annual report · 7.1. investor relations activity in 2012 69 7.2. bank audi's stock research...

annualreport

annu

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2012

2 3

Financial Highlights 6

Statement of the Chairman and the Chief Executive Officer 8

Corporate Governance 121. Corporate Governance Framework 122. Composition of the Board of Directors 133. Biographies of Board Members 16Management of Bank Audi sal - Audi Saradar Group 22

Management Discussion and Analysis 261. Introduction 27

2. Strategy 27

3. Economic Environment 28 3.1. Domestic Operating Environment 28 3.2. Operating Environment in the MENA Region 31 3.3. Operating Environment in Turkey 33 3.4. Operating Environment in West Europe 34

4. 2012 Activity and Performance Analysis 34 4.1. Business Overview in 2012 34 4.2. Balance Sheet Management 35 4.3. Results of Operations 49 4.4. Analysis by Business Segments 56 4.5. Capital Management 59

5. Dividend Policy 62

6. Risk Management 63

7. Investor Relations 69 7.1. Investor Relations Activity in 2012 69 7.2. Bank Audi's Stock Research Coverage 70

8. Deployed Resources 70 8.1. Operations 70 8.2. Information Technology 71

9. Human Resources 72

10. Corporate Social Responsibility 75

General Assembly Excerpts 78

Consolidated Financial Statements 80Auditors’ Report 81Consolidated Income Statement 82Consolidated Statement of Comprehensive Income 83Consolidated Statement of Financial Position 84Consolidated Cash Flow Statement 85 Consolidated Statement of Changes in Equity 86

Notes to the Consolidated Financial Statements 88Notes' Index 89Notes 90

Shareholding Structure 208

Corporate Structure 209

Group High Level Chart 210

Organisation Chart 211

Management 214Bank Audi sal - Audi Saradar Group 214 Management of Bank Audi sal - Audi Saradar Group (continued) 214 Country Management Lebanon 216Audi Saradar Investment Bank sal 217Audi Saradar Private Bank sal 218Banque Audi (Suisse) sa 219Bank Audi Saradar France sa 220Bank Audi sal - Jordan Branches 221Bank Audi Syria sa 222Bank Audi sae (Egypt) 223Arabeya Online Brokerage (Egypt) 228National Bank of Sudan 229Audi Capital (KSA) cjsc 230Bank Audi LLC (Qatar) 231Audi Capital Gestion sam (Monaco) 232Odeabank A.Ş. 233

Addresses 234Lebanon 234 Bank Audi sal - Audi Saradar Group 234 Audi Saradar Investment Bank sal 238 Audi Saradar Private Bank sal 238Switzerland – Banque Audi (Suisse) sa 238France – Bank Audi Saradar France sa 238Jordan – Bank Audi sal - Jordan Branches 238Syria – Bank Audi Syria sa 239Egypt 241 Bank Audi sae 241 Arabeya Online Brokerage 243Sudan – National Bank of Sudan 243Saudi Arabia – Audi Capital (KSA) cjsc 243Qatar – Bank Audi LLC 243Monaco – Audi Capital Gestion sam 243Turkey – Odeabank A.Ş. 244United Arab Emirates – Bank Audi sal - Abu Dhabi Representative Office 244

table of contents

4 5

gulfBank Audi enjoys firm coverage of private and corporate banking

markets in the Gulf region. The Bank offers its GCC clients high

quality trading and advisory services, in addition to discretionary

portfolio and asset management services, and increasingly caters to

the financing needs of businesses and corporates.

6 7

financial highlights

Bank Audi sal: Selected Financial Data (USD Million)

Earnings per Common Share Growth (USD)

Assets (USD Million) Net Earnings (USD Million)

Diluted

Basic

2009

0.80 0.78

2012

1.01 1.01

2011

1.00 1.00

2010

0.96 0.94

2008

0.65 0.62

2007

0.53 0.50

CAGR 13.8%

CAGR 12.6% CAGR 13.9%

2008 20102007

17.32020.385

26.48628.688 28.737

31.302

2009 2011 2012 2008 20102007

200238

289

352 365384

2009 2011 2012

2007 2008 2009 2010 2011 2012CAGR 07-12

Assets 17,320 20,385 26,486 28,688 28,737 31,302 12.6%

Loans to customers 4,708 6,129 6,747 8,548 8,594 10,428 17.2%

Customers' deposits 14,299 17,337 22,985 24,848 24,798 26,805 13.4%

Shareholders' equity 1,824 1,966 2,193 2,420 2,357 2,677 8.0%

Net earnings 200 238 289 352 365 384 13.9%

Number of branches 136 143 154 157 154 162 3.6%

Number of staff 3,872 4,291 4,388 4,838 4,808 5,070 5.5%

Liquidity and asset quality

Liquid assets/Deposits 82.86% 77.39% 82.10% 77.25% 77.20% 74.51%

Loans/Deposits 32.93% 35.35% 29.35% 34.40% 34.66% 38.91%

Net doubtful loans/Gross loans (excluding collective provisions) 0.91% 0.60% 0.93% 0.61% 0.66% 0.64%

Loan loss provisions/Gross doubtful loans (excluding collective provisions) 81.20% 80.35% 72.36% 72.61% 77.16% 76.26%

Net doubtful loans/Equity 2.17% 1.06% 1.11% -0.34% 2.50% 2.57%

Collective provisions/Net loans 0.72% 1.17% 1.06%

Capital adequacy

Equity/Assets 10.53% 9.64% 8.28% 8.44% 8.20% 8.55%

Capital adequacy as per BASEL II requirement 12.68% 12.84% 11.93% 11.42% 10.69% 11.79%

Profitability

Cost to income 55.89% 54.91% 48.41% 47.28% 44.71% 45.96%

ROAA 1.27% 1.26% 1.23% 1.28% 1.27% 1.32%

ROACE 12.25% 13.30% 14.77% 16.02% 16.73% 16.49%

Share data

Common shares outstanding 329,023,090 341,893,890 344,189,410 348,477,114 349,439,944 349,749,204 1.23%

Preferred shares outstanding 52,500,000 12,500,000 12,500,000 13,750,000 13,750,000 15,250,000 -21.91%

Net dividends on common shares (in USD million) 66 77 120 138 139 139 16.06%

Net dividends on preferred shares (in USD million) 18 18 10 15 17 23 5.20%

Payout ratio 42% 40% 45% 44% 43% 42% 0.00%

Basic common earnings per share (in USD) 0.53 0.65 0.80 0.96 1.00 1.01 13.77%

Diluted common earnings per share (in USD) 0.50 0.62 0.78 0.94 1.00 1.01 15.10%

Share price (in USD) 7 5 8 9 6 6 -3.04%

Market capitalisation (in USD) 2,303,162 1,777,848 2,856,772 3,136,294 1,970,841 2,150,376 -1.36%

8 9

The Bank’s achievements and results for 2012 confirm once again the Group’s ability to sustain its growth track record in an atypical surrounding environment, while pursuing its expansionary strategy to new captive markets of interest. Those achievements actually represent additional acknowledgements of Bank Audi’s highly differentiated and innovative profile: a bank that has the best universal banking profile among peers, a bank that benefits from a strong proven expertise in cross-border expansion, a bank that enjoys firm risk management philosophies combined with best Corporate Governance practices, thorough Management vision and wise strategic planning systems, and a bank that has the most diversified shareholders base gathering around its historical shareholders large regional investors and international institutional investors.

Bank Audi sal - Audi Saradar Group was indeed able, in 2012, to considerably differentiate itself by performing favourably in the most difficult operating conditions, and even embarking on lucrative expansion. The Bank managed to sustain positive assets and earnings growth (respectively at 8.9% and 5% in 2012), improve its risk coverage, and reinforce its financial standing across all entities both domestic and abroad. In details, the Bank’s consolidated assets rose by USD 2.6 billion during the year to reach USD 31.3 billion at end-December and USD 39.8 billion when accounting for fiduciary deposits, security accounts and assets under management. The growth in assets was in particular owed to customers’ deposits which grew by 8.1% in 2012, i.e. the equivalent of USD 2 billion, moving from USD 24.8 billion at end-December 2011 to USD 26.8 billion at end-December 2012.

The rise in consolidated assets was translated into a growth of 22% at the level of the consolidated

lending portfolio (the equivalent of USD 1.9 billion), for the latter to reach USD 10.5 billion at end-December 2012, and which contributed to a steady increase in the loan-to-deposit ratio from 34.7% to 39.1% over the period. Lending growth was coupled with a strengthening of the lending portfolio quality through the allocation of additional net provisions worth USD 121 million during 2012. Total collective provisions reached USD 111 million at end-December 2012, the equivalent of 1.1% of the consolidated net loans portfolio, while loan loss provisions stood at USD 221 million, translating in a coverage of doubtful loans by specific provisions of 76.3%. In parallel, the gross doubtful loans to gross loans ratio improved, reaching 2.68% at end-December 2012, while net doubtful loans accounted for a mere 0.63% of gross loans.

The growth in assets was not realised at the detriment of the Group’s financial standing, as 23.1% of the total growth in assets during 2012 was used to increase primary liquidity which reached USD 13.1 billion and represented 49% of customers’ deposits. In parallel, the Bank continued to enjoy sound capital adequacy ratio with a Basel III ratio of around 11.6%, versus a 10% minimum regulatory requirement. As to profitability, Bank Audi’s net earnings grew by 5% over the year, moving from USD 365 million in 2011 to USD 384 million in 2012. Based on such results, the Bank’s profitability ratios improved, with the return on average assets reporting 1.28% and the return on average common equity amounting to 16.6% over the year.

The most significant development of the past year was the launch of Odeabank A.Ş., the fully owned Turkish subsidiary of Bank Audi sal - Audi Saradar Group, on the beginning of November 2012.

Odeabank, the first foreign bank to be granted an operating license by the Banking Regulatory and Supervisory Agency in 14 years, obtained its license in September 2012. In only two months’ time, the Bank managed to open 6 branches, attract over 1,500 customers and build customers’ deposits of over USD 1.4 billion, which translated into assets of over USD 2 billion (USD 4.3 billion at end-March 2013). Odeabank’s achievements in such a small period of time underscore the pertinent investment the Bank made. Over the medium term, Turkey would constitute one of the development pillars of the Group, together with Lebanon and Egypt. Odeabank’s biggest advantage is a young, dynamic, ambitious, success-oriented team and a continuous search for perfection, with the purpose of reaching top level customer satisfaction. To achieve that, the Bank has equipped all its branches with top-of-the-range technologies in a way to enhance quick quality service, and has opted for recruiting the most experienced and specialised personnel in the sector.

