TABLE OF CONTENTS THE YEAR IN BROAD STROKES ...................................................................................................................................................................... 3 Financial Highlights ................................................................................................................................................................................................................................................... 4 A Message from the Chairman ................................................................................................................................................................................................. 6 The Lebanese Economy in 2016 ......................................................................................................................................................................................................... 8 PROFILE OF THE GROUP .............................................................................................................................................................................. 15 OPERATIONS AND GOVERNANCE ....................................................................................................................................................... 19 Year in Review ........................................................................................................................................................................................................................................................................... 20 Board of Directors Member Profiles ............................................................................................................................................................................. 26 Board of Directors Committees ................................................................................................................................................................................................. 30 Remuneration Policy and Practices ....................................................................................................................................................................................... 31 Management Committees ................................................................................................................................................................................................................. 32 Organizational Chart ........................................................................................................................................................................................................................... 36 Group Chart ..................................................................................................................................................................................................................................................... 38 PERFORMANCE REVIEW .............................................................................................................................................................................. 39 Key Financial Data ................................................................................................................................................................................................................................... 40 Management Discussion and Analysis ...................................................................................................................................................................... 43 Consolidated Financial Statements ............................................................................................................................................................................... 76 DIRECTORY ................................................................................................................................................................................................................................... 203 Primary Correspondent Banks .......................................................................................................................................................................................... 204 Group Addresses ................................................................................................................................................................................................................................. 205 1 BYBLOS BANK S.A.L. ANNUAL REPORT 2016 2 THE YEAR IN BROAD STROKES 3 Byblos Bank S.A.L. The Year in Broad Strokes FINANCIAL HIGHLIGHTS TOTAL ASSETS Evolution of Total Assets During Last Ten Years 22,000 20,000 18,000 16,000 14,000 12,000 10,000 USD Million 8,000 6,000 9.12% 4,000 2,000 9,486 11,230 15,288 16,602 18,485 19,035 19,870 20,812 13,576 17,015 0 Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Assets CUSTOMERS’ DEPOSITS Evolution of Customers’ Deposits During Last Ten Years 18,000 16,000 14,000 12,000 10,000 8,000 USD Million 6,000 9.98% 4,000 2,000 8,363 10,286 12,820 13,384 15,715 16,637 17,102 7,262 11,927 14,749 0 Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Deposits 4 Byblos Bank S.A.L. The Year in Broad Strokes NET CUSTOMERS’ LOANS Evolution of Customers’ Loans During Last Ten Years 5,500 5,000 4,500 4,000 3,500 3,000 2,500 USD Million 2,000 1,500 9.80% 1,000 500 2,233 2,790 3,771 4,008 4,511 4,728 4,932 5,179 3,197 4,120 0 Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Loans TOTAL EQUITY Evolution of Total Equity During Last Ten Years 2,100 1,800 1,500 1,200 900 USD Million 600 8.69% 300 2,083 984 1,831 1,852 1,922 1,963 1,991 1,494 1,926 1,270 0 Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Equity NET INCOME Evolution of Net Income During Last Ten Years 200 180 160 140 120 100 80 USD Million 60 5.84% 40 20 99 122 178 180 156 175 161 165 146 167 0 Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Income 5 Byblos Bank S.A.L. The Year in Broad Strokes A MESSAGE FROM THE CHAIRMAN Dear Stakeholders, Byblos Bank posted satisfactory net profits of USD 165.3 million in 2016, an increase of 2.4% over 2015. This performance is directly aligned with the risk appetite mandated by the Board of Directors, whose priority has been to focus on bolstering the Bank’s financial strength as a safeguard against unstable environments at the local, regional, and global levels. This strategy resulted in several achievements in 2016. For one thing, the Bank increased its immediate foreign currency liquidity – in the form of short-term placements with higher-than-investment-grade institutions – to 16.6% of foreign currency deposits, easily surpassing both internal and international benchmarks. For another, Byblos Bank posted a Basel III Capital Adequacy Ratio above 18% at end- 2016, easily exceeding the regulatory requirement of just 14%. In addition, the Bank successfully maintained loan quality and ensured adequate provisioning during the year, all while continuing our policy of closely monitoring potential risk across the Group. Last but not least, as at end-2016, Byblos Bank was fully compliant with the provisioning requirements of IFRS 9, well ahead of the 2018 regulatory deadline. In the context of these and other conservative steps, net customers’ loans grew by 5% to USD 5.2 billion, and customers’ deposits added 2.8% to reach USD 17.1 billion, while the Bank maintained a low loans-to-assets ratio of 24.9%, and slightly improved its net interest margin from 1.40% to 1.42%, largely due to better interest rate management. At the same time, the Bank faced difficult choices with regard to its subsidiaries in Syria and Sudan. Informed by our strong focus on long-term financial strength, and in the face of continuing instability in some of the emerging markets where we operate, as well as mounting international sanctions in some areas, the Bank has decided to deconsolidate their results and fully impair its investments in them, effective 31 December 2016. In the coming year, we expect to see improving economic and political conditions in our home market of Lebanon. And we will be ready to capitalize on them: the Bank has spent the past few years carrying out a variety of internal projects aimed at sharpening our business-development activities and increasing staff productivity, measures that leave us well-positioned to profit from expanding economic activity. 6 Byblos Bank S.A.L. The Year in Broad Strokes A MESSAGE FROM THE CHAIRMAN As ever, I feel compelled to point out that the satisfactory results achieved in 2016 – amid challenging conditions and a risk-averse approach – were the result of a team effort by an active and attentive Board, able and exacting management, and faithful and committed employees across the Byblos Bank Group. Their combined dedication and proficiency ensured that the Bank could keep advancing the interests of its shareholders by bolstering both its assets and its capital base despite numerous external obstacles. In addition, the same professionalism allowed us to maintain and fairly compensate an appropriately sized workforce, and to extend our long record of being a good neighbor in the communities where we operate. These and other achievements honor a proud tradition of establishing sensible priorities, crafting the right strategies to address them, and empowering our management and staff to implement these strategies with maximum efficiency. In this, all of us are guided