ANNUALREPORT2018 TABLE OF CONTENTS FINANCIAL HIGHLIGHTS Inside cover STATEMENT OF THE CHAIRMAN 6 BOARD OF DIRECTORS 10 BIOGRAPHIES OF BOARD MEMBERS 11 SENIOR MANAGEMENT 20 COMMITTEES 23 CORPORATE STRUCTURE 28 MAIN BUSINESS ACTIVITIES 29 SUBSIDIARIES 36 MANAGEMENT DISCUSSION AND ANALYSIS 38 HUMAN RESOURCES DEVELOPMENT 56 CORPORATE SOCIAL RESPONSIBILITY 62 RESOLUTIONS OF THE ANNUAL ORDINARY GENERAL ASSEMBLY 65 INDEPENDENT AUDITORS’ REPORT 71 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 76 CONSOLIDATED INCOME STATEMENT 78 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 79 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 80 CONSOLIDATED CASH FLOW STATEMENT 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84 MAP OF BRANCH LOCATIONS 152 MAP OF ATM LOCATIONS 153 DIRECTORY 154 MAIN CORRESPONDENT BANKS 158 Mar Mikhael district in Beirut is the home of many hidden gems and historical traces, and hosts a socio-cultural melting pot, both eclectic and friendly, as well as a contemporary art scene and a vibrant nightlife. It is also the home of the future headquarters of Banque Libano-Française, currently in the making. In a tribute to our future neighborhood, we are displaying in our 2018 Annual Report modern-day photographs and descriptions on Mar Mikhael by Anthropologist and Photographer Houda Kassatly. 1 I Consolidated Financial Highlights TOTAL ASSETS BANQUE LIBANO-FRANÇAISE S.A.L. In millions of USD CAGR 13-18 SELECTED CONSOLIDATED FINANCIAL DATA 20000 In millions of USD and % 2013 2014 2015 2016 2017 2018 6.40% 15000 15,085 Total assets 11,064 11,271 11,641 12,715 13,620 15,085 13,619 12,715 Total loans 3,808 4,130 4,245 4,272 4,414 4,386 11,641 10000 11,064 11,271 Customers’ deposits 9,508 9,580 9,848 10,423 10,935 11,315 Shareholders’ equity 919 1,004 1,118 1,164 1,264 1,315 SHAREHOLDERS’ EQUITY Net financial revenues 236 247 248 264 275 284 5000 In millions of USD CAGR 13-18 Net earnings 100 102 106 112 120 121 Number of branches (Group) 62 65 67 67 62 64 1500 7.43% 0 Number of staff (Group) 1,308 1,428 1,509 1,546 1,447 1,469 2013 2014 2015 2016 2017 2018 1,315 1200 1,264 1,164 Liquidity and asset quality 1,118 Primary Liquidity / deposits 37.32% 34.75% 32.33% 38.26% 45.31% 49.32% 900 1,004 919 Liquid assets / deposits 43.67% 45.82% 51.27% 55.75% 62.27% 61.41% Loans to deposits 40.05% 43.11% 43.11% 40.99% 40.36% 38.77% LOANS AND ADVANCES 600 In millions of USD CAGR 13-18 Net doubtful loans / net loans* 0.21% 0.54% 0.98% 1.82% 3.88% 4.32% Loan loss provisions / 300 2.87% gross doubtful loans 97.39% 93.18% 88.79% 80.85% 69.74% 72.42% 5000 Net doubtful loans / equity* 2.78% 3.80% 4.76% 7.59% 13.35% 14.20% 0 2013 2014 2015 2016 2017 2018 4,272 4,414 4,386 4000 4,130 4,245 Capital adequacy 3,808 Average equity to assets 8.16% 8.61% 9.26% 9.37% 9.22% 8.99% 3000 Capital adequacy ratio** 13.13% 12.87% 13.41% 16.76% 16.15% 15.59% 2000 NET INCOME Profitability In millions of USD CAGR 13-18 ROAA 0.93% 0.92% 0.92% 0.92% 0.90% 0.8% 1000 ROAE 11.35% 10.65% 9.95% 9.79% 9.90% 9.4% 150 ROAE adjusted with interest 4.0% 0 2013 2014 2015 2016 2017 2018 on cash contribution to capital 11.58% 10.85% 10.13% 9.98% 10.10% 11.9% 120 120 121 112 106 Management efficiency 100 102 90 Commissions and other financial revenues to net financial income 26.65% 25.03% 24.21% 22.22% 34.00% 17.51% TOTAL CUSTOMERS’ DEPOSITS 60 Cost to income 51.04% 51.29% 50.27% 49.63% 48.70% 48.46% In millions of USD CAGR 13-18 Footings per branch (in USD million) 221.6 223.0 214.4 231.9 268.9 282.3% 30 Footings per staff (in USD million) 10.5 10.2 9.5 10.1 11.5 12.3% 12000 3.54% 11,315 0 Share data 10,935 2013 2014 2015 2016 2017 2018 10000 10,423 Common Shares outstanding 21,000,000 21,000,000 22,000,000 23,500,000 23,500,000 23,500,000 9,848 9,508 9,580 Preferred Shares outstanding 2,500,000 2,500,000 3,000,000 3,000,000 3,000,000 3,000,000 8000 Net dividends on Common Shares (in USD million) 23.26 23.26 23.35 29.85 38.97 38.97 6000 Net dividends on Preferred Shares 4000 (in USD million) 18.50 18.50 21.00 20.44 20.44 20.44 Earnings per Common Share (in USD) 3.99 3.91 3.72 3.73 4.1 4.4 2000 0 * The ratios for the year 2017 and 2018 are calculated taking into account substandard loans in addition to doubtful loans in 2013 2014 2015 2016 2017 2018 accordance with IFRS 9 regulations. * *As per