised cost, impairment is based on estimated cash flows that are discounted at the original effective interest rate; (b) for assets carried at fair value, impairment is the difference between cost and fair value less any impairment loss previously recognized in the consolidated income statement; and (c) for assets carried at cost, impairment is the present value of future cash flows discounted at the current market rate of return for a similar financial asset. For available for sale equity investments, reversal of impairment losses are recorded as increases in cumulative changes in fair values through equity. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the bank’s review of credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are esti - mated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in property prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Trade and settlement date accounting

All “regular way” purchases and sales of financial assets are recognized on the trade date, i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulations.

Operating leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expenses in the income statement on a straight-line basis over the lease term.

98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Accounting policies of subsidiary-insurance companies

The financial statements of the subsidiary insurance companies have been prepared in accordance with International Financial Reporting Standards and the requirements of the regulations related to insurance and reinsurance companies where the subsidiaries operate. The key accounting policies are as follows:

Premiums earned Net premiums and accessories (gross premiums) are taken to income over the terms of the policies to which they relate using the prorata temporis method for non-marine business and 25% of gross premiums for marine business. Unearned premiums reserve represent the portion of the gross premiums written relating to the unexpired period of coverage. If the unearned premiums reserve is not considered adequate to cover future claims arising on these pre - miums a premium deficiency reserve is created.

Commissions earned and paid Commissions earned are recognized at the time policies are written. Commissions paid are expensed over the terms of the policies to which they relate using the pro-rata temporis method for non-marine business and 25% of commissions paid for marine business. Deferred acquisition costs represent the portion of commissions paid relating to the unexpired period of coverage.

2.a SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

Judgments

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements:

Classification of investments Management decides on acquisition of an investment whether it should be classified as held to maturity, held for trading, carried at fair value through profit or loss account, or available for sale. The Group classifies investments as trading if they are acquired primarily for the purpose of making a short term profit by the dealers.

Classification of investments as fair value through profit or loss account depends on how management monitors the performance of these investments. When they are not classified as held for trading but have readily available reliable fair values and the changes in fair values are reported as part of profit or loss in the management accounts, they are classified as fair value through profit or loss. All other investments are classified as available for sale.

99 2. SIGNIFICANT ACCOUNTING POLICIES 3. BUSINESS COMBINATION 4. NET PROVISIONS LESS RECOVERIES ON LOANS AND ADVANCES

Impairment of investments The Group treats available for sale equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, th at have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment losses on commercial loans and advances The Group reviews its problem commercial loans and advances on a regular basis to assess whether a provision for impairment should be recorded in the consolidated income statement. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions.

In addition to specific allowances against individually significant loans and advances, the Group also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. This takes into consideration factors such as any deterioration in country risk, industry, and technological obsolescence, as well as identified weaknesses or deterioration in cash flows.

Impairment losses on consumer loans An estimate of the collectible amount of consumer loans is made when collection of the full amount is no longer probable. This estimation is assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include consideration of liquidity and model inputs such as correlation and volatility for longer dated derivatives.

100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

3. BUSINESS COMBINATION

BLOM Bank Egypt SAE

In 2006, the Group acquired an additional 2.6% of the voting shares of BLOM Bank Egypt SAE for a total consideration of LL 4,031 million with effective date 30 November 2005.

LL million

Group’s interest (2.6%) 2,323 Goodwill arising on acquisition (note 27) 1,708 Cost of acquisition (net cash outflow) 4,031

In 2006, BLOM Bank Egypt SAE increased its ownership in BLOM Egypt Securities SAE from 67.74% to 99.37%. The total cost of acquisition is approximately LL 174 million. Net cash inflow on acquisition am ounted to LL 219 million. The Bank consolidated BLOM Egypt Securities SAE with effect from 1 January 2006.

During 2006, BLOM Bank and two of its subsidiaries subscribed in 979,313 shares representing 49% of the voting shares of Syria International Insurance (Arope Syria) SA, a newly established insurance company in Syria with a total investment amount of LL 14,559 million.

4. NET PROVISIONS LESS RECOVERIES ON LOANS AND ADVANCES

2007 Restated 2006 LL million LL million

Provision for doubtful loans and advances: Provision for doubtful loans and advances (12,661) (13,394) Provision for doubtful consumer loans (3,427) - Provision for consumer loans not classified at the balance sheet date (3,938) (6,266)

(20,026) (19,660) Recoveries on loans and advances: Recoveries on doubtful and bad loans and advances 28,852 18,107 Recoveries on doubtful loans from off balance sheet 2,590 583 Recoveries on personal loans 19 - Recoveries on commitments by signature - 162 31,461 18,852 11,435 (808)

101 5. NET COMMISSIONS 6. NET PROFIT FROM TRADING INVESTMENTS 7. NET PROFIT FROM NON-TRADING INVESTMENTS 8. OTHER OPERATING INCOME 9. OTHER OPERATING EXPENSES 10. SALARIES AND RELATED BENEFITS 11. GENERAL OPERATING EXPENSES

5. NET COMMISSIONS 2007 2006 LL million LL million

Commissions received: Letters of credit, guarantees and acceptances 25,448 22,084 Loans and advances to customers 22,494 17,931 Asset management and correspondents’ accounts 10,766 7,907 Checking accounts and transfers 6,041 9,832 Customers’ deposits 13,685 11,950 Credit cards 8,431 5,446 Other services 9,142 6,654 96,007 81,804 Less: commissions paid on correspondents’ accounts (6,627) (4,815)

Net commissions received 89,380 76,989

6. NET PROFIT FROM TRADING INVESTMENTS 2007 2006 LL million LL million

Trading loss from equities (129) (3,010) Trading income from debt securities 2,152 9,595 2,023 6,585

7. NET PROFIT FROM NON-TRADING INVESTMENTS 2007 2006 LL million LL million

Profit from sale of certificates of deposit 14,558 9,265 Profit from sale of equities 3,034 472 Others 877 (214) 18,469 9,523

8. OTHER OPERATING INCOME 2007 2006 LL million LL million

Premiums earned on insurance contracts 19,760 16,181 Other miscellaneous income 4,858 6,213 24,618 22,394

102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

9. OTHER OPERATING EXPENSES 2007 2006 LL million LL million

Claims paid on insurance contracts 14,005 11,369 Others 441 306 14,446 11,675

10. SALARIES AND RELATED BENEFITS 2007 2006 LL million LL million

Salaries and wages 65,215 58,667 Social security contributions 12,412 10,692 Provisions for end of service indemnities (note 32) 2,615 5,498 Additional indemnities paid 12,610 10,628 Other allowances (including bonuses) 36,281 26,914 129,133 112,399

11. GENERAL OPERATING EXPENSES

2007 2006 LL million LL million

Board of directors’ attendance fees 1,416 1,077 Taxes and fees 2,631 2,875 Fee for guarantee of deposits 5,893 5,494 Rent and related charges 6,224 4,259 Electricity and fuel 3,594 2,469 Professional fees 7,883 5,986 Postage and telecommunications 8,557 7,028 Maintenance and repairs 5,648 6,175 Travel expenses 3,400 3,262 Insurance 727 764 Marketing and advertising 8,140 7,904 Stationery and printings 5,326 4,670 Fiscal stamps 2,080 2,129 Others 19,798 16,747 81,317 70,839

103 12. DEPRECIATION AND AMORTIZATION OF TANGIBLE AND INTANGIBLE ASSETS 13. PROVISION FOR CONTINGENT LIABILITIES 14. EARNINGS PER SHARE 15. CASH AND BALANCES WITH THE CENTRAL BANKS 16. LEBANESE AND OTHER GOVERNMENTAL TREASURY BILLS AND BONDS

12. DEPRECIATION AND AMORTIZATION OF TANGIBLE AND INTANGIBLE ASSETS

2007 2006 LL million LL million

Tangible fixed assets (note 23) 17,717 13,328 Intangible fixed assets (note 24) 633 397 Provision for impairment against real estate acquired in settlement of debts (note 23) - 2,418 18,350 16,143

13. PROVISION FOR CONTINGENT LIABILITIES 2007 2006 LL million LL million

Provision for complementary taxes and contingent liabilities related to a subsidiary bank (note 32) 13,327 1,455 Others 23 3 13,350 1,458

14. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing the net profit for the year attrib utable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

The following reflects the income and share data used in the basic earnings per share computation: 2007 2006

Net profit for the year LL million 308,586 271,804 Less :Proposed dividends on preferred shares (note 38) LL million (40,890) (40,891) Minority interest LL million (5,114) (2,200) Net profit attributable to equity holders of the parent LL million 262,582 228,713 Weighted average number of common shares 21,183,704 20,850,721 Basic earnings per share LL 12,395 10,969

No figure for diluted earnings per share has been presented as the Bank has not issued any instruments which would have an impact on earnings per share when exercised.

104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

15. CASH AND BALANCES WITH THE CENTRAL BANKS 2007 2006 LL million LL million Cash 128,083 92,767 Central Banks: Current accounts 951,922 884,505 Time deposits 2,429,799 1,630,300 Accrued interest at 31 December 43,935 21,300 3,425,656 2,536,105 Certificates of deposit – loans and receivables 2,718,370 3,534,441 Accrued interest at 31 December 57,922 83,093 2,776,292 3,617,534 6,330,031 6,246,406 Cash and balances with the Central Banks include non-interest bearing balances held by the Group at the Bank of Lebanon in coverage of the obligatory reserve requirements for all banks operating in Lebanon on deposits in Lebanese Lira as required by the Lebanese banking rules and regulations. This obligatory reserve is calculated on the basis of 25% of sight commitments and 15% of term commitments.

In addition to the above, all banks operating in Lebanon are required to deposit with the Bank of Lebanon interest- bearing placements at the rate of 15% of total deposits in foreign currencies regardless of nature.

Foreign subsidiaries are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are located.

16. LEBANESE AND OTHER GOVERNMENTAL TREASURY BILLS AND BONDS 2007 2006 LL million LL million Trading: -Treasury bills and bonds (quoted) 75,537 49,511 -Accrued interest at 31 December 1,412 1,037 76,949 50,548 Available for sale: - Treasury bills and bonds 4,904,147 3,353,399 - Accrued interest at 31 December 99,227 70,973 5,003,374 3,424,372 5,080,323 3,474,920

As of 30 December 2005, the Group reclassified treasury bills and bonds denominated in Lebanese Lira and in foreign currencies from investments held to maturity to investments available for sale. Accordingly, the Group is not allowed to classify investments as held to maturity before 1 January 2008, according to IAS 39. Consequently, held to maturity invest ments were carried at fair value and reclassified as available for sale as at 31 December 2005. This reclassification resulted in an increase in the fair value of the available for sale investments as at 31 December 2005 with a corresponding increase in cumulative changes in fair values in the consolidated statement of changes in equity.

Available for sale investments include unquoted governmental bonds in the amount of LL 132,645 million (2006: LL 243,668 million) that are stated at cost, which approximately equal to fair value.

105 17. BONDS AND FINANCIAL ASSETS WITH FIXED INCOME 18. SHARES, SECURITIES AND FINANCIAL ASSETS WITH VARIABLE INCOME 19. BANKS AND FINANCIAL INSTITUTIONS – DEBIT

17. BONDS AND FINANCIAL ASSETS WITH FIXED INCOME 2007 2006 LL million LL million

Trading: - Bonds 21,244 - Fair value through profit or loss: - Bonds 45,470 - Available for sale: - Bonds 872,185 139,501 Loans and receivables: - Certificates of deposit 226,241 246,599 1,165,140 386,100

Included in bonds and financial assets with fixed income, accrued interest up to 31 December 2007 amounting to LL 15,990 million (2006: LL 7,408 million).

As of 30 December 2005, the Group reclassified bonds and financial assets with fixed income from investments held to maturity to investments available for sale. Accordingly, the Group is not allowed to classify investments as held to maturity before 1 January 2008, according to IAS 39. Consequently, held to maturity investments were carried at fair value and reclassified as available for sale as at 31 December 2005. This reclassification resulted in an increase in the fair value of the available for sale investments as at 31 December 2005 with a corresponding increase in cumulative changes in fair values in the consolidated statement of changes in equity.

Bonds and financial assets with fixed income include unquoted available for sale investments in the amount of LL 44,331 million (2006: LL 44,213 million) and unquoted certificates of deposit in the amount of LL 16,952 million (2006: LL 38,023 million) that are stated at cost, which approximately equal to fair value.

18. SHARES, SECURITIES AND FINANCIAL ASSETS WITH VARIABLE INCOME 2007 2006 LL million LL million Trading: Shares 4,663 4,073 Investment fund 1,849 875 6,512 4,948 Available for sale: Shares 5,213 3,455 11,725 8,403

Trading investments include unquoted investments in the amount of LL 1,149 million (2006: LL 980 million) and available for sale investments include unquoted investments in the amount of LL 3,842 million (2006: LL 2,198 million) that are stated at cost due to the unpredictable nature of future cash flows and lack of suitable other methods for arriving at a reliable fair value.

106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

19. BANKS AND FINANCIAL INSTITUTIONS – DEBIT

2007 2006 LL million LL million

Current accounts: - Current accounts 254,966 231,257 - Checks for collection 72,458 69,352 - Accrued interest at 31 December 134 180 327,558 300,789 Time deposits: - Term deposits 7,094,791 7,359,698 - Granted financial loans 85,933 70,335 - Accrued interest at 31 December 28,251 23,462 7,208,975 7,453,495 7,536,533 7,754,284

Included in banks and financial institutions - debit, time deposits amounting to US$ 620,000 thousand (2006: US$ 840,000 thousand) being guarantees against short term borrowings in the amount of Euro 325,000 thousand (2006: Euro 525,000 thousand) reflected under banks and financial institutions – cred it. According to the contracts entered into with these banks, the Bank can withdraw these term deposits upon the settlement of the short-term borrowings.

Included also in banks and financial institutions - debit, time deposits amounting to US$ 1,600 thousand (2006: nil), being guarantees against two letters of credit maturing in September 2008 and amounting to US$ 800 thousand each.

107 20. LOANS AND ADVANCES TO CUSTOMERS

20. LOANS AND ADVANCES TO CUSTOMERS 2007 2006 LL million LL million

Commercial loans 3,265,402 2,442,417 Other loans to customers (consumer loans) 865,793 535,053 Overdraft accounts 11,932 8,190 Net debtor accounts against creditor and cash collateral accounts 14,308 10,826 Advances to related parties 5,940 7,400 Doubtful debts (including consumer loans) 358,109 344,561 Total loans 4,521,484 3,348,447 Provision for doubtful loans (215,626) (210,071) Provisions for commercial loans not classified as doubtful debts at the balance sheet date (22,272) (40,017) Provision for doubtful consumer loans (3,561) (256) Provision for consumer loans not classified as doubtful debts at the balance sheet date (17,750) (13,812) Total provisions (259,209) (264,156) Unrealized interest – substandard loans (14,238) (13,899) Unrealized interest – doubtful loans (68,730) (73,694) Total unrealised interest (82,968) (87,593) 4,179,307 2,996,698 Commercial loans 3,643,411 2,813,138 Less: Provision for doubtful loans and provision for commercial loans not classified as doubtful debts at the balance sheet date (237,898) (250,088) Unrealized interest-substandard loans (14,238) (13,899) Unrealized interest-doubtful loans (68,730) (73,694) 3,322,545 2,475,457 Consumer loans 878,073 535,309 Less: Provision for doubtful consumer loans and provision for consumer loans not classified as doubtful debts at the balance sheet date (21,311) (14,068) 856,762 521,241 4,179,307 2,996,698

Commercial loans as at 31 December 2007 include substandard loans amounting to LL 36,285 million (2006: LL 34,456 million).

2007 2006 LL million LL million Breakdown by economic sector Agriculture and forestry 32,226 20,187 Manufacturing 471,274 435,275 Trade retail 335,005 161,188 Trade wholesale 760,096 855,142 Services 935,475 677,833 Construction 756,436 240,496 Freelance professions 365,179 423,264 Consumer loans 865,793 535,062 4,521,484 3,348,447

108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The movement of provision for doubtful loans and advances by class is as follows:

2007 2006

Provision for Provision for Total Provision for Provision for Total doubtful doubtful LL million doubtful doubtful LL million commercial loans consumer loans commercial loans consumer loans and provision for and provision for and provision for and provision for commercial loans consumer loans commercial loans consumer loans not classified yet not classified yet not classified yet not classified yet LL million LL million LL million LL million

Balance at 1 January 250,088 14,068 264,156 256,383 9,009 265,392 Add: Charge for the year 12,661 7,365 20,026 13,394 6,266 19,660 Foreign exchange difference 5,956 - 5,956 1,566 - 1,566 Provision transferred from off balance sheet 25 - 25 - - - Provision of acquired subsidiary - Blom Egypt Securities SAE - - - 41 - 41 268,730 21,433 290,163 271,384 15,275 286,659 Less: Provisions written-off (6,869) (103) (6,972) (5,885) - (5,885) Recovery of provisions (23,738) (19) (23,757) (7,675) (1,207) (8,882) Provision transferred to off balance sheet - - - (7,400) - (7,400) Foreign exchange difference (225) - (225) (336) - (336) (30,832) (122) (30,954) (21,296) (1,207) (22,503) Balance at 31 December 237,898 21,311 259,209 250,088 14,068 264,156 Individual provision 215,626 3,561 219,187 210,071 256 210,327 Provision for loans not classified yet 22,272 17,750 40,022 40,017 13,812 53,829 237,898 21,311 259,209 250,088 14,068 264,156 Gross amount of loans individually determined to be impaired 345,829 12,280 358,109 344,305 256 344,561

109 20. LOANS AND ADVANCES TO CUSTOMERS 21. BANK / ENGAGEMENTS BY ACCEPTANCES

The following is a reconciliation of the individual provision for impairment losses on loans and advances and provision for loans not classified yet:

2007 2006 Individual Provision for loans Total Individual Provision for loans Total provision not classified yet LL million provision not classified yet LL million LL million LL million LL million LL million

Balance at 1 January 210,327 53,829 264,156 213,897 51,495 265,392 Add: Charge for the year 16,088 3,938 20,026 13,092 6,568 19,660 Provisions transferred from off-balance sheet 25 - 25 - - - Difference of exchange 5,956 - 5,956 1,567 - 1,567 Provision of acquired subsidiary- BLOM Egypt Securities SAE - - - 41 - 41 232,396 57,767 290,163 228,597 58,063 286,660 Less: Provisions written off (6,972) - (6,972) (5,885) - (5,885) Recovery of provisions (6,012) (17,745) (23,757) (4,649) (4,234) (8,883) Provisions transferred to off balance sheet - - - (7,400) - (7,400) Foreign exchange difference (225) - (225) (336) - (336) (13,209) (17,745) (30,954) (18,270) (4,234) (22,504) Balance at 31 December 219,187 40,022 259,209 210,327 53,829 264,156

The movement of unrealized interest is as follows:

2007 2006 LL million LL million Balance at 1 January 87,593 88,472 Add: Unrealized interest for the year 12,827 14,062 Foreign exchange difference 874 - 101,294 102,534 Less: Recoveries of unrealized interest (5,114) (9,224) Amounts written-off (13,212) (1,831) Transferred to off-balance sheet - (3,821) Foreign exchange difference - (65) (18,326) (14,941) Balance at 31 December 82,968 87,593

As required by Bank of Lebanon regulations, doubtful loans fulfilling certain conditions have been trans - ferred to off-balance sheet, together with the related provisions and unrealized interest.

