Lifelong Relationship - Fenicia · PDF fileHassan Cheaib Mr. Aziz Nadra Macaron ... of the Board of trustees of several GCC universities in Bahrain, ... Khalil Najjar Mr. Mohsen Chafic

Annual Report2013

Together… wherever

Lifelong Relationship...عالقة ُعُمر...

Fenicia Bank Annual Report

2013

3

FENICIA BANK S.A.L.Annual Report 2013

Fenicia Bank Annual Report2013

4

TABLE OF CONTENTS


2013

5

Chairman’s Letter 06

Board of Directors & Management 08

Corporate Governance 14

Highlights, Charts and Performance Review 26

Financial Statements & Notes 38

Correspondent Banks & Addresses 112


6

INTRODUCTION


2013

7

Fifty is the age where we reflect upon our achievements. Where we accept our failures and finally take pride in our successes. Where our soft spots become strengths and our shortcomings, mere stepping stones towards higher grounds. Most of all, we think about the people that have crossed our path, appreciating the way we have grown together and mutually enriched one another.

At Fenicia Bank, we can proudly say after half a century that we build our relationships on the long run, with well-earned trust, constant availability and a flexibility that fits every client’s personal needs. We strive to support you in your achievements and life realizations, guided only by our integrity and high quality standards.

No detail is small enough, no task too difficult when it comes to your satisfaction. Every person that crosses our door is a potential friend, one that we intend to keep close and happy, For generations to come.


8

Dear Stakeholders,

As we disclose the bank financial performance for 2013, we feel proud to record another successful year where our figures grew notably compared to 2012. During last year, we invigorated our potentials and utilized the opportunities to achieve our objectives, guided by the visionary yet pragmatic strategy and the scrupulous yet dynamic management.

The mission was not simple, especially with the continued state of tumult in the region. The Lebanese banking sector retained its ability to serve both the private and public sectors adequately, hence achieving a healthy growth in its balance sheet of 8.5% to reach almost USD 165 billion by the end of 2013. Fenicia Bank, in parallel with the sector, registered a growth rate of 9%. Our customer deposit base expanded by 7% to almost USD 1.2 billion and it composed a significant 83% of the balance sheet.

As for our loan portfolio, the growth of 14.5% was momentous in 2013 and way ahead of the sector. We outperformed ourselves relative to 2012 where the portfolio increased then by a mere 4%. This resulted in a noteworthy Loan to Deposit ratio of 32%. A simple analysis of this improvement will certainly highlight the effects of our in-house restructuring of the different loan related divisions at all levels. In parallel, we utilized efficiently the new loans offered by the Central Bank to the commercial banks based on intermediate circular 313 and its subsequences, especially that they were deployed to stimulate the different productive and residential economic sectors, which aligns with our mission of contributing to

CHAIRMAN’S LETTER


2013

9

our economy. The expansion in the loan portfolio was not at the detriment of its quality. The non-performing loans constituted around 6% of total loans with provisions against those NPLs reaching 53% excluding cash collaterals and real estate guarantees. Within the same context and retail wise, we revived a marketing campaign for our products and services and launched a new specialized car-loan program with advantageous conditions.

On the profitability front, our net profits rose by 6% to almost USD 14 million, leading to considerable post-tax ROaE and ROaA of 12.49% and 1.02% respectively. The shareholders’ equity balance boosted by around 10% characterized by its 100% CET1 components. Furthermore, the bank revealed an assuring capital adequacy ratio of 16.06% and a convenient leverage ratio of 7.52%.

2013 was complementary to its precedent in our rigorous efforts to affirm governance practices. We established the Compliance Unit and enriched it with distinguished management from the field, stressing our strategic priority of complying with local regulations and international best practices on one hand, and combating money laundering and crime financing on the other hand. Furthermore, we updated several policies and procedures and smoothly communicated them to our staff, namely “Code of Conduct Policy”, “Whistle blowing Policy” and “Conflict of Interest Policy”. Finally, we restructured our organizational hierarchy to better facilitate the flow of operations and the communication among the various business lines.

Given the dynamic banking industry, we have always considered empowering our human capital with updated knowledge and skills as a strategic objective. Throughout 2013, our staff attended numerous courses and training programs with top notch local and international firms. In addition to the in-house training sessions and workshops which facilitated the exchange of knowledge and expertise among all employees.

Within our business strategies and plans, our corporate social responsibility has always been at the core. In 2013, we were privileged to support several organizations and participate in many events that enhanced social and cultural interaction, educational and academic incentives, and athletic spirit.

As a final note, we are grateful to our shareholders for their support and trust, our employees for their incessant efforts and most importantly our clients for their confidence and loyalty by which we have built a lifelong relationship that we cherish as our utmost wealth.

Abdul Razzak AchourChairman and General Manager


10

BOARD OF DIRECTORS& MANAGEMENT


2013

11

• Lebanese, born in 1938. • Non Executive Board Member at Fenicia Bank s.a.l. and member of the Audit

Committee.• Board Member of Bellevue Company s.a.l. (Real Estate Company). • Driven by ambition and entrepreneurship, he is the owner of a recognizable

company chain in Africa (DRC), (Manufacturing, Electronic Devices, Clothes, and Shoes).

• Pioneer investor in the Lebanese real estate sector through financing the construction of a variety of big projects all across Lebanon.

• Lebanese, born in 1965. • Chairman of the Board of Directors and General Manager of Fenicia Bank s.a.l.

since 1994.• Chairman of several committees namely: Assets and Liabilities (ALCO), Anti Money

Laundry, Credit Rating, and Credit.• Chairman of the Board and General Manager of Bellevue Company s.a.l (Real

Estate Company).• Board member of Trust Construction Company s.a.l. (Construction Company).• Board member in Achour Group (Trade, Manufacturing, Transportation and

Construction).• Member of World Union of Arab Bankers.• Board member of the Lebanese Banking Association for more than 15 years.• Committed to the civil society and to social responsibility, Mr. Achour serves as a

Board Member in the Children Cancer Center – Lebanon (CCCL).• Through his career in the banking and non banking sector, Mr. Achour is recognized

for his strategic vision, leadership skills, and innovative way of doing business.• Holder of Bachelor Degree in Business Administration and Accounting from Lucien

Coormans Institute - Brussels and a degree in International Commerce Studies from ICAD – Paris.

• Lebanese, born in 1958. • Major shareholder at Fenicia Bank s.a.l.• Non Executive Board Member of Fenicia Bank s.a.l.• Board Member at Bellevue Co. s.a.l. (Real Estate Company). Also a Board Member

in Achour Group, managing and co-managing several affiliated companies dealing with different lines of business with international trade exposure.

• Serves as a Board Member in different organizations specifically in sports field. He is currently the president of “Al Sadaka” sporting club (Beirut-Lebanon) and the President of The Handball Federation in Lebanon.

Mr. Abdul Razzak Mahmoud Achour

Mr. AbdallahMahmoud Achour

Mr. YoussefAbbas Merhi


12

• Lebanese, born in 1940. • Non Executive Board Member at Fenicia Bank s.a.l. and member of the Audit

Committee.• Board Member of Bellevue Company s.a.l. (Real Estate Company). • Being an ambitious businessman and bold entrepreneur, he owns a Farm and Real

Estate agency in the region of Bekaa – Lebanon. Also, Owner of Dada Company in DRC, and owner of a recognizable company chain in Africa (DRC), (Manufacturing, Electronic Devices, Clothes, Shoes).

• Holder of several rewards including the highest reward in DRC: “Chevalier de l’ordre National du Leopard” as an appreciation of his achievements in the commerce and industry sectors.

• Lebanese born in 1938. • Independent Board Member at Fenicia Bank s.a.l.• Chairman of several committees namely: Governance & Remuneration, Audit.• Chairman & General Manager of Intra Investment Co s.a.l.• Member of the Board of Directors of Jammal Trust Bank s.a.l., Byblos Bank DRC

and Casino du Liban.• Member of World Union of Arab Bankers.• Fifty-three years of experience in several banking and financial institutions, where

he served as the general manager or director in the board.• Professor at the Lebanese University, Faculty of Economics and Business

Administration.• Holder of PHD in Business and Economics from Aix-En Provence – France.

• Lebanese, born in 1953. • Assistant General Manager of Fenicia Bank since 2002, executive member of its

Board of Directors since 2012, and member of several committees.• Held leading positions in different local and international banks: Al Ahli Bank of

Qatar- Doha, Mashreq Bank - Doha, Mashreq Bank – Dubai. Also in the non banking sector: Geonex International Incorporated, Florida, USA, and Middle East Banking Company, Beirut, Lebanon.

• Professor in different universities: Lebanese University, Islamic University of Lebanon and Lebanese International University.

• Holder of PHD in Economics from the American University of London, MBA from University of New Hampshire, BA in Accounting & Finance and BA in Marketing & Administration from the Lebanese University, and Diploma in Banking studies and Central Bank Regulations from Saint Joseph University.

Dr. Mohamed AbdulHassan Cheaib

Mr. Aziz Nadra Macaron

dr. Asaad AbdelHassan Koshaish


2013

13

• Lebanese, born in 1946. • Assistant General Manager of Fenicia Bank since 2002, executive member of its

Board of Directors since 2012.• Member of several committees namely: Risk and Governance Committies.• Joined Fenicia Bank s.a.l. in July 1992 and held the position of Branches and

Organization Manager.• Held many senior positions in different banks: Jammal Trust Bank s.a.l., Bank of

Beirut s.a.l., Societe Nouvelle de la Banque de Syrie et du Liban. • Holder a Bachelor Degree in Chemistry from the Lebanese University.

• Lebanese, born in 1948. • Independent Board Member of Fenicia Bank s.a.l. since 2012.• Chairman of Risk Committee and member of Governance committee.• He currently holds several senior positions in different Academic institutions

namely: Provost for Faculty Affairs at the Lebanese American University, Professor of strategic Management, Advisor to the President of AACSB (The US-based Business School Accreditation Body) in the Middle East and Africa. Also, member of the Board of trustees of several GCC universities in Bahrain, UAE and Oman.

• Member of the Board of the National Bank of Kuwait (Lebanon).• Holder of PHD in General Management from the University of Southern California,

MBA Degree from the American University of Beirut.• Holder of John Fernandes Strategic leadership award by the academy of Strategic

and Entrepreneurial Leadership in the US for the year 2012.

• Lebanese-French born in 1949. • Independent Board Member of Fenicia Bank s.a.l. since 2012.• Member of the Risk and Audit Committees.• Chairman and General Manager of the Société Financière du Liban (Group of 40

Banks). Also a Board member of Intra Investment Company, Casino Du Liban, Jammal Trust Bank s.a.l., Ameen s.a.l., Société Foncière et Financière du Port de Beyrouth, Société Mixte du Froid, Société Foncière du Liban, and Société Foncière Franco Libanaise.

• Had an extensive financial consulting experience for more than 20 years in Merrill Lynch in Lebanon and France.

• Holder of Bachelor Degree in Business Administration from the American University of Beirut.

Dr. GeorgeKhalil Najjar

Mr. MohsenChafic Naamani

Mr. MichelFouad Ferneini


14

Mr. Abdul Razzak ACHOURChairman - General Manager

Mr. Mohsen NAAMANIAssistant General Manager

Dr. Asaad KOSHAISHAssistant General Manager

Mr. Muhieddine ARNAOUTLegal Affairs - Senior Manager

Mrs. Hala Achour SAFIEDDINEAdministration & H.R. Manager

Mr. Izzat MSHEIKRisk Manager

Mr. Bilal SBEITYInternal Audit Unit Manager

Dr. Paul MORCOSHead of Compliance Dept.

Shareholders

Achour GroupMaacaron GroupMerhi GroupDr. Mohamad CheaibOthers

Shares in Capital

74.00 %15.00 %10.00 %0.98 %0.02 %

Nationality

LebaneseLebaneseLebaneseLebanese

-

BANK’S OWNERSHIP

MANAGEMENT

Mr. Hachem FADLALLAHInternational Trade Manager

Mrs. Nada KARAKIOperations & Treasury Manager

Mrs Samar HAMDANAccounting Manager

Dr. Antoine KARAMRetail Banking Manager

Mr. Sami BACHIRCorporate & SME Credit Manager

Dr. Samir BARAKATSpecialized Loans Manager

Mr. Houssam RAMADANInformation Technology Manager

Mrs. Rania SAABProduct Development Manager


2013

15

ADVISOR TO THE CHAIRMAN

BRANCHES NETWORK

LEGAL ADVISORS

AUDITORS

Me. Charles GHAFARI

Me. Waddah EL-CHAER

Grant Thornton

PricewaterhouseCoopers

Dr. Ibrahim HAMMOUDCredit

Mr. Ali BADRANBranches Network Manager

Mr. Maroun MAKHOULRegional Manager [Bekaa]

Mr. Mohamad HAMADEHRegional Manager [South]


16

CORPORATE GOVERNANCE


2013

17

A legacy worth the whileThe one heritage we are always proud of is a true bond.

At Fenicia Bank, we build on the long run, to keep our clients close, one generation after the other.


18


I. Corporate Governance Initiatives During 2013

The initiative to reshape the corporate governance structure and upgrade its standards and practices was one of the key milestones achieved by Fenicia Bank S.A.L. in 2013. The Bank embarked on a broad corporate governance restructuring program during the year. The program went in parallel with Fenicia Bank’s ongoing transformation, followed the board level governance revamp that was launched in 2012, and aimed at reinforcing the Bank’s wider commitment to good governance. Following the election of new board members, the reinforcement of board independence, and the establishment of the Governance and Remuneration Committee in 2012, the corporate governance action plan launched and accomplished in its majority in 2013 tackled every pillar of the governance framework. The Bank recognizes that the commitment to governance standards is an ongoing process and will continue to carry out its efforts to nurture a culture of governance across the Bank.

The Corporate Governance Code which sets forth the framework of the governance structure at the Bank and delineates its governance practices was revised during the year to ensure alignment of the Bank’s practices with the latest and leading international standards as well as the regulatory and industry requirements. The revisions tackled the composition of the Board of directors and Board committees and the responsibilities of the major governance organs at the Bank including the Board and its committees, top management, risk management, and internal and external audit, and incorporated the criteria for director independence.

The charter of the Board Risk Committee was reviewed and updated as well to ensure consistency with the revised Corporate Governance Code and alignment with regulatory requirements and international best practices in corporate governance. Within the same framework, the charters of the Audit Committee and the Governance & Remuneration Committee were updated and will be presented to the Board of Directors for discussion and approval.

In order to instill a culture of ethical behavior and compliance with the highest governance and legal principles, the Bank developed a Whistleblowing Policy which was approved by the Board of Directors. The policy encourages proper and prompt dealing with actual or perceived violations of any nature. The Bank also updated its Code of Conduct Policy to ensure consistency of the underlying principles across all codes and policies. These policies were communicated to all staff through correspondence followed by seminars and workshops to promote awareness, highlight their importance, and provide the necessary clarifications.

The Board of Directors approved as well the Conflict of Interest & Related Party Transactions Policy which aims at limiting conflict of interest and related party transactions and promoting transparency, fairness, and disclosure in issues underlying such incidents.

A plan was initiated as well during the year to update the Bank’s Policies and Procedures’ Guide in line with the best industry practices and allowing for efficiency in operations while maintaining proper control and compliance. The new organizational structure at the Bank reflected the establishment of the Compliance Department comprising the Legal Compliance Unit and the Anti-Money Laundry Compliance Unit and having within its mandates the


2013

19

responsibility of ensuring the implementation of these policies and monitoring the compliance with the underlying legal, regulatory, and governance principles.

One of the pillars of the governance undertaking tackled the risk management framework at the Bank. A Risk Strategy and a Risk Policy laying down solid foundations for risk management at the Bank were approved by the Board of Directors. The Risk Strategy sets forth the general framework of risk management, the risk management objectives, the risk governance structure, the Bank’s risk tolerance indicators, and the methodologies for identifying, measuring and assessment, monitoring, mitigating, and reporting the various risks.With the aim of ensuring the ongoing development of the Board members and the update of their knowledge and skills in areas essential to the exercise of judgment and decision making, the Bank approved a comprehensive Board Training Program covering topics such as corporate governance, financial statements analysis, risk management, audit, compliance, and strategy. Two sessions aiming at strengthening the Board’s background in the areas of corporate governance and finance were delivered in 2013. The rest of the program is planned to be delivered over the next year.