Following the expansion to Turkey, the Group is now present in 12 different countries. Over and above its historic and dominant presence in Lebanon and Europe (France, Switzerland, and recently Monaco), the Group is now present in Jordan, Syria, Egypt, Sudan, Saudi Arabia, Qatar, Turkey and the United Arab Emirates through a representative office. Bank Audi has in parallel reinforced its universal banking profile, offering a full range of Commercial and Corporate Banking, Retail and Individual Banking, Online Brokerage services, Private Banking, Investment Banking, Capital Market activities, in addition to Insurance activities. In particular, Bank Audi benefits today from the following leaderships:

• AstrongfranchiseinCommercialBankingactivities,with a diversified loan portfolio covering top

corporates from Lebanon, the MENA region and Turkey. By end-December 2012, the Bank had a corporate and commercial loan portfolio of USD 7.6 billion, by far the largest among Lebanese banks. Bank Audi was able to sustain its lead presence in Project and Structured Finance by extending new loans covering a variety of sectors including fertilizer production, oil and gas, retail and commercial development, construction and contracting, real estate, cement, steel, hotels, airlines, and insurance.

• A strong franchise in Retail Banking, with a widespectrum of 145 retail products and services covering bancassurance, credit card and internet banking, offered in all countries where Bank Audi operates. Retail activity is supported by an 80-branch domestic network, which is the largest in Lebanon and an 82-branch network in the MENA region and Turkey built in four years of average activity. The Retail cross-selling per customer reached 4.55 products as at end-December 2012, versus 4.40 in 2011. The Bank’s market penetration in terms of customers reached 25% in 2012, ranking first among competitors, versus 23% in 2011, supported by the best brand image in the domestic market.

• A leading position in Private Banking, servicingthe needs of high net-worth individuals through its subsidiaries. Bank Audi’s Private Banking arm is represented by Banque Audi (Suisse) sa (the second largest Arab bank in Switzerland) and Audi Saradar Private Bank sal (the only 100% Private banking subsidiary in Lebanon), along with Bank Audi LLC (Qatar) and Audi Capital (KSA), accounting together for over USD 8.4 billion of assets under management at end-December 2012, by far the largest portfolio managed by a Lebanese banking group and which compares competitively with portfolios managed by leading banks in the GCC.

statement of the chairmanand the chief executive officer

10 11

• AleadingpositionindomesticandregionalCapitalMarkets activities, with strong market-making activities in Lebanon, Saudi Arabia and Egypt. Over the past year, market-making activities on Lebanese and GCC fixed income instruments strengthened across the Group, reporting a turnover of around USD 10.3 billion in 2012, broken down over USD 2 billion on Lebanese Treasury bills, USD 5.8 billion on Lebanese sovereign bonds, and USD 2.5 billion on GCC fixed income instruments. On the equity front, Bank Audi is an active leading intermediary on the Beirut Stock Exchange, with a 34.3% market share in total trading value in 2012.

The Bank accompanied such bus ines s accomplishments with an adequate development of its support functions. In 2012, Bank Audi’s IT supported the Bank’s growth plans by launching new applications, kick-starting the transformation program and completing the set-up of Odeabank’s IT organisation. In addition to the aforementioned initiatives, Bank Audi’s IT worked on enhancing its operational efficiencies by optimising utilisation of resources and ensuring transparent monitoring of capital consumption. Last but not least, Bank Audi’s IT heightened importance has been given to enhancing the existing security measures and emphasising business continuity.

In parallel, the year 2012 was marked by significant achievements by Human Resources (HR), crowned by the launching of the “Training Academy”, a long-awaited milestone that required extensive planning, research and preparation. Bank Audi’s Human Resources continuously strive to enhance and adopt new approaches, methods and practices to maintain and reaffirm the Bank’s position in the region as an “employer of choice” and a market leader in the HR field.

In parallel, Bank Audi’s Corporate Social Responsibility (CSR) function was selected by ISO through Libnor – the Lebanese Standards Institution attached to the Ministry of Industry – as the first pilot organisation within the banking sector to implement ISO 26000 Social Responsibility guidelines.

On the back of all such performances, Bank Audi looks at the future with faith and optimism. The Bank believes there are many opportunities at the horizon and that it is very well placed to grasp them. Such a conviction is based on the fact that the Bank is very well staffed (74% of its staff being university graduates against a global average of 37%), benefitting from a Management-driven profile, a very strong Corporate Governance, and an extensive vision when it comes to strategy with a deeper sense of expanding, growing and developing further. Bank Audi’s strategic orientations, going ahead, revolve around consolidating and strengthening our domestic leadership, growing our entities in Turkey and MENA, expanding to new captive foreign markets, and investing in all necessary support infrastructure, all in the aim of positioning our Group in the inner circle of major regional players at large.

As a matter of fact, such business objectives can only translate into significant value added to our shareholders, which we believe have been gratefully supporting our strategic orientations and our development plans.

In closing, we would like to express our gratitude to all our colleagues for their motivation, professionalism, and permanent support of our objectives, amidst the most atypical circumstances surrounding us.It is our unscathed eagerness to always innovate, outgrow and move ahead that continuously makes Bank Audi’s differentiation.

Sincerely,

Raymond W. AudiChairman and General Manager

Samir N. HannaGroup Chief Executive Officer

12 13

I. Corporate Governance FrameworkIntroduction

During the year 2012, the Board of Directors continued to give sound Corporate Governance a particular importance. It carried out a comprehensive review of key Governance practices and introduced a number of modifications (including to its “Governance Guidelines” as well as to the Charters of its Audit and Risk Committees) that are aimed at enhancing Governance practices generally and at aligning them with the dynamic local and international regulatory expectations. It also acted on the recommendations of its committees that substantially discharged all of their responsibilities. Particularly salient Governance-related achievements include the carrying out of a formal assessment of the Board’s compliance with its Corporate Governance guidelines and with the applicable regulations (yielding a satisfactory outcome), as well as the adoption of a formal Board evaluation process and an implementation plan, in line with best Governance practices.

At the level of the Group, the year 2012 also witnessed important Governance-related developments with the material addition of Odeabank A.Ş. to the Group Governance framework (while preserving local regulatory requirements) and with a number of enhancements that were brought to other local and foreign subsidiaries’ Governance frameworks.

Governance Framework

Bank Audi is governed by a Board of Directors consisting of up to 12 members (currently 11) elected by the General Assembly of shareholders for a term of 3 years. The responsibility of the Board is to ensure strategic direction, Management supervision and

adequate control of the company, with the ultimate goal of increasing the long term value of the Bank.

Bank Audi’s Governance framework and that of its major banking subsidiaries encompass a number of policies, charters, and terms of reference that shape the Group’s Governance framework over a wide range of issues including risk supervision, compliance, audit, remuneration, evaluation, succession planning, ethics and conduct, budgeting, and capital management. Clear lines of responsibility and accountability are in place throughout the organisation with a continuous chain of supervision for the Group as a whole, including effective channels of communication of the Group Executive Committee’s guidance and core group strategy. Strategic objectives setting corporate values and promoting high standards of conduct have been established and widely communicated throughout the Group, providing appropriate incentives to ensure professional behaviour.

The Bank’s Corporate Governance Guidelines are accessible on the Bank’s website at www.banqueaudi.com

The Board is supported in carrying out its duties by the Group Audit Committee, the Corporate Governance and Remuneration Committee, the Board Group Risk Committee and the Group Executive Committee.

•ThemissionoftheGroupAuditCommitteeistoassistthe Board in fulfilling its oversight responsibilities as regards (i) the adequacy of accounting and financial reporting policies, internal control and the compliance system; (ii) the integrity of the financial statements and the reliability of disclosures; (iii) the appointment, remuneration, qualifications, independence and effectiveness of the external auditors; and (iv) the independence and effectiveness of the internal audit function(1).

•The mission of the Corporate Governance andRemuneration Committee is to assist the Board in maintaining an effective institutional Governance framework for the Group, an optimal Board composition, effective Board process and structure, and a set of values and incentives for executives and employees that are focused on performance and promote integrity, fairness, loyalty and meritocracy.

•The mission of the Group Risk Committee is toassist the Board in discharging its risk-related responsibilities. The Committee is expected to (i) consider and recommend the Group’s risk policies and risk appetite to the Board, (ii) monitor the Group’s risk profile for all types of risks, and (iii) oversee the Management framework of the aforementioned risks and assess its effectiveness.

•The mission of the Group Executive Committee isto develop and implement business policies for the Bank and to issue guidance for the Group within the strategy approved by the Board. The Group Executive Committee also supports the Group Chief Executive Officer in the day-to-day running of the Bank and in guiding the Group.

2. Composition of the Board of DirectorsMembers of the Board of Directors serving throughout the year 2012 were elected by a resolution of the Ordinary General Assembly of shareholders held on April 12, 2010 for a term expiring on the date of the annual Ordinary General Assembly meeting of April 8, 2013 that examined the accounts and activity of the year 2012.

The Ordinary General Assembly held on April 8, 2013, has re-elected the same Directors for a new three-year term expiring on the date of the annual Ordinary General Assembly meeting (expected to be held in April 2016) that will examine the accounts and activity of the year 2015.

The Board of Directors currently comprises the following Directors(2) (see table on next page):

corporate governance

(1) It is not the duty of the Audit Committee to plan or to conduct audits or make specific determinations that the Bank’s statements and disclosures are complete and accurate, nor is it its duty to assure compliance with laws, regulations and the Bank’s Code of Ethics and Conduct. These are the responsibilities of Management and of external auditors.

(2) Listed according to their dates of appointment (beyond the Group CEO).

14 15

Changes to the Board of Directors during the Years 2012 and 2013 to Date:

2012(i) Dr. Georges A. Achi (88), who had been member

of the Board of Directors since August 2008 (and previously a member of the Board from 1998 until 2004), resolved to retire from his function as member of the Board of Directors on April 10, 2012, after long years of highly valuable contributions to the Bank and to its Board.

(ii) Mr. Youssef A. Nasr, who was elected as a member of the Board in replacement of Dr. Georges A. Achi, resigned in November 2012.

2013(iii) The Ordinary General Assembly of shareholders

of Bank Audi sal - Audi Saradar Group convened on April 8, 2013, and resolved to re-elect the current Directors for a new three-year mandate.

(iv) The newly elected Board convened following the General Assembly of shareholders and resolved, amongst other things, to re-elect H.E. Mr. Raymond W. Audi as Chairman of the Board – General Manager, and Dr. Marwan M. Ghandour as Vice-chairman of the Board for the new Board’s term.

(3) Definition of Director independence as per the Bank’s Governance Guidelines (summary): “In order to be considered independent Director by the Board, a Director should have no relationship with the Bank that would interfere with the

exercise of independent judgment in carrying out responsibilities as a Director. Such a relationship should be assumed to exist when a Director (him/her self or in conjunction with affiliates): • is occupying, or has recently occupied an executive function in the Bank or the Group; • is providing, or has recently provided advisory services to the Executive Management; • is a major shareholder (i.e. owns, directly or indirectly, more than 5% of outstanding Audi common stock), or is a relative of a major shareholder; • has, or has recently had a business relationship with any of the Senior Executives or with a major shareholder; • is the beneficiary of credit facilities granted by the Bank; • is a significant client or supplier of the Bank; • has been, over the 3 years preceding his appointment, a partner or an employee of the Bank’s external auditor; • is a partner with the Bank in any material joint venture.