110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The movement of provisions against fully provided bad loans included off balance sheet accounts is as follows:

2007 2006 LL million LL million

Balance at 1 January 20,202 13,795 Add: Transferred from balance sheet - 7,400 Provision transferred from balance sheet 162 139 20,364 21,334 Less: Provisions written-back (2,265) (400) Amounts written-off (1,056) (732) Provision transferred to balance sheet (25) - (3,346) (1,132) Balance at 31 December 17,018 20,202

The movement of unrealized interest included in off balance sheet accounts is summarized as follows

2007 2006 LL million LL million

Balance at 1 January 23,703 22,436 Add: Unrealized interest for the year 1,484 1,697 Transferred from balance sheet - 3,821 Foreign exchange difference 185 161 25,372 28,115 Less: Recoveries (325) (183) Amounts written-off (13,753) (4,229) (14,078) (4,412) Balance at 31 December 11,294 23,703 Total provisions and unrealized interest included in off balance sheet accounts 28,312 43,905

2007 2006 21. BANK / ENGAGEMENTS BY ACCEPTANCES LL million LL million

Acceptances as of 31 December 245,357 173,260

Acceptances resulted from letters of credit opened for accounts of customers, with deferred payments.

111 22. INVESTMENTS AND LOANS TO RELATED PARTIES 23. TANGIBLE FIXED ASSETS

22. INVESTMENTS AND LOANS TO RELATED PARTIES

Ownership percentage Country of 2007 2006 2007 2006 incorporation LL million LL million Investments in nonconsolidated subsidiaries and associates BLOM Services SARL Lebanon - 99.70% - 149 Société de Services d’Assurances et de Marketing SAL Lebanon 99.92% 99.92% 50 50 International Payment Network SAL Lebanon 23.50% 23.50% 752 752 Arope services SAL Lebanon 90.00% 90.00% - - BLOM Invest – Saudi Arabia (under establishment) Saudi Arabia 59.94% - 24,120 - 24,922 951 Investments available for sale Misr for Central, Clearing, Depository and Central Registry Egypt - 0.46% - 48 Banque de l’Habitat SAL Lebanon 2.85% 2.85% 1,431 1,431 BLOM Real Estate SAL Lebanon 7.23% 7.23% 220 220 Swift France 0.01% 0.01% 33 31 1,684 1,730 Investment property Immobilière Foch 65 SARL France 100.00% 100.00% 1,029 922 Less: Provision for impairment (427) (383) 602 539 27,208 3,220 The carrying values of the investments in subsidiaries which were not consolidated because they are immaterial to the consolidated financial statements as at 31 December are detailed as follows: Shareholders’ equity

2007 2006 LL million LL million BLOM Services SARL (*) - 212 Société de Services d’Assurances et de Marketing SAL 153 102

Arope Services SAL is a dormant company. Accordingly, the carrying value of this investment was not consolidated because it is immaterial to the consolidated financial statements as at 31 December 2007 (2006: the same). (*)The partners in their meeting dated 3 May 2005 resolved to liquidate the company and appointed a liquidator. On 29 May 2006, the Ordinary Meeting of Partners approved the completion of the liquidation process which was announced in the Official Gazette on 8 March 2007. BLOM Invest – Saudi Arabia (under establishment) The Bank, together with BLOM Invest SAL (a subsidiary), established BLOM Invest – Saudi Arabia and con tributed in 10% and 50% respectively to its capital. The regulatory institutions in Lebanon and the Kingdom of Saudi Arabia approved on this investment in January 2008. BLOM Invest – Saudi Arabia is under establishment and is not included in the consolidation of the Group as of 31 December 2007, and no pre – incorporation expenses have been incurred for the year then ended. It will be consolidated when established.

112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

23. TANGIBLE FIXED ASSETS

Freehold land and Vehicles Furniture, office Advances on Fixed assets Total buildings LL million installations acquisition acquired in set - LL million LL million and computer of fixed assets and tlement of debts equipment construction LL million LL million in progress LL million Cost At 1 January 2007 156,031 3,464 119,359 31,049 25,912 335,815 Additions 19,938 1,200 31,418 24,270 5,346 82,172 Disposals (115) (365) (8,464) - (11,936) (20,880) Transfers 5,414 136 1,826 (7,516) - (140) Translation difference 1,544 63 1,980 780 777 5,144 At 31 December 2007 182,812 4,498 146,119 48,583 20,099 402,111 Depreciation At 1 January 2007 27,361 1,640 79,452 - - 108,453 Charge for the year 3,604 748 13,365 - - 17,717 Relating to disposals (58) (363) (5,129) - - (5,550) Transfers - 14 (32) - - (18) Translation difference 291 39 1,333 - - 1,663 At 31 December 2007 31,198 2,078 88,989 - - 122,265 Impairment At 1 January 2007 - - - - 7,990 7,990 Provided during the year ------Provision written back during the year - - - - (1,044) (1,044) Translation difference - - - - 258 258 At 31 December 2007 - - - - 7,204 7,204 Net carrying value At 31 December 2007 151,614 2,420 57,130 48,583 12,895 272,642

113 23. TANGIBLE FIXED ASSETS 24. INTANGIBLE FIXED ASSETS

Freehold land and Vehicles Furniture, office Advances on Fixed assets Total buildings LL million installations acquisition acquired in LL million LL million and computer of fixed assets and settlement of equipment construction debts LL million in progress LL million LL million Cost At 1 January 2006 147,457 2,929 97,086 17,560 35,843 300,875 Additions from the acquisition of subsidiaries - - 101 - - 101 Additions 6,654 1,025 15,480 22,378 2,875 48,412 Disposals (970) (499) (1,411) (387) (12,688) (15,955) Transfers 1,365 - 7,106 (8,483) 12 - Translation difference 1,525 9 997 (19) (130) 2,382 At 31 December 2006 156,031 3,464 119,359 31,049 25,912 335,815 Depreciation At 1 January 2006 23,528 1,483 70,887 - - 95,898 Accumulated depreciation from the acquisition of subsidiaries - - 77 - - 77 Charge for the year 3,652 605 9,071 - - 13,328 Relating to disposals (243) (450) (1,210) - - (1,903) Transfers 201 - - - - 201 Translation difference 223 2 627 - - 852 At 31 December 2006 27,361 1,640 79,452 - - 108,453 Impairment At 1 January 2006 - - - - 8,734 8,734 Provided during the year - - - - 2,418 2,418 Provision written back during the year - - - - (3,121) (3,121) Translation difference - - - - (41) (41) At 31 December 2006 - - - - 7,990 7,990 Net carrying value At 31 December 2006 128,670 1,824 39,907 31,049 17,922 219,372

Certain freehold land and buildings purchased prior to 1 January 1999 were restated for the changes in the general purchasing power of the Lebanese Lira giving rise to a net surplus amounting to LL 14,727 million, which was credited to equity under “revaluation reserves”.

114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

24. INTANGIBLE FIXED ASSETS

Software Key money Advances on Total development LL million acquisition LL million LL million of intangible fixed assets LL million

Cost At 1 January 2007 4,443 8,305 - 12,748 Additions 1,077 - 887 1,964 Transfers 140 - - 140 Translation difference 347 564 - 911 At 31 December 2007 6,007 8,869 887 15,763 Amortization At 1 January 2007 4,078 5,825 - 9,903 Charge for the year 495 138 - 633 Transfers 18 - - 18 Translation difference 336 414 - 750 At 31 December 2007 4,927 6,377 - 11,304 Net carrying value At 31 December 2007 1,080 2,492 887 4,459

Software Key money Advances on Total development LL million acquisition LL million LL million of intangible fixed assets LL million

Cost At 1 January 2006 4,004 8,908 224 13,136 Additions 254 886 - 1,140 Disposals (121) (2,097) (224) (2,442) Translation difference 306 608 - 914 At 31 December 2006 4,443 8,305 - 12,748 Amortization At 1 January 2006 3,696 5,488 - 9,184 Charge for the year 217 180 - 397 Relating to disposals (121) - - (121) Transfers - (201) - (201) Translation difference 286 358 - 644 At 31 December 2006 4,078 5,825 - 9,903 Net carrying value At 31 December 2006 365 2,480 - 2,845

115 25. OTHER ASSETS 26. REGULARIZATION ACCOUNTS AND OTHER DEBIT ACCOUNTS 27. GOODWILL

25. OTHER ASSETS

2007 2006 LL million LL million

Compulsory deposits (i) 14,903 14,690 Precious metals and stamps 564 512 Investments related to unit-linked contracts- fair value through profit or loss (ii) 17,600 16,751 Other assets 1,149 1,762 34,216 33,715

(i) Compulsory deposits represent amounts deposited with local authorities based on local regulations of the countries in which the subsidiaries are located, and are detailed as follows:

2007 2006 LL million LL million BLOM Invest SAL 1,500 1,500 Bank of Syria and Overseas SA 8,903 8,690 BLOM Development Bank SAL 4,500 4,500 14,903 14,690

(ii) The unrealized profit on investments related to unit-linked contracts amounted to LL 2,910 million for the year ended 31 December 2007 (2006: LL 902 million).

26. REGULARIZATION ACCOUNTS AND OTHER DEBIT ACCOUNTS 2007 2006 LL million LL million

Customers’ transactions between head office and branches 28,739 14,510 Prepaid expenses 8,143 8,308 Sundry debtors (i) 23,107 8,476 Other revenues to be collected 1,754 3,557 Revaluation variance on foreign exchange forward contracts related to the Group’s customers (note 43) (ii) 8,935 901 Reinsurers’ share of technical reserves 12,190 10,501 Taxes paid in advance in a subsidiary bank 19,997 14,565 Other accounts 16,622 590 119,487 61,408

2007 2006 (i) Sundry debtors LL million LL million Sundry debtors 24,573 9,740 Less: Provision against sundry debtors (1,466) (1,264) 23,107 8,476

116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The movement of provision against sundry debtors is summarized as flows: 2007 2006 LL million LL million Balance at 1 January 1,264 1,253 Provided during the year 189 - Translation difference 13 11 Balance at 31 December 1,466 1,264

(ii) Revaluation variance on foreign exchange forward contracts “Revaluation variance on foreign exchange forward contracts hedging operations related to Group’s customers” represents operations in which the Group is engaged to hedge foreign exchange operations for its clients. As at 31 December 2007, the revaluation of these contracts resulted in unrealized losses (2006: same).

27. GOODWILL 2007 2006 LL million LL million Cost: At 1 January 63,980 61,758 Acquisition of a subsidiary - 1,708 Exchange difference (3,394) 514 At 31 December 60,586 63,980

Impairment testing of goodwill Goodwill acquired through business combinations with indefinite lives have been allocated to two individual cash-generating units, which are subsidiaries of the Bank, for impairment testing as follows: - BLOM Bank Egypt SAE - BLOM Bank (Switzerland) SA The carrying amount of goodwill to each of the subsidiaries is as follows: 2007 2006 LL million LL million BLOM Bank Egypt SAE 59,480 62,989 BLOM Bank (Switzerland) SA 1,106 991 60,586 63,980

Key assumptions used in value in use calculations The recoverable amount of BLOM Bank Egypt SAE has been determined based on a value in use calculation, using cash flow projections based on financial budgets approved by senior manage - ment covering a ten-year period. The following rates are used by the Bank.

117 27. GOODWILL 28. BANKS AND FINANCIAL INSTITUTIONS - CREDIT 29. CUSTOMERS' DEPOSITS 30. OTHER LIABILITIES

2007 % 2006 %

Discount rate 9.15 9.15 Projected growth rate (average during the first 4 years in 2007 and 5 year in 2006) 30 30 Projected growth rate beyond the four year period in 2007 and five year period in 2006 0 0

The calculation of value in use for BLOM Bank Egypt SAE is most sensitive to the following assumptions: - Interest margins; - Discount rates; - Projected growth rates; - Gross domestic product of the country where the subsidiary operates; - Local inflation rates.

Interest margins Interest margins are based on average values achieved in the 13 months proceeding of the budget peri od. These are increased over the budget period for anticipated market conditions.

Discount rates Discount rates reflect management’s estimate of return on capital employed. Discount rates are cal - cu lated by using the weighted average cost of capital.

Projected growth rates, GDP and local inflation rates Assumptions are based on management analysis and published industry research.

Sensitivity to changes in assumptions Management believes that reasonable possible changes in key assumptions used to determine the recoverable amount will not result in an impairment of goodwill.

118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

28. BANKS AND FINANCIAL INSTITUTIONS - CREDIT 2007 2006 LL million LL million Current accounts 186,913 159,362 Term: Term 1,365,807 1,147,370 Accrued interest at 31 December 3,194 2,112 1,369,001 1,149,482 1,555,914 1,308,844

29. CUSTOMERS' DEPOSITS 2007 2006 LL million LL million

Sight deposits 2,341,594 1,897,765 Time deposits 9,589,749 7,874,196 Saving accounts 7,862,422 7,180,465 Credit accounts and deposits against debit accounts 812,788 662,696 Related parties’ accounts 101,963 75,259 20,708,516 17,690,381

Customers' deposits include coded deposit accounts in BLOM Bank SAL and BLOM Invest Bank SAL amounting to LL 76,092 million as of 31 December 2007 (2006: LL 73,182 million).

30. OTHER LIABILITIES 2007 2006 LL million LL million

Margins on letters of credit (i) 77,300 64,046 Income tax payable (ii) 31,984 28,079 Distribution tax due on subsidiary’s dividends (note 40) 12,984 12,426 Other taxes due 9,587 9,354 Deposits related to entities under constitution 12,875 2,975 Transactions pending between consolidated subsidiaries 12,789 5,884 Advances from customers for acquisition of securities 12,170 7,868 Sundry creditors 24,483 10,251 Dividends payable 288 184 194,460 141,067

(i) Margins on letters of credit Margins on letters of credit represent deposits by the clients on account of documentary credits opened by the Group on their behalf.

(ii) Income tax payable The relationship between taxable profit and accounting profit of BLOM Bank SAL and its foreign branches and subsidiaries is as follows:

119 30. OTHER LIABILITIES

2007 2006 LL million LL million

Profit before income tax 365,586 321,633 Less: Results of the subsidiary insurance company located in Lebanon (*) (5,125) (4,874) Accounting profit before income tax 360,461 316,759 Add: Provisions non tax deductible 5,009 6,299 Other non tax deductible charges 37,102 15,054 Unrealized loss on difference of exchange 3,376 - Capital gain 2,751 - Others 143 - 408,842 338,112 Less: Dividends received and previously subject to income tax (2,194) (329) Provisions no more required and previously subject to income tax - (6,645) Remunerations already taxed (8,301) - 4% of a subsidiary’s capital eligible to be tax deductible (400) (400) Write-back of provisions previously subject to income tax (20,552) (4,732) Non taxable income (1,762) (830) Difference in depreciation of fixed assets (2,433) - Permanent deductible charges (71,021) - Others (855) -

Taxable profit 301,324 325,176

The effective income tax rate of the Group is approximately 15.27% (2006: 15.31%).

(*) The insurance company in Lebanon is subject to income tax at the rate of 15% calculated based on gross insurance premiums weighted differently for each class of business.

120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

2007 2006 LL million LL million Income statement: Current income tax: Current income tax charge (a) 55,839 49,247 Adjustments in respect of current income tax of previous years (b) 603 - Current distribution tax due (c) 558 582 57,000 49,829

Income tax payable is detailed as follows: 2007 2006 LL million LL million

At 1 January 28,079 23,561 Tax expense for the year 33,198 26,454 Tax paid during the year (30,709) (22,722) Exchange difference 1,416 786

At 31 December 31,984 28,079

(a) Current income tax charge in the consolidated income statement is detailed as follows: 2007 2006 LL million LL million

5% tax paid on interest revenue during the year 22,641 22,793 Income tax on profit for the year 33,198 26,454 55,839 49,247

(b) During 2007, the tax authorities reviewed the Bank’s accounts in Lebanon for the years 2003 to 2005 (inclusive), and the review resulted in complementary taxes and fines amounted to LL 603 million, settled in full during the year ended 31 December 2007.

(c) Movement of distribution tax due recognized in the balance sheet is detailed as follows:

2007 2006 LL million LL million

Balance at 1 January 12,426 11,844 Provided during the year 558 582

Balance at 31 December 12,984 12,426

For more information about distribution tax due, refer to note 40.

Current income tax allocation is as follows: 2007 2006 LL million LL million

Income tax-BLOM Bank SAL 41,940 37,959 Income tax-foreign subsidiaries 13,011 9,568 Income tax-subsidiaries in Lebanon 2,049 2,302 57,000 49,829

121 30. OTHER LIABILITIES 31. REGULARIZATION ACCOUNTS AND OTHER CREDIT ACCOUNTS 32. PROVISIONS FOR RISKS AND CHARGES

Income tax paid during 2007 and 2006 reflected in the consolidated cash flow statement is detailed as follows:

2007 2006 LL million LL million

Income tax paid for the years 2006 and 2005 30,709 22,722 5% tax paid on interest revenue during the year 22,641 22,793 Adjustments in respect of current income tax of previous years 603 - 53,953 45,515

31. REGULARIZATION ACCOUNTS AND OTHER CREDIT ACCOUNTS 2007 2006 LL million LL million

Accrued expenses 54,399 32,684 Revaluation variance on foreign exchange forward contracts hedging a net investment in a foreign subsidiary bank (note 43) 8,472 3,566 Transactions pending between branches 6,127 1,342 Unearned premiums and liability related to unit linked insurance contracts 120,794 92,277 189,792 129,869

32. PROVISIONS FOR RISKS AND CHARGES 2007 2006 LL million LL million

Provision for risks and charges (i) 3,188 3,374 Provision for outstanding claims and IBNR reserves related to subsidiary- insurance companies (ii) 9,512 6,903 Provision for end of service indemnities (iii) 26,160 26,432 Provision for complementary taxes and contingent liabilities related to a subsidiary bank (iv) 38,512 24,136 Provision for contingencies of correspondents’ operations related to a subsidiary bank - 852 Provision for unusual commitments related to a subsidiary bank (v) 2,358 2,268 Other provision 836 681 80,566 64,646

(i) Provisions for risks and charges 2007 2006 LL million LL million

Balance at 1 January 3,374 3,288 Charge for the year 382 759 Provisions paid during the year (54) (464) Provisions written-back during the year (622) (325) Exchange difference 108 116

Balance at 31 December 3,188 3,374 The provision for risks and charges mostly represent a provision against probable taxes on inter est taken by a subsidiary insurance company in the amount of LL 1,638 million not finalized yet with the Ministry of Finance, in addition to a provision taken by a subsidiary bank in the amount of LL 1,237 million against contingent liabilities. 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

(ii) Provisions for outstanding claims and IBNR reserves related to subsidiary-insurance companies

2007 2006 LL million LL million Balance at 1 January 6,903 6,734 Provision for outstanding claims and IBNR reserves charged for the year 2,857 169 Provisions used during the year (350) - Exchange difference 102 -

Balance at 31 December 9,512 6,903

(iii) Provisions for end of service indemnities 2007 2006 LL million LL million

Balance at 1 January 26,432 21,664 Charge for the year 2,615 5,498 Indemnities paid (2,694) (703) Provisions written-back (124) - Exchange difference (69) (27)

Balance at 31 December 26,160 26,432

(iv) Provision for complementary taxes and contingent liabilities related to a subsidiary bank Provision for complementary taxes and contingent liabilities related to a subsidiary bank represents mainly accruals for additional complementary taxes in a subsidiary resulting from inspection by tax authorities for the years from 1991 onwards.