II. Corporate Governance Plan for the Period 2014 - 2015

Fenicia Bank S.A.L. commits to its ongoing advancement in good governance conduct. Within this framework, the Bank plans to keep on reinforcing the governance principles it had set forth and on upgrading its practices to keep pace of developments in the field. Fenicia Bank’s corporate governance plan for the 2014/2015 period will tackle various governance pillars with primary focus on:• Approving and adopting the updated charters of the Audit Committee and the Governance and Remuneration

Committee by the Board of Directors;• Completing the remaining sessions of the Board Training Program initiated in 2013 and covering the topics of

Corporate Governance, Finance, Risk Management, Audit, Compliance and Strategy;• Accomplishing the Work Plan for updating the Bank’s Policies and Procedures Guide initiated in 2013 and

putting the new Guide into practice; • Ensuring that the recently established Compliance Department is fully functional and has the adequate staff

and other resources, including access to continuous training, in a way that facilitates the proper exercise of its compliance monitoring functions;

• Adopting a Board assessment procedure which would be carried out on an annual basis to evaluate the functioning of the Board and attempt to continuously improve its governance practices;

• Succession planning for the top executive positions at the Bank in order to ensure continuous sustainability in operations;

• Regular review and update of the various corporate governance principles to keep pace of the developments in the regulatory requirements as well as in the industry and international best practices;

• Promoting a culture of good governance across the Bank through the planning of awareness programs and improved communication of governance principles to all employees, among other initiatives.


20

III. Organizational Structure

Higher Credit Committee

Audit Committee

Risk Committee

Governance & Remuneration Committee

Internal Audit Unit

External Auditors

Risk Management

Chairman - GM

Shareholders

Boardof Directors

Assistant GM

Advisor - Credit Advisor - Organization

Advisor-Legal Advisor - IT Compliance

Assistant GM

Branch Management

Product Development

Credit Administration

SpecializedLoans

Corporate & SME

Retail

Legal Affairs

Administration & HR

Information Technology

International Trade

Operations

Finance

IT Security

Organization



2013

21

IV. Bank Committees

• BoardCommittees: o Audit Committee o Governance and Remuneration Committee o Risk Committee o Higher Credit Committee

• ManagementCommittees: o Anti-Money Laundry Committee o Assets & Liabilities Committee o Credit Committees (3 sub-committees) o Credit Rating Committee o FATCA Committee o Financial & Estate Placements Committee o Information Security Committee o Procedures & Internal Control Committee o Training Committee o Archiving Committee

V. Fenicia Bank Board Governance

V.1 Board of Directors’ Roles and Responsibilities

Fenicia Bank’s Board of Directors has wide authorities to implement the decisions of the General Assembly and to exercise the non day-to-day activities required to run the business normally. The Board of Directors supervises the setting of the Bank’s strategy and its implementation, oversees the performance of the Bank’s management in alignment with the strategy and objectives, and sets standards for evaluations and remunerations.

The Board ensures proper care of the legitimate interests of the shareholders, depositors, and stakeholders and the building of trust in the Bank and ensures that proper governance procedures are in place and abided by. The Board ensures the proper implementation of the required control procedures and oversees the financial reporting and audit systems and follows up on the work of the internal audit unit and the external auditors.

The Board of Directors sets the general policy of risk management at the Bank and ensures its efficiency and proper implementation. It is responsible for the transparency of its activities’ results and for the Bank’s abidance by the applicable laws and circulars.


22


V.2 Responsibilities of the Chairman

The Chairman of the Board of Directors represents the Bank to third parties and executes the Board’s decisions and facilitates the daily operations of the Bank, as stated by the bylaws, and under the supervision and control of the Board of Directors. The Chair provides leadership to the Board and is responsible for the Board’s effective overall

functioning.

V.3 Composition of the Board

The Bank’s Board of Directors is composed of nine members, of whom three are independent, three are non-executive, and three are executive directors.

We believe that the mix of expertise at the Board level brings a wide range of diversity to the Board and its committees and contributes to a sound and informed judgment and decision making.


2013

23

Dir

ecto

rsD

ate

of

Join

ing

the

B

oar

d

Bo

ard

Co

mp

osi

tio

n

Bo

ard

Co

mm

itte

es

Aud

it

Co

mm

itte

e

Go

vern

ance

&

Rem

uner

atio

n C

om

mit

tee

Ris

k C

om

mit

tee

Hig

her

Cre

dit

C

om

mit

tee*

**

Cat

ego

ry*

Mem

ber

ship

**M

emb

ersh

ip**

Mem

ber

ship

**M

emb

ersh

ip**

Mem

ber

ship

**M

r. A

bdul

Raz

zak

Ach

our

1992

EC

C

Mr.

Moh

sen

Naa

man

i20

12E

MM

M

Dr.

Asa

ad K

osha

ish

2012

EM

MM

Dr.

Moh

amad

Che

aib

1992

IM

CC

Dr.

Geo

rges

Naj

jar

2012

IM

MC

Mr.

Mic

hel F

erne

ini

2012

IM

MM

M

Mr.

Azi

z M

aaca

ron

1992

NE

MM

M

Mr.

Yous

sef M

erhi

1992

NE

MM

Mr.

Abd

alla

h A

chou

r19

92N

EM

5.4

Boa

rd a

nd B

oard

Com

mitt

ees

*E=

Exec

utiv

e

I=In

depe

nden

t

NE=

Non

-exe

cutiv

e

**C

=C

hairm

an

M=

Mem

ber

***T

he R

isk

Man

ager

atte

nds

the

mee

tings

with

out v

otin

g rig

hts


24


V.5 Board Committees

The Board delegates some of its responsibilities to its committees and maintains the duty to follow up on the actions, findings, and recommendations of these committees and taking the actions deemed appropriate.

V.5.1 Audit Committee

V.5.1.1 Membership

The Audit Committee consists of four non-executive directors, two of whom are independent. The Chairman of the Committee is considered by the Board to be independent.The Board has determined that the Committee Chair, Dr. Mohamad Cheaib, possesses relevant financial and audit

experience required for the Audit Committee to fulfill its tasks.

V.5.1.2 Roles and Responsibilities

The main mission of the Audit Committee is to assist the board in fulfilling its supervisory role and responsibilities mainly related to:• The independence and qualifications of the External Auditors and the Internal Audit Unit.• Oversight of the financial reporting process and accounting policies, control of financial statements’ soundness,

and review of the disclosure standards adopted by the Bank.• The adequacy and effectiveness of the audit systems and the internal control policies and procedures.• The follow up on any observations, violations, or recommendations highlighted by the External Auditors, supervisory

authorities, the Internal Audit Unit, or the Compliance Department and follow-up on the implementation of the remedial measures.

• The assurance of proper oversight over the compliance systems and the procedures to address any reported non-compliance.

• The abidance by the Central Bank circulars and the Banking Control Commission circulars and reports and all other applicable regulations.

V.5.2 Governance and Remuneration Committee

V.5.2.1 Membership

The Governance and Remuneration Committee consists of two independent members and one executive member. The Chairman of the Committee is considered by the Board to be independent.

The Board has determined that the Committee Chair, Dr. Mohamad Cheaib, possesses the experience required for the Governance and Remuneration Committee to fulfill its tasks.


2013

25


The main roles of the Governance and Remuneration Committee are as follows:• Assistance in setting the various corporate governance policies at the Bank and follow-up on their implementation.• Clarification of the roles and responsibilities of the Board of Directors and its committees and assurance of their

proper exercise.• Verifying that the Bank is operating within the frame of the corporate governance principles.• Regular review and update of the corporate governance code and principles in compliance with the guidelines

issued by the Basel Committee and the supervisory authorities and in line with international best practices.

V.5.3 Risk Committee

V.5.3.1 Membership

The Board Risk Committee consists of two independent members and two executive members. The Chairman of the Committee is considered by the Board to be independent.The Board has determined that the Committee’s Chair, Dr. George Khalil Najjar, possesses the experience required for the Board Risk Committee to fulfill its tasks.


The main roles of the Risk Committee are as follows:

• Assisting the Board in setting the risk strategy and policies and in determining, measuring, monitoring, and managing all the risks that the Bank is exposed to.

• Advising the Board on the Bank’s overall current and future risk tolerance. • Verifying that the Bank operations and goals stay within its risk appetite.• Supervising the sound adoption of the risk management principles in abidance by the regulations of the Central

Bank, the Banking Control Commission, and the Basel Committee.• Ensuring the independence and competence of the risk management unit and overseeing its activities. • Verifying that the risk management implementation is compliant with the Bank’s risk strategy.

V.5.4 Higher Credit Committee

V.5.4.1 Membership

The Board Higher Credit Committee consists of two executive, one independent and one non-executive member. The Chairman of the Committee is the Chairman of the Bank.The Board has determined that the Committee’s Chair, Mr. Abdul Razzak Achour, possesses the experience required for the Board Higher Credit Committee to fulfill its tasks.The Risk Manager attends the meetings of the Higher Credit Committee for risk assessment and consultations but

does not have a voting right.


26



The main role of the Higher Credit Committee is to examine the credit files that are presented to it based on the criteria set by the Board of Directors. The committee provides opinion on all direct and indirect credit files whose value exceeds USD five millions.

VI. External Auditors

The External Auditors of Fenicia Bank S.A.L. are Grant Thornton and PricewaterhouseCoopers. The External Auditors were appointed by Board of Directors upon a recommendation by the Audit Committee. The External Auditors are independent from the Bank and its directors. The Audit Committee is responsible for ensuring that the External Auditors remain independent.

VII. Conflict of Interest and Related Party Transactions

The Bank has developed a Conflict of Interest Policy that promotes transparency, fairness and disclosure in issues underlying a conflict of interest or related party transactions. The Policy delineates the procedures for avoiding conflicts of interest to the extent possible with the appropriate disclosure mechanisms, and for identifying and dealing

with actual, potential, or perceived conflicts of interest, and disclosing them where un-prevented.

VIII. Professional Conduct Rules

Fenicia Bank S.A.L. ensures that the Bank at all employee levels abides by the highest standards of legal and ethical conduct. The Bank has developed a Code of Conduct and established mechanisms for monitoring compliance by it and all applicable laws and regulations. It has developed procedures for employees to confidentially report any violations and for the Bank to act upon and resolve the faced issues. Fenicia Bank S.A.L. is strongly committed to the following values that frame the scheme of its activities within and outside the work environment:

Fast Service (We satisfy customer needs at the time they need the service)

Efficiency (We execute operations within a small margin of error)

Neutrality (We show no favors and engage in no discriminatory behavior)

Integrity (We act ethically and honestly towards our organization and stakeholders)

Consistency (We maintain uniformity across our products and services to ensure customer satisfaction)

Innovation (We propose new ideas and/or ways of doing things)

Accountability (We hold the responsibility for and consequences of our actions)


2013

27


28

HIGHLIGHTS, CHARTS & PERFORMANCE REVIEW


2013

29

The shop around the cornerThat old grocery shop Yasmeen inherited from her stepfather

could not be more exotic to her. But with the support of Fenicia Bank, she can already imagine the gourmet deli shop it will soon turn into.


30

FINANCIAL HIGHLIGHTS (figures in millions LBP)

2013 2012 % of change

Total AssetsLBP 901,491 807,116

9.09%F/C 1,198,954 1,118,256

Customer DepositsLBP 638,284 589,755

6.90%F/C 1,113,193 1,048,731

Loans & AdvancesLBP 147,856 112,665

14.50%F/C 410,399 374,885

Shareholders’ EquityLBP 183,869 168,080

9.97%F/C 9,373 7,647

Net IncomeLBP 20,517 19,323 6.18%


2013

31

FINANCIAL RATIOS

2013 2012

Liquidity Ratios

Net Liquidity in LBP 94.30% 96.70%

Net Liquidity in USD 65.96% 66.27%

Total Net Liquidity 75.43% 77.18%

Available Net Liquid Funds in F/C 22.25% 23.47%

Liquid Assets / Total Assets 63.96% 66.43%

Loans / Deposits in LBP 23.16% 19.10%

Loans / Deposits in F/C 36.87% 35.75%

Loans / Deposits (Total) 31.87% 29.76%

Asset Quality Ratios

Non Performing Loans / Total Loans 6.62% 5.71%

Net Non Performing Loans / Total Loans 3.12% 2.38%

Loan Provisions / Non Performing Loans 52.94% 58.17%

Net NPLs / Equity 9.55% 7.01%

Capital Adequacy Ratio 16.06% 13.94%

Profitability Ratios

Return on Average Equity ROAE 12.49% 13.16%

Return on Average Assets ROAA 1.02% 1.01%

Internal Capital Generation Rate 8.98% 10.44%

EPS in LBP (after tax) 21 19

Management Efficiency Ratios

Interest Paid / Interest Received 67.10% 64.80%

Total Commissions / Financial Income 9.63% 9.19%

Cost / Income 82.82% 83.07%

Efficiency Ratio 24.28% 26.12%


32

CHARTS

The below charts show the movement of some basic indicators during the past ten years.

558

1,751

2,100


2013

33

193

21


34

Deposits from Central Bank

Deposits from banks

Deposits from customers

Shareholders’ equity

Other liabilities

2012

85%

9%

1%3%

2%

2013

83%

9%

1%4% 3%

FINANCIAL PERFORMANCE REVIEW OF 2013

1- Balance Sheet Analysis

The growth in the balance sheet at end of 2013 exceeded 9%.The following pie charts show the breakdown of the bank major uses and sources of funds in 2013 and 2012:

The loans and advances to banks portfolio constitutes 9% of the bank’s uses of funds and it mainly represents the bank term placements and accounts for regular banking operations. Those placements are characterized by: * 55% with investment grade banks* 86% with non-resident banks

Cash and balances with Central Bank

Loans and advances to banks

Loans and advances to customers

Investment securities

Other assets

2012

27%

10%

13%3%

47%2013

29%

9%

14%2%

46%

Uses of Funds [2012 - 2013]

Sources of Funds [2012 - 2013]


2013

35

Breakdown of Gross Loans by Quality [2012 - 2013]

2- Loans and Advances to Customers

The loans and advances portfolio to customers forms around 30% of the bank investable assets. This portfolio witnessed a remarkable growth around 15% in 2013.Following is the breakdown of this portfolio based on selected criteria in 2013 and 2012:

201277%

2%1%

20%

Normal loans

Special mention loans

Substandard loans

Doubtful & bad loans

201383%

1%2%

14%

Agriculture

Industry

Construction

Trade and services

Consumption

Others

201315%

20%

3%3%

16%

43%

2012

19%

15%

3%4%

13%

46%

Breakdown of Loans by Economic Sector [2012 - 2013]


36


Breakdown of Loans by Geographical Sector [2012 - 2013]

Lebanon

African Countries

European Countries

Arab Countries

Other Countries

2012

75%

23%1%

1%0%

2013

66%

29%

1% 1%3%

Breakdown of Loans by Type [2012 - 2013]

63%

11%

4%

22% 2012

Corporate

Small & Medium Size Enterprises

Retail

Housing

201363%

22%

3%

12%


2013

37

3- Deposits from Customers

Customer deposits constituted the major part of the bank’s sources of funds at a high 83%.The following pie charts show the breakdown of those deposits in 2013 and 2012:

Customer Deposits [2012 - 2013]

Term Saving Accounts

Demand Saving Accounts

Pledged deposits against credit facilities

Margins against L/Cs and L/Gs

Current and checking accounts

Debtors accidentally creditors accounts

term deposits

Related parties

2012

58%

3%

14%

14%

1%

7%

1%

2%

2013

1%

1%

1%

3%

13%

14%

60%

7%


38


Total Expenses [2012 - 2013]

Interest expenses

Fees and Commissions

Loan impairment losses

Personnel expenses

General & administrative expenses

Income tax expenses

2012

68%

4%10%

14%

3%1%

201370%1%

1%

14%

10%4%

4- Net Income

The financial results of 2013 recorded USD 14 millions as net profits. The breakdown of income and expenses was as follows:

Total Income [2012 - 2013]

Interest Income

Fees and Commissions

F/X Trading gains

Loan impairment releases

Other income

2012

88%

9%

1%1%1%

2013

87%

10%1%

2%


2013

39

5- Capital Adequacy

The Bank’s capital is composed solely of Common Equity Tier 1 components (common equity and reserves). The following table summarizes the Capital Adequacy Ratio according to Basel standards.