In addition to the above, the Board of Directors is satisfied with the ability of the independent Directors to exercise sound judgment after fair consideration of all relevant information and views without undue influence from Management or inappropriate outside interests.”

Secretary of the Board

Mr. Farid F. LahoudCorporate Secretary

Independent (as per

the Bank’s Corporate

Governance Guidelines(3))

Member of the Group Executive

Committee

Member of the Corporate Governance

and Remuneration

Committee

Member of the Group Audit Committee

Member of the Board Group Risk

Committee

Mr. Samir N. Hanna

Sheikha Suad H. Al Homaizi

Mr. Marc J. Audi

Dr. Freddie C. Baz

Sheikha Mariam N. Al Sabbah

Dr. Imad I. Itani

Mr. Mario J. Saradar

Mr. Abdullah I. Al Hobayb

Dr. Khalil M. Bitar

H.E. Mr. Raymond W. AudiChairman

Dr. Marwan M. GhandourVice-chairman

Mr. Youssef A. Nasr(until November 2012)

Chair

Chair

Deputy Chair

Chair

Chair

(until August 2012)

(since August 2012)

(until November 2012)

(since May 2012)

The Board is advised, for Audit Committee matters, by Mr. Maurice H. Sayde (who served as a member of the Board and Chairman of its Group Audit Committee from June 2, 2006 until July 18, 2008).

Members Group Sharia’ Supervisory Board Dr. Abdulsattar A. Abu Ghudda (Chair) Dr. Mohamed A. Elgari Sheikh Nizam M. Yaqoobi Dr. Khaled R. Al Fakih

Legal Advisors Law Offices of Ramzi Joreige & Partners

Auditors Semaan, Gholam & Co. Ernst and Young

16 17

Chairman of the Board and General Manager

Age: 80 – Lebanon

Director since February 1962

Term expires at the 2016 Annual General Assembly of shareholders

• Chairman of the Corporate Governance and Remuneration Committee

General Manager Group Chief Executive Officer

Age: 68 – Lebanon

Director since August 1990


• Executive Director• Chairman of the Group Executive Committee• Member of the Group Risk Committee

(until August 2012)

3. Biographies of Board MembersRaymond W. AUDI Samir N. HANNA

Raymond Audi acts as Chairman of the Board of Directors and General Manager since December 2009. He had also served as Chairman of the Board of Directors and General Manager from 1998 through 2008, resigning from this position when he was appointed Minister of the Displaced in the Lebanese government. Mr. Audi resumed his position as Chairman of the Board of Directors effective December 22, 2009.

He started his banking career in 1962, when, together with his brothers and with prominent Kuwaiti businessmen, he founded Banque Audi sal (now Bank Audi sal - Audi Saradar Group), building on a successful long-standing family business.

Raymond Audi has played an active role in leading Bank Audi through both prosperous and challenging times to its current status as a widely recognised leading Lebanese and regional bank. He served as President of the Association of Banks in Lebanon in 1994.

Raymond Audi is the recipient of several honours and awards, including, in July 2007, an Honorary Doctorate in Humane Letters from the Lebanese American University.

Samir Hanna joined Bank Audi sal - Audi Saradar Group (previously Banque Audi sal) in January 1963. He held several managerial and executive positions across various departments of the Bank. He was appointed General Manager of Bank Audi in 1986 and member of its Board of Directors in 1990. In the early 1990s, he initiated and managed the restructuring and expansion strategy of Bank Audi, transforming it into a strong banking powerhouse offering universal banking products and services including Corporate, Commercial, Retail, Investment and Private Banking.

He grew the Bank to its current position as the largest bank in Lebanon (and among the top 20 Arab banking groups), with presence in 12 countries, consolidated assets exceeding USD 31 billion, consolidated deposits exceeding USD 26 billion, and group staff headcount exceeding 5,000 employees.Samir Hanna is also the Chairman of Odeabank A.Ş. in Turkey and a member of the Board of Directors of several affiliates of Bank Audi.

He currently serves as the Group Chief Executive Officer and the Chairman of the Group Executive Committee, and heads all aspects of the Bank’s Executive Management.

Vice-chairman of the Board

Age: 69 – Lebanon

Director since March 2000


• Non-executive Director• Chairman of the Group Audit Committee• Member of the Board Group Risk Committee• Member of the Corporate Governance and

Remuneration Committee

Marwan M. GHANDOUR

Marwan Ghandour is an independent member of the Board of Directors since March 2000 and the Vice-chairman of the Board of Directors since December 2009. He is a previous Vice-governor of the Central Bank of Lebanon. He held this position between January 1990 and August 1993, with primary responsibilities in the area of monetary policy. During this period, he was also a member of the Higher Banking Commission and various other government committees involved in economic policy. In this capacity, he liaised with various international institutions such as the International Monetary Fund (IMF), the World Bank and the Bank for International Settlements (BIS).

From 1995 until July 2011, Marwan Ghandour served as Chairman and General Manager of Lebanon Invest sal, a leading financial services group in the region whose holding company merged with Bank Audi in 2000. He also served as Chairman of the Board of Directors of Audi Saradar Investment Bank sal, a fully owned subsidiary of Bank Audi, from 2005 until December 2011. He was elected Chairman of the Board of Directors of Banque Audi (Suisse) sa in March 2011 and Vice-chairman of the Board of Directors of Odeabank A.Ş. in Turkey in June 2012. He also serves as member of the Board of Directors of several affiliates of Bank Audi.

Marwan Ghandour holds a PhD in Economics (Econometrics) from the University of Illinois (Post-doctorate research at Stanford University).

Board Member

Age: 70 – Kuwait

Director since February 1962


• Non-executive Director

Suad H. AL HOMAIZI

Sheikha Suad Al Homaizi is the widow of late Sheikh Jaber Al Sabbah, a prominent figure of the ruling family of Kuwait. She is one of the founders of the Bank. Sheikha Suad Al Homaizi serves as Chairman of the Commercial Kuwaiti Company Hamad Saleh Al Homaizi which owns international licenses for pharmaceutical products and is a member of the Board of Directors of several other Kuwaiti companies.

She is a member of the Board of Directors of Bank Audi since February 1962.

18 19

General Manager Country Manager Lebanon

Age: 55 – Lebanon



•ExecutiveDirector•MemberoftheGroupExecutiveCommittee

Board Member

Age: 64 – Kuwait



• Non-executive Director

Marc J. AUDI Mariam N. AL SABBAH

Marc Audi started his banking career at Banque Audi (France) sa (now Bank Audi Saradar France sa) in 1981. He then moved to Banque Audi California where he was appointed Director and Executive Vice-president. He later came back to Lebanon to join Banque Audi sal (now Bank Audi sal - Audi Saradar Group) in 1993, and was appointed member of its Board of Directors in 1996. He held executive responsibilities successively in Commercial Lending and Capital Markets divisions. Marc Audi served as General Manager of Banque Audi (Suisse), the Private Banking arm of the Audi Group of Banks until 2005, and remains a member of its Board of Directors. He also serves as member of the Board of Directors of several affiliates of Bank Audi, and has been General Manager of the Bank since 2004, where he currently acts as the Lebanon Country Manager.

Marc Audi holds a Master’s of Business Administration from the University of Paris IX – Dauphine.

Sheikha Mariam Al Sabbah is the daughter of late Sheikh Nasser Sabah Al Nasser Al Sabbah and the widow of late Sheikh Ali Sabah Al Salem Al Sabbah who was the son of the former Prince of Kuwait and who held several ministerial positions in Kuwait, notably the Ministry of Interior. Sheikh Nasser Al Sabbah was one of the founders of Bank Audi.Sheikha Mariam Al Sabbah is a member of the Board of Directors of several Kuwaiti companies.

She is a member of the Board of Directors of Bank Audi since March 2001.

General Manager Group Chief Financial Officer and Strategy Director

Age: 60 – Lebanon



•ExecutiveDirector•DeputyChairmanoftheGroupExecutive

Committee•MemberoftheGroupRiskCommittee

(since August 2012)

Freddie C. BAZ

Freddie Baz joined the Bank in 1991 as advisor to the Chairman and founded the Secretariat for Planning and Development at the Bank. As the Group Chief Financial Officer and Strategy Director of the Bank, he now has overall authority over the finance and accounting, MIS and budgeting functions throughout the Group, and is responsible for the development of the Group strategy. He is also the Chairman of the Board of Directors of Bank Audi Saradar France sa, a fully owned subsidiary of Bank Audi, and is a member of the Board of Directors of several affiliates of Bank Audi. Furthermore, Freddie Baz is the Managing Director of Bankdata Financial Services WLL which publishes Bilanbanques, the only reference in Lebanon that provides an extensive structural analysis of all banks located in Lebanon.

Freddie Baz holds a State PhD degree in Economics from the University of Paris I (Panthéon – Sorbonne).

General Manager Head of Group Retail Banking

Age: 51 – Lebanon

Director since June 2002


•ExecutiveDirector•MemberoftheGroupExecutiveCommittee

Imad I. ITANI

Prior to joining the Bank, Imad Itani held several key positions in Corporate Finance for major energy companies in Canada. In parallel, he taught Economics and Finance to graduate students at the American University of Beirut. He joined Bank Audi in 1997 and headed the team that successfully launched the Bank’s Retail business line, today a major pillar of the Bank’s innovative and leading position. In 2002, Imad Itani was appointed Deputy General Manager and member of the Board of Directors. He was later appointed General Manager. Imad Itani is also the Chairman of the Bank’s Sudanese Islamic Banking subsidiary, acquired within the context of the Bank’s regional expansion, the Chairman of Audi Saradar Investment Bank sal, a fully owned subsidiary of Bank Audi, and a member of the Board of Directors of Odeabank A.Ş. in Turkey, in addition to his responsibilities as Head of Group Retail Banking and Head of Group Islamic Banking.

Imad Itani holds a PhD in Economics from the University of Chicago.

20 21

Board Member

Age: 70 – Lebanon

Director since April 2010


•Non-executiveDirector•ChairmanoftheBoardGroupRiskCommittee

Khalil M. BITAR

Khalil Bitar is a current Professor of Physics and a former Dean of the Faculty of Arts and Sciences of the American University of Beirut (AUB). He held this last position from 1997 until 2009, playing an instrumental role in advocating AUB’s strengths and regional position as the premier center for higher education, and in re-establishing its PhD programs. Throughout his career, he held several academic and administrative positions, including Associate Director of the Supercomputer Computations Research Institute – Florida State University (between the years 1994 and 1997) and visiting Professor at leading academic institutes in Europe and North America (including the European Organisation for Nuclear Research in Geneva, the International Centre for Theoretical Physics in Italy, The Institute for Advanced Study in New Jersey, the Fermi National Accelerator Laboratory (Fermilab) in Illinois, the University of Illinois, Brookhaven National Lab. in New York, the Max Planck Institute in Munich, and the Rockefeller University in New York). He also served two mandates as member of The Institute for Advanced Study in Princeton, New Jersey, between 1968 and 1972.Khalil Bitar is also a member of the Board of Directors of Audi Saradar Private Bank sal and Audi Saradar Investment Bank sal, and Chairman of their respective Risk Committees.