Movement in provision for complementary taxes and contingent liabilities related to a subsidiary bank recognized in the balance sheet are as follows: 2007 2006 LL million LL million

Balance at 1 January 24,136 22,868 Charge for the year 13,327 1,455 Provision written-back during the year (185) (85) Exchange difference 1,234 (102)

Balance at 31 December 38,512 24,136

(v) Provision for unusual commitments related to a subsidiary bank 2007 2006 LL million LL million

Balance at 1 January 2,268 971 Charge for the year - 1,301 Exchange difference 90 (4)

Balance at 31 December 2,358 2,268

123 33. SHARE CAPITAL

33. SHARE CAPITAL

2007 2006 LL million LL million

21,500,000 common shares of LL 10,000 per share 215,000 215,000

750,000 preferred shares (2002 issue) of LL 10,000 per share 7,500 7,500 750,000 preferred shares (2004 issue) of LL 10,000 per share 7,500 7,500 1,000,000 preferred shares (2005 issue) of LL 10,000 per share 10,000 10,000

Total preferred shares 25,000 25,000 240,000 240,000

a) The Extraordinary General Meeting of Shareholders held on 30 December 2005, resolved to increase the Bank’s capital from LL 210,000 million to LL 240,000 million by the increase of LL 30,000 million through the issuance of 3,000,000 new common shares, of LL 10,000 per share. The subscription in these shares is limited to Bank of New York to be fully settled in cash. The issuance and subscription in these common shares was based on the following conditions:

Number of issued shares 3,000,000 Par value of issued shares (LL 10,000 per share) LL 30,000 million Premium (denominated in US$) US$ 85.34443 as determined by the Extraordinary General Assembly of Shareholders held on 13 February 2006.

On 16 February 2006, the Extraordinary General Assembly of Shareholders approved the subscription of these common shares amounting to 3,000,000 shares, which were approved to be issued and fully paid in the amount of LL 30,000 million plus a premium amounting to US$ 256,033 thousand (equivalent to LL 385,970 million) based on US$ 85.34443 per share. The commission and the issuance costs amounted to US$ 7,590 thousand (equivalent to LL 11,911 million) which was deducted from the issuance premium.

It is to be noted that the Board of Directors decided on 7 February 2006 to list the GDSs in the Beirut and Luxembourg Stock Exchanges in parallel with the current GDRs of the Bank.

b) According to the provisions of Law no 308 dated 3 April 2001, the Extraordinary General Assembly Meeting of Shareholders held on 11 October 2002, and then the Extraordinary General Assembly Meetings of Shareholders held on 4 June 2004 and 17 September 2005, resolved to issue preferred shares at the following conditions:

124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

2002 ISSUE 2004 ISSUE 2005 ISSUE

Number of shares 750,000 750,000 1,000,000

Par value of issued shares (LL 10,000 per share) LL 7,500 million LL 7,500 million LL 10,000 million

Premium LL 105,593 million (USD LL 105,590 million (USD LL 140,720 million (USD (denominated in USD) 70,045 thousands) 70,043 thousands) 93,347 thousands) Non cumulative benefits An annual amount equal to An annual amount for each 2005 distributions to be based 11.25% of the net consolidated share equal to USD 8.5 based on a fixed amount of USD 3.75 profits of the Bank, with a minimum on the exchange rate on the per share and thereafter at an of USD 10 per share and not in date of the General Assembly annual amount equal to 6% of excess of USD 15 per share, Meeting, (subject to the the net consolidated profit of (subject to the approval of the approval of the Shareholders’ the Bank, with a minimum of Shareholders’ General Assembly General Assembly Meeting 7.5% and a maximum of 9.5% Meeting and the availability of a and the availability of a non- of the issue price (subject to the non-consolidated distributable consolidated distributable net approval of the Shareholder’s net income for the year). income for the year). General Assembly Meeting and the availability of a non- consolidated distributable net income for the year).

These preferred shares (2002, 2004 and 2005 issues) are redeemable 60 days after the annual general assemblies dealing with the accounts for the years 2007, 2009 and 2010 respectively at the discretion of the Bank at issue price (LL 10,000 per share plus paid premium) in addition to any dividends declared but not paid during the years prior to the redemption year.

In the event of any liquidation, dissolution or winding-up of the Bank, the holders of series 2002, 2004 and 2005 preferred shares shall be entitled to be paid out of the assets of the Bank available for distribution to its shareholders on a pro rata basis, before any payment shall be made to common shareholders. c) On 12 May 2006, the Extraordinary General Assembly of shareholders decided to list 750,000 preferred shares (2002 issue), 750,000 preferred shares (2004 issue), and 1,000,000 preferred shares (2005 issue), in addition to 7,166,667 common shares in the regulated markets in Lebanon and / or abroad.

The Beirut Stock Exchange Committee decided on 24 August 2006 to list, trade and value one third of the common shares and all the preferred shares (2002, 2004 and 2005 issues) issued by BLOM Bank SAL as detailed above in the official market of the Beirut Stock Exchange. These four types of shares became listed on 25 August 2006.

125 33. SHARE CAPITAL 34. RESERVES FOR GENERAL BANKING RISKS 35. RESERVES AND PREMIUMS

Accordingly, the shares of the Bank listed on the Beirut and the Luxemburg Stock Exchanges are detailed

as follows: 2007 2006 Number of shares Number of shares

GDR 7,389,601 7,389,601 Common shares 7,166,667 7,166,667 Preferred shares (2002 issue) 750,000 750,000 Preferred shares (2004 issue) 750,000 750,000 Preferred shares (2005 issue) 1,000,000 1,000,000 17,056,268 17,056,268

34. RESERVES FOR GENERAL BANKING RISKS

According to the Bank of Lebanon regulations, banks are required to appropriate from their annual net profit a minimum of 0.2 percent and a maximum of 0.3 percent of total risk weighted assets and off- balance sheet accounts based on rates specified by the Bank of Lebanon to cover general banking risks. The consolidated ratio should not be less than 1.25 percent of these risks at the end of year ten (2007) and 2 percent at the end of year twenty (2017). This reserve is part of the Bank’s equity and cannot be distributed as div idends. This reserve is based on the denomination (Lebanese Lira and US Dollars) of the risk weighted assets and off-balance sheet accounts.

35. RESERVES AND PREMIUMS

Reserve Legal General Reserve for Non- Premium on Premium on Total for translation reserve reserve increase distributable issuance issuance of LL million difference LL million LL million of share capital reserves of preferred common LL million LL million LL million shares shares LL million LL million At 31 December 2005 13,037 94,921 250,012 5,003 10,907 351,903 - 725,783 Currency translation difference 18,718 10 - - 913 - - 19,641 Appropriation of 2005 profits - 18,323 20,982 3,331 - - - 42,636 Issuance of common shares net of issuance costs (note 33) ------374,059 374,059 Transfer to non-distributable reserves - - (44,613) - 44,613 - - - Gain on sale of treasury shares - - - 64 - - - 64 Transfer to reserve for increase in share capital - - (6) 6 - - - - Other - - - - 607 - - 607 At 31 December 2006 31,755 113,254 226,375 8,404 57,040 351,903 374,059 1,162,790 Currency translation difference 1,850 31 2,856 - 6,225 - - 10,962 Appropriation of 2006 profits - 23,250 25,848 8,922 - - - 58,020 Net loss on sale of treasury shares - - - (3,168) - - - (3,168) Foreign currency translation reserve realized upon sale of branches in Romania (note 2) - - (7,169) - - - - (7,169) Other - - - - 369 - - 369 At 31 December 2007 33,605 136,535 247,910 14,158 63,634 351,903 374,059 1,221,804

126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Legal reserve According to the Lebanese Code of Commerce and to the Money and Credit Act, banks and companies operating in Lebanon have to transfer 10% of their annual net profit to a legal reserve. This reserve cannot be distributed as dividends.

General reserve The Group appropriated general reserves from its retained earnings to strengthen its equity. This reserve amounting to LL 247,910 million as at 31 December 2007 (2006: LL 226,375 million) is available for dividends distribution.

Reserve for increase of share capital The balance amounting to LL 14,158 million (2006: LL 8,404 million) represents a regulatory reserve pursuant to circular no. 167 issued by the Banking Control Commission. This reserve cannot be distributed as dividends.

Details of the reserve for increase of share capital are as follows: 2007 2006 LL million LL million

Recoveries of provisions for doubtful debts 12,253 3,331 Revaluation reserves for fixed assets sold 438 438 Gain on sale of treasury shares 1,467 4,635 14,158 8,404

Premium on issuance of preferred shares 2007 2006 LL million LL million

2002 issue (note 33) 105,593 105,593 2004 issue (note 33) 105,590 105,590 2005 issue (note 33) 140,720 140,720 351,903 351,903

Non distributable reserves During 2006, a subsidiary increased its share capital partially from a transfer of LL 44,613 mil - lion from general reserves.

127 36. CUMULATIVE CHANGES IN FAIR VALUES 37. TREASURY SHARES 38. PAID AND PROPOSED DIVIDENDS 39. CASH AND CASH EQUIVALENTS

36. CUMULATIVE CHANGES IN FAIR VALUES

According to the Bank of Lebanon regulations, banks are required to appropriate from their annual net

2007 2006 LL million LL million

Balance at 1 January 21,430 81,067 Realized during the year - (458) Net changes in fair values during the year (7,006) (59,607) Difference on exchange 73 428 Balance at 31 December 14,497 21,430

37. TREASURY SHARES

Movement of treasury shares recognized in the balance sheet is as follows:

2007 2006 No. Amount No. Amount of common shares LL million of common shares LL million

At 1 January 414,400 52,108 - - Acquisition of treasury shares 619,885 65,189 414,400 52,108 Sales of treasury shares (728,285) (81,175) - - At 31 December 306,000 36,122 414,400 52,108

The treasury shares represent Global Depository Receipts (GDR) owned by the Group. The market value of one GDR was US$ 90.20 as of 31 December 2007 (2006: US$ 57.65).

The Bank refunded the distribution of dividends on the treasury shares amounting to LL 1,146 million (2006: LL 1,221 million) resulting from the distribution of dividends for all ordinary shares in 2006.

The Group realized losses of LL 3,168 million on the sale of treasury shares during the year 2007 (2006: nil). This loss is reflected under “Reserve for increase of share capital” in the “Reserves and premiums” (note 35).

128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

38. PAID AND PROPOSED DIVIDENDS

According to the resolutions of the General Assembly Meetings held during the years 2007 and 2006, dividends paid were as follows:

2007 2006 LL million LL million

Preferred shares – 2002 issue: LL 22,612.50 per share (2006: LL 22,612.50 per share) 16,959 16,959 Preferred shares – 2004 issue: LL 12,813.75 per share (2006: LL 12,813.75 per share) 9,610 9,610 Preferred shares – 2005 issue: LL 14,321.25 per share (2006: LL 5,653.125 per share) 14,322 5,654 Common shares: LL 5,000 per share (2006: LL 4,000 per share) 107,500 86,000 148,391 118,223

In their meeting held on 18 March 2008, the board of directors proposed the distribution of dividends for 2007 as follows: LL million

Common shares (LL 5,500 per share) 118,250 Preferred shares – 2002 issue (LL 22,612.50 per share) 16,959 Preferred shares – 2004 issue (LL 12,813.75 per share) 9,610 Preferred shares – 2005 issue (LL 14,321.25 per share) 14,321 40,890 159,140

39. CASH AND CASH EQUIVALENTS 2007 2006 LL million LL million Cash and balances with the Central Banks 3,611,152 2,916,938 Lebanese and other governmental treasury bills and bonds held not for trading (whose original maturities are less than three month) 17,297 - Deposits with banks and financial institutions (whose original maturities are less than 3 months) 6,674,691 7,301,537 10,303,140 10,218,475 Less: Due to banks and financial institutions (whose original maturities are less than 3 months) (1,449,612) (1,293,563) 8,853,528 8,924,912

Balances with the Central Banks include term placements with the Bank of Lebanon, which are considered as cash equivalent based on a contractual agreement with the Bank of Lebanon.

129 40. CORRECTION OF AN ERROR 41. RELATED PARTIES TRANSACTIONS 42. ENGAGEMENTS RECEIVED 43. DERIVATIVES

40. CORRECTION OF DEFFERRED TAX LIABILITY

During the previous years, the Bank did not provide for deferred tax liability on its share of dividend dis tribution from subsidiary, BLOM INVEST BANK SAL, in accordance with International Accounting Standard No 12 (Income taxes). Accordingly, the Bank corrected comparative financial statements and increased income tax expense by LL 558 million and LL 582 million for 2007 and 2006, respectively, and decreased retained earnings as of 31 December 2005 by LL 11,844 million and increased deferred tax lia bility by LL 558 million and LL 12,426 million as of 31 December 2007 and 2006, respectively.

41. RELATED PARTIES TRANSACTIONS

The Group enters into transactions with major shareholders, directors, senior management, and their related concerns, and entities controlled, jointly controlled or significantly influenced by such parties in the ordinary course of business at commercial interest and commission rates. All the loans and advances to related parties are performing advances and are free of any provision for possible credit losses.

The transactions with related parties are as follows:

Major shareholders Board of directors Other 2007 2006 LL million and senior related parties LL million LL million management LL million LL million Deposits 69,676 28,072 4,215 101,963 75,259 Loans and advances 4,340 1,600 - 5,940 7,400 Indirect facilities 33 - 25 58 25 Interest received from loans and advances 556 205 - 761 101 Interest paid on deposits 3,341 1,346 202 4,889 5,570 Accounting services’ revenues from a non-consolidated subsidiary - - 203 203 217

The board of directors and senior management remunerations are as follows:

2007 2006 LL million LL million

Board of directors and senior management remunerations 20,729 19,197 All remunerations paid to board of directors and senior management are short in nature.

130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

42. ENGAGEMENTS RECEIVED 2007 2006 LL million LL million

Guarantees received 26,537 82,453 Personal guarantees received from customers 3,379,093 2,268,645 Mobilization bills 51,735 53,413 Mobilization bills (renegotiated loans) 1,736 1,736 Directors’ shares in guarantee of their management 58 58 Real estate guarantees received 2,742,486 2,159,787 Cash collateral received 783,423 734,773 Treasury bills in pledge 103,450 166,908 7,088,518 5,467,773

43. DERIVATIVES

The following schedule shows the positive and the negative fair values of the derivatives and their notional amounts according to maturity. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and represents the basis for measuring the change in the derivatives value. The notional amounts show the volume of operations at year end and do not reflect either market or credit risk.

Notional amount by maturity Positive Negative Total notional Less than 3 to 12 1 to 5 fair value fair value amount 3 months months Years LL million LL million LL million LL million LL million LL million

31 December 2007 Forward contracts on foreign currencies for hedging purposes - 8,472 238,735 89,387 149,348 - Forward contracts on foreign currencies for trading purposes 166,406 157,471 2,703,814 2,651,292 52,522 - 166,406 165,943 2,942,549 2,740,679 201,870 - 31 December 2006 Forward contracts on foreign currencies for hedging purposes 831 4,397 210,793 210,793 - - Forward contracts on foreign currencies for trading purposes 4,450 3,549 1,935,962 676,561 1,259,401 - 5,281 7,946 2,146,755 887,354 1,259,401 -

Additionally, the Group holds or issues currency options for trading purposes that are primarily related to the Group’s customers operations. The notional amount of these contracts is as follows: 2007 2006 LL million LL million

Currency options 34,142 17,659

All these contracts mature during 2008 that are primarily related to the Group’s customers’ operations.

131 43. DERIVATIVES 44. COMMITMENTS AND CONTINGENT LIABILITIES

Derivative held or issued for hedging purposes As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its exposure to currency risk.

The Group uses forward foreign exchange contracts to hedge against specifically identified currency risks.

The Bank uses forward foreign exchange contracts (to sell Euros and buy US Dollars) to hedge its net investment in a foreign subsidiary denominated in Euro and amounting to Euro 107,904 thousand (2006: same). The notional amount of these contracts amounted to Euro 107,900 thousand as at 31 December 2007 (2006: same). The forward foreign exchange contracts were revalued as of 31 December 2007 and resulted in unrealized losses of LL 8,472 million (2006: LL 3,566 million), refer to note 31. The contracts mature on 30 April 2008 at latest.

44. COMMITMENTS AND CONTINGENT LIABILITIES

Credit – related commitments Credit-related commitments include commitments to extend credit, standby letters of credit, guarantees and acceptances which are designed to meet the requirements of the Group's customers. Letters of credit, guarantees (including standby letters of credit), and acceptances commit the Group to make payments on behalf of customers contingent upon the failure of the customer to perform under the terms of the contract. Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiration dates, or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.

132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The Group has the following credit related commitments: 2007 2006 LL million LL million

Commitments on behalf of customers: Letters of credit 359,374 307,186 Letters of guarantees 786,996 689,528 1,146,370 996,714 Authorized but unutilized facilities 1,358,444 986,641 2,504,814 1,983,355

Please refer to note 21 for acceptances outstanding as of 31 December 2007 and 2006 respectively.

Capital and operating lease commitments The commitments on capital expenditures and operating lease commitments at the balance sheet date, which were not provided for, were as follows:

2007 2006 LL million LL million

Capital commitments Tangible fixed assets purchases 82,172 48,513

Operating lease commitments Minimum payments for future lease contracts: During one year 3,531 2,362 More than 1 year and less than five years 13,980 9,015 More than five years 13,192 8,649

Total operating lease commitments at the balance sheet date 30,703 20,026

133 45. SEGMENTAL INFORMATION 46. FIDUCIARY DEPOSITS, ASSETS UNDER MANAGEMENT AND CUSTODY ACCOUNTS 47. CONCENTRATION OF ASSETS, LIABILITIES AND OFF BALANCE SHEET ITEMS

45. SEGMENTAL INFORMATION

The Group operates in two geographic markets based on the location of its markets and customers. The local market represents the Lebanese market and the international market represents markets outside Lebanon. The following table shows the distribution of the Group’s gross income, total assets and capital expenditure by geographical segment:

Domestic International Total

2007 2006 2007 2006 2007 2006 LL million LL million LL million LL million LL million LL million

Net interest received 288,335 256,369 167,777 150,886 456,112 407,255 Net provisions less recoveries on loans and advances 12,102 8,620 (667) (9,428) 11,435 (808) Revenues from shares and financial assets with variable income 524 329 445 794 969 1,123 Net commissions 44,650 33,424 44,730 43,565 89,380 76,989 Net profit from financial operations 21,812 12,906 17,856 13,893 39,668 26,799 Other operating income 16,247 16,930 8,371 5,464 24,618 22,394

Gross income 383,670 328,578 238,512 205,174 622,182 533,752

Operating expenses and amortization and depreciation (156,777) (134,846) (86,469) (76,210) (243,246) (211,056) Net provisions less recoveries on financial fixed assets - - - 395 - 395 Provisions for contingent liabilities (23) (3) (13,327) (1,455) (13,350) (1,458)

Profit before tax 226,870 193,729 138,716 127,904 365,586 321,633

Total assets 12,837,800 10,953,024 12,229,214 10,471,587 25,067,014 21,424,611

Total liabilities 12,411,356 11,240,625 10,563,249 8,267,442 22,974,605 19,508,067

Capital expenditures 31,071 18,094 53,065 31,482 84,136 49,576

The Group’s major business segment is banking. Insurance activities represent 1.71% of profit before income tax and 1% of total assets.

