Chairman’s Letter Consolidated Financial Statements 06 92 Consolidated Financial Statements Key Figures 88 Auditors’ Report 08 91 Consolidated Income Statement for the year ended 31 December 2016 Organizational Chart 92 Consolidated Statement of 11 Comprehensive Income for the year ended 31 December 2016 93 Consolidated Statement of Financial Group Chart Position at 31 December 2016 12 94 Consolidated Statement of Changes in Equity for the year ended 31 December Corporate Governance 2016 98 Consolidated Statement of Cash Flows 16 at 31 December 2016 Code of Corporate Governance 99 Notes to the Consolidated Financial Statements BLOM BANK S.A.L. Major Common Shareholders Board of Directors List of Board Members Worldwide Information about Board of Directors Correspondent Banks Board Meetings held in 2016 186 Information on Key Members of BLOM BANK S.A.L. Management BLOM BANK S.A.L. Commercial Arrangements BLOM BANK Group General Management of BLOM BANK S.A.L. Management & Network 187 Management Discussion & 187 Banks & Financial Subsidiaries Analysis 2016 BLOM BANK S.A.L. 33 BLOMINVEST BANK S.A.L. BLOM DEVELOPMENT BANK S.A.L. 33 The Operating Environment in Lebanon BLOM BANK FRANCE 40 Overview BLOM BANK (SWITZERLAND) S.A. 41 Total Assets BLOM BANK EGYPT 43 Sources of Funds BLOM EGYPT SECURITIES 46 Uses of Funds BLOMINVEST SAUDI ARABIA 52 Liquidity BLOM BANK QATAR LLC 52 Performance BLOM SECURITIES 60 Dividend Distribution and Preferred 203 Insurance Subsidiaries Shares Revenue AROPE INSURANCE 61 Risk Management and Basel Preparations AROPE INSURANCE EGYPT 67 Corporate Governance 70 Universal Banking Services 77 Information Systems and Technology 79 People Development 83 Bank’s Operational Efficiency 2 BLOM BANK S.A.L. Dr. Naaman AZHARI Chairman of BLOM BANK Group Mr. Saad AZHARI Chairman and General Manager of BLOM BANK S.A.L. Annual Report 2016 3 Annual Report 2016 5 Chairman’s Letter 2016 was a relatively good year politically for Lebanon extends to many foreign footprints, for the Bank has and quite a good year for BLOM BANK. The country was the largest outside presence among Lebanese banks, able to elect a President and to form a new Government covering 12 countries and constituting 219 branches that should hopefully pave the way for economic and financial units. renewal and more political stability. And BLOM BANK continued with its conservative but innovative strategy Strategically, three important developments strengthened to perform at its customary best. Net profit increased our franchise in 2016. First, the Bank’s participation to USD 462.8 million, up by 14.49% in 2016, and in Syria was written off and deconsolidated from the implied the highest ROAcE at 17.09% and ROAA at Bank’s overall balance sheet. The reason was to protect 1.58% among listed banks. Despite a turbulent regional the Bank from any ramifications of stronger US and environment, net profit was driven by higher profits international sanctions on Syria. Second, the Bank from the Bank’s domestic and foreign operations, and signed an agreement in November 2016 with HSBC reinforced by the Bank’s notable managerial efficiency Lebanon to acquire the assets and liabilities of its three with the lowest cost-to-income ratio at 35.90% and by branches. The deal will keep all HSBC employees and a decent interest margin at 2.33%. should be completed in June 2017 after BDL’s final and full approval. As important, the acquisition will enrich Quantitatively, the Bank also succeeded in achieving the Bank’s activities in commercial banking, especially a respectable balance sheet. Assets rose to USD in trade finance and retail, two areas that HSBC 29.52 billion; loans stood at USD 7.16 billion; deposits Lebanon is very good at. Third, the Bank established the amounted to USD 24.81billion; and shareholders’ equity BLOM Asset Management Company to provide more increased to USD 2.93 billion. In addition, the Bank’s institutional support to this successful and expanding focus on value over volume and its priority of control business line whose funds totaled more than USD 620 over risk generated a very healthy financial profile. In million. this respect, CAR reached 19.85% (against a required ratio of 14%); net NPLs 0.4%; primary liquidity 74.4%; Qualitatively, BLOM BANK’s leading position in the and a coverage ratio by provisions and real guarantees Lebanese banking system was affirmed by its dynamic of 160%. model and creative platform. This is captured by the Bank’s constant innovation of new products and Marketwise, the Bank remains the leader in most services and the persistent upgrade of its digital delivery businesses. These include corporate, retail, investment, systems. Of the numerous qualitative initiatives that private, and Islamic banking, besides asset