BANK AUDI INTERIM REPORT JUNE 2021 1 BANK AUDI INTERIM REPORT JUNE 2021 TABLE OF CONTENTS 01 MANAGEMENT DISCUSSION 03 ADDRESSES 75 AND ANALYSIS 5 1.0. LEBANON 76 Bank Audi sal 76 1.0. BASIS OF PRESENTATION 6 SOLIFAC sal 78 2.0. OPERATING ENVIRONMENT 6 2.0. TURKEY 78 3.0. CONSOLIDATED FINANCIAL CONDITION 7 Odea Bank A.Ş. 78 3.1. ASSET ALLOCATION 9 3.0. CYPRUS 79 3.2. FUNDING SOURCES 16 BAPB Holding Limited 79 3.3. GROUP RESULTS OF OPERATIONS 19 4.0. SWITZERLAND 79 Banque Audi (Suisse) SA 79 5.0. SAUDI ARABIA 79 Audi Capital (KSA) cjsc 79 60. QATAR 79 Bank Audi LLC 79 7.0. FRANCE 79 Bank Audi France sa 79 8.0. UNITED ARAB EMIRATES 79 Bank Audi sal Representative Office 79 02 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 23 INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT 26 INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 27 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 28 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW 29 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 30 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 32 Notes’ Index 33 Notes 34 3 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BANK AUDI INTERIM REPORT JUNE 2021 01 MANAGEMENT DISCUSSION & ANALYSIS 4 5 MANAGEMENT DISCUSSION & ANALYSIS BANK AUDI INTERIM REPORT JUNE 2021 1.0. BASIS OF PRESENTATION The evolution of real sector indicators this year is actually a mirror image an average of USD 93 per household per month for 500 thousand eligible of a sluggish economy. The BdL average coincident indicator, a weighted households, parallel to potential subsidy rationalisation. The following discussion and analysis has been prepared by the Bank’s Based on the above, the external auditors expressed an adverse opinion average of a number of real sector indicators, reported a contraction Management based upon the Interim Financial Statements which are on the 2020 financial statements. of 44.1% in the first two months of 2021 relative to the same period At the capital markets level, equity markets did not mirror the economic included in the following section of this report. The selected financial and of 2020. Among indicators with negative growth over the first half of sluggishness of the first half year. The BSE price index reported an operating data set forth below has been subject to rounding, extracted As per regulatory requirements, the Bank maintains its accounts in this year, we mention the merchandise at the Port with a contraction of expansion of 30% in the first half of the year, driven mainly by the without material adjustment from the Interim Financial Statements. It Lebanese Pounds (LBP). Nonetheless, all figures presented in the 70.8%, new car sales with a decline of 49.0%, cement deliveries with improvement in Solidere prices which rose by 35% over the period, amid should be read in conjunction with, and is qualified in its entirety, by the following MD&A are expressed in US Dollars (“USD”), unless specifically a decline of 33.3%, and the value of cleared checks with a drop of the investor tendency to avoid haircuts on their financial placements. This 2020 Annual Report and the Interim Financial Statements in the first half otherwise stated. The difficulty in accessing foreign currencies has 22.1%. Indicators with positive growth were construction permits with a occurred within the context of a 57.4% annual increase in trading volume of 2021, including the respective notes thereto. led to the emergence of a parallel market to the official rate of 1,507.5 surge of 326.6%, the value of property sales with an increase of 59.0% year-on-year, moving from USD 119 million in the first half of 2020 to USD/LBP which deviates significantly from the latter. Also, since April year-on-year, and the number of passengers at the airport with a rise of USD 188 million in the first half of 2021. The Bank’s Annual and Interim Financial Statements have been prepared 2020, the Central Bank of Lebanon introduced several rates to be used only 19.0% year-on-year. in accordance with standards issued or adopted by the International in specific circumstances , namely (i) 3,900 USD/LBP as per BdL BC 151, Finally, banking sector statistics for the first five months of 2021 suggest Accounting Standards Board and interpretations issued by the (ii) 12,000 USD/LBP as per BdL BC 158, and (iii) the “Sayrafa” platform rate. At the monetary level, the year 2021 has witnessed erratic fluctuations of a continuing contraction in activity this year, though much less significant International Financial Reporting Interpretations Committee, the general For the purpose of this discussion, US Dollar amounts are translated from the Lebanese Pound exchange rate on the black market. The behaviour than that of the corresponding period of last year. In fact, measured by accounting plan for banks in Lebanon, and the regulations of the Central Lebanese Pounds at the closing of the official rate of exchange published