46. FIDUCIARY DEPOSITS, ASSETS UNDER MANAGEMENT AND CUSTODY ACCOUNTS

2007 2006 LL million LL million

Fiduciary deposits 3,959,136 2,774,360

Fiduciary accounts include notes, checks, policies, treasury bills/bonds, shares and documents for col - lection held by the Group to the order of third parties. 134 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

47. CONCENTRATION OF ASSETS, LIABILITIES AND OFF BALANCE SHEET ITEMS

Concentrations arise when a number of counter parties are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance developments affecting a particular industry or geographic location.

The distribution of assets, liabilities, and off-balance sheet items by geographic region was as follows:

2007 2006

Assets Liabilities Off-balance Assets Liabilities Off-balance LL million LL million sheet LL million LL million sheet LL million LL million Geographical Location Lebanon 12,837,800 12,411,356 5,078,702 10,953,024 11,240,625 1,719,322 Outside Lebanon 12,229,214 10,563,249 3,147,142 10,471,587 8,267,442 4,216,166 25,067,014 22,974,605 8,225,844 21,424,611 19,508,067 5,935,488

135 48. BALANCE SHEET BY CATEGORY

48. BALANCE SHEET BY CATEGORY

31 December 2007

Loans Available Fair value Held for Derivatives Amortized cost Non Total and receivables for sale through trading designated LL million financial LL million LL million LL million profit or loss LL million as hedging assets and LL million instruments liabilities and LL million others LL million Assets Cash and balances with the Central Banks 6,330,031 ------6,330,031 Lebanese and other governmental treasury bills and bonds - 5,003,374 - 76,949 - - - 5,080,323 Bonds and financial assets with fixed income 226,241 872,185 45,470 21,244 - - - 1,165,140 Shares, securities and financial assets with variable income - 5,213 - 6,512 - - - 11,725 Deposits with banks and financial institutions 7,536,533 ------7,536,533 Loans and advances to customers 4,179,307 ------4,179,307 Bank acceptances 245,357 ------245,357 Investments and loans to related parties - 1,684 - - - - 25,524 27,208 Tangible fixed assets ------272,642 272,642 Intangible fixed assets ------4,459 4,459 Other assets - - 17,600 - - - 16,616 34,216 Regularization accounts and other debit accounts ------105,820 105,820 Out of which: Revaluation variance on foreign exchange forward contracts hedging operations related to the Group’s customers - - - 13,667 - - - 13,667 Goodwill ------60,586 60,586 18,517,469 5,882,456 63,070 118,372 - - 485,647 25,067,014 Liabilities Due to banks and other financial institutions - - - - - 1,555,914 - 1,555,914 Customers’ deposits - - - - - 20,708,516 - 20,708,516 Engagements by acceptances - - - - - 245,357 - 245,357 Other liabilities ------194,460 194,460 Regularization accounts and other credit accounts - - - - 8,472 - 181,320 189,792 Provisions for risks and charges ------80,566 80,566 - - - - 8,472 22,509,787 456,346 22,974,605

136 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

31 December 2006

Loans Available Fair value Held for Derivatives Amortized cost Non Total and receivables for sale through trading designated LL million financial LL million LL million LL million profit or loss LL million as hedging assets and LL million instruments liabilities and LL million others LL million Assets Cash and balances with the Central Banks 6,246,406 ------6,246,406 Lebanese and other governmental treasury bills and bonds - 3,424,372 - 50,548 - - - 3,474,920 Bonds and financial assets with fixed income 246,599 139,501 - - - - - 386,100 Shares, securities and financial assets with variable income - 3,455 - 4,948 - - - 8,403 Deposits with banks and financial institutions 7,754,284 ------7,754,284 Loans and advances to customers 2,996,698 ------2,996,698 Bank acceptances 173,260 ------173,260 Investments and loans to related parties - 1,730 - - - - 1,490 3,220 Tangible fixed assets ------219,372 219,372 Intangible fixed assets ------2,845 2,845 Other assets - - 16,751 - - - 16,964 33,715 Regularization accounts and other debit accounts - - - - 156 - 60,351 60,507 Out of which: Revaluation variance on foreign exchange forward contracts hedging operations related to the Group’s customers - - - 901 - - - 901 Goodwill ------63,980 63,980 17,417,247 3,569,058 16,751 56,397 156 - 365,002 21,424,611 Liabilities Due to banks and other financial institutions - - - - - 1,308,844 - 1,308,844 Customers’ deposits - - - - - 17,690,381 - 17,690,381 Engagements by acceptances - - - - - 173,260 - 173,260 Other liabilities ------141,067 141,067 Regularization accounts and other credit accounts - - - - 3,566 - 126,303 129,869 Provisions for risks and charges ------64,646 64,646 - - - - 3,566 19,172,485 332,016 19,508,067

137 49. FAIR VALUE OF THE FINANCIAL INSTRUMENTS

49. FAIR VALUE OF THE FINANCIAL INSTRUMENTS

The following table shows the difference between the carrying values and fair values for the financial assets and liabilities classified in the balance sheet. This table does not show the fair values of non-financial assets and liabilities.

2007 2006

Carrying value Fair Unrecognized Carrying value Fair Unrecognized LL million value gains (losses) LL million value gains (losses) LL million LL million LL million LL million

Financial assets Cash and balances with the Central Banks 6,330,031 6,418,226 88,195 6,246,406 6,389,936 143,530 Lebanese and other government treasury bills and bonds 5,080,323 5,080,323 - 3,474,920 3,474,920 - Bonds and financial assets with fixed income 1,165,140 1,163,720 (1,420) 386,100 384,700 (1,400) Shares, securities and financial assets with variable income 11,725 11,725 - 8,403 8,403 - Banks and financial institutions 7,536,533 7,543,196 6,663 7,754,284 7,755,827 1,543 Loans and advances to customers 4,179,307 4,182,755 3,448 2,996,698 3,020,631 23,933 Bank acceptances 245,357 245,357 - 173,260 173,260 - Investments and loans to related parties 27,208 27,208 - 3,220 3,220 -

Financial liabilities Banks and financial institutions 1,555,914 1,555,911 (3) 1,308,844 1,308,844 - Customers’ deposits 20,708,516 20,667,815 (40,701) 17,690,381 17,658,161 (32,220) Engagements by acceptances 245,357 245,357 - 173,260 173,260 -

Total unrecognized change in unrealized fair value 56,182 135,386

The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements:

Assets for which fair value approximates carrying value For financial assets and financial liabilities that are liquid or having a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments.

138 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Fixed rate financial instruments The fair value of fixed rate financial assets and liabilities carried at amortized cost are estimated by comparing market interest rates when they were first recognized with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity. For quoted debt issued the fair values are calculated based on quoted market prices. For those notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity.

Financial instruments recorded at fair value The following table shows an analysis of financial instruments recorded at fair value, between those whose fair value is based on quoted market prices and those involving valuation techniques where all the model inputs are observable in the market.

2007 2006 Quoted market Valuation Unquoted Total Quoted market Valuation Unquoted Total prices techniques - LL million LL million prices techniques - LL million LL million LL million market LL million market observable observable inputs inputs LL million LL million Financial assets Lebanese and other governmental treasury bills and bonds 2,181,751 2,765,927 132,645 5,080,323 1,285,169 1,946,083 243,668 3,474,920 Bonds and financial assets with fixed income 894,568 - 44,331 938,899 95,288 - 44,213 139,501 Shares, securities and financial assets with variable income 6,734 - 4,991 11,725 5,225 - 3,178 8,403 Investments and loans to related parties - - 1,684 1,684 - - 1,730 1,730 3,083,053 2,765,927 183,651 6,032,631 1,385,682 1,946,083 292,789 3,624,554

The unquoted financial instruments that are stated at cost approximately equal to fair value.

139 50. RISK MANAGEMENT

50. RISK MANAGEMENT

The Bank manages its business activities within risk management guidelines as set by the Group’s “risk management policy” approved by the board of directors. The Bank recognizes the role of the board of directors and executive management in the risk management process as set out in the Banking Control Commission circular 242. In particular, it is recognized that ultimate responsibility for establishment of effective risk management practices and culture lies with the board of directors as does the setting up of Bank’s risk appetite and tolerance levels. The board of directors delegates through its risk manage - ment committee the day–to–day responsibility for establishment and monitoring of risk management process across the Bank’s group to the head of risk management, who is directly appointed by the board of directors, in coordination with executive management at BLOM Bank SAL.

The Group is exposed to credit risk, liquidity risk, market risk and operational risk.

The board’s risk management committee has the mission to periodically (1) review and assess the risk management function to the Group, (2) review the adequacy of the Bank’s capital and its allocation within the Group, and (3) review risk limits and reports and make recommendations to the Board.

The head of risk management undertakes his responsibilities through the “Risk Management Department”, with its employees reporting directly to the head of risk management. The risk manager is responsible for establishing the function of the department and its employees.

BLOM Bank’s risk management department aids executive management in controlling and actively man - aging the Group’s overall risk. The department mainly ensures that:

- Risk policies and methodologies are consistent with the Group’s risk appetite. - Limits and risk across banking activities are monitored throughout the Group.

Through a comprehensive risk management framework, transactions and outstanding risk exposures are quantified and compared against authorized limits, whereas non-quantifiable risks are monitored against policy guidelines as set by the Group’s “Risk Management Policy”. Any discrepancies, breaches or devi - ations are escalated to executive senior management in a timely manner for appropriate action.

140 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

In addition to the Group’s risk management in Lebanon, risk managers and / or risk officers were assigned within the Group’s foreign subsidiaries or branches to report to the department and executive senior management in a manner that ensures: - Standardization of risk management functions and systems developed across the Group. - Regional consistency of conducted business in line with the board’s approved risk appetite.

In respect to Basel 2 capital adequacy ratio calculations, risk management started, since December 2004 consolidated balances, to issue internal reports to executive management and the board revealing multiple scenarios of capital adequacy calculations for credit and market risks under the standardized approaches and for operational risk under the basic indicator approach. In addition, the Bank sent to the Banking Control Commission a quantitative impact study for the Basel 2 capital adequacy calculations for June 2007 balances revealing a ratio well above the minimum international requirement of 8%.

50.1 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by moni toring credit exposures, limiting transactions with specific counter parties, and continuously assessing the creditworthiness of counter parties.

The Group manages credit risk by setting limits for individual borrowers and groups of borrowers and for geographical and industry segments. In addition the Group obtains security where appropriate.

The debt securities included in investments are mainly sovereign risk and standard grade securities. Analysis of investments by counterparty is provided in notes 16 and 17. For details of the composition of the loans and advances refer to note 20. Information on credit risk relat - ing to derivative instruments is provided in note 43 and for commitments and contingencies in note 44. The information on the Group’s net maximum exposure by economic sectors is given in note (A) below.

The Group maintains a general credit risk policy that is in compliance with the Group’s general risk management related to the Group’s credit transactions. It consists of the following: - The permissible activities, segments, programs and services that the Group intends to deliver and the acceptable limits; - The mechanism of the approval on credit-facilities; - The mechanism for managing and following up credit-facilities; and - The required actions for analyzing and organizing credit files.

141 50. RISK MANAGEMENT

The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counter parties, and continually assessing the creditworthiness of counter parties. The Group’s risk management are designed to identify and to set appropriate risk limits and to monitor the risk adherence to limits. Actual exposures against limits are monitored daily, monthly and peri odically. Risk management is responsible for monitoring the risk profile of the Group’s loan portfolio by producing internal reports highlighting any exposure of concern in corporate, commercial and consumer lending. The Group examines the level of concentration whether by credit quality, client groupings or economic sector and collateral coverage. Further, the Group monitors non-performing loans and takes the required provisions for these loans.

The Group in the ordinary course of lending activities holds collaterals and guarantees as security to mitigate credit risk in the loans and advances. These collaterals mostly include cash collateral, quoted shares and debt securities, real estate mortgages, personal guarantees and others. In addition, the collection unit in the Group dynamically manages and takes remedial actions for non-performing loans.

The Group uses an internal classification system based on risk ratings for its corporate and middle market customers. The risk rating system, which is managed by an independent unit, provides a rating based on client and transaction level. The classification system includes six grades, of which three grades relate to the performing portfolio (regular credit facilities: risk rating “1” and “2” and special mention – watch list: risk rating “3”), one grade relates to substandard loans (risk rating “4”) and two grades relate to non-performing loans (risk rating “5” and “6”). Credit cards, personal loans, car loans, housing loans and other loans related to these loans are classified as regular as they are per forming and have timely repayment with no past dues; except for those loans that have unsettled bills due for more than 90 days. Each individual borrower is rated based on an internally developed debt rating model that evaluates risk based on financial as well as qualitative inputs. The associated loss estimate norms for each grade have been calculated based on the Group’s historical default rates for each rating. These risk ratings are reviewed on a regular basis.

As for credit rating system, the Bank is implementing the Moody’s KMV Risk Advisor for credit analysis and rating systems for corporate and commercial borrowers, in order to aid the Group in moving at a later stage to internal rating-based measurements under Basel 2. The Bank has obtained a license from Moody’s KMV to implement this system on the whole Group.

142 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

A- Maximum exposure to credit risk An analysis of the Group’s financial assets before and after taking into account collateral held or other credit enhancements, is as follows:

2007 2006 Gross maximum Net maximum Gross maximum Net maximum exposure exposure exposure exposure LL million LL million LL million LL million

Balances with the Central Banks 6,201,948 6,201,948 6,153,639 6,153,639 Lebanese and other governmental treasury bills and bonds 5,080,323 5,080,323 3,474,920 3,474,920 Bonds and financial assets with fixed income 1,165,140 1,165,140 386,100 386,100 Shares, securities and financial assets with variable income 11,725 11,725 8,403 8,403 Banks and financial institutions 7,536,533 7,478,790 7,754,284 7,697,175 Loans and advances to customers 4,179,307 1,706,143 2,996,698 1,448,185 Bank acceptances 245,357 - 173,260 - Investments and loans to related parties 2,286 2,286 2,269 2,269 Other assets 34,216 34,216 33,715 33,715 Regularization accounts and other debit accounts 119,487 119,487 61,408 61,408 24,576,322 21,800,058 21,044,696 19,265,814 Contingent liabilities 1,146,370 990,776 996,714 802,395 Commitments 1,358,444 603,691 986,641 517,852 2,504,814 1,594,467 1,983,355 1,320,247 Total credit exposure 27,081,136 23,394,525 23,028,051 20,586,061

For on-balance sheet financial assets, the exposures set out above are based on net carrying amount as reported in the balance sheet.

143 50. RISK MANAGEMENT

Collateral and other credit enhancements The amount, type and valuation of collateral is based on guidelines specified in the risk management framework. The main types of collateral obtained include real estate, quoted shares, cash collateral and bank guarantees.

The revaluation and custody of collaterals are performed independent of the business units.

B- Risk concentrations of maximum exposure to credit risk

2007

Domestic International Total LL million LL million LL million Balances with the Central Banks 4,567,394 1,634,554 6,201,948 Lebanese and other governmental treasury bills and bonds 4,836,164 244,159 5,080,323 Bonds and financial assets with fixed income 163,843 1,001,297 1,165,140 Shares, securities and financial assets with variable income 6,990 4,735 11,725 Banks and financial institutions 584,437 6,952,096 7,536,533 Loans and advances to customers 2,322,535 1,856,772 4,179,307 Bank acceptances 103,956 141,401 245,357 Investments and loans to related parties 1,651 635 2,286 Other assets 24,019 10,197 34,216 Regularization accounts and other debit accounts 50,380 69,107 119,487 12,661,369 11,914,953 24,576,322 Contingent liabilities 200,998 945,372 1,146,370 Commitments 1,078,209 280,235 1,358,444 1,279,207 1,225,607 2,504,814 Total credit exposure 13,940,576 13,140,560 27,081,136

2006

Domestic International Total LL million LL million LL million Balances with the Central Banks 5,238,073 915,566 6,153,639 Lebanese and other governmental treasury bills and bonds 3,240,591 234,329 3,474,920 Bonds and financial assets with fixed income 209,663 176,437 386,100 Shares, securities and financial assets with variable income 5,506 2,897 8,403 Banks and financial institutions 552,752 7,201,532 7,754,284 Loans and advances to customers 1,396,537 1,600,161 2,996,698 Bank acceptances 89,450 83,810 173,260 Investments and loans to related parties 1,651 618 2,269 Other assets 32,647 1,068 33,715 Regularization accounts and other debit accounts 35,424 25,984 61,408 10,802,294 10,242,402 21,044,696 Contingent liabilities 191,242 805,472 996,714 Commitments 664,879 321,762 986,641 856,121 1,127,234 1,983,355 Total credit exposure 11,658,415 11,369,636 23,028,051

144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

C- Credit quality per class of financial assets

In managing its portfolio, the Group utilizes ratings and other measures and techniques which seek to take account of all aspects of perceived risk. Credit exposures classified as “High” quality are those where the ultimate risk of financial loss from the obligor’s failure to discharge its obligation is assessed to be low. These include facilities to corporate entities with financial condition, risk indicators and capacity to repay which are considered to be good to excellent. Credit exposures classified as “Standard” quality comprise all other facilities whose payment performance is fully compliant with contractual conditions and which are not “impaired”. The ultimate risk of possible financial loss on “Standard” quality is assessed to be higher than that for the exposures classified within the “High” quality range.