management the Bank undertook in 2016, the following stand out: i) and capital market services. Particularly noteworthy is the Youth Program, NEXT, which combines a physical the Bank’s strong lead in retail banking with a portfolio pre-paid card with the Bank’s renowned eBlom app of USD 2.90 billion; and in private banking with AUMs and is destined for the technology-oriented youth; ii) of USD 7.12 billion. The Bank’s market reach also the strategic alliance with American Express, focusing 6 BLOM BANK S.A.L. Chairman’s Letter Net profit increased to USD 462.8 million, up by 14.49% in 2016, and implied the highest ROAcE at 17.09% and ROAA at 1.58% among listed banks. Quantitatively, the Bank also succeeded in achieving a respectable balance sheet. Assets rose to USD 29.52 billion; loans stood at USD 7.16 billion; deposits amounted to USD 24.81 billion; and shareholders’ equity increased to USD 2.93 billion. Marketwise, the Bank remains the leader in most businesses. These include corporate, retail, investment, private, and Islamic banking, besides asset management and capital market services. Particularly noteworthy is the Bank’s strong lead in retail banking with a portfolio of USD 2.90 billion. on three activities: issuing of Centurion, Platinum, and BLOM BANK’s share price rose by 17.02% in 2016, Gold cards; settlement of any balances due in all our higher than any listed bank, and increasing its market branches; and marketing and installation of merchant capitalization to USD 2.37 billion. Also, its earnings per POS terminals; iii) the first-in-Lebanon service that share rose by a good 18.71% to USD 2.20, and all major offers e-commerce recurrent payments in a secure, sell-side institutions gave it a BUY recommendation PCI-compliant manner, the customers being the two with a target price of at least USD 12. And on April 7, mobile operators Alfa and touch; iv) the rejuvenated 2017, the Bank’s General Assembly voted to distribute reward program, BLOM Golden Points, with the game- 1,500 LL per share, constituting a payout ratio of 49%. changing enhancement that allows purchases with our Moreover, good returns did not only accrue to the cards to be settled in points rather than cash; and v) the Bank’s stakeholders, but to the community at large BLOM Income Plus Note, which guarantees the holder through BLOM BANK’s pioneering and extensive CSR of the Bank’s shares a return of 8.2% per annum for activities, including the BLOM Beirut Marathon that the 45 months but with the principal subject to share price Bank reclaimed in 2016. movements, and whose issue was heavily subscribed at more than USD 70 million in one month. Lastly, I am confident that BLOM BANK will maintain its position as a leading regional bank in Lebanon, thanks At the level of inter-bank relations, the Bank, as one to its valued customers, its talented staff, its strong of the two biggest banks in Lebanon, is in continuous management, and its worthy shareholders. And we cooperation with BDL to shore up monetary and look forward together to more successes in the future, financial stability. Towards that end, the Bank especially in a recovering Lebanon and stabilizing participated in BDL’s swaps in the Summer and Fall region. of 2016 to strengthen the foreign assets of the Central Bank. BLOM BANK made USD 413 million in after-tax extraordinary income from these operations but none of it was recorded as net profit in 2016: USD 173 million were taken as provisions per IFRS 9; USD 110 million were deferred; USD 72 million were used to write off and deconsolidate investments in Syria; USD 13 million were used as impairement of goodwill on BLOM Egypt; and USD 45 million as tax expense. It is an additional marker of the Bank’s solid standing that it could increase its net profit to USD 462.8 million without claiming any of the extraordinary income from the swaps as part of it. Mr. Saad AZHARI Additionally, the Bank’s strong financial position was also reflected in its stock price and market outcomes. Chairman and General Manager Annual Report 2016 7 Key Figures Consolidated Customers’ Deposits Evolution (in USD Million) 2016 24,811 25,091 24,006 2013 22,572 21,791 20,296 2010 19,606 18,024 15,109 2007 13,737 11,735 10,161 2004 8,992 7,686 6,215 2001 5,525 5,056 4,330 1998 3,861 3,333 2,686 1995 1,805 1,259 871 years 0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 8 BLOM BANK S.A.L. Key Figures Strong and Continuous Growth Total Assets (in USD Million) 2016 29,518 29,099 2014 27,975 26,149 2012 25,051 23,165 2010 22,344 20,702 2008 17,898 years 0 6,000 12,000 18,000 24,000 30,000 36,000 Net Profits (in USD Million) 2016 462.83 404.26 2014 364.78 352.44 2012 335.93 331.55 2010 330.60 293.02 2008 251.58 years 0 100 200 300 400 500 600 Total Capital Funds