2013 2012

CET 1 capital 172,182 155,858

Additional Tier 1 capital - -

Tier 2 capital - -

Total Capital 172,182 155,858

Less: B.V. Intangible Fixed assets 96 27

Less: Revaluation of securities designated at FVTOCI 15 13

Qualifying Capital 172,071 155,818

Total risk weighted assets* 1,071,179 1,118,388

BIS ratio 16.06% 13.93%

*Based on BDL intermediate circular 358, and given its discretionary authority, the risk weight of placements with BDL including CDs in foreign currencies, was decreased from 100% to 50%.

The result ratio is significantly above both the required basel ratio of 8% and the more conservative supervisors’ ratio of 10.5%.

Regarding Basel BIS ratio, the credit risk component comprises the largest part (92%) of the total risk wighted assts. The bank utilizes the Standardized Approach, Standardized Measurement and Basic Indicator approach in assessing credit, market and oprational risk respectively.

When accounting for 2013 profits (less dividends) within the qualifying capital, CAR will rise up to 17.51%. The bank also retains a relaxing leverage ratio of 7.52% as by the end of 2013.

In compliance with the second pillar of basel 2 and the directives of the Lebanese supervisory authorities, the bank performs Internal Capital Adequacy Assessment Process ICAAP periodically in order to asssess the bank entire risk profile on both quantitative and qualitative bases, and consequently have an estimate of its economic capital.


40

Financial Statements & Notes


2013

41

Everything starts smallWhen great aunt Edna decided to leave her beloved car to little Samer, little did

she know he would grow into this lovable giant. At Fenicia bank, we know that everything small can grow big, and our car loan will turn any car into the one

you dream of.


42

INDEPENDENT AUDITOR’S REPORT

Independent Auditors’ Reportto the shareholders of Fenicia Bank S.A.L.

Report on the financial statements

We have audited the accompanying financial statements of Fenicia Bank S.A.L.(“the Bank”) which comprise the balance sheet as of 31 December 2013 and the statementsof comprehensive income, changes in equity and cash flows for the year then ended, and asummary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financialstatements in accordance with International Financial Reporting Standards (IFRSs), and forsuch internal control as management determines is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with International Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance about whether the financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditors’judgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the Bank’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theBank’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion.


2013

43

Independent Auditors’ Report (continued)to the shareholders of Fenicia Bank S.A.L.

Opinion

In our opinion, the accompanying financial statements present fairly, in all materialrespects, the financial position of Fenicia Bank S.A.L. as at 31 December 2013, and itsfinancial performance and its cash flows for the year then ended in accordance withInternational Financial Reporting Standards

PricewaterhouseCoopers Grand Thornton

Beirut, Lebanon5 June 2014


44

BALANCE SHEET AT 31 DECEMBER 2013

2013 2012Note LL Million LL Million

Assets

Cash and balances with the central bank 5 286,133 256,179

Due from banks 6 184,748 183,471

Loans and advances to customers 7 558,255 487,550

Debtors by acceptances 8 54,822 40,523

Investment securities:

- At fair value through other comprehensive income 9 511 515

- At amortised cost 9 962,162 899,128

Intangible assets 11 96 28

Investment property 12 10,874 11,296

Property and equipment 10 35,586 37,655

Other assets 13 7,258 9,027

Total assets 2,100,445 1,925,372


2013

45The financial statements on pages 42 to 110 were approved and authorised for issue by the board of directors and signed on their behalf by Mr. Abdul Razzak Ashour, Chairman, on 21 May 2014.

The notes on pages 48 to 110 are an integral part of these financial statements.


Liabilities

Due to central bank 14 87,801 58,464

Due to banks 15 1,732 1,233

Deposits from customers 16 1,751,470 1,638,486

Engagements by acceptances 8 54,822 40,523

Current income tax liability 26 1,276 1,402

Other liabilities 17 6,128 5,916

Retirement benefit obligations 18 3,974 3,619

Total liabilities 1,907,203 1,749,643

Shareholders’ equity

Share capital 19 100,000 100,000

Legal reserve 19 18,316 16,383

Reserve for unspecified banking risks 19 10,785 8,551

Free reserve restricted to future increases in capital 19 6,970 5,835

Free reserve 19 36,223 25,201

Other reserves 431 435

Profit for the year 19 20,517 19,324

Total shareholders' equity 193,242 175,729

Total liabilities and shareholders' equity 2,100,445 1,925,372


46


Interest and similar income 104,191 100,297

Interest and similar expenses (69,911) (64,991)

Net interest income 20 34,280 35,306Net loan impairment charges 22 (26) (2,025)

Net interest income after loan impairment charges 34,254 33,281

Fee and commission income 11,505 10,486

Fee and commission expense (764) (710)

Net fee and commission income 21 10,741 9,776

Net trading gains 1,079 1,012

Personnel expenses 23 (13,449) (12,805)General and administrative expenses 24 (7,692) (6,562)Depreciation and amortisation charges 25 (3,066) (2,901)Other operating income 2,178 1,187

Profit before income tax 24,045 22,988

Income tax expense 26 (3,528) (3,664)

Profit for the year 20,517 19,324

Other comprehensive income

Net unrealised loss on financial assets atfair value through other comprehensive income

(4) -

Total comprehensive income for the year 20,513 19,324

STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2013


2013

47STA

TE

ME

NT

OF

CH

AN

GE

S I

N E

QU

ITY

For t

he y

ear e

nded

31

Dec

embe

r 201

3 Sha

re

Cap

ital

Leg

al

rese

rve

Res

erve

fo

r un

spec

ified

b

anki

ng

risk

s

Free

re

serv

e fo

r ca

pit

al

incr

ease

Ap

pro

pri

atio

n o

f p

rofi

t fo

r th

e ye

ar

Free

re

serv

eO

ther

re

serv

esTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Bal

ance

at 1

Jan

uary

201

2 10

0,00

0 14

,171

6,

331

3,93

6 22

,118

12

,414

435

159,

405

Pro

fit fo

r the

yea

r -

--

-19

,324

-

-19

,324

Oth

er c

ompr

ehen

sive

inco

me

--

--

--

--

Tota

l co

mp

rehe

nsiv

e in

com

e -

--

-19

,324

-

-19

,324

Div

iden

ds d

ecla

red

(not

e 19

) -

--

-(3

,000

) -

-(3

,000

)

Tran

sfer

s (n

ote

19)

-2,

212

2,22

0 1,

899

(19,

118)

12

,787

-

Tota

l tra

nsac

tions

with

ow

ners

reco

gnis

ed d

irect

ly in

equ

ity

-2,

212

2,22

0 1,

899

(22,

118)

12

,787

-(3

,000

)

Bal

ance

at

31 D

ecem

ber

201

2 10

0,00

0 16

,383

8,

551

5,83

5 19

,324

25

,201

435

175,

729

Bal

ance

at 1

Jan

uary

201

3 10

0,00

0 16

,383

8,

551

5,83

5 19

,324

25

,201

-17

5,72

9

Pro

fit fo

r the

yea

r -

--

-20

,517

-

-20

,517

Oth

er c

ompr

ehen

sive

inco

me

--

--

--

(4)

(4)

Tota

l co

mp

rehe

nsiv

e in

com

e -

--

-20

,517

-

(4)

20,5

13D

ivid

ends

dec

lare

d (n

ote

19)

--

--

(3,0

00)

--

(3,0

00)

Tran

sfer

s (n

ote

19)

-1,

933

2,23

4 1,

135

(16,

324)

11

,022

-

Tota

l tra

nsac

tions

w

ith

owne

rs

reco

gnis

ed d

irect

ly in

equ

ity

-1,

933

2,23

4 1,

135

(19,

324)

11

,022

-(3

,000

)

Bal

ance

at

31 D

ecem

ber

201

3 10

0,00

0 18

,316

10

,785

6,

970

20,5

17

36,2

2343

119

3,24

2


48

STATEMENT OF CASH FLOWSFor the year ended 31 December 2013

2013 2012

Note LL Million LL Million

Cash flows from operating activities

Profit before income tax expense 24,045 22,988

Adjustments for non-cash items: Depreciation and amortisation expenses 25 3,066 2,901

Net gain on disposal of property and equipment (1) (2)

Net loan impairment charges 22 26 2,025

Provision for retirement benefit obligations 18 418 812

Net interest income 20 (34,280) (35,306)

Changes in operating assets and liabilities: Balances with the central bank (15,632) (810)

Due from banks (16,593) (21,105)

Loans and advances to customers (70,237) (21,801)

Investment securities at amortised cost (62,554) (96,339)

Other assets 1,769 (401)

Due to central bank 29,280 -

Due to banks 499 (17,501)

Deposits from customers 120,429 45,349

Other liabilities 212 (515)

Cash used in operating activities (19,533) (119,705)

Interest received 103,220 99,818

Interest paid (77,299) (62,974)

Income tax paid 26 (3,654) (4,118)

Employee benefits paid 18 (63) (194)

Net cash generated from (used in) operating activities 2,651 (87,173)

Cash flows from investing activitiesPurchase of property and equipment 10 (510) (1,580)

Proceeds from sale of property and equipment 3 6

Purchase of intangible assets 11 (83) (3)

Purchase of investment property 12 (52) -

Net cash used in investing activities (642) (1,577)

Cash flows from financing activitiesDividends paid (3,000) (3,000)

Net decrease in cash and cash equivalents (991) (91,750)

Cash and cash equivalents at beginning of year 27 215,997 307,747

Cash and cash equivalents at end of year 27 215,006 215,997


2013

49


50

through other comprehensive income.

The financial statements comprise the balance sheet, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the notes. The Bank classif ies its expenses by the nature of expense method.

The financial statements are presented in Lebanese Pounds, which is the Bank’s functional and presentation currency. The figures shown in the financial statements are stated in mil l ions of Lebanese Pounds (“LL Mil l ion”) except when otherwise indicated. The disclosures on risks from financial instruments are presented in the financial r isk management report contained in note 3.

The statement of cash flows shows the changes in cash and cash equivalents arising during the year from operating activit ies, investing activit ies and financing activit ies. Cash and cash equivalents include highly l iquid investments. Note 27 shows the balance sheet captions in which cash and cash equivalents items are included.

The cash flows from operating activit ies are determined by using the indirect method. Net income is therefore adjusted by non-cash items, such as measurement gains or losses, changes in provisions, as well as changes from receivables and l iabil i t ies. In addition, al l the income and expense from cash transactions that are attr ibutable to investing or f inancing activit ies are eliminated. Interest received or paid is classif ied as operating cash flows.

1 | General information

Fenicia Bank S.A.L. (the “Bank”) offers a ful l range of retai l, private and commercial banking activit ies to its customers. The Bank’s operations cover al l districts in Lebanon.

The Bank was incorporated in Lebanon in 1962 and registered at the Lebanese Commercial Register in Beirut under No. 11923 in the name of Bank of Kuwait and the Arab World S.A.L. It is l isted under number 58 in the l ist of Lebanese banks regulated by the Central Bank of Lebanon. The Bank has changed its name to Fenicia Bank S.A.L. on 20 December 2010.

2 | Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to al l the years presented, unless otherwise stated.

2.1 | Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRS Interpretation Committee (“IFRS IC”) as issued by the International Accounting Standards Board (“IASB”). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of f inancial instruments at fair value

Notes to the financial statements for the year ended 31 December 2013


2013

51

a signif icant impact on the Bank’s f inancial statements.

– Amendment to IAS 1, ‘Clarif ication of the Requirement for Comparative Information’. The amendment to IAS 1 clarif ies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntari ly provides comparative information beyond the minimum required comparative period.

– An opening statement of f inancial posit ion (known as the ‘third balance sheet’) must be presented when an entity applies an accounting policy retrospectively, makes retrospective restatements, or reclassif ies items in its f inancial statements, provided any of those changes has a material effect on the statement of f inancial posit ion at the beginning of the preceding period.

– The amendment clarif ies that a third balance sheet does not have to be accompanied by comparative information in the related notes. The adoption of this amendment is not applicable and accordingly, did not have any impact on the Bank’s f inancial statements.

– -IFRS 13, ‘Fair Value Measurement’ ( issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) improved consistency and reduced complexity by providing a revised definit ion of fair value, and a single source of fair value

The cash flows from investing and financing activit ies are determined by using the direct method. The Bank’s assignment of the cash flows to operating, investing and financing categories depends on the Bank’s business model (management approach). The preparation of f inancial statements in conformity with IFRS requires the use of certain crit ical accounting estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signif icant to the financial statements are disclosed in Note 4.

2.1.1 | Changes in accounting policies and disclosures

(a) Standards, amendments and interpretations effective on or after 1 January 2013

The fol lowing standards and amendments, which became effective in 2013, are relevant to the Bank:

– Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income, (revised in May 2011 and effective for annual period beginning on or after 1 January 2013). The main change result ing from these amendments is a requirement for Banks to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potential ly reclassif iable to profit or loss subsequently (reclassif ication adjustments). The amendment did not have


52

measurement and disclosure requirements for use across IFRSs. The amendment of this standard did not have a signif icant impact on the Bank’s f inancial statements.

– Amendment to IFRS 7, ‘Financial instruments’: Disclosures’ on derecognition, (effective from 1 July 2012). The amendment requires an entity to disclose information about rights to set-off f inancial instruments and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s f inancial posit ion. The new disclosures are required for al l recognised financial instruments that are set off in accordance with IAS 32. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether the financial instruments are set off in accordance with IAS 32. As the Bank is not setting off f inancial instruments in accordance with IAS 32 and does not have relevant offsetting arrangements, the amendment does not have any impact on the Bank.

– Amendment to IAS 32, ‘Financial Instruments: Presentation’ clarif ies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. The amendment removes existing income tax requirements from IAS 32 and requires entit ies to apply the requirements in IAS 12 to any income tax arising from distributions to equity holders. The amendment did not have an impact on the Bank’s f inancial statements.

– Amendment to IAS 27, ‘Separate Financial Statements’ (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013) was changed and its objective is now to prescribe the accounting

and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.

– IFRS 12, ‘Disclosure of Interests in Other Entit ies’ ( issued in May 2011 and effective annual periods beginning on or after 1 January 2013) sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entit ies. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries. For example, where a subsidiary is controlled with less than a majority of voting rights. The adoption of this amendment did not have any impact on the financial posit ion or performance of the Bank.

b) Standards, amendments and interpretations issued but not yet effective

– Amendment to IAS 36, ‘ Impairment of assets’ ( issued in May 2013 and effective for annual period beginning 1 January 2014), on the recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. This amendment is not expected to have an impact on the Bank’s f inancial statements.

– Amendments to IAS 32, ‘Offsetting Financial Assets and Financial Liabil i t ies’ ( issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identif ied in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off ’ and that some gross settlement systems may be considered equivalent to net


2013

53

settlement. This amendment is not expected to have an impact on the Bank’s f inancial performance or posit ion.

– Amendments to IAS 39, ‘Novation of Derivatives and Continuation of Hedge Accounting’. The amendment provided rel ief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. This amendment is not expected to have an impact on the Bank’s f inancial performance or posit ion.

2.2 Foreign currency translation (a) Functional and presentation currency

I tems included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (‘the functional currency’). The financial statements are presented in Lebanese pounds, which is the Bank’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevail ing at the dates of the transactions. Monetary items denominated in foreign currency are translated with the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of init ial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. Foreign exchange gains and losses result ing from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and l iabil i t ies denominated in foreign currencies are recognised in the statement of comprehensive income.

Changes in the fair value of monetary securit ies denominated in foreign currency are analysed between translation differences result ing from changes in amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss.

Translation differences on non-monetary f inancial assets and l iabil i t ies are recognised in the profit or loss as part of the fair value gain or loss. Translation differences on non-monetary f inancial instruments such as equities measured at fair value through other comprehensive income are included in other comprehensive income.

2.3 | Financial assets and liabilities

In accordance with IFRS 9, al l f inancial assets and l iabil i t ies have to be recognised in the balance sheet and measured in accordance with their assigned category.