Khalil Bitar holds a Bachelor of Science degree in Physics from the American University of Beirut, a Master’s of Science degree in Physics, and a PhD in Theoretical Physics from Yale University in the United States.

Board Member

Age: 45 – Lebanon

Director since August 2004


•Non-executiveDirector•MemberoftheGroupAuditCommittee

(since May 2012)

Mario J. SARADAR

Mario Saradar was appointed in September 1992 Chairman – CEO of Banque Saradar, leading it through several successful strategic transformations, notably opening its capital to prime shareholders including the International Finance Corporation in 1998 and Natcan Holdings International Ltd (subsidiary of the National Bank of Canada) in 2000.

In 2004, he led Banque Saradar to a merger/acquisition with Bank Audi, following which he was elected member of the Board of Directors of Bank Audi sal - Audi Saradar Group and appointed General Manager, heading all the Private Banking activities of the Group and chairing the Boards of the Private Banking subsidiaries.

In August 2010, having determined that he had fulfilled his mission to perfect the merger between Banque Audi sal and Banque Saradar sal that now form one fully integrated entity, and having led the Private Banking arm of the Group for more than 6 years to reach a remarkable size and profitability, he resolved, in coordination with the Chairman and the CEO, to gradually relinquish his executive duties within the Group in order to embark on new separate private business ventures, while remaining a non-executive member of the Board of Directors.

Mario Saradar was elected several times member of the Board of the Association of Banks in Lebanon, and is currently member of the International Chamber of Commerce, the RDCL (Rassemblement des Dirigeants et des Chefs d’entreprises Libanais) and the YPO (Young Presidents’ Organisation).

He holds a DESS (“Diplôme d’Etudes Supérieures Spécialisées”) in Financial Instruments from the Institut des Techniques de Marché de Paris and a BSc in Economics from the University College of London.

Board Member

Age: 70 – Saudi Arabia

Director since April 2010


•Non-executiveDirector•MemberoftheCorporateGovernanceand

Remuneration Committee•MemberoftheGroupAuditCommittee

Abdullah I. AL HOBAYB

Abdullah Al Hobayb is the Chairman of Audi Capital (KSA) (an Investment Banking subsidiary of Bank Audi, incorporated in the Kingdom of Saudi Arabia) and a member of the Board of Directors of Bank Audi sae in Egypt and Odeabank A.Ş. in Turkey. He also was an advisor to the previous Board of Directors of Bank Audi. He is the Chairman of several leading companies in Saudi Arabia, comprising ABB Saudi Arabia (a leader in power and automation technologies), General Lighting Company Ltd (one of the largest manufacturers in the Middle East lighting industry), Ink Products Company Ltd (manufacturer of industrial ink) and United Industrial Investments Company Ltd (a leading paint manufacturing company).

Abdullah Al Hobayb holds a Master’s degree in Electrical Engineering from Karlsruhe University in Germany.

22 23

Management of Bank Audi sal - Audi Saradar Group

H.E. Mr. Raymond W. Audi Chairman – General Manager

Group Executive Committee

Standing Management Committees

Chair Mr. Samir N. Hanna General Manager – Group Chief Executive Officer

Vice-chair Dr. Freddie C. Baz General Manager – Group Chief Financial Officer & Strategy Director

Mr. Marc J. Audi General Manager – Country Manager Lebanon

Dr. Imad I. Itani General Manager – Head of Group Retail Banking

Mr. Chahdan E. Jebeyli General Manager – Group Chief Legal & Compliance Officer

Mr. Adel N. Satel General Manager – Group Chief Risk Officer

Non-directors (Non-voting Members)

Executive Directors (Voting Members)

Asset-Liability Committee

Credit Committee

Information Technology Committee

Voting

Chair Mr. Samir N. Hanna(1) Mr. Samir N. Hanna(1) Mr. Samir N. Hanna(1)

Executive Vice-chair Dr. Freddie C. Baz(1) Mr. Elia S. Samaha Mr. Danny N. Dagher

Member Mr. Marc J. Audi(1) Dr. Imad I. Itani(1) Dr. Imad I. Itani(1)

Member Mr. Michel E. Aramouni Mr. Marc J. Audi(1) Mr. Naoum J. Moukarzel

Member Mr. Elia S. Samaha Mr. Khalil I. Debs Mr. Hassan A. Saleh

Member Mr. Elie J. Kamar Mr. Elie J. Kamar Mr. Tamer M. Ghazaleh

Member Mr. Ibrahim M. Salibi Mr. Marwan O. Arakji

Non-voting

Mr. Adel N. Satel Mr. Adel N. Satel

Permanent Invitees

Dr. Marwan S. Barakat Mrs. Bassima G. Harb Mr. Yehia K. Youssef

Mr. Khalil G. Geagea Mr. Jamil R. Shocair Mr. Antoine G. Boufarah

Mr. Tamer M. Ghazaleh Mr. Adel N. Satel

Mr. Naim H. Hakim

(1) Member of the Group Executive Committee.(Continued on Page 214)

24 25

levantBank Audi’s wide presence throughout the Levant enables it

to be at the forefront of universal banking services providers

in the region. The Bank’s resilient performances in a tough

regional operating environment bears witness to its high

flexibility and strong financial standing in the face of political

and economic developments.

26 27

management discussion and analysis

1. IntroductionBank Audi sal - Audi Saradar Group (“Bank Audi”) is a full fledged bank with operations in Lebanon, Europe, the Middle East and North Africa region, and Turkey. Founded in 1830 in Lebanon and incorporated in its present form in 1962 as a private joint stock company with limited liability (“société anonyme libanaise”), Bank Audi offers universal banking products and services covering Corporate, Commercial, Individual and Private Banking services to a diversified client base, mainly in the MENA region and Turkey. It ranks first among Lebanese banks as per major banking aggregates and stands among the top Arab banking groups. In addition to its historic presence in Lebanon, Switzerland and France, it is present in Jordan, Egypt, Syria, Sudan, Saudi Arabia, Qatar, Abu Dhabi (through a representative office), Monaco and Turkey.

The dicussion and analysis that follows covers the consolidated performance of Bank Audi in 2012, based on the audited consolidated financial statements of the Bank as at and for the fiscal years ended December 31, 2011 and December 31, 2012. Terms such as “Bank Audi”, “the Bank” or “the Group” refer to Bank Audi sal and its consolidated subsidiaries, principally Audi Saradar Private Bank sal, Audi Saradar Investment Bank sal, Banque Audi (Suisse) sa, Bank Audi Saradar France sa, Bank Audi sam (Monaco) (now Audi Capital Gestion sam), Bank Audi sal - Jordan Branches, Bank Audi Syria sa, Bank Audi sae (Egypt), National Bank of Sudan, Audi Capital (KSA) cjsc, Bank Audi LLC (Qatar), Arabeya Online Brokerage (AoLb) and Odeabank A.Ş. (Turkey).

All figures are expressed in US Dollars (“USD”), unless specifically otherwise stated. US Dollar amounts are translated from Lebanese Pounds at the closing rate of exchange published by the Central Bank of Lebanon (1,507.5 as of each of December 31, 2012 and December 31, 2011). All references to the Lebanese banking sector are to the 53 commercial banks operating in Lebanon as published by the Central Bank of Lebanon (“BDL”). All references to the Bank’s peer group in Lebanon are to the Alpha Bank Group consisting of 13 banks with total deposits in excess of USD 2.0 billion each, as determined by Bankdata Financial Services WLL (publishers of Bilanbanques).

All references to the Bank’s peer group in the MENA region are to the top regional Arab banking groups as compiled by the Bank’s Research department.

Lebanon’s economic and banking data are derived from the International Monetary Fund, the Central Bank of Lebanon, various Lebanese governmental entities and the Bank’s internal sources. The region’s economic and banking data are derived from the International Monetary Fund, the Economist Intelligence Unit, Bloomberg, the region’s central banks and the Bank’s internal sources.

This discussion and analysis starts with an overview of the Bank’s strategy, followed by a review of the operating environment and a comparative analysis of the Group’s financial conditions and results of operations for the periods ended December 31, 2012 and December 31, 2011. An overview of risk management comes next, followed by an extensive coverage of share information and dividend policy, investor relations, resources deployed, and Corporate Social Responsibility.

2. StrategyThe year 2012 was yet another differentiating year for Bank Audi sal - Audi Saradar Group, confirming once again the Group's ability to sustain its strong growth track record and reinforce its financial standing, despite difficult operating conditions and even embarking on lucrative expansion. Performance wise, Bank Audi managed to sustain positive assets and earnings growth in 2012 (respectively at 8.9% and 5%), improve risk coverage with the allocation of USD 121 million of net loan loss provisions as a result of the unstable operating environment in some countries of presence and reinforce the financial standing across all entities, both domestic and abroad. Business wise, the Bank succeeded in obtaining the first license in Turkey since 14 years, an achievement which underlines its capacity to develop, expand and diversify, even in the most atypical operating environments witnessed in decades.

Those achievements represent additional a c k n o w l e d g e m e n t s o f B a n k A u d i ’ s h i g h l y d i f f e r e n t i a t e d a n d i n n o v a t i v e p r o f i l e , characterised by:

28 29

•A universal banking profile with core businessesfocusing on Commercial and Corporate Banking, Retail and Individual Banking and Private Banking;

•A wide regional footprint, present in 12 countries(namely Lebanon, Syria, Jordan, Egypt, Sudan, Saudi Arabia, Qatar, France, Switzerland, Monaco and newly in Turkey) through 11 banks, 1 investment company, 1 asset management company and 1 brokerage company;

•Astrongprovenexpertiseincross-borderexpansion;•A two-digit growth track record, robust financial

standing and large financial flexibility;•Firmriskmanagementphilosophies combinedwith

best Corporate Governance practices, thorough Management vision and wise strategic planning systems;

•The most diversified shareholder base gatheringaround its historical shareholders large regional investors and international institutional investors.

Despite the changes in the operating conditions in the Bank’s markets of presence, the fundamentals of the diversification strategy launched more than a decade ago have not changed and the Bank continues to adapt to arising challenges and opportunities, mitigating the impact of the former and managing transitions. In this context, Management remains committed to the expansion strategy, while the objective is still focused on capitalising on the important cross-border flows between the Near East, the Middle East, North Africa and Turkey, in the aim of developing a fully integrated pan regional group by business lines and countries of presence, ranking in the inner circle of large regional players.

The strategy over the coming period would be focused on shaping the Group as a large “Levant bank” with Lebanon, Turkey and Egypt constituting the main development pillars. The development for the coming five years will evolve around the following channels:

•Consolidating and strengthening its leadership inLebanon (the home market), with a particular focus on the improvement of the overall efficiency and a greater generation of productivity gains;

•Strengthening the market background andpositioning in Egypt, which, despite the persisting

Within this environment, the Lebanese banking sector witnessed in 2012 a year of satisfactory activity growth in a challenging operating environment characterised by persistently narrow banking margins in a prolonged low interest rate environment globally, growing provisioning requirements amidst regional uncertainties and a weaker fee income generation capacity in a slow economic growth context. Banks’ activity managed to pull out an 8.0% year-on-year growth throughout 2012, with total assets reaching USD 151.9 billion at end-December 2012.

uncertainties, remains a core growth market by virtue of scale and abundant resources triggering self-sustained economic and financial growth prospects;

•The implementationof thebusinessplan inTurkeyand the mobilisation of all group resources to that end;

•Leveraging the existing footprints in the GCC toshore up Private Banking.