The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit quality by class of financial asset for balance sheet lines, based on the Group’s credit rating system 2007 Neither past due nor impaired High Standard Past due but Past due and Total grade grade not impaired impaired LL million LL million LL million LL million LL million

Lebanese and other governmental treasury bills and bonds 5,080,323 - - - 5,080,323 Bonds and financial assets with fixed income 1,165,140 - - - 1,165,140 Shares, securities and financial assets with variable income 11,725 - - - 11,725 Banks and financial institutions 7,536,533 - - - 7,536,533 Loans and advances to customers 3,968,942 105,078 35,095 70,192 4,179,307 Bank acceptances 245,357 - - - 245,357 Investments and loans to related parties 2,286 - - - 2,286 18,010,306 105,078 35,095 70,192 18,220,671

2006 Neither past due nor impaired High Standard Past due but Past due and Total grade grade not impaired impaired LL million LL million LL million LL million LL million

Lebanese and other governmental treasury bills and bonds 3,474,920 - - - 3,474,920 Bonds and financial assets with fixed income 386,100 - - - 386,100 Shares, securities and financial assets with variable income 8,403 - - - 8,403 Banks and financial institutions 7,754,284 - - - 7,754,284 Loans and advances to customers 2,840,945 60,864 34,349 60,540 2,996,698 Bank acceptances 173,260 - - - 173,260 Investments and loans to related parties 2,269 - - - 2,269 14,640,181 60,864 34,349 60,540 14,795,934

145 50. RISK MANAGEMENT

D- Aging analysis of past due but not impaired loans

2007

Less than More than 90 Total 90 days days LL million LL million LL million

Loans and advances to customers 13,048 22,047 35,095

2006

Less than More than 90 Total 90 days days LL million LL million LL million

Loans and advances to customers 13,792 20,557 34,349

Impairment assessment The main considerations for the loan impairment assessment include whether any payments of principal or interest are overdue by more than 90 days or there are any known difficulties in the cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract. The Group addresses impairment assessment in two areas: individually assessed allowances and collectively assessed allowances.

Individually assessed allowances The Group determines the allowances appropriate for each individually significant loan or advance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support and the realisable value of collateral, and the timing of the expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Collectively assessed allowances Allowances are assessed collectively for losses on loans and advances that are not individually significant (including credit cards, housing loans and unsecured consumer lending) and for individually significant loans and advances where there is not yet objective evidence of individual impairment. Allowances are evaluated on each reporting date with each portfolio receiving a separate review.

146 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is not yet objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking into consideration of the following information: historical losses on the portfolio, current economic conditions, the approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance, and expected receipts and recoveries once impaired. Management is responsible for deciding the length of this period which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Group’s overall policy. Financial guarantees and letters of credit are assessed and provision made in a similar manner as for loans.

E- Credit quality using external risk ratings

2007

Moody’s S & P Total risk equivalent equivalent LL million grades grades

High grade Risk rating class 1 Aaa AAA 247,553 Risk rating class 2 Aa1 – A3 AA+ to A3 7,227,824 Risk rating class 3 Baa1 – Baa2 BBB+ to BBB 1,013,378 Risk rating class 4 Baa3 BBB- 74,902

Standard grade Risk rating class 5 Ba1 BB+ - Risk rating class 6 Ba2 – Ba3 BB to BB- 116,132 Risk rating class 7 B1 – B2 B+ to B 11,922

Sub-standard grade Risk rating class 8 B3 B- 9,449,028 Risk rating class 9 Caa – C CCC+ to C -

Impaired Risk rating class 10 D - 274,244

Unclassified 8,666,153 27,081,136

147 50. RISK MANAGEMENT

50.2 Liquidity Risk

Liquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due under normal and stress circumstances. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, manages assets with liquidity in mind, maintaining a healthy balance of cash and cash equivalents and readily marketable securities.

The management of liquidity risk is currently governed by the Group’s Assets and Liabilities Management policy. The main objectives converge around the following:

- Set targets and ranges for key balance sheet or income statement ratios to assure that the needed liquidity capacity of the Group is maintained at all times, while providing sufficient flexibility to enable the Group to address short term fluctuations in liquidity pressures. - Provide general guidance on the sequence to be followed in drawing on the Group’s funding sources to meet a liquidity drain. - Review the current and prospective liquidity positions and monitor alternative funding sources. - Develop parameters for the pricing and maturity distributions of deposits, loans and investments. - Promulgate a contingency liquidity plan that identifies early indicators of stress conditions and describe actions to be taken in the event of financial difficulties arising from systemic or other crises, while minimizing adverse long-term implications for the Group’s business.

In accordance with Lebanese banking rules and regulations, the Group maintains a non-interest bearing balances at the Bank of Lebanon calculated on the basis of 25% of sight commitments and 15% of term commitments in Lebanese Lira. Regarding foreign currencies, the Group maintains interest-bearing placements at the Bank of Lebanon at the rate of 15% of total deposits in foreign currencies regardless of nature. Foreign subsidiaries are also subject to obligatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are locates.

The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. One of these methods is to maintain limits on the ratio of liquid assets to customers’ deposits, set to reflect market conditions. Net liquid assets consist of cash and balances with the Central Banks, deposits with banks and financial institutions, Lebanese and other governmental treasury bills and bonds less deposits due to banks and financial institutions due to mature within the next month. The ratio during the year was as follows:

148 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

2007 % 2006 %

At 31 December 33.79 36.48 Average during the year 33.79 36.83 Highest 35.15 37.83 Lowest 32.29 36.19

50.2.1 Analysis of financial liabilities by remaining contractual maturities

The table below summarizes the maturity profile of the Group’s financial liabilities at 31 December 2007 and 2006 based on contractual undiscounted repayment obligations. As the special commission payments up to contractual maturity are included in the table, totals do not match with the balance sheet. The contractual maturities of liabilities have been deter mined on the basis of the remaining period at the consolidated balance sheet date to the con tractual maturity date and do not take into account the effective expected maturities as shown on note 50-2-2 below (maturity analysis of assets and liabilities). Repayments which are subject to notice are treated as if notice were being given immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group’s deposit retention history.

31 December 2007

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total month months months years years LL million LL million LL million LL million LL million LL million

Due to banks and financial institutions 1,487,146 2,414 8,295 12,924 48,052 1,558,831 Customers’ deposits 15,507,373 4,049,966 1,095,153 155,694 12,635 20,820,821 Engagements by acceptances 72,930 119,773 50,400 2,254 - 245,357

Total undiscounted financial liabilities 17,067,449 4,172,153 1,153,848 170,872 60,687 22,625,009

149 50. RISK MANAGEMENT

31 December 2006

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total month months months years years LL million LL million LL million LL million LL million LL million

Due to banks and financial institutions 1,298,281 226 12,908 - - 1,311,415 Customers’ deposits 13,267,629 3,399,508 1,079,216 21,775 - 17,768,128 Engagements by acceptances 49,543 123,717 - - - 173,260

Total undiscounted financial liabilities 14,615,453 3,523,451 1,092,124 21,775 - 19,252,803

The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments:

2007

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total month months months years years LL million LL million LL million LL million LL million LL million

Contingent liabilities 1,146,370 - - - - 1,146,370 Commitments 1,358,444 - - - - 1,358,444 Foreign currencies to receive against foreign currencies to deliver - 2,740,679 201,870 - - 2,942,549 2,504,814 2,740,679 201,870 - - 5,447,363

2006

Up to 1 1 to 3 3 to 12 1 to 5 Over 5 Total month months months years years LL million LL million LL million LL million LL million LL million

Contingent liabilities 996,714 - - - - 996,714 Commitments 986,641 - - - - 986,641 Foreign currencies to receive against foreign currencies to deliver - 887,354 1,259,401 - - 2,146,755 1,983,355 887,354 1,259,401 - - 4,130,110

150 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.

50.2.2 Maturity analysis of assets and liabilities

The table below shows an analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled. See note 50-2-1 above for the Group’s contractual undiscounted financial liabilities.

The maturity profile of the Group’s assets and liabilities as at 31 December 2007 is as follows:

Less Than one year More Than one year

(1-2) years Over 5 years Total Up to 1 1 to 3 3 months Subtotal (2-5) years Subtotal LL million LL million month months To 1 Year LL million LL million LL million LL million LL million LL million LL million ASSETS Cash and balances with the Central Banks 1,998,077 114,458 303,205 2,415,740 878,256 2,263,172 772,863 3,914,291 6,330,031 Lebanese and other governmental treasury bills and bonds 235,026 115,423 760,030 1,110,479 1,133,887 2,236,508 599,449 3,969,844 5,080,323 Bonds and financial assets with fixed income 10,266 30,139 106,403 146,808 45,298 272,862 700,172 1,018,332 1,165,140 Shares, securities and financial assets with variable income ------11,725 11,725 11,725 Banks and financial institutions 6,224,244 827,810 89,451 7,141,505 309,094 42,188 43,746 395,028 7,536,533 Loans and advances to customers 1,695,238 307,679 985,520 2,988,437 309,057 742,703 139,110 1,190,870 4,179,307 Bank acceptances 72,930 119,773 50,400 243,103 2,254 - - 2,254 245,357 Investments and loans to related parties ------27,208 27,208 27,208 Tangible fixed assets ------272,642 272,642 272,642 Intangible fixed assets ------4,459 4,459 4,459 Other assets 26,959 23 111 27,093 - 21 7,102 7,123 34,216 Regularization accounts and other debit accounts 80,315 15,368 23,656 119,339 133 15 - 148 119,487 Goodwill ------60,586 60,586 60,586 TOTAL ASSETS 10,343,055 1,530,673 2,318,776 14,192,504 2,677,979 5,557,469 2,639,062 10,874,510 25,067,014

LIABILITIES Banks and financial institutions 1,469,530 22,204 18,955 1,510,689 - - 45,225 45,225 1,555,914 Customers’ deposits 15,398,393 4,112,411 1,053,796 20,564,600 59,151 72,794 11,971 143,916 20,708,516 Engagements by acceptances 72,930 119,773 50,400 243,103 2,254 - - 2,254 245,357 Other liabilities 68,118 69,211 55,498 192,827 1,633 - - 1,633 194,460 Regularization accounts and other credit accounts 156,888 28,957 2,815 188,660 890 - 242 1,132 189,792 Provisions for risks and charges 3,954 - - 3,954 - - 76,612 76,612 80,566 TOTAL LIABILITIES 17,169,813 4,352,556 1,181,464 22,703,833 63,928 72,794 134,050 270,772 22,974,605 NET LIQUIDITY GAP (6,826,758) (2,821,883) 1,137,312 (8,511,329) 2,614,051 5,484,675 2,505,012 10,603,738 2,092,409

151 50. RISK MANAGEMENT

The maturity profile of the Group’s assets and liabilities as at 31 December 2006 is as follows:

Less Than one year More Than one year

Total Up to 1 1 to 3 3 months Subtotal (1-2) years (2-5) years Over 5 years Subtotal month months To 1 Year LL million LL million LL million LL million LL million LL million LL million LL million LL million

ASSETS Cash and balances with the Central Banks 1,072,713 615,949 501,454 2,190,116 889,808 2,401,613 764,869 4,056,290 6,246,406 Lebanese and other governmental treasury bills and bonds 41,070 37,203 361,973 440,246 618,269 1,986,939 429,466 3,034,674 3,474,920 Bonds and financial assets with fixed income 18,320 1,478 62,400 82,198 70,940 178,830 54,132 303,902 386,100 Shares, securities and financial assets with variable income ------8,403 8,403 8,403 Banks and financial institutions 6,603,818 769,183 191,821 7,564,822 183,161 - 6,301 189,462 7,754,284 Loans and advances to customers 1,567,276 248,809 653,964 2,470,049 196,263 243,461 86,925 526,649 2,996,698 Bank acceptances 49,543 123,717 - 173,260 - - - - 173,260 Investments and loans to related parties ------3,220 3,220 3,220 Tangible fixed assets ------219,372 219,372 219,372 Intangible fixed assets ------2,845 2,845 2,845 Other assets 21,542 6,144 - 27,686 - - 6,029 6,029 33,715 Regularization accounts and other debit accounts 47,778 7,787 5,469 61,034 152 16 206 374 61,408 Goodwill ------63,980 63,980 63,980 TOTAL ASSETS 9,422,060 1,810,270 1,777,081 13,009,411 1,958,593 4,810,859 1,645,748 8,415,200 21,424,611

LIABILITIES Banks and financial institutions 1,282,646 13,808 12,390 1,308,844 - - - - 1,308,844 Customers’ deposits 13,311,728 3,321,788 1,051,578 17,685,094 5,287 - - 5,287 17,690,381 Engagements by acceptances 49,543 123,717 - 173,260 - - - - 173,260 Other liabilities 38,502 55,213 47,352 141,067 - - - - 141,067 Regularization accounts and other credit accounts 98,906 15,345 8,934 123,185 2,968 43 3,673 6,684 129,869 Provisions for risks and charges ------64,646 64,646 64,646 TOTAL LIABILITIES 14,781,325 3,529,871 1,120,254 19,431,450 8,255 43 68,319 76,617 19,508,067 NET LIQUIDITY GAP (5,359,265) (1,719,601) 656,827 (6,422,039) 1,950,338 4,810,816 1,577,429 8,338,583 1,916,544

50.3 Market risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market prices. Market risks arise from open positions in interest rate and currency rate , all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates and foreign exchange rates.

152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Risk management is responsible for generating internal reports quantifying the Group’s earnings at risk due to extreme movements in interest rates, while daily monitoring the sensitivity of the Group’s trading portfolio of fixed income securities to changes in market prices and / or market parameters. Interest rate sensitivity gaps are reported to executive management and to the Banking Control Commission unconsolidated on a monthly basis and consolidated (Group level) on a semi- annual basis. The Bank’s Asset and Liability Management (ALM) policy assigns authority for its formulation, revision and administration to the Asset / Liability Management Committee (ALCO) of BLOM Bank SAL. Risk management will be responsible for monitoring compliance with all limits set in the ALM policy ranging from core foreign currency liquidity to liquidity mismatch limits to interest sensitivity gap limits. The Bank is also in the process of implementing the newly acquired Asset and Liability Management system “Focus ALM” aimed at automating the management of the Bank’s assets and liabilities from a static and dynamic perspectives including stress testing and extensive scenario analysis.

50-3-1 Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities and off-balance sheet items that mature or reprice in a given period. The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies.

Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group’s income statement or statement of changes in equity.

The sensitivity of the income statement is the effect of the assumed changes in interest rates on the net interest income for one year, based on the floating rate non-trading financial assets and financial liabilities held at the year end, including the effect of hedging instruments. The sensitivity of equity is calculated by revaluing the available for sale investments, based on the assumption that there are parallel shifts in the yield curve.

153 50. RISK MANAGEMENT

The sensitivity of equity is analyzed by maturity of the assets or cash flow hedge swaps. All the non-trading book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are disclosed in local currency. ThesensitivityanalysisdoesnottakeaccountofactionbytheGroupthatmightbetakentomitigatetheeffectofsuchchanges.

Sensitivity of equity

Increase Sensitivity of 0 to 6 months 6 months to 1 (1 – 5) More than 5 Total in basis points net interest LL million year years years LL million income LL million LL million LL million LL million 2007 Currency Lebanese Lira 0.50% (4,756) (4,559) (3,777) (10,681) - (19,017) United States Dollar 0.50% 2,655 (3,225) (3,873) (22,967) (11,392) (41,457) Euro 0.25% 735 (85) (90) (73) - (248) Others 0.25% 1,049 (101) (101) (582) (214) (998) Sensitivity of equity

Decrease Sensitivity of 0 to 6 months 6 months to 1 (1 – 5) More than 5 Total in basis points net interest LL million year years years LL million income LL million LL million LL million LL million 2007 Currency Lebanese Lira -0.50% 4,756 4,694 3,899 11,408 - 20,001 United States Dollar -0.50% (2,655) 9,279 7,844 38,974 15,099 71,196 Euro -0.25% (735) 169 140 114 - 423 Others -0.25% (1,049) 102 102 591 218 1,013

Sensitivity of equity

Increase Sensitivity of 0 to 6 months 6 months to 1 (1 – 5) More than 5 Total in basis points net interest LL million year years years LL million income LL million LL million LL million LL million 2006 Currency Lebanese Lira 0.50% (6,243) (4,293) (4,221) (9,004) - (17,518) United States Dollar 0.50% 7,261 (1,554) (1,554) (8,567) (3,202) (14,877) Euro 0.25% 1,144 (84) (84) (198) - (366) Others 0.25% 1,202 (107) (48) (305) (115) (575) Sensitivity of equity

Decrease Sensitivity of 0 to 6 months 6 months to 1 (1 – 5) More than 5 Total in basis points net interest LL million year years years LL million income LL million LL million LL million LL million 2006 Currency Lebanese Lira -0.50% 6,243 4,345 4,264 9,133 - 17,742 United States Dollar -0.50% (7,261) 3,211 3,211 15,816 4,574 26,812 Euro -0.25% (1,144) 170 169 406 - 745 Others -0.25% (1,202) 96 48 310 117 571

154 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

Effective interest rates of financial instruments

The effective interest rates by major currencies for each of the monetary financial instru - ments are as follows:

LL Other currencies % % ASSETS Central banks and other banks 4 – 5 5 – 6 Lebanese and other governmental treasury bills and bonds 8.25 – 9.25 7.75 – 8.25 Bonds and financial assets with fixed income 11.5 – 12.5 7.5 – 8 Loans and advances to customers 11 – 12 8 – 8.5

LIABILITIES Banks and financial institutions 5 – 6 4.5 – 5 Customers’ deposits 7.5 – 8.5 4.75 – 5.25

155 50. RISK MANAGEMENT

Interest rate sensitivity gap

The Group’s interest rate sensitivity position based on contractual repricing arrangements or maturity as at 31 December 2007 has been shown in the table below.