2.3.1 | Date of recognition

All f inancial assets and l iabil i t ies are init ial ly recognised on the trade date, i.e. the date that the Bank becomes a party to the contractual provisions of the instrument. This includes purchases or sales of f inancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

2.3.2 | Classification and measurement a. Financial assets

The Bank classif ies its f inancial assets as measured at fair value or at amortised cost. The classif ication depends on the purpose for which the financial assets were acquired. Management determines the classif ication of its f inancial assets at init ial recognition.


54

(i) Financial assets at amortised cost

Debt instruments are subsequently measured at amortised cost less any impairment loss (except for debt instruments that are designated at fair value through profit or loss upon init ial recognition) if they meet the fol lowing two conditions:

- The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

- The contractual terms of the instrument give rise on specif ied dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

These financial assets are init ial ly recognised at cost, being the fair value of the consideration paid for the acquisit ion of the investment. All transaction costs directly attr ibuted to the acquisit ion are also included in the cost of investment. After init ial measurement, these financial assets are measured at amortised cost using the effective interest rate method (EIR), less allowance for impairment. Amortised cost is calculated by taking into account any discount of premium on acquisit ion and fees and costs that are an integral part of the effective interest rate. The amortisation is included in “Interest and similar income” in the statement of comprehensive income. The losses arising from impairment are recognised in the statement of comprehensive income in “Net gains/losses on financial assets at amortised cost”.

Gains and losses arising from the derecognition of f inancial assets measured at amortised cost are reflected under “Net gain ( loss) from sale of f inancial assets at amortised cost” in the statement of comprehensive income.

(ii) Financial assets at fair value

Included in this category are those debt instruments that do not meet the conditions in

“Financial assets at amortised cost” above, debt instruments designated at fair value through profit or loss upon init ial recognition, and equity instruments at fair value through profit or loss.

Debt instruments at fair value through profit or loss

The Bank has not designated any debt instruments as measured at fair value through profit or loss to eliminate or signif icantly reduce an accounting mismatch.

Equity instruments at fair value through profit or loss

Investments in equity instruments are classif ied at fair value through profit or loss, unless the Bank designates at init ial recognition an investment that is not held for trading as at fair value through other comprehensive income.

b. Financial l iabil it ies

Liabil it ies are init ial ly measured at fair value plus, in the case of a f inancial l iabil i ty not at fair value through profit or loss, particular transaction costs. Liabil i t ies are subsequently measured at amortised cost or fair value.

The Bank classif ies al l f inancial l iabil i t ies as subsequently measured at amortised cost using the effective interest method, except for:

- f inancial l iabil i t ies at fair value through profit or loss (including derivatives);

- f inancial l iabil i t ies that arise when a transfer of a f inancial asset does not qualify for derecognition or when the continuing involvement approach applies;

- f inancial guarantee contracts and commitments to provide a loan at a below-market interest rate which after init ial recognition are subsequently measured at the higher of the amount determined


2013

55

in accordance with IAS 37 Provisions, Contingent Liabil i t ies and Contingent Assets and the amount init ial ly recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

After init ial measurement, due to central bank, due to banks and deposits from customers are measured at amortised cost less amounts repaid using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate method.

2.3.3 | 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 when:

- the rights to receive cash flows from the asset have expired;

- the Bank 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 Bank has transferred substantially all the risks and rewards of the asset, or

(b) the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Bank 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 Bank’s continuing involvement in the asset. In that case, the Bank also recognizes an associated liability. The transferred asset and the

associated liability are measured on a basis that reflects rights and obligations that the Bank has retained.

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 Bank could be required to repay.

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. The difference between the carrying value of the original financial liability and the consideration paid is recognized in the statement of comprehensive income.

2.4 | Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts or there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.

2.5 | Fair value measurement

The Bank measures financial instruments and non-financial assets, at fair value at each statement of financial position date. Also, fair values of financial instruments measured at amortised cost are disclosed in the notes.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability


56

takes place either:

- In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Bank. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

- Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities - Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable - Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank determines whether transfers have occurred between Levels in the hierarchy by re¬assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Management determines the policies and procedures for both recurring fair value measurement, such as investment properties and unquoted financial assets, and for non¬recurring measurement.

At each reporting date, the management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Bank’s accounting policies. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Bank has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

2.6 | Impairment of financial assets

The Bank assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

The criteria that the Bank uses to determine whether there is objective evidence of an impairment loss include:

a) significant financial difficulty of the issuer or obligor;

b) a breach of contract, such as a default or delinquency in interest or principal payments;

c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;


2013

57

e) the disappearance of an active market for that financial asset because of financial difficulties; or

f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Bank first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the statement of comprehensive income.

Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Bank. If, in a subsequent year,

the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the ‘Net loan impairment charges’ in the statement of comprehensive income.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs of obtaining and selling the collateral, whether or not the foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system, that considers 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 estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions 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 unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the Bank 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.


58

Renegotiated loans

Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if renegotiated again.

2.7 Leases

The leases entered into by the Bank, are principally operating leases. Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss on a straight-line basis over the period of the lease. The total payments made under operating leases are charged to other operating expenses in the statement of comprehensive income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

2.8 Recognition of income and expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

(i) Interest and similar income and expenses

For all financial instruments measured at amortised cost, and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or

a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.

The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in the carrying amount is recorded as “Interest and similar income” for financial assets and “Interest and similar expense” for financial liabilities.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(ii) Fee and commission income

The Bank earns fee and commission income from a diverse range of services it provides to its customers.

Fees earned for the provision of services over a period of time are accrued over that period. These fees include private banking, custody and other management and advisory fees.

Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan. When it is unlikely that a loan be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.

2.9 | Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition,


2013

59

including cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

2.10 | Property and equipment

Land and buildings comprise mainly branches and offices. All property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to other operating expenses during the financial period in which they are incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Years

Buildings 50Leaseholds improvements 7Office and computer equipment 5-7Furniture and fixtures 13Vehicles 17

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each date of the balance sheet. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by

comparing proceeds with carrying amount. These are included in other operating income in the statement of comprehensive income.

2.11 | Intangible assets

Intangible assets comprise mainly computer software licences. Intangible assets are stated at cost. Intangible assets with a definite useful life are amortised using the straight-line method over their estimated useful economic life. Intangible assets with an indefinite useful life are not amortised. At each date of the balance sheet, intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exist, the intangible assets are analysed to assess whether their carrying amount is fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount.

Computer software licences

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Software has a maximum expected useful life of 5 years.

2.12 | Investment properties

Properties that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by the Bank, are classified as investment properties. Investment properties comprise office buildings leased out under operating lease agreements.

Some properties may be partially occupied by the Bank, with the remainder being held for rental income or capital appreciation. If that part of the property occupied by the Bank can be sold separately, the Bank accounts for the portions separately. The portion that is owner-occupied is accounted for as property and equipment, and the portion that is held for rental income or capital appreciation or both is treated as investment property. When the portions cannot be sold separately, the whole property is treated as investment property only if an insignificant portion is owner-occupied. In order to


60

determine the percentage of the portions, the Bank uses the size of the property measured in square meter.

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing parts of an existing investment property at the time the cost has incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and impairment, if any. Subsequent expenditure is included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the statement of comprehensive income during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives of 50 years.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each date of the balance sheet. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating income in the statement of comprehensive income.

2.13 | Impairment of non-financial assets

The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If

any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised.

The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognised in the statement of comprehensive income.

Impairment losses relating to goodwill cannot be reversed in future periods.

2.14 | Financial guarantee contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the


2013

61

holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of the initial amount, less amortisation of fees recognised in accordance with IAS 18, and the best estimate of the amount required to settle the guarantee. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgement of management. The fee income earned is recognised on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the statement of comprehensive income within other operating expenses.

2.15 | Retirement benefit obligation

The Bank is subscribed to the compulsory defined benefit plan of the national social security fund.

IAS 19 ‘Employee benefits’ requirements:

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service or compensation. The liability recognised in the balance sheet in respect of the defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less contributions to the fund. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government securities that have terms to maturity

approximating the terms of the related pension liability.

Local requirements:

The compulsory defined benefit plan varies according to each employee’s final salary and length of service, subject to the completion of a minimum service period. The provision is calculated based on the difference between total indemnities due and total monthly contributions paid to National Social Security Fund (‘’NSSF’’), End-of-Service Indemnity contributions paid to NSSF represents 8.5 percent of employee benefits.

2.16 Taxation

Taxation is provided for in accordance with the fiscal regulations applicable in Lebanon.

(a) Current income tax

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 reporting 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.

The Bank is also subject to distribution tax of 10% on net profit after allocation to legal reserve.

(b) Deferred income tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:

- Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.


62

- In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

- In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each statement of financial position 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 utilised. Unrecognised deferred tax assets are reassessed at each statement of financial position date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised in equity and not in the statement of comprehensive income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

2.17 | Provisions for risk and charges

Provisions for restructuring costs and legal claims are recognised when the Bank has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.18 | Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.19 | Dividend distribution

Dividend distribution to the Bank’s shareholders is recognised as a liability in the period in which the dividends are approved by the Bank’s shareholders.

3 | Financial risk management

The Bank’s business involves taking on risks in a targeted manner and managing them professionally. The core


2013

63

functions of the Bank’s risk management are to identify all key risks for the Bank, measure these risks, manage the risk positions and determine the capital allocations. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products, and best market practice.

The Bank’s aim is to achieve an appropriate balance between risk and return to minimise potential adverse effects on the Bank’s financial performance.

The Bank defines risk as the possibility of losses incurred or profits foregone, which may be caused by internal or external factors.

Risk management is carried out by the Bank’s risk management department under policies approved by the Board of Directors. The risk management department evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments The Bank’s Audit committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank’s Audit committee is assisted in these functions by the internal audit department.

Internal audit undertakes both regular and ad-hoc reviews for risk management controls and procedures, the results of which are reported to the Bank’s Audit committee.

The risks arising from financial instruments to which the Bank is exposed are financial risks, which include credit risk, market risk, liquidity risk and operational risk (which are discussed below).

3.1 | Credit risk

Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market counterparties

fail to fulfill their contractual obligations to the Bank. Credit risk arises mainly from commercial and retail loans and advances, and undrawn credit facilities arising from such lending activities, but can also arise from credit enhancement provided, such as financial guarantees, letters of credit, and acceptances.

The Bank is also exposed to other credit risks arising from investments in debt securities and balances with banks.

Credit risk is the largest risk for the Bank’s business; management therefore carefully manages its exposure to credit risk.

3.1.1 | Credit risk measurement

The estimation of credit exposure is complex and requires the use of models, as the value of a product varies with the changes in market variables, expected cash flows and the passage of time.

(a) Loans and advances (including undrawn credit facilities and guarantees)

To measure the credit risk of loans and advances to customers, the Bank rates its counterparties based on the rating models as defined by the Central Bank of Lebanon (“BDL”) basic circular no. 58:

(b) Debt securities and other bills

For debt securities and other bills, external rating such as Standard & Poor›s («S&P») rating or their equivalents are


64

Internal loan grading system

Definition

Normal

Excellent

The loan is expected to be repaid on a timely and consistent basis.

Strong

Good

Satisfactory

Follow-up (special mention)

Adequate The loan is expected to be repaid but the client's file is not complete.

Follow-up and regularization (special mention)

Marginal The client is still able to fulfil its obligations with the presence of some weaknesses that may lead to a lower probability of repayment if not addressed.Vulnerable

Sub-standard Sub-standard The client has a difficult financial condition and might not be in a position to settle the loan in full.

Doubtful Doubtful There is no movement in the clients' balance.

Bad Bad The probability of repayment is low and almost nil.

used by the Bank›s treasury department for managing credit risk exposure. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time.

3.1.2 Risk limit control and mitigation policies

The Bank manages limits and controls concentrations of credit risk once they are identified – in particular, to individual counterparties and groups, and to industries and countries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to a quarterly or more frequent review, when considered necessary.

The exposure to any one borrower including banks and financial institutions is further restricted by sub-limits

covering on and off-balance sheet exposures.

Lending limits are reviewed in the light of changing market and economic conditions and periodic credit reviews and assessments of probability of default.

Some other specific control and mitigation measures are outlined below:

(a) Collateral

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

-Real estate mortgages over residential properties against housing loans;

-Real estate mortgages over commercial properties against commercial lending;


2013

65

-Charges over business assets such as premises, inventory, machinery and vehicles;

-Personal, bank and public sector guarantees;

-Salary domiciliation;

-Letters of Credit and documentary collections; and

-Cash collaterals.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss, the Bank will seek additional collateral from the counterparty as soon as impairment indicators are identified for the relevant individual loans and advances.

Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured.

(b) Financial covenants (credit-related commitments)

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate in addition to a required credit margin set by the credit committee based on the credit rating of each customer and therefore carry less risk than a direct loan.

2013 2013 2012 2012Credit risk exposure

%

Impairment allowance

%

Credit risk exposure

%

Impairment allowance

%

1. Performing loans 93.27 0.64 94.07 0.69

2. Substandard 1.88 10.56 0.78 11.58

3. Bad and doubtful 4.85 69.37 5.15 66.41

100 100

(c) Financial covenants (credit-related commitments)

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

3.1.3 Impairment and provisioning policies

Impairment provisions are recognised for losses that have been incurred at the balance sheet date based on objective evidence of impairment (see note 2.6).

The impairment provision shown in the balance sheet at year-end is derived from each of the six rating grades described in note 3.1.1. However, the majority of the impairment provision comes from the bottom two rating grades. The table below shows the percentage of loans and advances (credit risk exposure) and the associated impairment allowance:


66

The total impairment constitutes 4.17% (2012 – 4.16%) of the total facilities provided to clients.

The Bank’s rating system assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set out by the Bank:

-Delinquency in contractual payments of principal or interest;

-Cash flow difficulties experienced by the borrower (i.e. equity ratio, net income percentage of sales);

-Breach of loan covenants or conditions;

-Initiation of bankruptcy proceedings;

-Deterioration of the borrower’s competitive position;

-Deterioration in the value of collateral; and

-Downgrading below normal and special mentioned grade level.

The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances

require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts.

The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account.

Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are not individually significant; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgement and statistical techniques.

3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements

Credit risk exposures relating to on-balance sheet financial assets are as follows:

Assets2013 2012

LL Million LL MillionBalances with the central bank 271,569 245,751Due from banks 184,748 183,471

Loans and advances to customers

Loans to individuals

- Housing loans 74,155 52,760- Short-term loans 17,600 16,326- Medium to long-term loans 1,200 887Loans to corporate entities:

- Large corporate entities 333,631 307,507- Small and medium size enterprises (SMEs) 131,669 110,070Debtors by acceptances 54,822 40,523Investment securities at amortised cost 962,162 899,128Other assets 5,557 7,547

2,037,113 1,863,970


2013

67

2013 2012LL Million LL Million

Letters of guarantee to clients and banks 56,676 53,711Documentary and commercial letters of credit 22,820 39,843Undrawn credit facilities 96,037 122,282

175,533 215,836

2,212,646 2,079,806

Credit risk exposures relating to off-balance sheet items are as follows:

The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2013 and 2012, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet.

As shown above, 43% of the total maximum exposure is derived from investment securities (2012 – 43%), 8% is derived from loans and advances to banks (2012 – 9%) and 25% is derived from loans and advances to customers (2012 – 23%).

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from its investments in Lebanese debt securities and placements at the Central Bank of Lebanon, from its investment in other banks and from its loans and advances to customers based on the following:

-93.27% of the loans and advances portfolio is categorised in the top three grades of the internal rating system (2012 – 94.07% );

-79.71% of the loans and advances portfolio are considered to be neither past due nor impaired (2012 – 84.06%);

-Investments in other banks are placed in highly rated banks;

-The Bank has introduced a more stringent selection process upon granting loans and advances;

-99% of investments securities are Lebanese government securities: Treasury bills, Eurobonds and certificates of deposit (2012 – 99%); and

-None of the investment securities at amortised cost totaling LL 962,162 million (2012 – LL 899,128 million) were either past due or impaired.