In executing this “large Levant bank” strategy, the Bank remains committed to levy all required resources and invest at pace to consolidate its various business lines, while building long-lasting relationships with customers.

3. Economic Environment

3.1. Domestic Operating Environment

The past year was characterised by a slowdown in the Lebanese economy, amidst domestic political bickering and regional spillover effects in the realms of investment, trade and tourism, the IMF having estimated Lebanon’s real GDP growth at 2% for full-year 2012. While the wait-and-see attitude governing investors amidst uncertainties continues to delay major investment decisions, consumption managed to report a “relative” resilience, partly supported by the favourable incoming of Lebanese expatriates and the spending of Syrian refugees.

Lebanon’s sluggish aggregate demand actually led to a growth in imports of 5.6% driven both by price effects and quantity effects. In parallel, exports rose by 5.1% over the year 2012, driven by maritime exports as land exports continued to contract amidst the security escalation in Syria. As such, a growth of 5.7% in Lebanon’s trade deficit in 2012 added to the 15.9% rise reported in the previous year. With the totality of inflows unable to fully offset the country’s trade deficit, further pressures were reported on the balance of payments that recorded a deficit of USD 1.5 billion in 2012, after a circa USD 2 billion deficit in full-year 2011. At the monetary level, a relaxed mood governed the foreign exchange market throughout the past year. The year’s net

Bank deposits, a traditional growth driver for the sector at large, registered a similar 8.0% yearly increase, moving from USD 115.7 billion at end-December 2011 to a new high of USD 125.0 billion at end-December 2012. The USD 9.3 billion in additional deposits at Lebanese banks proved 9.1% higher than the growth achieved over the previous year. In parallel, Lebanese banks saw a 10.4% increase in lending activity last year, with loans to the private sector reaching a new high of USD 43.5 billion at end-December 2012 and

activity was more to the favour of the Lebanese Pound in 2012, as there were more conversions from foreign currencies to Lebanese Pounds than

the opposite since the beginning of the year, with the Central Bank’s foreign assets reaching a high of USD 35.7 billion at its end.

2011 2012 Change

Macroeconomy

GDP 39,707 42,443 6.9%

Real GDP growth (%) 5.2% 2.0% -3.2%

GDP per capita (USD) 10,032 10,584 5.5%

Monetary sector

Var M3 5,085 6,780 33.3%

Velocity 0.65 0.59 -8.8%

Cleared checks 72,103 71,020 -1.5%

Average CPI inflation (%) 5.7% 5.7% 0.0%

Public sector

Gross domestic debt 32,730 33,300 1.7%

Foreign debt 20,927 24,387 16.5%

Total gross debt 53,657 57,687 7.5%

Gross debt/GDP (%) 135% 136% 0.8%

Deficit 2,341 2,676 14.3%

Deficit/GDP (%) 5.9% 6.3% 0.4%

External sector

Imports 20,158 21,280 5.6%

Exports 4,265 4,483 5.1%

Trade deficit 15,893 16,797 5.7%

Gross financial inflows 13,897 15,260 9.8%

Balance of payments -1,996 -1,537 -23.0%

Sources: Ministry of Finance, Central Bank of Lebanon, the concerned public and private organisms, Bank Audi ,s Research department.

Lebanon's Major Economic Indicators (USD Million)

30 31

progressing at a pace almost similar to that of 2011, with a USD 4.1 billion increase in lending volumes during 2012.

Last but not least, Lebanese banks’ profitability continues to be weighed down by a tight spread environment adding to slower fee income generation and growing provisioning requirements within

3.2. Operating Environment in the MENA Region

At the regional level, the operating environments were varying in the different markets of presence of the Bank in the region, namely in the Near East, in North Africa and in the GCC.

First, economic conditions of the Middle East and North Africa region were mixed during the year 2012. Most of the region’s oil exporting countries have been growing at healthy rates, while oil importers faced subdued economic performances. The region’s oil exporters are indeed set to post a solid real GDP growth of 6.5% in 2012, supported by expansionary fiscal policies and accommodative monetary conditions. For the other regional economies, ongoing political transitions are weighing on

the context of regional security developments. On the overall, such downward pressures on banks’ revenue base offset the quantity-effect tied to satisfactory lending activity growth and, as per the latest available statistics, the sector reported a mere 0.6% decline in domestic net profits on a yearly basis in 2012.

growth. They have witnessed a marked decline in exports in 2012, tourism arrivals are recovering only slowly and foreign direct investment inflows remain subdued, all generating a mild growth of about 2% per annum.

In parallel, at the banking sectors’ level, the sound USD 151 billion deposit growth in 2012 in the MENA region (61% above previous year’s level) and the satisfactory USD 98 billion of MENA loan growth are mainly driven by oil exporters, while oil importers barely saw their deposit and loan bases growing. Not less importantly, the latter’s net banking profitability remained under pressure within the context of relatively tough operating conditions in their respective economies, underlined by narrowing net interest margins, growing provisioning requirements and slow fee income growth generation at large.

2011 2012 ChangeGrowth

12/11

Assets 140,576 151,883 11,307 8.0%

Equity 10,720 12,642 1,922 17.9%

Deposits 115,714 124,998 9,284 8.0%

o.w. in LBP 39,433 43,977 4,544 11.5%

o.w. in FC 76,281 81,021 4,740 6.2%

Loans 39,375 43,452 4,077 10.4%

o.w. in LBP 8,510 9,726 1,216 14.3%

o.w. in FC 30,865 33,726 2,861 9.3%

Deposit dollarization ratio (%) 65.9% 64.8% -1.1% -1.1%

Loan dollarization ratio (%) 78.4% 77.6% -0.8% -0.8%

Loans/Deposits (%) 34.0% 34.8% 0.7% 0.7%

Deposits/Assets (%) 82.3% 82.3% 0.0% 0.0%

Equity/Assets (%) 7.6% 8.3% 0.7% 0.7%

Sources: Central Bank of Lebanon, Bank Audi ,s Research department.

Lebanon's Banking Sector Activity Indicators (USD Million)

32 33

The main regional markets where Bank Audi has substantial presence besides Lebanon are Jordan, Syria and Egypt. In Jordan, a combination of a fragile economy coupled with spillover fears from conflict-stricken countries have curtailed economic activity, with the most significant impact felt on agriculture and mining and quarrying. Still, real GDP growth reported 3.0% in 2012, from 2.6% in 2011, as per IMF estimates. The economy has mainly benefited from the low base effect in the first half of this year, mainly in the category of trade, restaurants, and hotels. Within this environment, consolidated assets of domestic banks rose slightly by 4.4% between end-2011 and end-2012. Deposits and credit facilities grew by 2.6% and 12.6% over the same period, respectively. Listed Jordanian banks reported a 16.4% rise in profits in the first nine months of 2012, mainly supported by quantity effects stemming from new lending volumes that offset to a certain extent tighter interest margins.

In Syria, the impact of the strife was heavily felt on the economy which has been bearing the brunt of an exodus of businesses and the depletion of its pre-war enterprise base. As widespread security drifts practically depleted economic activity throughout Syria, the country’s real GDP contracted by 15.2% in 2012, following another decline of 3.4% in 2011, as per the same source. Within this environment, listed banks’ activity reported a decline in September 2012 relative to end-2011. Customers’ deposits edged down by 22.5% in USD terms. Net loans and advances dropped by 35.4% from end-2011, within the context of weakened economic activity. Listed banks’ net profits contracted during the first nine months of 2012 by 35.6% year-on-year in USD terms.

Throughout 2012, the Egyptian economy has witnessed a slow recovery from a relatively low base in the previous year. As the local macro environment has been slightly better than that seen in 2011, real

Assets 2011 2012 Change %

Regional countries of presence

Egypt 216.7 238.3 21.6 9.9%

Jordan 53.2 55.5 2.3 4.4%

Lebanon 140.6 151.9 11.3 8.0%

Qatar 190.7 225.4 34.7 18.2%

Saudi Arabia 411.8 462.4 50.6 12.3%

Sudan 17.4 15.2 -2.2 -12.8%

Syria 44.6 44.6 0 0.0%

United Arab Emirates 452.6 489 36.4 8.1%

Other countries in Arab MENA

Algeria 119.2 120.9 1.8 1.5%

Bahrain 67.2 70.7 3.5 5.2%

Kuwait 158.3 168.1 9.8 6.2%

Libya 56.4 62.4 6 10.6%

Morocco 121.9 134.2 12.3 10.1%

Oman 47.8 54.4 6.7 14.0%

Tunisia 42.6 42.4 -0.2 -0.5%

Yemen 8.1 10.7 2.6 31.7%

Arab MENA 2,149.1 2,346.1 197 9.2%

Sources: central banks, Thomson Reuters, Bank Audi ,s Research department.

Figures in italic are the latest available.

Banking Sector in the MENA Region Activity Indicators (USD Million)

GDP reported a growth of 2.0% in 2012, while Egypt’s inflation rate dropped to a single digit rate of 8.7% in 2012. But Egypt’s financial vulnerabilities have risen owing to a decline in international reserves and an increase in the fiscal deficit. International reserves closed the year at USD 15.0 billion at end-2012, reporting a yearly decline of USD 3.1 billion after the drastic decline of the previous year. At the banking sector level, activity has been more or less faring well in a relatively cloudy economic environment, bearing witness to a relative resilience on the overall. Bank assets increased by 9.9% between end-2011 and end-November 2012 compared with a nil growth a year earlier. While operating conditions are still tough, banks’ net profits underwent a relative recovery as the economy emerged gradually from the wider conflicts it had witnessed in 2011.

3.3. Operating Environment in Turkey

In Turkey, where Bank Audi launched its operations in the second half-year, economic imbalances are unwinding after two years of rapid growth. The economy has cooled off on the back of slower domestic demand, with real GDP growth forecast by the IMF at 3% in 2012. The Turkish banking sector witnessed a satisfactory activity growth in a year of slowing down domestic economic performances and amidst global sluggishness driven by European neighbours’ fiscal demise. Total deposits grew in parallel by 18.6% in 2012. The healthy progression in bank lending this year triggered a favourable quantity effect, amid slightly lower funding costs, thus boosting banks’ net interest income, despite the relatively tight margin environment. The solid rise in banks’ core revenues managed to offset sluggish fee income generation, rising expenses and higher special provisions for non-performing loans, thus leading to a 15% rise in net profits in 2012.