Basel IIII requirements. BLF Annual Report 2018 I Mar Mikhaël The house with three arches House on Armenia street. Beirut’s central hall house appeared during the second half of the 19th century. With a triple arcade opening at its heart, and built in a private garden, the housing type is also characterized by a pyramidal roof covered with red tiles. As Beirut gained international prominence for commercial trade in the 1850s, it became a provincial capital, which led to the introduction of a new style of interior that reflected Ottoman modernity, both in appearance and in the materials used. The structure of such buildings typically includes several living rooms around a main central room. The back of the main hall is occupied by a characteristic room called “liwan”, often projecting and functioning as an extension of the living room. The front has a decorated triple-glazed arcade opening onto a narrow House on Armenia street. balcony overlooking the garden or street, with rooms lined up on the sides of the building. These elements Sketch of a house with three arches. are constitutive of this type of interior, however, size, decoration and location depend on the wealth of the landowner. BLF Annual Report 2018 I Mar Mikhaël The stairs Al Sayde stairs. Al Sayde stairs. To ensure pathways between the Geitawi district in the hills and the Mar Mikhaël district lower down, several stairs were carved into the rock in the 19th century. Many have now become emblems of both Mar Mikhaël and Beirut and are home to many events and activities that locals often feel associated with. Among the oldest stairs are the Vendôme, Massaad, or Al Sayde, which are registered nationally as listed properties since residents have fought to keep them. While these stairs are certainly of great importance, it is the Vendôme staircase that has become an emblem for Beirut. Formerly known as the Geara staircase, it took the name of the adjoining cinema, Le Vendôme, destroyed in 2014. In order to revive and revitalize its neighborhood, the collective Kahraba was created. It brings together several young Lebanese artists who organize events, such as the cultural festival that is held in July of each year. Massaad stairs. Vendôme stairs. Massaad stairs. STATEMENT OF THE CHAIRMAN 2 I Statement of the Chairman Lebanon witnessed a relatively promising first quarter of the year 2018, as the parliament adopted a budget In the midst of such political and economic instability, Banque Libano-Française continued to demonstrate a strong with the stated aim to reduce the budget deficit, and the country has received a strong support from the business model. Consolidated assets grew by 10.8% to USD 15.1 billion, while Assets Under Management grew international community. Indeed, the Rome conference which was held in March 2018 focused on increasing by 9.7%, bringing the total balance sheet and assets under management to USD 17.3 billion. In the meantime, the capabilities of the Lebanese army, while the April Brussels conference concentrated on channeling Customer Deposits increased by 3.5% to reach USD 11.3 billion at the end of 2018, while the loan portfolio remained humanitarian aid to support Lebanon, which suffers from the weight of the Syrian refugee crisis since 2011. In steady at USD 4.3 billion. Net income for 2018 amounted to USD 121 million, an increase of 1.1% over 2017, leading April 2018, France organized the CEDRE conference in order to mobilize international help for Lebanon to face to a stable Return on Average Common Equity (ROACE) of 12.2% and a slightly lower Return on Average Assets the economic downturn. That conference resulted in a very positive outcome, with more than USD 11 billion (ROAA) of 0.85% compared to 0.91% the previous year. in commitments of concessional loans and grants to finance the government’s multi-year Capital Investment Plan. The CEDRE conference subjected these commitments to a set of reforms in the public sector, a path to a Shareholders’ Equity continued to grow, in line with the Bank’s longstanding strategy of maintaining a high Equity reduction in Budget deficit and the participation of the private sector in the infrastructure projects. buffer in excess of regulatory requirements. It stood at USD 1.3 billion as at December 31, 2018, accounting for 8.7% of Total Assets.