68

(a) C

once

ntra

tion

of r

isks

of fi

nanc

ial a

sset

s w

ith c

redi

t ris

k ex

posu

re -

Geo

grap

hica

l sec

tors

The

follo

win

g ta

ble

brea

ks d

own

the

Ban

k’s

mai

n cr

edit

expo

sure

at

thei

r ca

rryi

ng a

mou

nts

(with

out

taki

ng in

to a

ccou

nt a

ny

colla

tera

l hel

d or

oth

er c

redi

t sup

port)

, as

cate

goris

ed b

y ge

ogra

phic

al re

gion

as

of 3

1 D

ecem

ber 2

013.

For

this

tabl

e, th

e B

ank

has

allo

cate

d ex

posu

res

to re

gion

s ba

sed

on th

e co

untry

of d

omic

ile o

f its

cou

nter

parti

es.

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

Leb

ano

nA

rab

coun

trie

sA

fric

anco

untr

ies

Eur

op

ean

coun

trie

sO

ther

coun

trie

sTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Bal

ance

s w

ith th

e ce

ntra

l ban

k 27

1,56

9 -

--

-27

1,56

9

Due

from

ban

ks

35,0

69

30

-62

,627

87

,022

18

4,74

8

Loan

s an

d ad

vanc

es to

cus

tom

ers

Loan

s to

indi

vidu

als:

-H

ousi

ng lo

ans

68,3

36

919

3,04

4 47

7 1,

379

74,1

55

-Sho

rt-te

rm lo

ans

16,6

50

147

484

52

267

17,6

00

-Med

ium

and

long

term

loan

s 1,

200

--

--

1,20

0

Loan

s to

cor

pora

te e

ntiti

es:

-Lar

ge c

orpo

rate

ent

ities

20

0,82

2 13

,210

11

4,35

3 32

5 4,

921

333,

631

-Sm

all a

nd m

ediu

m s

ize e

nter

pris

es

(SM

Es)

108,

659

1,71

1 20

,098

1,

051

150

131,

669

Deb

tors

by

acce

ptan

ces

10,1

35

163

40,7

31

3,79

3 -

54,8

22

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t 96

2,16

2 -

--

-96

2,16

2

Oth

er a

sset

s 5,

557

--

--

5,55

7

At

31 D

ecem

ber

201

3 1,

680,

159

16,1

80

178,

710

68,3

25

93,7

39

2,03

7,11

3


2013

69

Leb

ano

nA

rab

coun

trie

sA

fric

anco

untr

ies

Eur

op

ean

coun

trie

sO

ther

coun

trie

sTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Bal

ance

s w

ith th

e ce

ntra

l ban

k24

5,75

1-

--

-24

5,75

1

Due

from

ban

ks50

,967

28-

119,

402

13,0

7418

3,47

1

Loan

s an

d ad

vanc

es to

cus

tom

ers

Loan

s to

indi

vidu

als:

- H

ousi

ng lo

ans

51,2

98-

1,46

2-

-52

,760

- S

hort-

term

loan

s15

,942

6329

71

2316

,326

- M

ediu

m a

nd lo

ng te

rm lo

ans

88

7-

--

-88

7

Loan

s to

cor

pora

te e

ntiti

es:

- La

rge

corp

orat

e en

titie

s20

5,52

14,

161

92,5

341,

060

4,23

130

7,50

7

- S

mal

l and

med

ium

siz

e en

terp

rises

(SM

Es)

90,8

471,

382

17,5

4210

819

111

0,07

0

Deb

tors

by

acce

ptan

ces

9,72

3-

29,6

3217

199

740

,523

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t89

9,12

8-

--

-89

9,12

8

Oth

er a

sset

s7,

547

--

--

7,54

7

Bal

ance

at

31 D

ecem

ber

, 201

21,

577,

611

5,63

414

1,46

712

0,74

218

,516

1,86

3,97

0


70

Cre

dit r

isk

expo

sure

s re

latin

g to

off-

bala

nce

shee

t ite

ms

are

as fo

llow

s:

Leb

ano

nA

rab

coun

trie

sA

fric

anco

untr

ies

Eur

op

ean

coun

trie

sO

ther

coun

trie

sTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Lette

rs o

f gua

rant

ee to

clie

nts

and

bank

s21

,944

1,

947

31,4

99

31,

283

56,6

76

Doc

umen

tary

and

com

mer

cial

lette

rs o

f cr

edit

12,2

95

-10

,525

-

-22

,820

Und

raw

n cr

edit

faci

litie

s59

,344

3,

546

32,9

08

234

596

,037

At

31 D

ecem

ber

, 201

393

,583

5,

493

74,9

32

237

1,28

8 17

5,53

3

Lette

rs o

f gua

rant

ee to

clie

nts

and

bank

s22

,941

1,

344

28,1

39

31,

284

53,7

11

Doc

umen

tary

and

com

mer

cial

lette

rs o

f cr

edit

10,8

70

-28

,309

-

664

39,8

43

Und

raw

n cr

edit

faci

litie

s74

,312

3,

943

41,5

80

2,24

5 20

212

2,28

2

At

31 D

ecem

ber

, 201

210

8,12

3 5,

287

98,0

282,

248

2,15

0 21

5,83

6

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS


2013

71

(b) C

once

ntra

tion

of r

isks

of fi

nanc

ial a

sset

s w

ith c

redi

t ris

k ex

posu

re -

Indu

stry

sec

tors

The

follo

win

g ta

ble

brea

ks d

own

the

Ban

k’s

cred

it ex

posu

re a

t car

ryin

g am

ount

s (w

ithou

t tak

ing

into

acc

ount

any

col

late

ral h

eld

or o

ther

cre

dit s

uppo

rt), a

s ca

tego

rised

by

the

indu

stry

sec

tors

of t

he B

ank’

s co

unte

rpar

ties.

Fina

ncia

lin

stit

utio

nsM

anuf

actu

ring

Con

stru

ctio

nC

omm

erci

alO

ther

Tota

l

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Bal

ance

s w

ith th

e ce

ntra

l ban

k27

1,56

9 -

--

-27

1,56

9

Due

from

ban

ks

184,

748

--

--

184,

748

Loan

s an

d ad

vanc

es to

cus

tom

ers

Loan

s to

indi

vidu

als:

- H

ousi

ng lo

ans

126

411

849

8,24

6 64

,523

74

,155

- S

hort-

term

loan

s38

70

4 1,

534

6,48

2 8,

842

17,6

00

- M

ediu

m to

long

term

loan

s

--

--

1,20

0 1,

200

Loan

s to

cor

pora

te e

ntiti

es:

- La

rge

corp

orat

e en

titie

s1,

235

86,2

19

84,7

06

140,

624

20,8

47

333,

631

- Sm

all a

nd m

ediu

m s

ize e

nter

prise

s (S

MEs

) 37

0 22

,870

15

,296

83

,872

9,

261

131,

669

Deb

tors

by

acce

ptan

ces

185

8,40

5 7,

557

38,6

18

57

54,8

22

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t96

2,16

2 -

--

-96

2,16

2

Oth

er a

sset

s5,

557

--

--

5,55

7

At

31 D

ecem

ber

201

3 1,

425,

990

118,

609

109,

942

277,

842

104,

730

2,03

7,11

3


72

Fina

ncia

lin

stitu

tions

Man

ufac

turin

gC

onst

ruct

ion

Com

mer

cial

Oth

erTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Bal

ance

s w

ith th

e ce

ntra

l ban

k24

5,75

1-

--

-24

5,75

1

Due

from

ban

ks18

3,47

1-

--

-18

3,47

1

Loan

s an

d ad

vanc

es to

cus

tom

ers

Loan

s to

indi

vidu

als:

- H

ousi

ng lo

ans

-52

41,

092

2,96

248

,182

52,7

60

- S

hort-

term

loan

s39

756

3,43

34,

598

7,50

016

,326

- M

ediu

m to

long

term

loan

s

--

--

887

887

Loan

s to

cor

pora

te e

ntiti

es:

- Lar

ge c

orpo

rate

ent

ities

10,6

7967

,127

68,0

6714

5,76

315

,871

307,

507

- Sm

all a

nd m

ediu

m s

ize e

nter

prise

s (S

MEs

)1,

046

21,1

5217

,472

62,0

198,

381

110,

070

Deb

tors

by

acce

ptan

ces

700

7,12

46,

008

26,6

91-

40,5

23

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t89

9,12

8-

--

-89

9,12

8

Oth

er a

sset

s7,

547

--

--

7,54

7

At

31 D

ecem

ber

, 201

21,

348,

361

90,6

8396

,072

242,

033

80,8

211,

863,

970

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS


2013

73

Cre

dit r

isk

expo

sure

s re

latin

g to

off-

bala

nce

shee

t ite

ms

are

as fo

llow

s:

Fina

ncia

lin

stit

utio

nsM

anuf

actu

ring

Con

stru

ctio

nO

ther

Tota

l

LL M

illion

LL M

illion

LL M

illion

LL

Milli

onLL

Milli

on

Lette

rs o

f gua

rant

ee to

clie

nts

and

bank

s74

38,

830

13,3

213,

881

56,6

76

Doc

umen

tary

and

com

mer

cial

lette

rs o

f cre

dit

496

3,71

92,

988

937

22,8

20

Und

raw

n cr

edit

faci

litie

s59

420

,776

16,3

8210

,831

96,0

37

At

31 D

ecem

ber

201

31,

833

33,3

2532

,691

15,6

4917

5,53

3

Lette

rs o

f gua

rant

ee to

clie

nts

and

bank

s74

515

,470

13,0

9122

53,7

11

Doc

umen

tary

and

com

mer

cial

lette

rs o

f cre

dit

880

9,64

45,

340

8,86

139

,843

Und

raw

n cr

edit

faci

litie

s24

721

,069

24,4

528,

557

122,

282

At

31 D

ecem

ber

, 201

21,

872

46,1

8342

,883

17,4

4021

5,83

6


74

Further information on the impairment allowance for loans and advances to customers is provided in note 7.

(a) Loans and advances neither past due nor impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed

by reference to the internal rating system adopted by the Bank.

3.1.5 | Loans and advances

Due from banks and the central bank of Lebanon and loans and advances to customers are summarised as follows:

2013 2012

Loans and advances

to customers

Due from banks and

central bank

Loans and advances

to customers

Due from banks and

central bank

LL Million LL Million LL Million LL Million

Neither past due nor impaired 464,265 456,317 427,598 429,222

Past due but not impaired 78,994 - 50,943 -

Individually impaired 39,204 - 30,170 -

Gross 582,463 456,317 508,711 429,222

Less:

Allowance for impairment (24,208) - (21,161) -

Net 558,255 456,317 487,550 429,222

Individually impaired (20,755) - (17,858) -

Portfolio allowance (3,453) - (3,303) -

Total (24,208) - (21,161) -


2013

75

(b) Loans and advances past due but not impaired

Late processing and other administrative delays on the side of the borrower can lead to a financial asset being past

due but not impaired. Therefore, loans and advances past due are not usually considered impaired, unless other

information is available to indicate the contrary. Gross amount of loans and advances by class to customers that

were past due but not impaired were as follows:

Gross amount of loans by class of customers at 31 December 2013 that were past due but not impaired were as

follows:

Loans to individualsLoans to

corporate entities

Housingloans

Short-termloans

Medium to long term

loansSMEs

Large corporate

entitiesTotal

Due from banks and

central bank

LL Million LL Million LL Million LL Million LL Million LL Million LL Million

31 December, 2013Grades

Normal 72,093 17,032 790 92,896 206,140 388,951 456,317

Special mention 2,290 339 - 23,699 48,986 75,314 -

74,383 17,371 790 116,595 255,126 464,265 456,317

31 December, 2012GradesNormal 52,188 15,965 892 91,584 213,364 373,993 429,222

Special mention 717 174 - 10,219 42,495 53,605 -

52,905 16,139 892 101,803 255,859 427,598 429,222

Loans to individuals Corporate loans

Housingloans

Short-termloans

Medium to long term

loansSMEs

Large corporate

entitiesTotal

LL Million LL Million LL Million LL Million LL Million LL Million

31 December, 2013

Past due up to 30 days 84 86 - 499 800 1,469 Past due 30 – 60 days 14 31 - 262 1,285 1,592

Past due 60 – 90 days 7 24 - 201 375 607

Past due over 90 days 614 45 - 10,282 64,385 75,326

Total 719 186 - 11,244 66,845 78,994 Fair value of collateral 188 33 - 5,787 45,315 51,323 Amount of under collateralisation

531 153 - 5,457 21,530 27,671


76

Gross amount of loans by class of customers at 31 December 2012 that were past due but not impaired were as

follows:

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly

used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or

indices of similar assets.

(c) Loans and advances individually impaired

(i) Loans and advances to customers

The individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is LL 39.20 billion (2012 – LL 30.17 billion). The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related collateral held by the Bank as security, are as follows:

Loans to individuals Corporate loans

Housingloans

Short-termloans

Medium to long term

loansSMEs

Large corporate

entitiesTotal

LL Million LL Million LL Million LL Million LL Million LL Million

31 December, 2012

Past due up to 30 days 79 52 - 497 31 659Past due 30 – 60 days 8 28 - 115 24 175

Past due 60 – 90 days 3 13 - 89 24 129

Past due over 90 days 1 30 - 4,135 45,814 49,980

Total 91 123 - 4,836 45,893 50,943Fair value of collateral 4 11 - 819 31,878 32,712Amount of under collateralisation

87 112 - 4,017 14,015 18,231

Corporate loans

Loans to individuals

SMEsLarge

corporate entities

Total


31 December, 2013Individually impaired loans 3,077 10,682 25,445 39,204 Fair value of collateral (586) (3,568) (18,473) (22,627)

31 December, 2012Individually impaired loans 2,885 9,763 17,522 30,170Fair value of collateral (78) (4,375) (10,498) (14,951)


2013

77

(ii) Due from banks and balances with the central bank

The total gross amount of due from banks and balances with the central bank as at 31 December 2013 is LL 456.32

billion (2012 – LL 429.22 billion).

(d) Loans and advances renegotiated

Restructuring activities include extended payment arrangements, approved external management plans, modification

and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status

and managed together with other similar accounts. Restructuring policies and practices are based on indicators or

criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies

are kept under continuous review. Restructuring is most commonly applied to term loans.

3.1.6 | Financial instruments

The table below presents an analysis of the Bank’s financial instruments by rating agency designation, based on

Standard & Poor’s ratings or their equivalent:

AAA to AA-

A+ to BBB-

BB+ to B- Unrated Total

LL Million LL Million LL Million LL Million LL Million

31 December 2013Cash and balances withthe Central bank

- - 286,133 - 286,133

Due from banks - 96,408 15,311 73,029 184,748

Investment securitiesat amortised cost

- - 962,162 - 962,162

Investment securities atfair value through OCI

- - 511 - 511

- 96,408 1,264,117 73,029 1,433,554

31 December 2012Cash and balances withthe Central bank

- - 256,179 - 256,179

Due from banks - 85,558 16,800 81,113 183,471

Investment securitiesat amortised cost

- - 899,128 - 899,128

Investment securities atfair value through OCI

- - 515 - 515

- 85,558 1,172,622 81,113 1,339,293


78

3.2 | Market risk

The Bank takes on exposure to market risks, which is the risk that the fair value or futurecash flows of a financial instrument will fluctuate because of changes market prices.Market risks arise from open positions in interest rate, currency and equity products, all ofwhich are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates and equity prices.Banking portfolios primarily arise from the interest rate management of the Bank›s retail and commercial banking assets and liabilities.

3.2.1 Market risk management techniques

Effective identification and monitoring of market risk is essential for maintaining stable profit. This is carried out by the Bank›s risk management department. The Bank›s treasury is responsible for managing the market exposure within the limits as approved by ALCO and as stipulated by the circulars of Central Bank of Lebanon no. 32 and 81. The major measurement technique used to measure and control market risk is outlined below.

Sensitivity analysis

A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond›s price. Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key pre-dictions. The Bank performs this analysis for each type of market risk to which the Bank is exposed at each reporting date, showing how profit or loss and equity would havebeen affected by changes in the relevant risk variable that were reasonably possible at that date.

The table below summarises the Bank›s exposure to foreign currency exchange rate risk at 31 December 2013 and 31 December 2012. The table includes the Bank›s financial instruments at carrying amounts, categorised by currency.


2013

79

3.2.