2011 2012 Change

Nominal GDP 774 783 1.2%

Real GDP growth 8.5% 3.0% -5.5%

Population 74.7 74.9 0.2%

GDP per capita 10,522 10,456 -0.6%

Domestic banks’ assets 606.3 732.8 20.9%

Domestic banks’ deposits 362.9 430.6 18.6%

Domestic banks’ loans 338.1 426.9 26.3%

Domestic banks’ equity 76.6 100.9 31.8%

Domestic banks’ net profits 11.2 12.9 14.7%

Sources: IMF, Central Bank of Turkey, Bank Audi ,s Research department.

Turkey Main Macro and Banking Aggregates (USD Million)

34 35

3.4. Operating Environment in West Europe

West Europe witnessed challenging conditions during the year 2012, with stalling growth and recession threats coupled with sluggish external demand from key trading partners and lingering uncertainties regarding sovereign fiscal and debt woes weighing on both consumer and investor sentiment and, accordingly, private sector demand. Governments continued to adopt fiscal restraint policies throughout the year amid worries about the sustainability of public finances which, though practically proceeding according to set plans, have exerted additional downward pressures on economic activity in West Europe. Amidst such an environment, labour market conditions remain tight and unemployment levels at or near peaks.

The financial system continues to display some signs of sluggishness which warranted rather difficult borrowing conditions across the region in a period of continued banking sector deleveraging. Bank lending actually remained more or less sluggish and appetite for risk dampened by prevailing economic and financial uncertainties. As a result, the somewhat muted quantity effect, adding to persistently tight margins in an extended low interest rate environment, slow fee income generation capacity and provisioning requirements, weighed on banking sector profitability throughout the year.

4. 2012 Activity and Performance Analysis4.1. Business Overview in 2012

In 2012, Bank Audi sal - Audi Saradar Group was again able to differentiate itself by performing favourably in the most difficult operating conditions, and even embarking on lucrative expansion. The Bank managed to sustain positive assets and earnings growth (respectively at 8.9% and 5%), improve risk coverage and reinforce the financial standing across all entities, both domestic and abroad.

A detailed performance analysis of the operations in 2012 highlights that it was driven by opposite trends as follows:

•ApositiveactivitygrowthinLebanon,consolidatingthe Bank’s leading position in the domestic market, while still sustaining the margin focus policy to improve yields on the various asset classes;

•A positive activity growth in Egypt, which despitethe persisting political uncertainties prevailing in the country, led the contribution of regional entities to consolidated assets and earnings, along with Odeabank;

• ThelaunchofOdeabankinTurkeyonNovember1,which achieved, in two months of activities, noticeable preliminary results, driving consolidated assets growth. The banking activities in Turkey are expected to constitute one of the main pillars of growth for the Group in the coming years;

•Continuing asset contraction in Syria still facinginstability, offsetting to a large extent deposits and lending growth registered in other entities;

•Strengthening the Bank’s asset quality andresilience in the face of spillover effects of regional developments by maintaining a conservative risk strategy at group level, resulting in the allocation of USD 121 million in net loan loss provisions, in abidance with the most rigorous precautionary management policies;

•Reinforcementoftherevenuegenerationcapacityinalmost all entities, reaching USD 1.1 billion in 2012 (or a growth by 11.6%), coupled with improved efficiency levels;

•The significant currencydepreciation in SudanandSyria and, to a lesser extent, in Egypt.

In addition, four non-operating events also impacted the performance of Bank Audi in 2012 as follows:

•OnJune27,2012,BankAudisold81%ofitsmajoritystake in LIA insurance sal, with Management’s sole driver being to disinvest from the underwriting insurance business following more and more restrictive regulatory constraints on insurance companies owned by banking institutions, particularly at the level of capital adequacy ratio computations. As of this date, the results of LIA Insurance were deconsolidated from the Group financial statements, and USD 42 million of net profits from the sale were accounted for in discontinued operations as per IFRS. The sale purchase agreement included an option for the buyer to buy the remaining 19% at end-May 2015. As a result of the sale, Bank Audi revalued its remaining 17% stake in LIA Insurance sal at fair value through P&L as per IFRS;

•OnJuly26,2012,theExecutiveCommitteeresolvedto liquidate Bank Audi sam (Monaco) and replace it with a more efficient financial company, Audi Capital Gestion, to be an affiliate of Banque Audi (Suisse). Accordingly, the results of Bank Audi sam were deconsolidated and accounted for in discontinued operations, along with USD 6.6 million of goodwill impairment and related liquidation costs;

•Meanwhile,onSeptember28,2012,OdeabankA.Ş.,the Bank’s fully-owned subsidiary in Turkey, obtained a license to operate from the Banking Regulation and Supervisory Authority, after completing all necessary establishment procedures. This comes after the Bank was granted, on October 27, 2011, the first permission to establish a banking subsidiary in Turkey in 14 years;

•In addition, Management decided, in December2012, following the revision of the business plan of Arabeya Online in light of the recent adverse

development in Egypt, to write off USD 14 million of goodwill impairment on its investment.

4.2. Balance Sheet Management

The evolution of the Group’s balance sheet in 2012 primarily reflects the business opportunities, as well as the strength of the customer franchise. It also highlights Management’s overall risk appetite amid the prevailing challenging environment. Consolidated assets rose by USD 2.6 billion during the year 2012 to reach USD 31.3 billion at end-December 2012 and USD 39.7 billion when accounting for fiduciary deposits, security accounts and assets under management.

The below table shows the evolution of Bank Audi’s financial position at end-December 2012, as compared to end-December 2011.

Dec-11 Dec-12 Vol. %

Primary liquidity 8,957 9,820 863 9.6%

Portfolio securities 10,186 10,153 -33 -0.3%

Loans to customers 8,594 10,428 1,834 21.3%

Other assets 634 484 -150 -23.7%

Fixed assets 366 417 51 13.9%

Assets = Liabilities 28,737 31,302 2,565 8.9%

Bank deposits 757 1,317 560 74.0%

Customers’ deposits 24,798 26,805 2,007 8.1%

Other liabilities 825 503 -322 -39.0%

Shareholders' equity (profit included) 2,357 2,677 320 13.6%

AUMs + fid. dep. + cust. acc. 7,928 8,447 519 6.5%

Assets + AUMS 36,665 39,749 3,084 8.4%

Balance Sheet (USD Million)

Dec-11 Dec-12 Change

Total assets

Lebanon 72.0% 67.6% -4.4%

Abroad 28.0% 32.4% 4.4%

Total deposits

Lebanon 75.1% 72.9% -2.2%

Abroad 24.9% 27.1% 2.2%

Total loans

Lebanon 62.7% 59.2% -3.5%

Abroad 37.3% 40.8% 3.5%

Breakdown between Lebanon and Abroad

36 37

Sources of assets growth remained well distributed by geography and by business lines. Despite the contraction of assets of Bank Audi Syria by an additional half a billion US Dollars in 2012 (to reach by end-December 32% of the end-2010 level), the rise in consolidated assets stems in particular from Odeabank in Turkey which achieved, in two months, through a network of 6 branches and 398 employees, USD 1.4 billion in deposits and USD 966 million in loans, translating into USD 2 billion in assets. This achievement is to be added to an assets’ growth at the level of Bank Audi Lebanon and Bank Audi Egypt by respectively USD 990 million and USD 445 million, amidst varying performances at the level of other entities.

Despite the decrease in the contribution of the Syrian entity to consolidated assets, the significant increase in the contribution of the newly launched Odeabank and in that of the Egyptian entity totally offset the

increase in the contribution of Lebanese entities. At end-December 2012, Lebanese entities accounted for 67.6% of consolidated assets (versus 72% at end-December 2011), while MENA entities accounted for 18.1% (versus 19.9% at end-December 2011), and the Turkish entity accounted for 6.5%. Within the context of almost similar contribution of European entities to consolidated assets, the share of entities abroad rose from 28.0% at end-December 2011 to 32.4% at end-December 2012. The Bank’s objective continues to revolve around reaching a balanced distribution of assets and profits over the different entities in Lebanon and abroad over the medium term.

The table below presents a summary of the evolution of activity highlights of Bank Audi (Egypt), Bank Audi Syria and Odeabank at end-December 2012, as compared to end-December 2011.

Dec-11 Dec-12 Change % Dec-11 Dec-12 Change % Dec-12

Balance sheet data

Assets 2,979 3,425 446 15.0% 1,152 636 -516 -44.8% 2,029

Deposits 2,621 2,642 21 0.8% 976 522 -454 -46.5% 1,404

Loans 1,315 1,528 213 16.2% 523 270 -253 -48.4% 966

Equity 230 284 54 23.5% 124 89 -35 -28.2% 297

Cumulative LCs 221 201 -20 -9.0% 159 27 -132 -83.0% 2

Outstanding LGs 246 229 -17 -6.9% 149 92 -57 -38.3% 48

Earnings data

Net interest income 72.3 107.3 35.0 48.4% 34.1 17.4 -16.7 -49.0% 17.5

+ Non-interest income 24.0 32.0 8.0 33.3% 26.8 26.2 -0.6 -2.2% 16.8

= Total income 96.3 139.3 43.0 44.7% 60.9 43.6 -17.3 -28.4% 34.3

- General operating expenses 47.0 54.5 7.5 16.0% 21.8 14.1 -7.7 -35.3% 35.0

= Operating profits 49.3 84.8 35.5 72.0% 39.1 29.5 -9.6 -24.6% -0.7

- Requested LLPs as per credit policy in compliance with IFRS

14.9 16.6 1.7 11.4% 11.6 9.2 -2.4 -20.7% --

- Income tax 13.2 30.7 17.5 132.6% 4.0 1.0 -3.0 -75.0% -0.1

= Net recurrent profits 21.2 37.5 16.3 76.9% 23.5 19.3 -4.2 -17.9% -0.6

- Collective provisions and/or general banking risk provisions as per Management’s decision, abiding by strict precautionary policies 20.9 - -20.9 -100.0% 21.3 19.5 -1.8 -8.5%

= Net profits 0.3 37.5 37.2 - 2.2 -0.2 -2.4 - -0.6

Evolution of Assets and Net Earnings in Egypt, Syria and Turkey (USD Million)

BAEGY BASY Odeabank

In Lebanon, the USD 912 million increase represents an increase by USD 1,165 million in Group Audi Lebanon and a drop by USD 253 million reported at Audi Saradar Private Bank. Relative to a deposits’ increase by USD 9.3 billion in commercial banks in Lebanon, Bank Audi would have achieved a share in the increase by 11.2%, a level below its 14.4% market share in its domestic market, reflecting the margin focus strategy adopted by Management since 2010. A detailed analysis by currency reveals that Lebanese Pounds deposits at Group Audi Lebanon accounted for a mere 4.7% of the total increase in the sector (increasing by USD 215 million), while deposits in foreign currencies rose by USD 973 million, representing 20.2% of the sector’s increase. Adjusted to the USD 383 million one-off deposit withdrawals reported in February and April and the issuance of the USD 150 million of Series “F” preferred shares in May 2012 sold in the network, deposits in foreign currencies would have increased by USD 1,493 billion, representing an adjusted share in the sector’s increase of 31.5%. On the overall, the domestic market share of Group Audi Lebanon contracted slightly to 14.4% at end-December 2012, from 14.5% at end-December 2011. In parallel, the dollarization ratio of Group Audi Lebanon moved from 70.5% to 71.2% over the same period, while the dollarization rate in commercial banks in Lebanon reached 64.8% at end-December 2012, from 65.9% at end-December 2011.