of the exchange rate of the Lebanese Pound is the result of a combination the aggregated assets of operating banks in Lebanon, banking activity Bank of Lebanon and the BCC. Such Interim Financial Statements include by the Central Bank of Lebanon (1,507.5 as of each of 30 June 2020, of psychological factors related to domestic confidence and fundamental contracted by USD 4.7 billion in the 2021 year-to-May period (the the results of the Bank and its consolidated subsidiaries as listed in Note 2 31 December 2020, and 30 June 2021), in line with IAS 21 due to the lack factors related to the demand and supply of Lebanese Pounds and equivalent of -2.5%), against a contraction of USD 12.9 billion over the to the enclosed Interim Financial Statements as at end-June 2021. of an alternative legal exchange mechanism. Consequently, the financial US Dollars on the market. Subsequently, the year-on-year Consumer Price same period of 2020 (the equivalent of -6.0%). Banks’ shareholders’ statements do not reflect the change of disclosures required by IAS 29 Index surged by 149% in May 2021 compared to results of May 2020 as equity amounted to USD 17.0 billion at end-May 2021, against USD 19.9 The Lebanese political, financial and monetary crisis and its massive which applies for hyperinflationary economies since the existence of per the Consultation and Research Institute. BdL FX reserves contracted billion at end-2020 and USD 20.7 billion at end-2019. The contraction in uncertainties continue to weigh heavily on the operating conditions of a wide range of FX rates prevailing on the market and the absence of by USD 3.5 billion in the first half of 2021 amid FX market intervention, shareholders’ equity is tied to the accumulation of bank losses, despite banks in Lebanon, translating into a negative economic environment, forthcoming revamping of the official peg make it difficult to proceed and import financing for basic products. In parallel, Parliament approved a cost control efforts, amid significant provisioning requirements facing deepening recession, hyperinflation and a multitude of exchange with such adjustments, especially when it comes to the valuation of law to distribute prepaid cards valued at a yearly total of USD 556 million, Lebanese banks, covering both sovereign and private sector risks at large. rates. As per the World Bank, the financial crisis has reached a point monetary assets and liabilities. References to foreign currency translation where it could be ranked among the world’s three worst crises since differences reflect the movement of functional currencies in the countries the mid-1800s. The Crisis is further exacerbated by the woes of the in which the Bank has a presence against the US Dollar. global economies at large and relating to the volatility in the COVID-19 3.0. CONSOLIDATED FINANCIAL CONDITION pandemic, evolving from consecutive lockdowns to relaxing bans, only to face now a resurgence in the number of cases amid the emergence 2.0. OPERATING ENVIRONMENT The uncertainties stemming from the unprecedented challenges of the value, with the exception of transactions pertaining to the settlement of of new COVID-19 strains worldwide, while vaccination levels remain Lebanese Crisis marked the Group’s operating conditions in the first half loans. It also prevented banks from purchasing foreign currencies at parallel suboptimal. Within this environment, the persisting deafening absence The Bank operates principally in Lebanon. Turkey, home of Odea Bank, of 2021, in addition to the adverse political and economic developments rates with the exception of the purchase foreign currencies duly recorded of a clear resolution roadmap for the Lebanese Crisis continues to prevent represents the other significant market of presence of the Group. affecting more specifically Turkey, exacerbated by the outbreak of the on the electronic platform and resulting from offshore incoming transfers Management from estimating in a true and fair manner, and as per IFRS, Accordingly, its financial condition, results of operations and business COVID-19 pandemic worldwide. On this backdrop, Management has with the purpose of (i) enhancing liquidity, (ii) engaging in medium or the adverse impact of those matters on the Bank’s financial position and prospects are closely related to the overall political, social and economic been actively pursuing the implementation of a number of measures long-term investments, and (iii) settling international commitments. Finally, equity, which it anticipates to be material. In particular, Management situation in Lebanon and to lesser extend in Turkey. What follows is a short aiming at reinforcing the Bank’s financial standing while de-risking foreign the circular prevented banks from purchasing bankers’ checks and other wishes to draw attention to the following key points that carry significant analysis of the operating environment in Lebanon in the first half of 2021.