2 | F

orei

gn e

xcha

nge

risk

- C

once

ntra

tion

of c

urre

ncy

risk

As

at 3

1 D

ecem

ber

201

3

LLU

SD

EU

RG

BP

CA

DO

ther

Tota

lLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

on

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k68

,080

17

7,83

8 39

,783

432

--

286,

133

Due

from

ban

ks6,

019

156,

975

20,8

9554

627

286

184,

748

Loan

s an

d ad

vanc

es to

cus

tom

ers

147,

856

352,

726

57,4

0526

8-

-55

8,25

5

Deb

tors

by

acce

ptan

ces

-52

,561

2,

261

--

-54

,822

Inve

stm

ent s

ecur

ities

:-

At f

air v

alue

thro

ugh

OC

I49

8 13

-

--

-51

5-

At a

mor

tised

cos

t62

9,07

7 33

1,49

1 1,

594

--

-96

2,16

2O

ther

ass

ets

1,82

0 3,

220

517

--

-5,

557

Tota

l fina

ncia

l ass

ets

853,

350

1,07

4,82

4 12

2,45

51,

246

2728

62,

052,

188

Liab

iliti

es

Due

to c

entra

l ban

k87

,801

-

--

--

87,8

01D

ue t

o ba

nks

21

1,67

3 25

13-

-1,

732

Dep

osits

from

Cus

tom

ers

638,

284

991,

913

119,

793

1,20

024

256

1,75

1,47

0En

gage

men

ts b

y ac

cept

ance

s-

52,5

61

2,26

1-

--

54,8

22O

ther

liab

ilitie

s3,

358

1,88

6 94

--

-5,

338

Tota

l fina

ncia

l Lia

bili

ties

729,

464

1,04

8,03

3 12

2,17

31,

213

2425

61,

901,

163

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

123,

886

26,7

91

282

333

3015

1,02

5


80

Con

cent

ratio

n of

cur

renc

y ris

k A

s at

31

Dec

embe

r, 20

12

LLU

SD

EU

RG

BP

CA

DO

ther

Tota

lLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

onLL

Milli

on

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k45

,664

159,

735

50,4

3934

1-

-25

6,17

9

Due

from

ban

ks19

,870

127,

023

35,4

8178

557

255

183,

471

Loan

s an

d ad

vanc

es to

cus

tom

ers

112,

665

329,

782

45,1

021

--

487,

550

Deb

tors

by

acce

ptan

ces

-34

,026

6,49

7-

--

40,5

23

Inve

stm

ent s

ecur

ities

:-

At f

air v

alue

thro

ugh

OC

I49

817

--

--

515

- A

t am

ortis

ed c

ost

576,

716

320,

803

1,60

9-

--

899,

128

Oth

er a

sset

s1,

517

5,46

356

7-

--

7,54

7

Tota

l fina

ncia

l ass

ets

756,

930

976,

849

139,

695

1,12

757

255

1,87

4,91

3

Liab

iliti

es

Due

to c

entra

l ban

k58

,464

--

--

-58

,464

Due

to

bank

s11

1,01

319

712

--

1,23

3D

epos

its fr

om C

usto

mer

s58

9,75

591

4,58

913

2,81

91,

112

2618

51,

638,

486

Enga

gem

ents

by

acce

ptan

ces

-34

,026

6,49

7-

--

40,5

23O

ther

liab

ilitie

s3,

004

1,96

614

9-

--

5,11

9

Tota

l fina

ncia

l Lia

bili

ties

651,

234

951,

594

139,

662

1,12

426

185

1,74

3,82

5

Net

on-

bala

nce

shee

t fina

ncia

l pos

ition

105,

696

25,2

5533

331

7013

1,08

8


2013

81

3.2.3 | Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. Management sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored daily by the Treasury Department.

An increase / decrease of 2% in interest rates on the Bank’s portfolio of interest-earning assets would result in a net gain / (loss) for the year of LL 12 billion (2012 – LL 12 billion).

The table below summarises the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. Expected re-pricing and maturity dates do not differ significantly from the contract dates.


82

Less

tha

n3

mo

nths

3

- 6

mo

nths

6 -

12m

ont

hs1

- 5

year

sO

ver

5 ye

ars

Non

-int

eres

t be

arin

gTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k98

,197

46

,733

27

,135

-

-11

4,06

8 28

6,13

3

Due

from

ban

ks11

9,17

5 -

16,8

95

37,6

87

-10

,991

18

4,74

8

Loan

s an

d ad

vanc

es to

cus

tom

ers

272,

865

37,8

07

71,3

57

169,

704

-6,

522

558,

255

Deb

tors

by

acce

ptan

ces

37,5

90

17,0

27

205

--

-54

,822

Inve

stm

ent s

ecur

ities

:-

At f

air v

alue

thro

ugh

OC

I-

--

--

511

511

- A

t am

ortis

ed c

ost

38,2

95

27,5

87

117,

392

411,

753

351,

308

15,8

27

962,

162

Oth

er a

sset

s-

--

--

5,55

7 5,

557

Tota

l fina

ncia

l ass

ets

566,

122

129,

154

232,

984

619,

144

351,

308

153,

476

2,05

2,18

8

Liab

iliti

es

Due

to c

entra

l ban

k43

7 36

8 94

2 67

,477

17

,846

73

1 87

,801

D

ue to

ban

ks

4 -

--

-1,

728

1,73

2 D

epos

its fr

om c

usto

mer

s1,

183,

986

225,

437

210,

650

--

131,

397

1,75

1,47

0 En

gage

men

ts b

y ac

cept

ance

s13

,019

24

,263

17

,027

51

3 -

-54

,822

O

ther

liab

ilitie

s-

--

--

5,33

8 5,

338

Tota

l fina

ncia

l lia

bili

ties

1,19

7,44

6 25

0,06

8 22

8,61

9 67

,990

17

,846

13

9,19

4 1,

901,

163

Tota

l int

eres

t rep

ricin

g ga

p(6

31,3

24)

(120

,914

) 4,

365

551,

154

333,

462

As

at 3

1 D

ecem

ber,

2013

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS


2013

83

Less

tha

n3

mo

nths

3

- 6

mo

nths

6 -

12m

ont

hs1

- 5

year

sO

ver

5 ye

ars

Non

-int

eres

t be

arin

gTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k58

,793

--

73,8

68-

123,

518

256,

179

Due

from

ban

ks16

7,53

6-

302

--

15,6

3318

3,47

1

Loan

s an

d ad

vanc

es to

cus

tom

ers

273,

829

22,3

9853

,735

124,

824

-12

,764

487,

550

Deb

tors

by

acce

ptan

ces

--

--

-40

,523

40,5

23

Inve

stm

ent s

ecur

ities

:-

At f

air v

alue

thro

ugh

OC

I-

--

--

515

515

- A

t am

ortis

ed c

ost

43,5

204,

800

44,5

0051

5,73

627

5,22

815

,344

899,

128

Oth

er a

sset

s-

--

--

7,54

77,

547

Tota

l fina

ncia

l ass

ets

543,

678

27,1

9898

,537

714,

428

275,

228

215,

844

1,87

4,91

3

Liab

iliti

es

Due

to c

entra

l ban

k-

--

57,7

90-

674

58,4

64D

ue to

ban

ks

158

--

--

1,07

51,

233

Dep

osits

from

cus

tom

ers

1,22

6,46

111

7,93

615

3,72

8-

-14

0,36

11,

638,

486

Enga

gem

ents

by

acce

ptan

ces

--

--

-40

,523

40,5

23O

ther

liab

ilitie

s-

--

--

5,11

95,

119

Tota

l fina

ncia

l lia

bili

ties

1,22

6,61

911

7,93

615

3,72

857

,790

-18

7,75

21,

743,

825

Tota

l int

eres

t rep

ricin

g ga

p(6

82,9

41)

(90,

738)

(55,

191)

656,

638

275,

228

As

at 3

1 D

ecem

ber,

2012


84

3.3 | Liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its obligations associated with its financial liabilities when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities. Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in balance sheet and sales of assets, or potentially an inability to fulfil lending commitments. The risk that the Bank will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to merger and acquisition activity, systemic shocks and natural disasters.

3.3.1 | Liquidity risk management process

The Bank›s liquidity management process as carried out within the bank and monitored by a separate team in the Bank›s treasury includes: -Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers; -Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow; -Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and -Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month, respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.

3.3.2 | Funding approach

Sources of liquidity are regularly set by the Treasury department, while the risk management department and the Assets and Liabilities Committee monitors those sources to maintain a wide diversification by currency, geography, provider, product and term.

3.3.3 | Maturity analysis of financial assets and liabilities

The table below summarizes the maturity profile of the Bank’s financial assets and liabilities. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the statement of financial position date to the contractual maturity date and do not take account of the effective maturities as indicated by the Bank’s deposit retention history and the availability of liquid funds. The maturity profile is monitored by management to ensure adequate liquidity is maintained.


2013

85

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

1 -

3 m

ont

hs3

- 6

mo

nths

6 -

12m

ont

hs1

- 5

year

sO

ver

5 ye

ars

Tota

l

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k21

2,26

7 46

,733

27

,133

--

286,

133

Due

from

ban

ks13

0,16

6 -

16,8

95

37,6

87

-18

4,74

8

Loan

s an

d ad

vanc

es to

cus

tom

ers

279,

387

37,8

07

71,3

57

169,

704

-55

8,25

5

Deb

tors

by

acce

ptan

ces

37,5

90

17,0

27

205

--

54,8

22

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t47

,587

34

,122

11

7,39

241

1,75

335

1,30

896

2,16

2In

vest

men

t sec

uriti

es a

t OC

I51

1 -

--

-51

1 O

ther

ass

ets

5,55

7 -

--

-5,

557

Tota

l fina

ncia

l ass

ets

713,

065

135,

689

232,

982

619,

144

351,

308

2,05

2,18

8

Liab

iliti

es

Due

to c

entra

l ban

k1,

168

368

942

67,4

77

17,8

46

87,8

01

Due

to b

anks

1,

732

--

--

1,73

2 D

epos

its fr

om c

usto

mer

s1,

315,

383

225,

437

210,

650

--

1,75

1,47

0 En

gage

men

ts b

y ac

cept

ance

s37

,590

17

,027

20

5-

-54

,822

O

ther

liab

ilitie

s5,

338

--

--

5,33

8

Tota

l fina

ncia

l lia

bili

ties

1,36

1,21

1 24

2,83

2 21

1,79

767

,477

17,8

46

1,90

1,16

3

Net

fina

ncia

l (Li

abili

ties)

ass

ets

(648

,146

) (1

07,1

43)

21,1

8555

1,66

733

3,46

2 15

1,02

5

As

at 3

1 D

ecem

ber,

2013


86

1 -

3 m

ont

hs3

- 6

mo

nths

6 -

12m

ont

hs1

- 5

year

sO

ver

5 ye

ars

Tota

l

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e ce

ntra

l ban

k18

2,31

1 -

-73

,868

-25

6,17

9

Due

from

ban

ks18

3,16

9 -

302

--

183,

471

Loan

s an

d ad

vanc

es to

cus

tom

ers

286,

593

22,3

98

53,7

3512

4,82

4-

487,

550

Deb

tors

by

acce

ptan

ces

40,5

23

--

--

40,5

23

Inve

stm

ent s

ecur

ities

at a

mor

tised

cos

t53

,263

10

,389

44

,512

515,

736

275,

228

899,

128

Inve

stm

ent s

ecur

ities

at O

CI

515

--

--

515

Oth

er a

sset

s7,

547

--

--

7,54

7

Tota

l fina

ncia

l ass

ets

753,

921

32,7

87

98,5

4971

4,42

827

5,22

81,

874,

913

Liab

iliti

es

Due

to c

entra

l ban

k-

674

- -

57,7

9058

,464

Due

to b

anks

1,

233

--

--

1,23

3D

epos

its fr

om c

usto

mer

s1,

283,

295

191,

009

164,

182

--

1,63

8,48

6En

gage

men

ts b

y ac

cept

ance

s36

,183

4,

197

143

- -

40,5

23O

ther

liab

ilitie

s5,

119

--

--

5,11

9

Tota

l fina

ncia

l lia

bili

ties

1,32

5,83

0 19

5,88

0 16

4,32

5-

57,7

901,

743,

825

Net

Fin

anci

al (l

iabi

litie

s) a

sset

s(5

71,9

09)

(163

,093

) (6

5,77

6)71

4,42

821

7,43

813

1,08

8

As

at 3

1 D

ecem

ber,

2012


2013

87

3.3.4 | Assets held for managing liquidity risk

The Bank holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obliga-tions and contingent funding in a stressed market environment. The Bank›s assets held for managing liquidity risk comprise: -Cash and balances with the central bank;-Due from banks;-Certificates of deposit; and-Lebanese treasury bills.

3.3.5 | Off-balance sheet items

(a) Undrawn credit facilities

The dates of the contractual amounts of the Bank›s off-balance sheet financial instruments that commit it to cus-tomers and other facilities (note 28) are summarised in the table below.

(b) Other financial facilities

Other financial guarantees (note 28) are also included in the table below based on earliest contractual maturity date.

No later than 1 year 15- years TotalLL Million LL Million LL Million

At 31 December 2013Undrawn credit facilities 96,037 - 96,037

Documentary and commercial letters of credit 22,820 - 22,820

Letters of guarantee to clients and banks 47,388 9,288 56,676

Total 166,245 9,288 175,533

At 31 December 2012Undrawn credit facilities 122,282 - 122,282 Documentary and commercial letters of credit 37,708 2,135 39,843

Letters of guarantee to clients and banks 20,495 33,216 53,711

Total 180,485 35,351 215,836

3.4 | Fair values of financial assets and liabilities

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations.

(a) Valuation models

Effective 1 January 2013, the Bank adopted IFRS 13 in respect of disclosures abouyt the degree of fair value mea-surements. This requires the Bank to classify, for disclosure purposes, fair value measurements using a fair value


88

hierarchy that reflects the significance of the inputs used in making the measurements. IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of inputs have created the following fair value hierarchy.

Quoted market prices – Level 1

Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions on an arm’s length basis. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

This category includes liquid government and corporate bonds actively traded through an exchange or clearing house, and actively traded listed equities.

Valuation technique using observable inputs – Level 2

Financial instruments classified as Level 2 have been valued using models whose most significant inputs are observ-able in an active market. Such valuation techniques and models incorporate assumptions about factors observable in an active market, which other market participants would use in their valuations, including interest rate yield curve, exchange rates, volatilities, and prepayment and defaults rates.

This category includes liquid government and corporate bonds and certificates of deposit, less actively traded through an exchange or clearing house, non-listed equities and foreign exchange swaps and forwards.

Valuation technique using significant unobservable inputs – Level 3

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly ob-served from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price. An input is deemed significant if it is shown to contribute more than 10% to the valuation of a financial instrument.

Unobservable input levels are generally determined based on observable inputs of a similar nature, historical obser-vations or other analytical techniques.

The following table provides the fair value measurement hierarchy of the Bank’s financial instruments.


2013

89

Level 1 Level 2Total fair values

Total carrying amount

LL Million LL Million LL Million LL MillionAt 31 December 2013Assets

Cash and balances with the central bank 14,564 271,569 286,133 286,133

Due from banks - 184,748 184,748 184,748

Loans and advances to customers - 558,255 558,255 558,255

Debtors by acceptances - 54,822 54,822 54,822

Investment securities at amortised cost - 971,042 971,042 962,162

Investment securities at OCI 13 498 511 511

Other assets - 5,557 5,557 5,557

Total financial assets 14,577 2,046,491 2,061,068 2,052,188

Liabilities

Due to central bank - 87,801 87,801 87,801

Due to banks - 1,732 1,732 1,732

Deposits from customers - 1,751,470 1,751,470 1,751,470

Engagements by acceptances - 54,822 54,822 54,822

Other liabilities - 5,338 5,338 5,338

Total financial liabilities - 1,901,163 1,901,163 1,901,163

At 31 December 2012 AssetsCash and balances with the central bank 10,428 245,751 256,179 256,179

Due from banks - 183,471 183,471 183,471

Loans and advances to customers - 487,550 487,550 487,550

Debtors by acceptances - 40,523 40,523 40,523

Investment securities at amortised cost - 892,527 892,527 899,128

Investment securities at OCI 17 498 515 515

Other assets - 7,547 7,547 7,547

Total financial assets 10,445 1,857,867 1,868,312 1,874,913

Liabilities

Due to central bank - 58,464 58,464 58,464

Due to banks - 1,233 1,233 1,233

Deposits from customers - 1,638,486 1,638,486 1,638,486

Engagements by acceptances - 40,523 40,523 40,523

Other liabilities - 5,119 5,119 5,119

Total financial liabilities - 1,743,825 1,743,825 1,743,825


90

There were no transfers between levels during 2013 (2012 – no transfer). The fair value of financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Financial assets and liabilities are classified according to a hierarchy that reflects the significance of observable market inputs. (i) Due from banks and balances with central bank

The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new loans with similar remaining maturity. The estimated fair value of the accounts that have a maturity of less than 1 year is their carrying amount.