4.2.1. Funding Sources

The Bank’s core funding resources come principally from stable retail and individual clients, while corporate and commercial customers’ deposits constitute supplementary sources of funding.

Within that scope, balance sheet growth in 2012 was largely driven by a growth in customers’ deposits reported in most entities, with the exception of Bank Audi Syria. Consolidated customers’ deposits grew by 8.1% in 2012, the equivalent of USD 2 billion, moving from USD 24.8 billion at end-December 2011 to USD 26.8 billion at end-December 2012. A flow analysis of consolidated deposits by quarters reveals that the USD 2 billion increase results from a contraction in the first quarter by USD 409 million, followed by increases by USD 318 million, USD 170 million and USD 1,928 million successively in the second, third and fourth quarters.

By entity, the USD 2 billion increase reflects increases by USD 1,404 million in Turkey, USD 912 million in Lebanese entities, and USD 184 million in European entities, offsetting a decrease by USD 493 million in entities in the MENA region. Within deposit increases in Bank Audi (Qatar) and Bank Audi (Egypt) by respectively USD 18 million and USD 21 million, the contraction in the MENA region is accounted principally by Bank Audi Syria (-USD 454 million) witnessing deposits’ outflows driven by the prevailing political turmoil and by Management’s policy to reduce size and exposure to Syria. Deposits of Bank Audi (Jordan) decreased by USD 36 million, while those of National Bank of Sudan decreased by USD 43 million. Adjusting to the non-recurrent money market flows, Bank Audi (Egypt) succeeded in 2012 to increase its individual and retail deposits’ base by USD 192 million, a noticeable achievement, particularly in view of the fierce market competition on deposits among banks and between banks and the sovereign, as depositors increasingly placed their savings in 2012 in higher yielding local Treasury bills. In parallel, assets under management in Egypt made principally of securities held for customers, which at maturity could constitute a source of deposits, increased by USD 83 million, reaching USD 1,120 million at end-December 2012.

Evolution of Dollarization Rate

Lebanese banking sector

Audi Lebanon

2011 201220102008 200920072006

38 39

Nonetheless, on a consolidated basis, Bank Audi achieved the highest increase in deposits among direct peers in 2012, translating in a deposit differential in excess of USD 6.3 billion with the second ranked bank.

Deposits’ growth in 2012 was well balanced across different types, with growth in time and saving

deposits contributing to 60.2% of the increase. At end-December 2012, time deposits represented 74.0% of total deposits, followed by 16.1% for sight deposits, 4.3% for saving deposits, 1.7% for related parties’ deposits and 3.9% for other deposits. This is to be compared to 78.4%, 15.2%, 1.5%, 0.8% and 4.1% respectively at end-December 2011, underscoring a stable mix of deposits.

In parallel, funding sources also reinforced with deposits from banks increasing year-on-year by USD 560 million, from USD 757 million at end-December 2011 to USD 1,317 million at end-December 2012, principally in Bank Audi (Egypt) benefiting from repo agreement extended by the Central Bank of Egypt and allowing for arbitrage opportunities.

Volume Structure Volume Structure Volume Structure

Deposits from customers 24,798 100.00% 26,805 100.00% 2,007 100.00%

Sight deposits 3,762 15.17% 4,316 16.10% 554 27.60%

Time deposits 19,434 78.37% 19,837 74.00% 403 20.08%

Saving accounts 382 1.54% 1,149 4.29% 767 38.22%

Related parties’ accounts 189 0.76% 457 1.71% 268 13.35%

Margins and others deposits 1,031 4.16% 1,046 3.90% 15 0.75%

Breakdown of Customers' Deposits by Type (USD Million)

2011 Change2012

4.2.2. Asset Utilisation (Balance Sheet Allocation)

The analysis of the financial position at end-December 2012 demonstrates that the Group continues to sustain a strong balance sheet, highly liquid, diversified and conservative. Consolidated customers’ deposits

Although the asset liability management at Bank Audi favours placements in activities with the highest positive impact on the Group’s profitability, balance sheet allocation is determined by specific limits set internally based on Management’s risk appetite and underlying volumes. Covering lending, placements with financial institutions and investment in portfolio securities, these limits are applied by all entities over and above the abidance to local regulations requirements. As per the Group’s Corporate Governance guidelines (Article 2.8.), limits are subject to annual review by the Board of Directors. Meanwhile, Management may submit on an ad hoc basis to the Board of Directors for approval, changes in the limits in response to changing business or market conditions. On a day-to-day basis, the responsibility of monitoring the limits lies within the Group’s Credit Risk department.

continue to represent, at end-December 2012, 85.6% of total liabilities, while primary liquidity accounted for 49.1% of total deposits and the loans to deposits ratio stood at 38.9% at the same date, displaying our ample capacity to grow loans while continuing to optimise liquidity management.

In what follows, we analyse the evolution of the various assets classes and their respective key indicators at end-December 2012 relative to end-December 2011.

Consolidated Loan PortfolioConsolidated loans to customers rose in 2012 by 21.3%, the equivalent of USD 1.8 billion, moving from USD 8.6 billion at end-December 2011 to USD 10.4 billion at end-December 2012. Consolidated loans flows in 2012 stem from USD 1,964 million of new loans to new customers (of which USD 966 million at Odeabank), USD 1,738 million of loan increases to existing customers offsetting USD 635 million of loan reimbursements and USD 1,233 million of decreases in existing facilities during the year. Driven by a stronger growth in loans to customers than in customers’ deposits, the loan-to-deposit

Porfolio securities

Bank placements

Net loans

Other assets

Customers’ deposits

Other liabilities

Shareholders’ equity

Assets Breakdown Liabilities Breakdown

33%

31%

33%

3% 8%

86%

6%

40 41

ratio increased steadily over the same period from 34.7% to 38.9%.

By geography, loans in newly launched Odeabank led the increase with USD 966 million, ahead of loans granted to the Lebanese private sector increasing by USD 873 million and loans in European entities increasing by USD 86 million, offsetting decreases in loans booked in Lebanon and granted to regional corporates by USD 93 million, within the context of stable loans in MENA entities. The loan book of Bank Audi (Egypt) resumed its growth despite the persisting uncertainties in the country, increasing by USD 212 million, within an increase in lending by USD 38 million in Bank Audi (Jordan) and USD 32 million in Bank Audi (Qatar). These increases were totally offset by the additional USD 253 million

contraction of the loan book in Bank Audi Syria, reaching, at end-December 2012, USD 270 million, of which USD 38 million in foreign currencies and USD 232 million denominated in Syrian Pounds. A detailed dynamic analysis of loans’ flows in Syria reveals that the USD 253 million drop results to the extent of USD 126 million from the depreciation of Syrian Pounds versus the USD, with the remaining USD 127 million accounted for by collected loans. At end-December 2012, the loan portfolio of Bank Audi Syria represented 2.6% of the total portfolio, down from 6.1% a year ago. In parallel, the size of the overall exposure to Egypt and Lebanon remains almost stable, at respectively 14.6% and 59.2%, while the new loan portfolio in Turkey accounted for 9% of the total.

Loans booked in Lebanon for non-residents

Cash collaterals and bank guarantees against Lebanese risk

Net Lebanese risk

Loans booked in foreign subsidiaries

Loans booked in Lebanon for non-residents

Cash collaterals and bank guarantees against Lebanese risk

Net Lebanese risk

Loans booked in foreign subsidiaries

Breakdown of Net Loans and Advances by Booking Entity in 2011

Breakdown of Net Loans and Advances by Booking Entity in 2012

20%

10%

33%

37%

15%

9%

35%

41%

Loan Breakdown by Economic SectorThe concentration of the loan portfolio by economic sector remains within BOD’s approved concentration limits relative to each of the loan portfolio and consolidated equity. At end-December 2012, the

largest concentration by sector was to manufacturing industries (18%), financial intermediaries (15.1%), trade (14.1%), consumer loans (13.8%), and real estate services and developers (13.6%), a structure almost similar to that at end-December 2011.

SME

Corporate clients

Sole proprietorships and B/S Private Banking

Consumer loans

SME

Corporate clients

Sole proprietorships and B/S Private Banking

Consumer loans

Breakdown of Net Loans and Advances by Type of Customer in 2011

Breakdown of Net Loans and Advances by Type of Customer in 2012

17%14%

56%

13%

19%

53%

14%

13%

The following analysis covers the breakdown of the consolidated loan portfolio by customer type, economic sector, maturity, collaterals and currency.

Loan Breakdown by Customer TypeAt end-December 2012, the consolidated loan portfolio was broken down over 56% corporate loans, 17% loans to SMEs, 14% consumer loans and 13% Individual and Private Banking loans,

as compared to a split of respectively 53% 19%, 14% and 14% at end-December 2011. A detailed analysis of loans flows in 2012 reflects that corporate loans accounted for 71.5% of the increase in the consolidated portfolio, mainly driven by the growth in Turkey, followed by 12% for sole proprietorship and Private Banking loans, 12.2% consumer loans and 4.3% for loans to SMEs.

42 43

Loan Breakdown by MaturityIn parallel, the consolidated loan portfolio also has a similar maturity profile as that at end-December 2011. Short-term facilities, with maturities of less than one year reflecting mainly working capital financings to customers, accounted for 51.4% of the consolidated loan portfolio, while long-term loans accounted for 36.5% of the portfolio as a result of the lengthening maturity of both retail

and corporate loans, supported by subsidy programs backed by the Ministry of Finance and the Central Bank of Lebanon. The maturity profile of the Turkish portfolio structured toward short-term facilities (57% maturing in less than one year), with the remaining being medium-term facilities, offset the growing contribution of subsidised long term retail and corporate loans.

Short-term facilities

Medium-term facilities

Long-term facilities

Breakdown of Net Loans and Advancesby Maturity in 2011

Breakdown of Net Loans and Advancesby Maturity in 2011

Short-term facilities

Medium-term facilities

Long-term facilities

51%

12%

37%

52%

12%

36%

Breakdown of Net Loans and Advancesby Economic Sector in 2011

Breakdown of Net Loans and Advancesby Economic Sector in 2012

Manufacturing industries

Financial intermediaries

Trade

Consumer loans

RE services and developers

Others

Transportation and comm.

Contractors

Manufacturing industries

Financial intermediaries

Trade

Consumer loans

RE services and developers

Others

Transportation and comm.

Contractors

18%

15%

7%5%

14%14%

14%

14%

17%

17%

15%14%

14%

8%3%

12%

Loan Breakdown by CurrencyThe charts below highlight the breakdown of the loan portfolio by currency. Although USD remains the dominant currency at end-December 2012 standing at 55.7%, its share has decreased by 6.8% from 62.5% at end-December 2011, reflecting the direct impact of the launch of the new subsidiary in Turkey with

60% of its loans denominated in Turkish Lira, 5% in Euros and the remaining in USD. In parallel, the share of loans denominated in Lebanese Pounds increased from 8.7% to 9.5%, underscoring the increased lending activity in Lebanese Pounds, focusing on government-subsidised LBP-denominated loans (mainly housing loans).