Up to 1 to 3 months (1 – 2) (2 – 5) More than Non interest Total 1 month 3 months to 1 year years years 5 years sensitive LL million LL million LL million LL million LL million LL million LL million LL million

ASSETS Cash and balances with the Central Banks 984,113 88,314 279,400 878,256 2,176,206 772,863 1,150,879 6,330,031 Lebanese and other governmental treasury bills and bonds 217,525 78,264 716,789 1,133,887 2,236,509 599,449 97,900 5,080,323 Bonds and financial assets with fixed income 7,537 28,617 100,096 43,996 272,199 699,866 12,829 1,165,140 Shares, securities and financial assets with variable income 1,770 - - 2,729 - - 7,226 11,725 Banks and financial institutions 5,899,948 821,991 87,177 309,094 42,188 43,746 332,389 7,536,533 Loans and advances to customers 1,392,262 305,829 933,274 306,435 967,822 84,740 188,945 4,179,307 Bank acceptances - - 8,079 - - - 237,278 245,357 Investments and loans to related parties ------27,208 27,208 Tangible fixed assets ------272,642 272,642 Intangible fixed assets ------4,459 4,459 Other assets ------34,216 34,216 Regularization accounts and other debit accounts ------119,487 119,487 Goodwill ------60,586 60,586 TOTAL ASSETS 8,503,155 1,323,015 2,124,815 2,674,397 5,694,924 2,200,664 2,546,044 25,067,014

LIABILITIES AND EQUITY

Banks and financial institutions 1,298,955 22,184 18,475 - - 45,225 171,075 1,555,914 Customers’ deposits 14,752,113 3,932,547 986,626 47,393 72,794 11,369 905,674 20,708,516 Engagements by acceptances - - 8,079 - - - 237,278 245,357 Other liabilities - 16,137 - - - - 178,323 194,460 Regularization accounts and other credit accounts ------189,792 189,792 Provisions for risks and charges ------80,566 80,566 Shareholders' equity ------2,092,409 2,092,409

TOTAL LIABILITIES AND EQUITY 16,051,068 3,970,868 1,013,180 47,393 72,794 56,594 3,855,117 25,067,014

Total interest rate sensitivity gap (7,547,913) (2,647,853) 1,111,635 2,627,004 5,622,130 2,144,070 (1,309,073)

Cumulative interest rate sensitivity gap (7,547,913) (10,195,766) (9,084,131) (6,457,127) (834,997) 1,309,073 -

156 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The Group’s interest rate sensitivity position based on contractual repricing arrangements or maturity as at 31 December 2006 was as follows:

Up to 1 to 3 months (1 – 2) (2 – 5) More than Non interest Total 1 month 3 months to 1 year years years 5 years sensitive LL million LL million LL million LL million LL million LL million LL million LL million

ASSETS Cash and balances with the Central Banks 53,132 301,500 467,325 888,805 2,401,613 707,941 1,426,090 6,246,406 Lebanese and other governmental treasury bills and bonds 23,526 12,173 591,076 612,917 1,822,301 338,574 74,353 3,474,920 Bonds and financial assets with fixed income 15,075 77,995 28,639 51,940 152,442 54,133 5,876 386,100 Shares, securities and financial assets with variable income ------8,403 8.403 Banks and financial institutions 6,304,058 769,183 191,821 183,161 - 6,301 299,760 7,754,284 Loans and advances to customers 1,421,873 248,809 653,964 196,263 243,461 86,925 145,403 2,996,698 Bank acceptances ------173,260 173,260 Investments and loans to related parties ------3,220 3,220 Tangible fixed assets ------219,372 219,372 Intangible fixed assets ------2,845 2,845 Other assets ------33,715 33,715 Regularization accounts and other debit accounts ------61,408 61,408 Goodwill ------63,980 63,980 TOTAL ASSETS 7,817,664 1,409,660 1,932,825 1,933,086 4,619,817 1,193,874 2,517,685 21,424,611

LIABILITIES AND EQUITY

Banks and financial institutions 1,123,330 13,808 12,390 - - - 159,316 1,308,844 Customers’ deposits 11,353,495 3,321,788 1,051,578 5,287 - - 1,958,233 17,690,381 Engagements by acceptances ------173,260 173,260 Other liabilities ------141,067 141,067 Regularization accounts and other credit accounts ------129,869 129,869 Provisions for risks and charges ------64,646 64,646 Shareholders' equity ------1,916,544 1,916,544

TOTAL LIABILITIES AND EQUITY 12,476,825 3,335,596 1,063,968 5,287 - - 4,542,935 21,424,611

Total interest rate sensitivity gap (4,659,161) (1,925,936) 868,857 1,927,799 4,619,817 1,193,874 (2,025,250)

Cumulative interest rate sensitivity gap (4,659,161) (6,585,097) (5,716,240) (3,788,441) 831,376 2,025,250 -

157 50. RISK MANAGEMENT

50.3.2 Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rate. The Bank protects its capital and reserves by holding a foreign currency position in US Dollars representing 60% of its shareholders’ equity after adjustment according to specific requirements set by the Bank of Lebanon. The Bank is also allowed to hold a net trading position not to exceed 1 percent of its net shareholders’ equity, as long as the global foreign position does not exceed, at the same time, 40 percent of its net shareholders’ equity, and that the related banks are abiding in a timely and consistent manner with the required solvency rate (Bank of Lebanon circular number 32). The table below indicates the consolidated balance sheet detailed by currency. The following consolidated balance sheet as of 31 December 2007, is detailed in Lebanese Lira (LL) and foreign currencies,

translated into LL. Foreign currencies in Lebanese Lira LL million US Dollars in Euro in Other foreign Total foreign Total LL million LL million currencies currencies LL million ASSETS LL million LL million Cash and balances with the Central Banks 1,107,807 3,622,031 71,219 1,528,974 5,222,224 6,330,031 Lebanese and other governmental treasury bills and bonds 2,394,543 2,335,517 106,103 244,160 2,685,780 5,080,323 Bonds and financial assets with fixed income - 1,079,976 22,816 62,348 1,165,140 1,165,140 Shares, securities and financial assets with variable income 361 7,079 91 4,194 11,364 11,725 Banks and financial institutions 68,158 5,103,048 1,905,281 460,046 7,468,375 7,536,533 Loans and advances to customers 329,369 2,146,453 304,940 1,398,545 3,849,938 4,179,307 Bank acceptances - 175,950 35,335 34,072 245,357 245,357 Investments and loans to related parties 2,453 22,658 805 1,292 24,755 27,208 Tangible fixed assets 143,444 8,363 2,681 118,154 129,198 272,642 Intangible fixed assets 825 5 483 3,146 3,634 4,459 Other assets 6,500 5,783 59 21,874 27,716 34,216 Regularization accounts and other debit accounts 23,810 35,365 7,497 52,815 95,677 119,487 Goodwill __ 60,586 60,586 60,586 TOTAL ASSETS 4,077,270 14,542,228 2,457,310 3,990,206 20,989,744 25,067,014 OFF-BALANCE SHEET ITEMS Financial assets sold with an option to repurchase - 143,647 - - 143,647 143,647 Engagements received 664,524 5,017,484 80,626 1,325,884 6,423,994 7,088,518 Bad loans totally provided for 6,436 18,531 3,345 - 21,876 28,312 Foreign currencies to deliver against foreign currencies to receive - 689,891 617,397 1,631,898 2,939,186 2,939,186 Total 670,960 5,869,553 701,368 2,957,782 9,528,703 10,199,663 LIABILITIES Banks and financial institutions 32,367 181,010 1,202,947 139,590 1,523,547 1,555,914 Customers’ deposits 3,298,803 13,073,502 1,296,025 3,040,186 17,409,713 20,708,516 Engagements by acceptances - 175,950 35,335 34,072 245,357 245,357 Other liabilities 52,356 82,240 16,227 43,637 142,104 194,460 Regularization accounts and other credit accounts 150,103 19,400 1,698 18,591 39,689 189,792 Provisions for risks and charges 25,241 1,849 283 53,193 55,325 80,566 Total liabilities 3,558,870 13,533,951 2,552,515 3,329,269 19,415,735 22,974,605 NET EXPOSURE 518,400 1,008,277 (95,205) 660,937 1,574,009 2,092,409 OFF-BALANCE SHEET ITEMS Financing commitments given to - 285,045 47,191 27,138 359,374 359,374 -Financial intermediaries - 18,651 754 1,638 21,043 21,043 -Customers - 266,394 46,437 25,500 338,331 338,331 Bank guarantees given to 22,322 397,216 149,862 217,596 764,674 786,996 -Financial intermediaries - 94,657 85,635 16,086 196,378 196,378 -Customers 22,322 302,559 64,227 201,510 568,296 590,618 Commitments on term financial instruments - - 34,142 - 34,142 34,142 Financial assets bought with an option to resell - 143,647 - - 143,647 143,647 Fiduciary deposits, assets under management and custody accounts 9,172 3,338,397 89,212 522,355 3,949,964 3,959,136 Foreign currencies to receive against foreign currencies to deliver - 665,806 537,607 1,739,136 2,942,549 2,942,549 31,494 4,830,111 858,014 2,506,225 8,194,350 8,225,844 158 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

The following consolidated balance sheet as of 31 December 2006, is detailed in Lebanese Lira (LL) and foreign currencies, translated into LL. Foreign currencies in Lebanese Lira LL million US Dollars in Euro in Other foreign Total foreign Total LL million LL million currencies currencies LL million ASSETS LL million LL million Cash and balances with the Central Banks 1,363,907 3,987,084 211,877 683,538 4,882,499 6,246,406 Lebanese and other governmental treasury bills and bonds 1,997,940 1,161,781 89,860 225,339 1,476,980 3,474,920 Bonds and financial assets with fixed income - 329,926 10,797 45,377 386,100 386,100 Shares, securities and financial assets with variable income 361 6,437 82 1,523 8,042 8,403 Banks and financial institutions 62,795 5,347,351 1,888,249 455,889 7,691,489 7,754,284 Loans and advances to customers 248,083 1,647,814 228,707 872,094 2,748,615 2,996,698 Bank acceptances - 73,451 91,611 8,198 173,260 173,260 Investments and loans to related parties 2,602 - 569 49 618 3,220 Tangible fixed assets 127,024 9,263 573 82,512 92,348 219,372 Intangible fixed assets - - 128 2,717 2,845 2,845 Other assets 6,386 18,514 273 8,542 27,329 33,715 Regularization accounts and other debit accounts 18,230 14,336 9,753 19,089 43,178 61,408 Goodwill - - 991 62,989 63,980 63,980 TOTAL ASSETS 3,827,328 12,595,957 2,533,470 2,467,856 17,597,283 21,424,611 OFF-BALANCE SHEET ITEMS Engagements received 575,620 4,524,189 71,793 296,171 4,892,153 5,467,773 Bad loans totally provided for 12,411 28,498 2,996 - 31,494 43,905 Foreign currencies to deliver against foreign currencies to receive - 812,936 36,257 1,295,424 2,144,617 2,144,617 Total 588,031 5,365,623 111,046 1,591,595 7,068,264 7,656,295 LIABILITIES Banks and financial institutions 2,113 125,162 1,081,544 100,025 1,306,731 1,308,844 Customers’ deposits 3,116,951 11,739,074 992,995 1,841,361 14,573,430 17,690,381 Engagements by acceptances - 73,451 91,611 8,198 173,260 173,260 Other liabilities 39,147 60,447 9,642 31,831 101,920 141,067 Regularization accounts and other credit accounts 110,154 6,451 3,520 9,744 19,715 129,869 Provisions for risks and charges 26,010 6,551 3,560 28,525 38,636 64,646 Total liabilities 3,294,375 12,011,136 2,182,872 2,019,684 16,213,692 19,508,067 NET EXPOSURE 532,953 584,821 350,598 448,172 1,383,591 1,916,544 OFF-BALANCE SHEET ITEMS Financing commitments given to - 229,739 55,503 21,944 307,186 307,186 -Financial intermediaries - 12,411 117 523 13,051 13,051 -Customers - 217,328 55,386 21,421 294,135 294,135 Bank guarantees given to 25,819 274,922 100,530 288,257 663,709 689,528 -Financial intermediaries 447 64,628 15,913 15,110 95,651 96,098 -Customers 25,372 210,294 84,617 273,147 568,058 593,430 Commitments on term financial instruments - - 17,659 - 17,659 17,659 Fiduciary deposits, assets under management and custody accounts 12,410 1,375,658 252,313 1,133,979 2,761,950 2,774,360 Foreign currencies to receive against foreign currencies to deliver - 584,713 299,536 1,262,506 2,146,755 2,146,755 38,229 2,465,032 725,541 2,706,686 5,897,259 5,935,488

159 50. RISK MANAGEMENT 51. OPERATIONAL RISK 52. PREPAYMENT RISK 53. CAPITAL MANAGEMENT

The table below indicates the extent to which the Group was exposed to currency risk at 31 December 2007 on its foreign currency positions. The analysis calculates the effects of a reasonably possible movement of the currency rate against the Lebanese Lira, with all other variables held constant, including the effect of hedging instruments, on the consolidated income statement (due to the fair value of currency sensitive non-trading monetary assets and liabilities) and equity (due to the change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). The effect on equity is not significant. A neg ative amount in the table reflects a potential net reduction in consolidated income statement or equity, while a positive amount reflects a net potential increase. Change in currency Effect on Change in currency Effect on rate % 2007 profit before tax 2007 rate % 2006 profit before tax 2006 LL million LL million Currency

USD ± 1% ± 10,328 ± 1% ± 8,126 EUR ± 1% ± 500 ± 1% ± 693

51. OPERATIONAL RISK

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Group cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, including the use of internal audit.

52. PREPAYMENT RISK

Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay or request repayment earlier than expected, such as fixed rate housing loans when interest rate falls. The fixed rate assets of the Group are not significant compared to the total assets. Moreover, other market conditions causing prepayment is not significant in the markets in which the Group operates. Therefore, the Group considers the effect of prepayment on net interest income is not material after taking into account the effect of any prepayment penalties.

160 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At 31 December 2007

53. CAPITAL MANAGEMENT

The Bank maintains an actively managed capital base to cover risks, inherent in the business. The adequacy of the Bank’s capital is monitored using, among other measures, the rules and ratios established by the Bank of Lebanon and the Banking Control commission.

The Bank should maintain a required capital adequacy ratio (not less than 12%) based on the total tier one capital over the total risk weighted assets and off-balance sheet items.

The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years. 2007 2006 LL million LL million Regulatory capital Tier 1 capital 1,839,001 1,665,170 Tier 2 capital 29,224 36,157 Total capital 1,868,225 1,701,327 Risk weighted assets 6,430,811 4,714,398 Tier 1 capital ratio 28.60% 35.32% Total capital ratio 29.05% 36.09%

Regulatory capital consists of Tier 1 capital, which comprises share capital, reserves and premiums, reserves for general banking risks, treasury shares, retained earnings and profit for the year less dividend distributed, intangible assets and goodwill. The other component of regulatory capital Tier 2 capital, which includes revaluation reserves and cumulative changes in fair values.

161 54. COMMITMENTS AND CONTINGENCIES 55. COMPARATIVE AMOUNTS 56. SUBSEQUENT EVENTS

54. COMMITMENTS AND CONTINGENCIES

a) Due to the nature of its business, the Group is a defendant in various legal proceed ings. Management, after discussing with its counselors all such cases and proceedings against the Group, considers that the aggregate liability or loss, if any, resulting from an adverse determination would not have a material effect on the consolidated financial position of the Group.

b) The Bank’s books in Lebanon have not been reviewed by the tax authorities for the years 2006 and 2007. The ultimate outcome of any review that may take place by the tax authorities cannot be presently determined.

c) The Bank’s books in Lebanon have not been reviewed by the National Social Security Fund (NSSF) since 1998. The ultimate outcome of any review by the NSSF on the Bank’s books from 1998 to 2007 cannot be presently determined.

55. COMPARATIVE AMOUNTS

Except for the correction of an error in note 40 to the financial statements, the following reclassifications were just to enhance the presentation in the current year:

- Provision for real estate taken in recovery of debt was reclassified from “Provisions for risks and charges” caption to “Tangible fixed assets” caption. Comparative amounts totaling to LL 11,715 million were classified accordingly.

- Other income was reclassified from “Net commission income” caption to “Other operating income” caption. Comparative amounts of LL 5,714 million were reclassified accordingly.

56. SUBSEQUENT EVENTS

- On 26 December 2007, the extraordinary general assembly of the shareholders of Arope Insurance SAL (a subsidiary) resolved to increase the Company’s capital from LL 21,600 million to LL 43,200 million. Accordingly, the Bank has subscribed in its share of the subsidiary’s capital increase in full (LL 19,129 million) on 11 February 2008.

- On 5 March 2008, the Bank obtained the preliminary approval of the Bank of Lebanon for the redemption of the 750,000 preferred shares - issue 2002 amounting to LL 7,500 million.

162

WORLDWIDE CORRESPONDENT BANKS

WORLDWIDE CORRESPONDENT BANKS

COUNTRY CORRESPONDENT BANK

Australia, Sydney AUD Commonwealth Bank of Australia Belgium, Brussels EUR Fortis Bank S.A. / N.V. Bahrain, Manama BHD National Bank of Bahrain Canada, Toronto CAD Royal Bank of Canada Canada, Toronto CAD Imperial Bank of Commerce (The) Denmark, Copenhagen DKK Danske Bank A/S France, Paris EUR BLOM BANK France SA Germany, Frankfurt am Main EUR Commerzbank AG Germany, Frankfurt am Main EUR Deutsche Bank AG Germany, Frankfurt am Main EUR Dresdner Bank AG Italy, Milan EUR Banca Intesa San Paolo SPA Italy, Rome EUR Banca Nazionale Del Lavoro SPA Japan, Tokyo JPY Bank of Tokyo-Mitsubishi Ltd Japan, Tokyo JPY JP Morgan Chase Bank N.A. KSA, Jeddah SAR The National Commercial Bank KSA, Riyadh SAR Riyad Bank Kuwait, Kuwait KWD Gulf Bank KSC Netherlands, Amesterdam EUR ABN AMRO Bank N.V. Norway, Oslo NOK DnB NOR Bank ASA Qatar, Doha QAR Commercial Bank of Qatar (The) (QSC) Spain, Madrid EUR Banco Bilbao Vizcaya Argentaria S.A. (BBVA) Sweden, Stockholm EUR Skandinaviska Enskilda Banken AB Switzerland, Geneva CHF BLOM BANK Switzerland SA Switzerland, Zurich EUR Credit Suisse Switzerland, Zurich EUR UBS AG U.A.E, Dubai AED BLOM BANK France SA U.K, London GBP BLOM BANK France SA U.K, London GBP National WESTMINSTER BANK PLC U.S.A, New York USD Bank of New York (The) U.S.A, New York USD JP Morgan Chase Bank N.A.