(ii) Loans and advances to customers

Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

(iii) Investment securities

The fair value of investment securities at amortised cost is based on market prices or broker/dealer price quotations. Where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity. Expected cash flows are discounted at current market rates issued by the Central Bank of Lebanon to determine the fair value.

(iv) Debtors by acceptances and other assets

The estimated fair value of the above accounts is their carrying amount given that their maturity is less than 1 year.

(v) Due to banks and due to central bank

The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new deposits with similar remaining maturity.

(vi) Deposits from customers

The estimated fair value of the deposits from customers is their carrying amount given that their maturity is less than 1 year.

(vii) Other liabilities

The estimated fair value of the above accounts is their carrying amount given that their maturity is within 12 months from balance sheet date.

3.5 | Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, systems failure, human error, or from external events. When controls fail to perform, it can lead to legal or regulatory implications, or financial / reputational loss. The Bank has established policies and procedures, which are applied to identify, assess, monitor, control and mitigate operational risk in addition to other types of risks relating to the banking and financial activities of the Bank as part of overall risk management activities.

3.6 | Capital management

The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the Balance sheet, are:

-To comply with the capital requirements set by the regulators of the banking markets where the Bank operates; -To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and


2013

91

-To maintain a strong capital base to support the development of its business. The Bank maintains a ratio of total regulatory capital to its risk-weighted assets (the ‘Basel Ratio’) above the minimum level set by the regulator. The regulatory capital requirements are strictly observed when managing economic capital. The Bank’s regulatory capital is monitored by the Risk Management department and is composed of share capital, unspecified banking reserve, legal reserve, retained earnings, and reserves created by appropriations of retained earnings. To satisfy Basel III capital requirements and in accordance with the BDL basic circular number 44, the Bank is required to maintain the following ratios of total regulatory capital to risk-weighted assets for the year ended 31 December 2013 and thereafter:

Common TierI capital

Tier 1 capital ratio

Total capital ratio

Year ended 31 December 2013 6.0% 8.5 % 10.5 %



The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended 31 December.

The computation of capital adequacy ratio for the year ended 31 December 2013 is in accordance with the BCC memo 3/2014 dated 10 April 2014. This memo changed the risk weight applied to Lebanese treasury bills-Eurobonds and certificate of deposits issued by the Central Bank of Lebanon in foreign currency from 100% to 50%.

2013 2012

LL Million LL Million

Tier 1 CapitalShare capital 100,000 100,000

Reserves 72,182 55,858

Retained earnings (111) (40)

Total regulatory 172,071 155,818

Risk-weighted assets arising from: Credit risk 985,502 1,033,009

Market risk 803 894

Operational risk 84,873 83,651

Total risk-weighted assets 1,071,178 1,117,554

BIS Capital ratios (%)

Capital adequacy – Tier 1 16.06 13.94

Capital adequacy – Total capital 16.06 13.94


92

4 Critical accounting estimates and judgements

The Bank’s financial statements and its financial result are influenced by accounting policies, assumptions, estimates and management judgement, which necessarily have to be made in the course of preparation of the financial statements.

The Bank makes estimates and judgments that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgments are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events.

Accounting policies and management’s judgements for certain items are especially critical for the Bank’s results and financial situation due to their materiality.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments; however, may change due to market changes or circumstances arising beyond the control of the Bank. Such changes are reflected in the assumptions when they occur.

Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment at least on an annual basis. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Bank makes judgments as to whether there is any observable data indicating an impairment trigger followed by measurable decrease

in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan with that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Bank upon future cash flows scheduling. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

In addition to the specific impairment provision on individually significant loans and advances, the Bank recognises collective impairment provision in respect of loans and advances which have not yet been provided for under specific impairment and for which credit risk progressed since the loans and advances were granted. The amount of provision is determined based on historical losses within each credit rating category. The amount of provision is adjusted regularly to reflect current economic changes.

A 5% increase or decrease in actual loss experience on a portfolio basis, compared to the loss estimates used, would result in an increase or decrease in loan impairment charges of LL 166 million (2012 – LL 165 million).

Impairment losses for individually significant loans have taken into account repayment and realisation of any assets held as collateral against the loans which typically cover a significant portion of the outstanding balance of each loan.


2013

93

All cash and balances with the central banks are current.

In accordance with BDL regulations, the Bank is required to constitute mandatory cash reserves at the Central Bank in Lebanese Pounds (“LL reserve”) of 15% to 25% of the customers deposit accounts denominated in Lebanese Pounds. The Bank is also required to constitute mandatory reserves in foreign currency (“FCY reserve”) calculated on the basis of 15% of customers deposit accounts denominated in foreign currency.

Mandatory cash reserves at the Central Bank are not available for use in the Bank’s day-today operations.

6 | Due from banks

5 Cash and balances with the central bank

2013 2012


Cash on hand 14,564 10,428

Term placements with Central Bank of Lebanon other than mandatory reserve deposits 9,686 15,706

Current accounts with Central Bank of Lebanon other than mandatory reserve deposits 60,602 44,388

Included in cash and cash equivalents (note 27) 84,852 70,522

Mandatory reserve deposits with Central Bank of Lebanon in Lebanese pound 38,830 32,842

Mandatory reserve deposits with Central Bank of Lebanon in foreign currencies 162,379 152,735

Interest receivable 72 80

286,133 256,179

2013 2012


Items in course of collection from other banks 10,979 15,628

Current accounts 94,717 75,674

Placements with banks (with original maturities not exceeding three months)

24,458 54,173

Included in cash and cash equivalents (note 27) 130,154 145,475

Placements with banks (with original maturitiesexceeding three months)

16,895 -

Cash collateral with banks - restricted cash 37,687 37,989

Interest receivable 12 7

184,748 183,471


94

2013 2012


Current 147,061 183,471

Non-current 37,687 -

184,748 183,471

7 | Loans and advances to customers

2013 2012


Advances against cash collaterals 98,418 130,451

Medium and long term loans 90,882 72,651

Housing loans 75,109 52,672

Supported loans and kafalat loans 73,990 59,468

Bills to the order of the Bank 70,943 66,085

Other advances 65,429 37,733

Advances against non-cash guarantees 54,111 26,994Discounted commercial bills 7,300 12,792Unpaid bills 5,767 1,146Loans and advances to employees 2,108 759Creditors accidentally debtors 2,061 1,910Loans and advances to related parties (note 29) 863 20,442Net interest receivable 1,045 551Unearned interest (4,767) (5,113)

Non-performing loans:- Substandard 10,950 3,974- Doubtful and bad debts 28,254 26,196

Gross loans and advances to customers 582,463 508,711Less: allowance for impairment (24,208) (21,161)

Net loans and advances to customers 558,255 487,550

Current 388,551 362,726

Non-current 169,704 124,824

558,255 487,550


2013

95

The movement of allowance for impairment is summarised as follows:

2013 2012Specific

allowance for impairment

Collective allowance for impairment

Specific allowance for impairment

Collective allowance for impairment


Balance at 1 January 17,858 3,303 14,680 2,839Increase in impairment

allowances (note 22) 235 150 2,659 464Reversal of impairment

allowances (note 22) (275) - (633) -Reversal of unrealised

interest (note 22) (191) - (451) -

Increase in unrealised interest 4,193 - 3,669 -

Provision and unrealised interest

written-off during the year (1,142) - (2,080) -Difference of exchange 77 - 14 -

Balance at 31 December 20,755 3,453 17,858 3,303

8 | Acceptances

Debtors by acceptances of LL 54.82 billion (2012 – LL 40.52 billion) represent the customers’ liability to the Bank in respect of documentary credits that should be settled by the Bank on their behalf. These acceptances correspond to negotiated deferred payment of import letters of credit. This caption is offset by «Engagement by acceptances» caption classified under liabilities. Debtors and engagements by acceptances are considered as current assets and liabilities.


96

9 | Investment securities

Unlisted Lebanese treasury bills amounting to LL 57.8 billion (2012 – LL 57.8 billion) are pledged against the soft loan from the Central Bank of Lebanon (note 14).

2013 2012


Equity securities at fair value

through other comprehensive income (OCI)

- Listed 13 17

- Unlisted 498 498

Total securities at fair valuethrough other comprehensive income

511 515

Securities at amortised cost

Debt securities – listed

- Lebanese treasury bills (“Eurobonds”) 275,632 258,481

- Certificates of deposits 46,886 53,364

- Other debt securities 10,567 10,567

Debt securities – unlisted

- Lebanese treasury bills 521,411 442,786

- Certificates of deposits 107,666 133,930

Total securities at amortised cost 962,162 899,128

Total Investment securities 962,673 899,643

Current 199,612 108,164

Non-current 763,061 790,964

962,673 899,643


2013

97

The movement in investment securities may be summarised as follows:

In 2013, the Bank performed a swap with the Central Bank of Lebanon on a portion of its certificates of deposits portfolio in Lebanese Pounds with a nominal value of LL 38 billion. The certificates of deposits swapped had an original maturity of 5 years (from 2009 and maturing in 2014).

Amortised costFair value

through OCITotal

LL Million LL Million LL MillionAt 1 January 2012 802,476 518 802,994Additions 153,367 - 153,367

Disposals (redemption) (57,332) - (57,332)

Net change in unamortised premium/discount 277 - 277

Net change in interest receivable 310 - 310

Net change in fair value - (3) (3)

Difference of exchange 30 - 30

At 31 December 2012 899,128 515 899,643Additions 156,606 - 156,606

Disposals (redemption) (92,820) - (92,820)

Securities swapped in 35,612 - 35,612

Securities swapped out (38,000) - (38,000)

Net change in unamortised premium/discount 1,090 - 1,090

Net change in interest receivable 480 - 480

Net change in fair value - (4) (4)

Difference of exchange 66 - 66

At 31 December 2013 962,162 511 962,673


98

10 P

rop

erty

and

eq

uip

men

t

Land

Bui

ldin

gs

Leas

eho

ldim

pro

vem

ents

Offi

ce a

nd

com

put

er

equi

pm

ent

Furn

itur

e an

dfi

xtur

esVe

hicl

esW

ork

in

pro

gre

ssTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

At

1 Ja

nuar

y 20

12

Cos

t8,

936

16,9

606,

009

9,80

61,

537

341,

082

44,3

64A

ccum

ulat

ed d

epre

ciat

ion

-(4

71)

(2,0

82)

(2,6

70)

(616

)(2

8)-

(5,8

67)

Net

bo

ok

amo

unt

8,93

6 16

,489

3,92

77,

136

921

61,

082

38,4

97

Year

end

ed 3

1 D

ecem

ber

201

2

Ope

ning

net

boo

k am

ount

8,93

616

,489

3,92

77,

136

921

61,

082

38,4

97A

dditi

ons

--

325

94

-1,

314

1,58

0Tr

ansf

ers

-1,

518

435

2814

2-

(2,1

23)

-

Dis

posa

ls-

--

(4)

--

-(4

)

Dep

reci

atio

n ch

arge

(not

e 25

)-

(321

)(6

64)

(1,3

33)

(98)

(2)

-(2

,418

)

Clo

sing

net

bo

ok

amo

unt

8,93

617

,686

3,70

16,

086

969

427

337

,655

At

31 D

ecem

ber

201

2C

ost

8,93

618

,478

6,44

610

,041

1,67

634

273

45,8

84

Acc

umul

ated

dep

reci

atio

n-

(792

)(2

,745

)(3

,955

)(7

07)

(30)

-(8

,229

)

Net

bo

ok

amo

unt

8,93

617

,686

3,70

16,

086

969

427

337

,655


2013

99

Land

Bui

ldin

gs

Leas

eho

ldim

pro

vem

ents

Offi

ce a

nd

com

put

er

equi

pm

ent

Furn

itur

e an

dfi

xtur

esVe

hicl

esW

ork

in

pro

gre

ssTo

tal

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

LL M

illion

Year

end

ed 3

1 D

ecem

ber

, 20

13

Ope

ning

net

boo

k am

ount

8,93

617

,686

3,70

16,

086

969

427

337

,655

Add

ition

s-

- 2

3 11

841

-32

851

0Tr

ansf

ers

--

486

9520

-(6

01)

-D

ispo

sals

- -

-

(2)

- -

-(2

)D

epre

ciat

ion

char

ge (n

ote

25)

-(3

89)

(726

)(1

,357

)(1

03)

(2)

-(2

,577

)

Clo

sing

net

bo

ok

amo

unt

8,93

617

,297

3,48

44,

940

927

2-

35,5

86

At

31 D

ecem

ber

, 201

3

Cos

t8,

936

18,4

786,

955

10,2

221,

732

34

-46

,357

Acc

umul

ated

dep

reci

atio

n-

(1,1

81)

(3,4

71)

(5,2

82)

(805

)(3

2) -

(1

0,77

1)

Net

bo

ok

amo

unt

8,93

617

,297

3,48

44,

940

927

2-

35,5

86


100

11 | Intangible assets

Computer software

LL Million

At 1 January 2012

Cost 613

Accumulated amortisation (579)

Net book amount 34

Year ended 31 December, 2012

Opening net book amount 34

Additions 3

Amortisation charge (note 25) (9)

Closing net book amount 28

At 31 December, 2012

Cost 616


Net book amount 28

Year ended 31 December, 2013

Opening net book amount 28

Additions 83

Amortisation Charge (note 25) (15)

Closing net book amount 96

At 31 December 2013

Cost 699


Net book amount 96


2013

101

12 | Investment property

Land Buildings Equipment TotalLL Million LL Million LL Million LL Million

At 1 January 2012 Cost 3,848 5,743 2,392 11,983

Accumulated depreciation - (53) (160) (213)

Closing net book amount 3,848 5,690 2,232 11,770

Year ended 31 December 2012Opening net book amount 3,848 5,690 2,392 11,770

Depreciation charge (note 25) - (115) (359) (474)


At 31 December 2012Cost 3,848 5,743 2,392 11,983

Accumulated depreciation - (168) (519) (687)

Net book amount 3,848 5,575 1,873 11,296

Year ended 31 December 2013

Opening net book amount 3,848 5,575 1,873 11,296

Additions - 52 - 52

Depreciation charge (note 25) - (115) (359) (474)


At 31 December 2013

Cost 3,848 5,795 2,392 12,035

Accumulated depreciation - (283) (878) (1,161)

Net book amount 3,848 5,512 1,514 10,874

During 2013, investment property generated a rental income of LL 1,830 million (2012 – LL 603 million).

At 31 December 2013, the fair value of the investment property amounted to LL 63.35 billion as determined by an independent real estate expert report dated 6 May 2014. This is considered as a Level 2 fair valuation as the most significant input into the valuation model is the price per square metre of comparable plots in close proximity.

13 | Other assets

2013 2012


Miscellaneous debtors 4,692 6,862

Prepaid expenses 1,392 1,295

Due from National Social Security Fund (see below) 865 685

Other assets 309 185

7,258 9,027


102

Other assets are due within no more than 12 months of the date of the balance sheet.Due from National Social Security Fund (“NSSF”) represents medical expenses paid to the Bank’s employees, which are recoverable from the NSSF.

14 | Due to central bank

(a) This amount represents the loan granted by the Central Bank of Lebanon to finance loans given to three customers that were affected by July War in 2006 representing 60% of the value of the buildings and equipment damaged directly by the war. The loan was invested in treasury bills for an amount of LL 57.8 billion (2012 – LL 57.8 billion), representing collateral against the loan according to BCC circular 255 (note 9).