164 BLOM BANK GROUP DIRECTORY BLOM BANK GROUP DIRECTORY

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166 BLOM BANK GROUP DIRECTORY

Sanayeh BLOM BANK GROUP CHAIRMAN: Hamra - Retail Branch Chamber of Commerce & Industry bldg Dr. Naaman AZHARI Abdel Aziz St, Daher bldg Phone: (961-1) 747752 /59 /60 Phone: (961-1) 346042/3 – 748339 - 749623 Fax: (961-1) 747749 Fax: (961-1) 346043 Email: [email protected] Email: [email protected] Branch Manager: Mrs. Zeina KHATTAB Branch Manager: Mrs. Nahida WEHBE

Istiklal Sodeco – Retail Branch Istiklal St, Karakol El-Druze Area, next to LEBANON Sodeco Square, Damascus Road Kettaneh Palace, Salhab bldg Phone: (961-1) 611360/1 Headquarters Phone: (961-1) 738050/1 - 749624 Fax: (961-1) 748337 Fax: (961-1) 611 362 Email: [email protected] Email: [email protected] Verdun – Rachid Karami St, BLOM BANK bldg Branch Manager: Mr. Mouhamad SIDANY Branch Manager: Mrs. Souraya N. Bashouti P.O. Box: 11-1912 Riad El-Solh, Beirut 1107 2807, Lebanon Tabaris Phone: (961-1) 743300 – 738938 Jnah Gebran Tueini Square- Sursock Tower Fax: (961-1) 738946 Bir Hassan Area, United Nations St, next to Phone: (961-1) 203142//3/4 Telex: Electronic Telex in London: 94015829 Beirut Hospital, Jaber bldg Phone: (961-1) 855903/4/5 Fax: (961-1) 203145 Answerback BLOM G Email: [email protected] Reuter: BLOM Fax: (961-1) 855906 Email: [email protected] Senior Manager/Branches: Ms. Claire ABOU Swift Code: BLOMLBBX Branch Manager: Mr. Abbas KALOT MRAD E-mail: [email protected] Domain: http://www.blom.com.lb Maarad Tariq Al-Jedideh Call Center: (961-1) 753000 Emir Bechir St, Hibat el Maarad bldg - Downtown Al Malaab Al Baladi Square – Salim bldg MOHAFAZAT BEIRUT BRANCHES Phone: (961-1) 983230/1/2/3/4 Phone: (961-1) 818620/1 – 309959 - 816985 Fax: (961-1) 983230 Fax: (961-1) 818620 Main Branch Email: [email protected] Email: [email protected] Branch Manager: Mr. Amer KAMAL Verdun, Rachid Karami St, BLOM BANK bldg Branch Manager: Mr. Khodr MNEIMNEH Phone: (961-1) 738938 – 743300 Mar Elias Fax: (961-1) 738946 Corniche El Mazraa – opposite Helou’s bar - Verdun Email: [email protected] racks, Zantout bldg Verdun St, opposite F.S.I. Barracks, Abdo bldg Senior Manager / Branches: Mr. Walid ARISS Phone: (961-1) 818616/7 – 818009 – 818038 - Phone: (961-1) 788412/3 – 800081 - 788411 864112 Fax: (961-1) 800032 Achrafieh Fax: (961-1) 818618 Email: [email protected] Email: [email protected] Sassine Square Branch Manager: Mr. Hani BAWAB Phone: (961-1) 200147/8 – 320949 Branch Manager: Mr. Mohamad Abd el wahab Al TABSH Fax: (961-1) 320949 Verdun - Retail Branch Email: [email protected] Mazraa Verdun, Rachid Karami St, BLOM BANK bldg Branch Manager: Mr. Ara BOGHOSSIAN Corniche El Mazraa, Barbir Square Phone: (961-1) 750160/1/2/3 Phone: (961-1) 648020/1/2 - 664337 Email: [email protected] Ain El-Mreisseh Fax: (961-1) 648020 Branch Manager: Mr. Marwan PHARAON Ibn Sina St Email: [email protected] Phone: (961-1) 372780 – 370830 – 373102 Branch Manager: Mr. Mohammad MAWASS MOHAFAZAT MOUNT LEBANON BRANCHES Fax: (961-1) 370237 Noueiri Email: [email protected] Al Noueiri Station – Hamada bldg Ain El-Remaneh Branch Manager: Mr. Mahmoud MARRACH Phone: (961-1) 630309– 658611 – 658610 - 664487 Chiyah District, Lamaa St, Next to Kasarjian Fax: (961-1) 630319 Barracks Bliss Email: [email protected] Phone: (961-1) 386750/1/2/3 Bliss St, opposite Hobeish Police Station – Branch Manager: Mr. Yehia ORFALI Fax: (961-1) 386750 Ras Beirut – Al Rayess Bldg Email: [email protected] Phone: (961-1) 363732/34/42 Raouché Branch Manager: Mr. Jhonny SALIBI Fax: (961-1) 363732 Raouche Blvd – Al Rayess & Bou Dagher Bldg Email: [email protected] Phone: (961-1) 812603/4/5/6 Fax: (961-1) 801634 Branch Manager: Mr. Ziad SROUJI Aley Email: [email protected] Al Balakine, Property of Faysal Sultane Wahab Branch Manager: Mr. Mohamad MARRACHE Burj Abi Haidar Phone: (961-5) 556612/13 Burj Abi Haidar St, Salam Tower Rmeil Fax: (961-5) 556614 Phone: (961-1) 310687 – 310677/8/9 - 817560 Ashrafieh, Orthodox Hospital St, Medica Center Email: [email protected] Fax: (961-1) 310679 Phone: (961-1) 565252 – 565454 – 567140 – Branch Manager: Mrs. May Bou Alwan Email: [email protected] 567141 Branch Manager: Mr. Mahmoud BAYDOUN Fax: (961-1) 565252 Antelias Email: [email protected] Branch Manager: Mrs. Salma ACHKOUTY Next to the Armenian Patriarchate – Kheirallah Hamra bldg Abdel Aziz St, Daher bldg Phone: (961-4) 411472 – 520210 – 410123 – Phone: (961-1) 346290/1/2/3 – 341955 - 343503 Saifi 411418 - 410848 Fax: (961- 1) 744407 Al Arz Street – Akar bldg Fax: (961-4) 523666 Phone: (961-1) 449899 – 581683 – 586340 – Email: [email protected] Email: [email protected] Branch Manager: Mr. Sami FARHAT 566794 - 587196 Fax: (961-1) 449899 Branch Manager: Mr. Laurent CHIBLI Email: [email protected] Branch Manager: Dr. Ousama CHAHINE

167 BLOM BANK GROUP DIRECTORY

Aramoun Furn el Chebbak - Retail Branch Sin El-Fil Choueifat – Al Koba, Aramoun Road, Zaynab Furn el Chebbak, Abraj Center, Main Str., Beirut Horsh Tabet, Charles De Gaulle St, Tayar Center Center Phone: (961-1) 293810 /13 Phone: (961-1) 485270/1/2 Fax: (961-1) 293816 Phone: (961-5) 808591/2/3/4 Fax: (961-1) 485273 Email: [email protected] Fax: (961-5) 808594 Email: [email protected] Branch Manager: Mrs. Alice AHMARANI Branch Manager: Mr. Fadi EL MIR Email: [email protected] Branch Manager: Mrs. Nawal Merhi ABOU Ghobeyri Zalka DIAB Corniche El Ghobeyri - Chiah Blvd – Tohme & Zalka St, Blom BANK bldg, Interior Road Jaber & Kalot bldg Phone: (961-4) 713074/5/6 Badaro Phone: (961-1) 825509 – 825870 – 821895 – 856219 Fax: (961-4) 713077 Badaro Main St - Damascus Road intersection Fax: (961-1) 820153 Email: [email protected] – Buick – Khoury bldg Email: [email protected] Branch Manager: Mrs. Denise JALKH Phone: (961-1) 615818/19/20/21 – 615826 - 615952 Branch Manager: Mrs. Magida MIKATI Fax: (961-1) 615825 Zouk Mousbeh Email: [email protected] Zouk Mousbih,Main St, Le Paradis Centre, Jeita’s Branch Manager: Mr. Raoul CHERFAN Haret Hreik cave junction Al Abiad Area, Sayyed Hadi Nasrallah Highway, Phone: (961-9) 226991/2/3/4/5 Burj Al-Barajneh Abou Taam & Hoteit bldg Fax: (961-9) 226990 Ain El Sekka St – Rahal bldg Phone: (961-1) 543662 – 543658 – 543659 Email: [email protected] Phone: (961-1) 450381/2/3/4 – 450446/7 Fax: (961-1) 543661 Branch Manager: Mr. Joseph KILADJIAN Fax: (961-1) 450384 Email: [email protected] Email: [email protected] Branch Manager: Mr. Ali CHRIEF MOHAFAZAT NORTH LEBANON BRANCHES Branch Manager: Dr. Hassan JABAK Tripoli - Abi Samra Hazmieh Burj Hammoud Al-Dinnawi Square, Khaled Darwiche bldg Damascus Road, Joseph Chahine Center Harboyan Center Phone: (961-6) 423565/6/7/8/9 Phone: (961-1) 262067 – 266337/8 – 243604/5 – Phone: (961-5) 955240/1/2/3/4 Fax: (961-6) 423565 242792 - 243139 Fax: (961-5) 955240 Email: [email protected] Fax: (961-1) 268939 Email: [email protected] Branch Manager: Mr. Abdel Rahman HOMSI Email: [email protected] Branch Manager: Mr. Ziad KAREH Branch Manager: Mr. Jean HOMSI Tripoli – Azmi Jbeil Azmi St, Fattal bldg Chiyah Voie 13 – Near Mar Charbel Junction Phone: (961-6) 433064 – 443550/1/2 Chiyah Blvd, Round About Mar Mekhayel, Phone: (961-9) 943702 /3 /4 Fax: (961-6) 443550 Orient Center Bldg. Email: [email protected] Fax: (961-9) 943701 Phone: (961-1) 270172/3/4 - 275783 Branch Manager: Mr. Edmond HAMATI Email: [email protected] Fax: (961-1) 270174 Email: [email protected] Branch Manager: Mr. Zakhia SARKIS Tripoli – Al Tell Senior Manager / Branches: Mr. Abbas TLEISS Abdel Hamid Karameh Square, Ghandour bldg Jounieh Phone: (961-6) 430153 – 628200/2 - 431624 Choueifat Facing “Palais de Justice” – Next to Fouad Fax: (961-6) 628200 AL Omaraa, Main Road, Al Tiro’s Junction Chehab Playground Email: [email protected] Phone: (961-5) 433203/6 Phone: (961-9) 638011/12/13/14 Branch Manager: Mr. China ASSI Fax: (961-5) 433208 Fax: (961-9) 638011 E-mail: [email protected] Email: [email protected] Tripoli - Zahrieh Branch Manager: Mr. Kamal SLIM Branch Manager: Mr. Rachad YAGHI Al Tall St, Alam AL Din & Bissar bldg Phone: (961-6) 430150/2 – 423415 - 423414 Dora Kaslik Fax: (961-6) 430151 Bawchrieh, Tripoli Road, Banking Center bldg Kaslik Main St, Debs Center Email: [email protected] Phone: (961-1) 256527/28/32/37/38/39/41 Phone: (961-9) 640273 – 640095 – 636998/9 – Branch Manager: Mr. Fouad El HAJJ Fax: (961-1) 256522 640297 Fax: (961-9) 831112 Email: [email protected] MOHAFAZAT BEKAA BRANCHES Senior Manager/ Branches: Email: [email protected] Branch Manager: Mr. Charles AOUDE Mrs. Marlène DOUMIT Chtaura Main St, Najim El Din bldg Mansourieh Phone: (961-8) 540078 – 542504 – 544329/30 - Elissar Mansourieh el Maten, Dar El Ain Plaza – New 544914 Beit El Kiko, Antelias - Bickfaya Road Highway Fax: (961-8) 542504 Phone: (961-4) 916111/2/3/4 Phone: (961-4) 532856/7/8 Email: [email protected] Fax: (961-4) 916115 Fax: (961-4) 532854 Branch Manager: Mr. Elie FREIJI Email: [email protected] Email: [email protected] Branch Manager: Mr. Joseph GHOUSOUB Branch Manager: Mr. Walid LABBAN

168 BLOM BANK GROUP DIRECTORY

Zahleh BLOM BANK BRANCHES IN JORDAN Manara Center, Fakhoury & Kfoury bldg BRANCHES ABROAD & REPRESENTATIVE OFFICE Phone: (961-8) 807680/1/2/3/4 – 805383 - 820661 Shmeisani Fax: (961-8) 807680 CYPRUS Amman- Al-Charif Abdel Hamid Sharaf St Email: [email protected] Victory House Branch Manager: Mr. Marwan EL SHAKRA 205Z Archbishop Makarios Ave P.O. Box 930321 Shmeisani- Amman 111 93 3030 Limassol Phone: (962-6) 5001200 MOHAFAZAT NABATIYEH BRANCH P.O.Box: 53243, 3301 Limassol, Cyprus Fax: (962-6) 65277177 Phone: (357-25) 376433/4/5 E-mail: [email protected] Fax: (375-25) 376292 Nabatiyeh Branch Manager: : Mr. Abdeljawad Al- Owaisi Nabatieh That, Hassan Kamel Al Sabbah Swift Code: BLOM CY 21 St, Office 2000 bldg E-mail: [email protected] Phone: (961-7) 767854/5/6 Branch Manager: Mr. Ziad EL MURR Sweifieh Branch Fax: (961-7) 767857 Abed Al Rahim Al Hajj Mohammad St Email: [email protected] SYRIA P.O. Box 852112 Amman 111 85 Branch Manager: Mr. Hany HAMOUD Damascus Free Zone, Al-Baramkeh Phone: (962-6) 5864714 -5814935 Phone: (963-11) 2133170/1 Fax: (962-6) 5865346 MOHAFAZAT SOUTH LEBANON BRANCHES Fax: (963-11)2133173 E-mail: [email protected] Email: [email protected] Branch Manager: Mr. Joseph HAYEK Branch Manager: Baker Haddadin Saida Riad Solh St, Al Zaatari & Fakhoury & Bizri bldg ABU DHABI – U.A.E. Mecca Street Phone: (961-7) 724866 – 723266 – 722801 – 739276 Representative Office Tlaa El Aali - Makka Str. Fax: (961-7) 722801 Al Bateen Towers – Tower C 6 – Suite C 907-9th floor P.O.Box 1191, Amman, 11821 Jordan Email: [email protected] Al Bateen – Bainuna Street – Abu Dhabi – U.A.E. Phone: (962-6) 5503130/1/2/3/4/5 Branch Manager: Mr. Moufid NAJJAR P.O. Box: 63040 - Al Bateen – Abu Dhabi – U.A.E. Fax: (962-6) 5521347 Phone: 00971-2-6676100 E-mail: [email protected] Fax: 00971-2-6676200 Tyr Branch Manager: Mohannad Younes Main St, Chehade bldg E-mail: [email protected] Mr. Ramzi AKKARI - Chief Representative Phone: (961-7) 740900 – 741649 - 742903 Wihdat Fax: (961-7) 348487 JORDAN Al Amir Hassan St, Oum Heiran -Amman Email: [email protected] Change to P.O. Box 110061 Amman 111 10 Branch Manager: Mrs. Mayssa RAHAL Headquarters - Jordan Phone: (962-6) 4750050 Amman - Al-Charif Abdel Hamid Sharaf St Fax: (962-6) 4750055 STAND BY BRANCH MANAGERS* P.O. Box 930321 Shmeisani ,Amman 111 93 Email: [email protected] Phone: (962-6) 5001200 Branch Manager: Mr. Mahmoud Sadaka Mr. Ziad CHANOUHA Fax: (962-6) 567 71 77 Mr. Wassim FAHS Reuter: BLMJ Jubeiha Ms. Nelly HARFOUCHE Swift Code: BLOMJOaAM Mefleh Al-lozi st.,Amman Mr. Antoine MATAR E-mail: [email protected] P.O Box 2435 Amman 11941 Domain: http://www.blom.com.lb Mr. Ahmad Jamal SINNO Phone: (962-6) 5336591 Mr. Ahmad Koussai SINNO Fax: (962-6) 5336657 Mr. Adel THAMINE Regional Management - Jordan Dr. Adnan AL AARAJ Email: Jubeiha @blom.com.jo Branch Manager: Mr. Omar Abu Assaf * by alphabetical order General Manager - Jordan Mr. Adnan SALLAKH Consultant for General Management in Lebanon Irbid BRANCHES UNDER ESTABLISHMENT Al-Qubba Circle-Irbid Heads of Departments and Units - Jordan P.O Box 4345 Irbid 21110 Abbasya - Tyr Dr. Mohamed AMRO - Treasury and Investment Phone: (962-2) 7240006 Dekwaneh Mr. Mohanad BALBISSI (AL) - Financial Control Fax: (962-2) 7240057 Hadath Mr. Yaccoub ALEM (EL) - Credit Email: [email protected] Mina El Hosn branch – Beirut Mr. Moder KHOURDY (AL) - Client Relationship Branch Manager: Mr. Ahmad DABAAN Sin el Fil - Retail Branch Mr. Ihab KHALIL - Sales & Retail Marketing Ms. Nahla ALLOUSH - IT Operations Branch Under Establishment in Jordan Mr. Mohamed ALLAN - Central Operations Mr. Said OBEIDALLAH - Internal Audit Mr. Nabil OBALI - Risk Management Aakaba Mr. Maan ZOABI - Compliance Mr. Hani DIRANI - Legal and Collection Ms. Mona KHOUZAI - Personnel

169 BLOM BANK GROUP DIRECTORY

AFFILIATED BANKS & INSURANCE COMPANIES ROMANIA

Headquarters - Bucharest General Management 66 Unirii Boulevard, Bloc K3, Sector 3, 1, Rue de la Rôtisserie, Geneva, Switzerland Bucharest P.O. Box: 3040 – CH 1211 Geneva 3 – Switzerland P.O. BOX 1-850 Bucharest Phone: (41-22) 81771 00 (General) FRANCE Phone: (004) 021/302.72.06 – 302.72.01 Fax: (41-22) 8177190 SWIFT: BLOMCHGG Headquarters Fax: (004) 021/318.52.14 - 318.52.03 38-40 avenue des Champs-Elysées Swift : BLOM RO BU E-mail: [email protected] 75008 Paris - France E-mail: [email protected] Website: www.blombank.ch Phone: (33-1) 44 95 06 06 Fax: (33-1) 44 95 06 00 General Management Board of Directors Telex : 644401 F BANOPAR Dr. Naaman AZHARI - Honorary Chairman of the Board Reuter : BANO Mr. Jean Pierre BAAKLINI - General Manager Mr. Saad AZHARI - Chairman Swift : BLOM FRPP Mrs. Veronika PETERESCU - Deputy General Mr. André CATTIN - Vice Chairman E.mail : [email protected] Manager Website : www.banorabe.com Directors Board of Directors Branches Dr. Warner FREY Mr. Samer AZHARI ME. Peter De La GANDARA Chairman & General Manager Head Office - Bucharest Dr. Naaman AZHARI - Honorary President and Mr. Ahmad G. SHAKER Permanent Representative of BLOM BANK S.A.L 66 Unirii Boulevard, Bloc K3, Sector 3, Bucharest Management Committee Directors P.O. BOX 1-850 Bucharest Mr. Antoine MAZLOUM - General Manager HE Sheikh Ghassan Ibrahim SHAKER Phone: (004) 021/302.72.06 – 302.72.01 (Grand officier de la légion d’Honneur) Mr. Thierry OTT - Manager Mr. Christian DE LONGEVIALLE Fax: (004) 021/318.52.14 - 318.52.03 Mrs. Eléonore DAESCHER - Deputy Manager Mr. Jean-Paul DESSERTINE Swift : BLOM RO BU Mr. Salim DIAB - Deputy Manager Mr. Marwan JAROUDI E-mail: [email protected] Branch Manager: Mrs. Florentina DELLA General Management Mr. Michel ADWAN - Deputy General Manager Mr. Gilbert MOINE - Senior Manager Victoria (Bucharest) Mr. Iskandar ARAMAN - Manager Head Office 72 Buzesti St., Bucharest Mr. Amr TURK - Senior Manager - London Phone: (004) 021/315.42.05-315.42.06 Mr. Bassem ARISS - Regional Manager - UAE General Management Mr. Jean-Pierre BAAKLINI - General Manager - Romania Fax: (004) 021/315.42.08 E-mail: [email protected] Verdun , Rachid Karami St Branch Manager: Mr. Marius VOICULET BLOM BANK bldg BLOM BANK FRANCE BRANCHES ABROAD P.O. Box: 11-1912, Riad El Solh, Beirut 1107 Bucharest Hotel 2080 Lebanon UNITED ARAB EMIRATES Phone: (961-1) 738938 – 743300 – 348246 4 Prel. George Enescu St., Bucharest Hotel Fax: (961-1) 738938 Dubai P.O. Box 1-850 E-mail: [email protected] Deira, Al Maktoum St Phone: (004) 021/312.27.51- 312.27.52 Sheikh Ahmad Ben Rached al Maktoum bldg Website: www.blominvestbank.com P.O. Box 4370 – Dubai – United Arab Emirates Fax: (004) 021/312.27.53 Phone: (971-4) 2284655 – 2278196 General E-mail: [email protected] Board of Directors (971-4) 2224812 - Forex Branch Manager: Mrs. Monica FILIP Fax: (971-4) 2236260 Mr. Saad AZHARI - Chairman & General Manager Telex : 45801 BANO EM – General 48836 BANO FX EM – Forex Constanta Directors Swift : BLOM AE AD 25 Bis Mamaia Boulevard, Constanta Messrs. BLOM BANK SAL E.mail : [email protected] P.O. Box 2-89 Mr. Joseph KHARRAT Branch Manager: Mr. Samir Hobeika Phone: (004) 0241/510.950 Mr. Samer AZHARI Sharjah Fax: (004) 0241/510.951 Mr. Marwan JAROUDI Khaled Lagoon, Corniche al Buhairah E-mail: [email protected] Mr. Habib RAHAL Sheikh Nasser Bin Hamad al Thani bldg Branch Manager: Mr. Mihai BUTCARU P.O. Box 5803 – Sharjah – United Arab Emirates General Management Phone: (971-6) 5736700 – 5736100 Fax: (971-6) 5736080 Brasov Dr. Fadi OSSEIRAN - General Manager Telex : 68512 BANO EM 23 Mihail Kogalniceanu St., Bloc C7, Brasov E.mail : [email protected] Phone: (004) 0268/547.640 Senior Managers* Branch Manager : Mr. Mokhtar KASSEM Fax: (004) 0268/547.641 Mr. Elie CHALHOUB - Administration Mr. Michel CHIKHANI - Asset Management UNITED KINGDOM E-mail: [email protected] Branch Manager: Mr. Hosny HESHAM & Structured Products London Mr. Georges TABET - Private Banking 193-195 Brompton Road Cluj & Wealth Management London SW3 1LZ – England 11 T. Cipariu St., Cluj Phone: (44-20) 75907777 Managers* Fax: (44-20) 78237356 Phone: (004) 0364/410.277 Mr. Walid KADRI - Organization & Business Swift : BLOM GB 2L Fax: (004) 0264/450.594 Development E.mail : [email protected] E-mail: [email protected] Senior Manager : Mr. Amr TURK Mr. Marwan MIKHAEL - Economic Research Regional Manager: Mr. Mircea CHIOREAN Mr. Nicolas PHOTIADES - Investment Banking & Corporate Finance Mr. Ramzi TOHME - Operations