(b) During 2013, the Central Bank of Lebanon has granted the Bank soft loans in accordance with BDL intermediary circular number 318. Total loans amount to LL 29.33 billion and were granted to clients with average interest rates of 5.24%. These loans are subject to annual interest of 1% and are payable through monthly installments starting 1 January 2014 with maturities ranging between 6 and 26 years.

15 | Due to banks

The above balances are current and recognised at amortised cost.

2013 2012


Subsidised loan (a) 58,470 58,464

Subsidised loans (b) 29,331 -

87,801 58,464

Current 2,478 674

Non-current 85,323 57,790

87,801 58,464

2013 2012


Term deposits 5 158

Sight deposits 1,727 1,075

1,732 1,233


2013

103

16 | Deposits from customers

(i) Saving accounts

(ii) Net credit against debit accounts and cash margins

(iii) Sight Deposits

Deposits include coded accounts amounting to LL 18 million as of 31 December 2013(2012 – LL 50 million). These accounts were opened under the provisions of Article 3 ofthe Banking Secrecy Law dated 3 September 1956 governing banks in Lebanon. As per the terms of this article, the Bank, under normal conditions, is not permitted to disclose the identities of coded account depositors to third parties including its auditors.

All term deposits are fixed-interest deposits.

2013 2012


Savings Accounts (i) 1,101,420 995,571

Net credit against debit accounts and cash margins (ii) 252,504 240,671

Sight deposits (iii) 132,760 133,291

Term deposits 245,240 224,110

Deposits from related parties (note 29) 18,898 36,750

Interest payable 648 8,093

1,751,470 1,638,486

Current and checking accounts 110,939 118,513

Debtors accidentally creditors 19,482 11,837

Cheques and payment orders 2,339 2,941

132,760 133,291

Pledged deposits against credit facilities 230,575 221,950

Margins against documentary credits 11,177 10,510

Margins against letters of guarantee 10,752 8,211

252,504 240,671

Saving accounts - term 1,052,376 943,951

Saving accounts - sight 49,044 51,620

1,101,420 995,571


104

17 | Other liabilities

(i) The provision for letters of guarantee represents the provision against risks of letters of guarantee issued before the year 1999 for foreign workers.

(ii) A provision equivalent to 5% of the net open exchange position is set up for adverse foreign currency exchange fluctuations, according to Central Bank of Lebanon basic circular number 32.

Other liabilities are expected to be settled within no more than 12 months of the date of the balance sheet.

18 | Retirement benefit obligations

2013 2012


Taxes payable 1,872 1,506

Accrued expenses 1,682 1,639

Miscellaneous creditors 883 1,105

Provision for letters of guarantee (i) 600 600

Provision for foreign currencies fluctuations (ii) 190 197

Due to National Social Security Fund 157 133

Other 744 736

6,128 5,916

2013 2012


At 1 January 3,619 3,001

Charge for the year (note 23) 418 812

Utilised during the year (63) (194)

At 31 December 3,974 3,619


2013

105

19 | Shareholders’ equity

(a) Share capitalAt 31 December 2013, the Bank’s share capital consisted of 1 billion shares issued and fully paid with a nominal value of LL 100 each.

(b) Legal reserve

Article 132 of the Code of Money and Credit requires 10% of the Bank›s net profits to be transferred from retained earnings to legal reserve. This reserve is not available for distribution.

(c) Reserve for unspecified banking risks

In compliance with the Central Bank of Lebanon basic circular no. 50, banks are required to appropriate from annual profits an amount between 2 per mil and 3 per mil of riskweighted assets (on and off balance sheet) as a reserve for unspecified banking risks. In addition, this reserve should not be less than 1.25% of the denominator at the end of the tenth financial years (i.e. 31 December 2007) and 2% of the denominator at the end of the twentieth financial years (i.e. 31 December 2017). This reserve is considered part of Tier I capital, but it is not available for distribution.

2013 2012


Share capital (a) 100,000 100,000

Legal reserve (b) 18,316 16,383

Reserve for unspecified banking risks (c) 10,785 8,551

Free reserve restricted to future increases in capital (d) 6,970 5,835

Free reserve (e) 36,223 25,201

Other reserves 431 435

Profit for the year (f) 20,517 19,324

Total shareholders’ equity 193,242 175,729

2013 2012


At 1 January 16,383 14,171

Appropriation of profit (f) 1,933 2,212

At 31 December 18,316 16,383

2013 2012


At 1 January 8,551 6,331

Appropriation of profit (f) 2,234 2,220

At 31 December 10,785 8,551


106

(d) Free reserve restricted to future increases in capitalAn amount of LL 6.97 billion (2012 – LL 5.83 billion) arises from the subsequent recovery of doubtful loans and debts previously provided or written off. This reserve is specifically restricted to future increases in share capital.

(e) Free reserveFree reserve of LL 36.22 billion (2012 – 25.20 billion) represents prior year profitsappropriated from retained earnings.

(f) Appropriation of profit

The General Assembly meeting held on 29 June 2013 approved the distribution of dividends amounting to LL 3 billion (LL 3 per share).

The General Assembly meeting held on 20 June 2012 approved the distribution of dividends amounting to LL 3 billion (LL 3 per share).

(g) Undistributable profitsIn compliance with the Code of Commerce and Central Bank circulars, account must be taken of the appropriation of the current year profit to legal reserve, reserve for unspecified banking risks and free reserve for capital increase.

These appropriations are estimated at LL 4.97 billion, are not reflected in these financial statements and are subject to the ultimate approval of the general assembly that is to be held to ratify the financial statements.

2013 2012


1 January (profit of previous year) 19,324 22,118

Transfer to legal reserve (b) (1,933) (2,212)

Transfer to reserve for unspecified banking risks (c) (2,234) (2,220)

Transfer to free reserve for capital increase (1,135) (1,899)

Transfers to free reserve (11,022) (12,787)

Dividends declared (3,000) (3,000)

Profit for the year 20,517 19,324

At 31 December (current year profit) 20,517 19,324


2013

107

2013 2012


Interest and similar income:

Investment securities at amortised cost 62,928 60,576

Loans and advances:

- To customers 39,919 37,075

- To related parties (note 29) 112 1,180

Balances with the central bank 929 1,111

Due from banks 303 355

104,191 100,297

Interest and similar expenses:

Deposits from customers 67,161 61,056

Due to central bank 2,427 2,382

Deposits from related parties (note 29) 284 1,465

Due to banks 39 88

69,911 64,991

Net interest income 34,280 35,306

20 | Net interest income


108

21 | Net fee and commission income

22 | Net loan impairment charges

2013 2012


Fee and commission income

Commission on highest debit balance 4,185 3,868

Commission on issuance and acceptance of letters of credit 2,413 2,273

Commission on movement of accounts 985 912

Commission on letters of guarantee 763 532

Commission on foreign currency deposits 419 418

Commission on bank transfers 314 333

Commission on file renewals 237 210

Commission on term loans 229 4

Commission on returned cheques 226 189

Commission on swift 212 231

Commission on cheques for collection 201 198

Commission on stamps 157 155

Other 1,164 1,163

11,505 10,486

Fee and commission expense

Commission paid on shipment of funds 600 549

Commission paid to banks 150 144

Other commissions 14 17

764 710

Net fee and commission income 10,741 9,776

2013 2012


Increase in specific impairment allowance (note 7) 235 2,659

Reversal of specific impairment allowance (note 7) (275) (633)

Increase in collective impairment allowance (note 7) 150 464

Reversal of unrealised interest (note 7) (191) (451)

Others 107 (14)

26 2,025


2013

109

23 | Personnel expenses

The average number of persons employed by the Bank during the year was 247 (2012 – 245 employees).

24 | General and administrative expenses

25 | Depreciation and amortisation expenses

2013 2012


Salaries and related benefits 7,577 7,129

Directors’ remuneration and attendance fees (note 29) 1,484 1,121

Social security costs 1,287 1,140

Schooling allowance 743 612

Transportation benefits 634 750

Retirement benefit obligations (note 18) 418 812

Other employee benefits 1,306 1,241

13,449 12,805

2013 2012


Rent 1,231 1,129

Advertising and public relations 1,083 904

Deposits guarantee premiums 818 794

Water and electricity 766 660

Professional fees 639 631

Repair and maintenance 570 398

Subscriptions 446 325

Telecommunication 433 411

Stationery and office supplies 318 294

Insurance 114 97

Travel and entertainment 93 49

Other operating expenses 1,181 870

7,692 6,562

2013 2012


Depreciation of property and equipment (note 10) 2,577 2,418

Depreciation of investment property (note 12) 474 474

Amortisation of intangible assets (note 11) 15 9

3,066 2,901


110

26 | Income tax expenseThe Bank’s tax charge is determined as the higher of the corporate tax and the tax withheld on interest income during the year. In 2013, the corporate tax of LL 3.53 billion (2012 – LL 3.66 billion) exceeded the tax on interest of LL 2.25 billion (2012 – LL 2.26 billion).The tax charge is determined as follows:

The movement in the current income tax liability is summarised as follows:

The open tax years that remain subject to examination and acceptance by the fiscal authorities are the years 2012 and 2013.

27 | Cash and cash equivalents

2013 2012


Profit before tax 24,045 22,988

Income tax at statutory rate of 15% 3,607 3,448

Effect of expenses not deductible for tax purposes:

Collective provision 23 70

Provision for bonuses 105 92

Penalties 30 1

Building property tax 32 10

Other 18 142

Effect of non-taxable income:

Rental income (274) (90)

Others (13) (9)

Income tax expense for the year 3,528 3,664

2013 2012


At 1 January 1,402 1,856

Charge for the year 3,528 3,664

Payments during the year (3,654) (4,118)

At 31 December 1,276 1,402

2013 2012


Cash and balances with the central bank (note 5) 84,852 70,522

Due from banks (note 6) 130,154 145,475

215,006 215,997


2013

111

28 | Contingent liabilities and commitments

(a) Legal proceedingsThere were a number of legal proceedings outstanding against the Bank at 31 December 2013. No provision has been made against these cases beyond the amounts provided for under provision for risks and charges. As per legal counsel, no future liability is expected to arise in respect of existing litigation.

(b) Undrawn credit facilities, guarantees and other financial liabilitiesThe following table indicates the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers, guarantee and other facilities:

29 | Related parties transactions

A number of banking transactions are entered into with related parties in the normal courseof the Bank’s business. These include loans, deposits and foreign currency transactions. Thevolumes of related party transactions, outstanding balances at the year end, and relatedexpense and income for the year are as follows:

(a) Loans and advances to related parties (note 7)

2013 2012


Undrawn credit facilities 96,037 122,282

Letters of guarantee to clients and banks 56,676 53,711

Documentary and commercial letters of credit 22,820 39,843

175,533 215,836

2013 2012


Managers and family members (note 7) 863 11,000

Entity controlled by key management personnel (note 7) - 9,442

863 20,442

Interest income earned (note 20) 112 1,180


112

(b) Deposits from related parties (note 16)

(c) Key management compensation

(d) Other

2013 2012


Managers and family members 18,246 27,294

Entity controlled by key management personnel 652 9,456

18,898 36,750

Interest expense on deposits (note 20) 284 1,465

Directors’ remunerations and attendance fees (note 23) 1,484 1,121

Key management remunerations 1,325 1,239

2,809 2,360

Rent expense 618 618

Advertising and public relation expenses 239 213

857 831


2013

113


114

CORRESPONDENT BANKS& ADDRESSES


2013

115

Supporting the real investmentsAt Fenicia Bank, we know that the real values lie in human relationships.

Fenicia Bank loans are tailor-made to help you realize every project you have planned.


116

Belgium Byblos Bank Europe S.A. Brussels

France BLOM France Bank Paris Al Khaliji France S.A. Paris

Germany The Bank of New York Mellon Frankfurt Commerz Bank Frankfurt ABC International Bank Frankfurt Bank of Beirut (UK) LTD Frankfurt

Italy Unicredit S.P.A Milan

Japan The Bank of New York Mellon Tokyo

Kuwait Ahli United Bank K.S.C

Turkey Asya Katilim Bankasi.As Istanbul

United Kingdom The British Arab Commercial Bank London Bank of Beirut (UK) LTD London

United States of America Standard Chartered Bank New York The Bank of New York Mellon New York

U.A.E. Mashreq Bank PSC Dubai

CORRESPONDENT BANKS


2013

117

BRANCHES

HEAD OFFICE

Beirut Central District, Foch Street, Fenicia Bank Bldg.P.O.Box: 113-6248Telefax: (00 961 1) 957857 Zip Code: 1103-2110 Beirut LebanonFax: (00 961 1)957858Swift: BKAWLBBEE-mail: [email protected]

ABBASSIEH BRANCH

Jal Albaher, Main Road, Belle Vue Bldg. P.O.Box: 113-6248Telefax: (00 961 7) 742710 - 742722 - 741722 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

ACHRAFIEH BRANCH

Sassine Square, Dr. Maalouf Bldg. P.O.Box: 113-6248Telefax: (00 961 1) 338635 - 219030 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

BIKFAYA BRANCH

Bikfaya Highway, Massoud Bldg. P.O.Box: 113-6248Telefax: (00 961 4) 983221 - 982320 982322 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

BIR HASSAN BRANCH

Way Down Sultan Ibrahim, Rafic Hariri University Hospital district, Al-Mays(1) Bldg. P.O.Box: 113-6248Telefax: (00 961 1) 843611 - 843612 Zip Code: 1103-2110 Beirut LebanonSwift: BKAWLBBEE-mail: [email protected] Outdoor

BINT JBEIL BRANCH

Main Road, Al Shamy Bldg. P.O.Box: 113-6248Telefax: (00 961 7) 450051 - 452454Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

CHTOURA BRANCH

Jdeita Main road, P.O.Box: 113-6248Telefax: (00 961 8) 546630 - 546631 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

FOCH BRANCH

Beirut Central District, Foch Street,Fenicia Bank Bldg. P.O.Box: 113-6248Telefax: (00 961 1) 957800 Zip Code: 1103-2110 Beirut LebanonFax: (00 961 1)957801E-mail: [email protected] Outdoor


118

BRANCHES

GHAZIEH BRANCH

GHAZIEH Main Road, Ghaddar Bldg. P.O.Box: 113-6248Telefax: (00 961 7) 221958- 244958 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

HAMRA BRANCH

Makdessi Str., Chouman Bldg. P.O.Box: 113-6248Telefax: (00 961 1) 346348 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected]

HARET HREIK BRANCH

Bir El Abed, Al-Arid Str., Itani Bldg. P.O.Box: 113-6248Telefax : (00 961 1) 559928 – 543510 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

KHALDEH BRANCH

Khaldeh Highway, Zebian Bldg. P.O.Box: 113-6248Telefax: (00 961 5) 801241 – 811147 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] ATM Outdoor

MOAWAD BRANCH

Chiah, Mouawad Str., Sheaito Center P.O.Box: 113-6248Telefax: (00 961 1) 549700-549701 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

NABATIEH BRANCH

Mahmoud Fakih Road, Fenicia Bank Bldg. P.O.Box: 113-6248Telefax: (00 961 7) 762546-769546, Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

TRIPOLI BRANCH

Riad el Solh Street, Missaykeh Bldg. P.O.Box: 113-6248Telefax: (00 961 6) 203160 – 203161 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

TYRE BRANCH

Roundabout Rachid Karameh, Al-Athar str.-Daoud Abou –Saleh Bldg. P.O.Box: 113-6248Telefax: (00 961 7) 740522 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

BRANCHES

VERDUN BRANCH

Ain El Tineh - Verdun Bellevue Bldg.P.O.Box: 113-6248Telefax: (00 961 1) 866306 Fax: (00 961 1) 865299Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected] Outdoor

ZALKA BRANCH

Zalka Main road, Elysee Center P.O.Box: 113-6248Telefax: (00 961 1) 884450 - 884451- 896650 - 896651 Zip Code: 1103-2110 Beirut LebanonE-mail: [email protected]

[email protected]

Documents

Lifelong Relationship - Fenicia · PDF fileHassan Cheaib Mr. Aziz Nadra Macaron ... of the Board of trustees of several GCC universities in Bahrain, ... Khalil Najjar Mr. Mohsen Chafic