170 * by alphabetical order BLOM BANK GROUP DIRECTORY

Headquarters MEZZEH SWEIDA Damascus – Al Harika – Bab Barid Damascus, next to Al Razi Hospital Lawyers’ Syndicate Building P.O. Box: 3103 Damascus – Syria Sweida, Tishreen Str. P.O. Box: 3103 Damascus – Syria Phone: (963-11) 6132411 P.O. Box: 74 SWEIDAA - Syria Phone: (963-11) 2460560 Fax: (963-11) 6132409 Phone: (963 –16) 9960 Fax: (963-11) 2460555 E-mail: [email protected] Fax: (963-16) 233478 Swift: BSOMSYDA Branch Manager: Mr. Tarek CHEHAB E-mail: [email protected] E-mail: [email protected] Assistant Branch Manager: Mr. Abdullah N. ALEPPO KAMALEDDINE Board of Directors Dr. Rateb AL SHALLAH - Chairman Mr. Amr AZHARI - Vice Chairman Al Azizieh Aleppo DARAA Mr. Georges SAYEGH - General Manager Aleppo – Azizia, Saad el Dine Al Jabiri St P.O. Box: 9966 Aleppo – Syria Daraa Directors Phone: (963-21) 9960- 225850- 60-70 Al Mahata, Al Kouwatli Str. Dr. Ihsan BAALBAKI Fax: (963-21) 2249800 P.O.Box: 555 Daraa – Syria Mr. Ibrahim SHEIKH DIB E-mail: [email protected] Phone: (963-15) 9960 Mr. Mohamed Ramzi CHABANI Branch Manager: Mr. Eddy BECHARA Fax: (963-15) 233055 Mr. Mehran KHWANDA E-mail: [email protected] Mr. Habib BETINJANEH Al Madina -Aleppo Branch Manager: Mr. Anwar EL HARESS Mr. Samer AZHARI Sabeh Bahrat St Mr. Saad AZHARI P.O. Box: 9966 –Aleppo – Syria BRANCHES UNDER ESTABLISHMENT Phone: (963-21) 9961 Managers - Central Departments Fax: (963-21) 3335377 Kfarsousa - Damascus Mr. Bashir YAKZAN - Credit E-mail: [email protected] Al Midan - Damascus Mr. Georges HADDAD - Internal Audit Branch Manager: Mr. Amro KAYAL Al Mazraa – Damascus Mr. Samir ASMAR - Administration Al Mantaka el horra – Damascus Ms. Inaya SOUBRA - International LATTAKIA Al Mouhafaza – Aleppo Ms. Rima JAWAD ZEIN - Human Resources Mr. Mohamad Yehia KHALED - Retail Banking Al Sheikh Najjar – Aleppo Mr. Salem MAHMOUD - InformationTechnology Lattakia Al Souleimaniya – Aleppo Mr. Michel MANNEH - Operations Lattakia – Al Kamilia, 8th March St Aadra Mr. Shady DIAR BAKERLY - Accounting P.O. Box: 371 Lattakia , Syria Phone: (963-41) 3010- 452516/9 Branches Fax: (963-41) 452573 E-mail: [email protected] DAMASCUS Branch Manager: Mr. Bassem MERHEJ

Harika HAMA Damascus – Al Harika, Bab Barid Headquarters Lawyers’ Syndicate Building Hama 54 Lebanon St. – Mohandessen P.O. Box: 3103 Damascus – Syria Hama – Kouwatly St Tel: (202) 33039825 – 33039824 - 33039805 Phone: (963-11) 2460560 P.O. Box: 820 Hama ,Syria Fax: (202) 33039806 Fax: (963-11) 2460555 Phone: (963-33) 213834- 5 - 9960 Mobile: (963) 932 460560 P.O Box : 144 Al Mohandessen Fax: (963- 33) 213833 Swift: MRBAEGCXXX Email: [email protected] E-mail: [email protected] Branch Manager: Mr. Samir BASSOUS Website: www.blombankegypt.com Branch Manager: Mr. Hussein OBEID Damascus (Al Nejmeh Square) Board of Directors HOMS Damascus- Nejmeh Square Mr. Saad AZHARI :Chairman Facing Dar As Salam School Homs Mr. Alaa El Din Ahmad SAMAHA: Managing P.O. Box: 3103 Damascus – Syria Director & Chief Executive Officer Phone: (963-11) 3344001 Homs, City Center Bldg. Fax: (963-11) 3344021 P.O. Box: 1377 Homs, Syria E-mail: [email protected] Phone: (963-31) 9960 - 453925 Directors Branch Manager: Mr. Fadi ISTWANI Fax: (963-31) 453936 Mr. Elias ARACTINGI E-mail: [email protected] Dr. Fadi OSSEIRAN Al Kassaa Branch Manager: Mrs. Anna DIBE Mr. Shaker ABDULLAH Damascus, Kassaa – Brj Al Russ,Facing Mr. Samir KASSIS National Park TARTOUS Mr. Hani DANA - Chairman Advisor & Senior P.O. Box: 3103 Damascus – Syria Credit Officer Phone: (963-11) 5431350 Tartous Fax: (963-11) 5431360 Tartous- Al Sawra St E-mail: [email protected] P.O. Box: 824 Tartous – Syria Branch Manager: Mr. Omar HAMMOUD Assistant Managing Directors Phone: (963-43) 9960 - 227474 Mrs. Maya EL KADY - Retail Fax: (963-43) 226869 Mr. Talal IBRAHIM - Total Quality Management E-mail: [email protected] Mr. Tarek METWALLY - Institutional Branch Manager: Mr. Chamel MAKARI

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Group Heads Ismalia Al Hurghada Mr. Belal FAROUK - Compliance 15 Street 144 Teraat Al Ismalia – in front of el 7 El Mena St. Saqala Square– Hurghada Mr. Talaat ABD EL AAL Al OUMDA - Human Resources Rai Bridge Tel: (2065) 3448516 – 9 Mr. Mohamed RASHWAN - Internal Audit Tel: (2064) 3921758 – 3921759 Fax: (2065) 3447834 Mr. Maher ANWAR - Legal Affairs Fax: (2064) 3921767 E-mail: [email protected] Branch Manager: Mr. Hussein EL SWAIFY Mr. Abdel Aziz ALY - General Administration E-mail: [email protected] Branch Manager: Mr. Ahmed ABD EL AAL Mr. Khaled ABDEL HAMID - Branches Regional Al Mansoura Manager 35 Saad Zaghloul St. – Touril – Mansoura Mr. Hazem EL GOHARY - Information Technology Heliopolis Tel: (2050) 2309120 – 2309123 – 2309124 Mr. Gamal DIAA - Medium Size Finance 31 El Hegaz St. Heliopolis Fax: (2050) 2309122 – 2309125 Mr. Ayman EL SHALKANI - Retail Sales Manager Tel: (202) 22592030 – 22583120 E-mail: Mr. Khaled YOUSSRY - Financial Institution Fax: (202) 24519730 – 24519710 [email protected] E-mail: Mr. Yehia RASHED - Risk Management Branch Manager: Mr. Mohammed DAADAR [email protected] Mr. Imad EL JUNDY - Central Operation m ALEXANDRIA Mr. Mohamed EL BENDARY - Financial Control Branch Manager: Mr. Mohammed ABD EL RAHMAN Stadium BRANCHES in Egypt 1 Soliman Yousri St. ( Loumomba ) – Alexandria Maadi Tel: (203) 4951641 – 45 Mohandessen 4 Street 269 from Nasr St. – New Maadi – Fax: (203) 4951635 – 4951636 54 Lebanon St. – Mohandessen Cairo E-mail: [email protected] Branch Manager: Mr. Ayman TALAAT Tel: (202) 33039817 - 33039819 Tel: (202) 25198085 – 25197960 – 25197710 Fax: (202) 33039806 Fax: (202) 25199293 – 25197232 E-mail: [email protected] El Shatby E-mail: mawad.ahmed @blombankegypt.com 17 Port Said St. – El Shatby – Alexandria Branch Manager: Mr. Ahmed SABRY Branch Manager: Mr. Moawad AHMED Tel: (203) 5934055 (10 Lines ) Fax: (203) 5934058 Shoubra New Maadi E-mail: [email protected] 232 Shoubra St. – EL Khalafawy 17/5 El Laselky - Nasr St. – New Maadi Branch Manager: Mr. Ashraf TAHIO Tel: (202) 2431 1409 – 732 – 485 Tel: (202) 27550768 – 27550778 Fax: (202) 24311364 – 24312678 Fax: (202) 27550740 Sporting E-mail: [email protected] E-mail: [email protected] 273 El Horria Road – Sporting – Alexandria Branch Manager: Mr. Sherif TAHER Branch Manager: Mrs. Hanem FAHMY Tel: (203) 4200098 – 4270211 – 4282050 – 4279680 Fax: (203) 4200094 Nasr city E-mail: [email protected] Mohie Eldin Aboul Ezz Branch Manager: Mrs. Magda FAYED 64 Mohie Eldin Aboul Ezz St. Dokki El Akkad Mall – El Nasr Road – Nasr City Tel: (202) 26906801 – 26906802 – 26906804 – Tel: (202) 37494563 – 696 Montaza 26906806 Fax: (202) 37494652 – 79 414 Gamal Abd El Naser – El Mandara - Fax: (202) 26906803 – 26906805 E-mail: [email protected] Alexandria E-mail: Branch Manager: Mrs. Wafaa EZZAT Tel: (203) 5488550 – 5488593 [email protected] Fax: (203) 5488713 Branch Manager: Mr. Hossam ABU EL Cairo E-mail: [email protected] SOWOOD 15 Abu El Feda St. – Zamalik – Cairo Branch Manager: Mr. Ibrahim ABAZA Tel: (202) 27353292 – 27368045 Opera Sharm El Sheikh Fax: (202) 27370481 – 27358613 4 , 4a , 6 Abdel Haak El Sonbaty – Opera Naama Bay – El Amir Abdouallah St. – Murray E-mail: [email protected] Square Mall – Sharm El Sheik Branch Manager: Mr. Sherif SEIF EL NASR Tel: (202) 23927885 – 23923127 Tel: (2069) 3603592 – 3603593 – 3603594 – Fax: (202) 23925265 3603547 New Cairo E-mail: [email protected] Fax: (2069) 3603541 101 City Commercial Center – El Tagamoa El Branch Manager: Mr. Ali Ezzat KHAFAGY E-mail: [email protected] Khames – New Cairo Branch Manager: Alaa METWALLY Tel: (202) 29281193 – 29281200 6 th October Branches Under Establishment Fax: (202) Central Axis – El Madiena Commercial Center E-mail: [email protected] – Area No.4 – 1st District – 6th October city El Mansheya ( opening soon ) Branch Deputy Manager: Mr. Hazem El Khabeery Tel: (202) 38320537 – 38321024 – 38321098 6A Ahmed Orabi Square in front of unknown Fax: (202) 38339279 solider – Manshia square Oroba E-mail: [email protected] Tel: 1 Cleopatra St. El Orouba – Heliopolis – Cairo Branch Manager: Mr. Mamdouh ZAYED Fax: Tel: (202) 24144796 – 24144759 E-mail: [email protected] Fax: (202) 24144793 Abbasia Branch Manager: Mr. Mohamed Refaat 109 Abbasia St. E-mail: [email protected] Tel: (202) 29222343 – 29222342 Dokki Branch Manager: Mr. Mohamed HUSSEIN Fax: (202) 29222350 64 Mohy El Din Abu El Ezz street E-mail: [email protected] Khalifa El Maamoun Branch Manager: Mr. Hesham FOUAD 20 Al Khalifa El Maamoun St. – Manshiet El Bakry Tel: (202) 22575625 – 22575647 – 22575641 Fax: (202) 22575651 – 22575665 E-mail: [email protected] 172 Branch Manager: Mrs. Heba SAAD BLOM BANK GROUP DIRECTORY

* Tyr Main Road Headquarters: Doha Headquarters Phone: (961 – 7) 740 900 – 741 649 8 Geziat el Arab st. - Mohandeseen Fax: (961 – 7) 348 487 Tel: (202 ) 37621611 – 1764 - 1754 * Under Establishment Fax: (202) 37617680 Zahlé E-mail: [email protected] Zahlé Entrance – Manarah Center Phone / Fax: (961-8) 818640 Board of Directors Mr. Alaa El Deen SAMAHA - Chairman Mr. Ahmed GEMEI - Deputy Chairman & Managing Director Headquarters Directors Verdun – Rachid Karami St, Mr. Belal Farouk TAWFEK BLOM BANK bldg, Arope Plaza Mr. Tarek Ibrahim METWALY P.O. Box: 113-5686 Beirut – Lebanon Mrs. Maya Tawfek AL KADY Phone: (961-1) 759999 Mr. Khaled MOHAMED Fax: (961-1) 344012 Headquarters Mr. Mohamed EL BANDARY Call Center: (961-1) 747555 (01) or ( 03) 1219 Damascus Al Rawda, Zuhair Ben Abi Salma st. E-mail: [email protected] Malki Bldg N18 Domain: http://www.arope.com General Management P.O. Box: 33015 Mr. Ahmed GEMEI - Deputy Chairman & Managing Director Phone: (963-11) 9279 Mr. Tawhed ZAHER - Chief Operating Manager Board of Directors Mr. Habib RAHAL - Chairman & General Manager Fax: (963-11) 3348144 Mr. Mahmoud EL GAMMAL - Compliance Officer E-mail: [email protected] Mr. Ahmed A. RAHMAN - Financial Control Mr. Fateh BEKDACHE - Vice Chairman & General Mr. Emam WAKED - Head of Institutional Desk Manager Board of Directors Directors Mr. Amr AZHARI - Chairman Mr. Samer AZHARI Mr. Fateh BECKDACHE - Vice Chairman SCOR SE (Represented by Mr. Patrick LOISY) Mr. Serge OSOUF Directors Mr. Marwan JAROUDI Mr. Samer AZHARI Headquarters Mr. Rami HOURIE Mr. Habib BATENJANI Abdel Aziz St, Daher bldg Mr. Victor PEIGNET Mr. Ibrahim EL SHEIKH DIB Beirut, Lebanon Mr. Marwan JAROUDI General Management Phone: (961-1) 751090/1/2/3 Mr. Hassan BAALBAKI Fax: (961-1) 751094 Mr. Fateh BEKDACHE - General Manager Ms. Faten DOUGLAS - Assistant General Manager Email: [email protected] General Management Miss Faten DOUGLAS - General Manager Board of Directors BRANCHES Mr. Saad AZHARI: Chairman & General Manager Aley BRANCHES Directors Al Balakine Mr. Nicolas SAADE Phone: (961 – 5) 556 613 Aleppo Dr. Fadi OSSEIRAN Fax: (961 – 5) 556 614 Aleppo- Azizieh- Majed Al Deen Al Jabri Street Tel: (963-21) 9279 General Management Aramoun Fax: (963-21) 2118800 General Manager - Mr. Mouataz NATAFGI Choueifat – Al Koba, Aramoun Road P. O. Box: 1293 Phone: (961 – 5) 808 591 / 2/ 3 Managers Fax: (961 – 5) 808 594 Homs Mr. Tarek HOUSSAMI - Main Branch Manager & Head of City center Building Bur Al Barajneh Retail Department Tel: (963-31) 9279 Mr. Mustapha SIBAI - Financial Control & Investment Ain El Sekka Road Phone / Fax: (961 – 1) 452 917 Lattakia Al Kamilia - 8 March Street * Dora Main Road – Cebaco Center Tel: (963-41) 475213 Phone / Fax: (961-1) 262222 Fax: (963-41) 475223

Board of Directors Jbeil Hama Mr. Abdallah Abd Al Latif Ahmad AL FAWZAN - Chairman Voie 13, near Saint Charbel Junction, Al Ashek Building – Al Amin Street Mr. Mohamed Abd El Aziz Ibrahim AL AKIL- Member Phone / Fax: (961 – 9) 943 701 Tel: (963-33) 9279 Mr. Wali Abd El Aziz Saleh AL SAGHIR - Member Mr. Saad Naaman AZHARI - Member Saida Al Kamshli Mr. Fahim Mohamed MOADAD - Member Riad Solh Street – Fakhoury bldg Tel: (963-52) 430670 Dr. Fadi Toufic OSSEIRAN - Member Phone / Fax: (961-7) 725 303 Fax: (963-52) 430670 Mr. Marwan Mohamed Toufic AL JAROUDI - Member Tripoli Dair Al Zoor Headquarters: Riyad Zehrieh – Al Tall Street – Byssar bldg Phone / Fax: (961-6) 446 877 Tel : (963-51) 372828 * Under Establishment

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