Breakdown of Net Loans and Advances by Currency in 2011

Breakdown of Net Loans and Advances by Currency in 2012

USD

EUR

LBP

EGP

SYP

JOD

TRY

Other

USD

EUR

LBP

EGP

SYP

JOD

TRY

Other

56%

10%

6% 2%

9%

11%

2%4%5%

62%

9%

8%

4%1%

11%

Loan Breakdown by Collateral Notwithstanding the fact that lending decisions rely primarily on the availability and sustainability of cash flows as a first source of repayment, Bank Audi’s loan portfolio remains adequately collateralised. At

end-December 2012, secured loans represented more than 44.5% of total loan portfolio. Loans covered by personal guarantees represented 17.1% of the portfolio as compared to 19.4% at end-December 2011.

44 45

Breakdown of Net Loans and Advances by Collaterals in 2011

Breakdown of Net Loans and Advances by Collaterals in 2012

Cash co. and bank guarantee

Real estate mortgage

Securities (bonds and shares)

Personal guarantee

Unsecured

Cash co. and bank guarantee

Real estate mortgage

Securities (bonds and shares)

Personal guarantee

Unsecured

38%

10%17%

18%

17%

18%

12%19%

35%

15%

Off-balance Sheet FlowsAs a result of the political and economic turmoil, the Bank’s trade finance activities have generally declined over the period. Outstanding letters of credit decreased by 8.6% in 2012 to USD 235 million at end-December 2012 from USD 257 million at end-December 2011, while outstanding letters of guarantee decreased by 13.5% in 2012 to USD 1,534 million at end-December 2012 from USD 1,773 million at end-December 2011.

Asset QualityLending growth was coupled with a strengthening of the lending portfolio quality through the allocation of additional net provisions amounting to USD 121 million in 2012, most of which in the form of collective provisions. Total collective provisions reached USD 111 million at end-December 2012, the equivalent of 1.1% of the consolidated net loans portfolio, broken down over USD 59 million in Lebanese entities (of which USD 18 million earmarked for Syria),

USD 3 million in entities in Europe, USD 10 million in Bank Audi (Egypt), USD 31 million in Bank Audi Syria and USD 8 million in Bank Audi (Jordan). In parallel, specific provisions reached USD 182 million, broken down over principally USD 91 million in Lebanese entities (of which USD 28 million of unallocated provisions), USD 18 million in entities in Europe, USD 28 million in Bank Audi (Egypt), USD 18 million in Bank Audi Syria and USD 26 million in Bank Audi (Jordan). When adjusting to interest in suspense on doubtful loans, loan loss reserves stood at USD 221 million, translating in doubtful loans coverage by specific provisions of 76.3%.

In parallel, the gross doubtful loans to gross loans ratio improved, moving from 2.9% at end-December 2011 to 2.7% at end-December 2012, while net doubtful loans stabilised at 0.64% of gross loans, a relatively low level, especially given the uncertain regional conditions, particularly in Syria.

In absolute terms, Bank Audi’s gross doubtful loans moved from USD 258 million at end-December 2011 to USD 290 million at end-December 2012, reflecting an increase by USD 32 million, broken down geographically principally over USD 22.4 million in Bank Audi Syria, USD 13.7 million in Bank Audi (Jordan), USD 8.3 million in Bank Audi Saradar France, offsetting a decrease by USD 9.7 million in Bank Audi (Egypt), and USD 5.6 million in Group Audi Lebanon. By business segments, corporate doubtful loans increased by USD 27.2 million and retail doubtful loans by USD 4.5 million over the same period.

A detailed analysis of the evolution of asset quality indicators in Egypt revealed an improvement in spite of the persisting uncertainties. Gross doubtful loans to gross loans ratio moved from 3.2% at end-December 2011 to 2.2% at end-December 2012, while the coverage on those loans by specific provisions rose from 60.1% to 83.8%. In absolute terms, gross doubtful loans decreased by USD 9.7 million, reaching USD 33.9 million at end-December 2012, while provision coverage on those loans increased by USD 2.2 million. As a result, net doubtful loans that are predominantly covered by real guarantees contracted by USD 11.9 million to USD 5.5 million, while collective provisions reached USD 10 million, representing 0.65% of net loans.


Gross NPLs 258.3 290.0 31.7

o.w. Corporate 218.8 246.0 27.2

o.w. Retail 39.5 44.0 4.5

Gross SLs 88.5 11.8 -76.7

Net loans 8,594.3 10,428.5 1,834.2

o.w. Corporate 7,749.7 9,458.0 1,708.3

o.w. Retail 844.6 970.5 125.9

Specific provisions 144.0 182.5 38.5

o.w. Corporate 112.0 150.5 38.5

o.w. Retail 32.0 32.0 0.0

Collective provisions 100.5 110.5 10.0

o.w. Corporate 77.7 86.1 8.6

o.w. Retail 22.8 24.4 1.6

Gross NPLs/Gross loans 2.90% 2.70% -0.21%

o.w. Corporate 2.73% 2.53% -0.21%

o.w. Retail 4.39% 4.28% -0.11%

Net DLs/Gross loans 0.66% 0.64% -0.02%

o.w. Corporate 0.67% 0.63% -0.05%

o.w. Retail 0.58% 0.78% 0.20%

Coverage (specific) 77.16% 76.26% -0.90%

o.w. Corporate 75.41% 75.26% -0.15%

o.w. Retail 86.83% 81.84% -4.99%

Collective prov./Net loans 1.17% 1.06% -0.11%

o.w. Corporate 1.00% 0.91% -0.09%

o.w. Retail 2.70% 2.51% -0.19%

Asset Quality (USD Million)

46 47

Opposite trends were reported in Syria witnessing significant deterioration in the operating environment, impacting asset quality of Bank Audi Syria. Gross doubtful loans to gross loans ratio leaped from 5.6% at end-December 2011 to 16.6% at end-December 2012, as a result of Management’s voluntary shrinkage of the gross loan portfolio within an increase in gross doubtful loans by USD 22.4 million. The latter increase was met by an increase in specific provisions by USD 4.7 million and in collective provisions by USD 11.7 million. At end-December 2012, gross doubtful loans reached USD 53.4 million, covered by USD 21 million of specific provisions and USD 31 million of collective

provisions. Subsequently, doubtful loans coverage by specific and collective provisions represented at the same date 97% and would exceed 115% when including real guarantees.

Changes in Primary Liquidity23.2% of the total growth in assets during 2012 was used to increase broad primary liquidity (composed of placement with banks, placements with BDL and BDL CDs), the equivalent of USD 595 million, reaching USD 13.2 billion at end-December 2012 and representing 49.1% of customers’ deposits. The table below highlights the breakdown of primary liquidity by type and currency.

Dec-11 Dec-12 Change % Dec-11 Dec-12 Change %

Gross DLs/Gross loans 3.2% 2.2% -1.0% 5.6% 16.6% 11.0%

LLRs on DLs/DLs (excluding real guarantees) 60.1% 83.8% 23.7% 52.5% 39.3% -13.2%

Gross DLs 43.6 33.9 -9.7 -22.2% 31.0 53.4 22.4 72.3%

LLRs on DLs 26.2 28.4 2.2 8.4% 16.3 21.0 4.7 28.8%

Net DLs (predominantly covered by real guarantees) 17.4 5.5 -11.9 -68.4% 14.7 32.5 17.8 121.1%

Collective provisions 24.7 10.0 -14.7 -59.5% 19.3 31.0 11.7 60.6%

Evolution of Asset Quality in Egypt and Syria (USD Million)

BAEGY BASY

LBP USD EUR SYP EGP TRY JOD Others Total

Central banks 3,268 4,952 682 159 147 152 85 162 9,607

o.w. Reserves requirements 301 2,345 8 22 134 65 3 2,878

o.w. Cash deposits 1,054 1,190 674 137 13 152 20 159 3,399

o.w. BDL's certificates of deposits 1,913 1,417 3,330

Placement with banks 66 2,510 524 13 6 28 396 3,543

Total liquidity 3,334 7,462 1,206 172 153 152 113 558 13,150

Breakdown of Liquidity at End-December 2012

Relative to end-December 2011, broad primary liquidity increased by 4.7%, from USD 12.6 billion to USD 13.2 billion, with the composition remaining broadly unchanged, except for the USD 0.5 billion new reverse repo transactions booked in 2012 in Odeabank. Subsequently, primary liquidity remains mainly concentrated on placements with central banks, although their share has dropped year-on-year from 74.6% to 73.1%. Bank placements, including money market (MM) deposits, nostros and short-term loan participations and reverse repo balances, accounted for the remaining 26.9% (up from 25.4% in 2011).

MM placements and nostros with banks, representing USD 3.0 billion or 23% of primary liquidity at end-December 2012, are mostly placed with highly-rated and financially sound banks, mainly based in low risk OECD and GCC countries characterised by high levels of solvency and financial and monetary stability. 83% of these placements are held in banks rated A3 or better.

The charts below show the breakdown of money market placements held as at end-2012 by ratings and geographic location.

Exposures to banks are continuously monitored by the Risk Management department, in close coordination with the Group Financial Institutions and Correspondent Banking department (Group FI). Regular portfolio reviews are conducted throughout the year to assess the Bank’s risk profiles and ensure that related positions remain within the overall risk appetite of the Group. During these reviews, specific attention is paid to concentration risk levels to ensure that these remain well under control.

Changes in Portfolio SecuritiesThe size of the consolidated portfolio securities stabilised in 2012, reaching, at end-December 2012, USD 10,153 million versus USD 10,186 million the previous year. A detailed flow analysis reveals a structural shift with a decrease in Lebanese exposure, namely BDL certificates of deposits, by USD 268 million, Lebanese Eurobonds by USD 157 million, and other Lebanese securities by USD 115 million, more than matched by an increase in other non-Lebanese Treasury securities by USD 492 million (from USD 2,079 million to USD 2,571 million), mainly originating in Egypt, benefitting from increasing yields on local Treasuries.

2011 2012 Change

LBP cv FC Total LBP cv FC Total LBP cv FC Total

BDL certificates of deposits 2,228 1,370 3,598 1,913 1,417 3,330 -315 47 -268

Net Lebanese Treasury bills & Eurobonds 2,141 896 3,037 2,274 708 2,982 133 -188 -55

Risk-ceded Lebanese Eurobonds 1,073 1,073 971 971 -102 -102

Other non-Lebanese governmental securities 1,466 1,466 1,853 1,853 387 387

Equity instruments 4 179 183 32 166 198 28 -13 15

Other Lebanese securities 216 216 101 101 -115 -115

Other non-Lebanese securities 613 613 718 718 105 105

Total 4,373 5,813 10,186 4,219 5,934 10,153 -154 121 -33

Changes in Portfolio Securities (USD Million)

MENA

G10 countries

Other Europe

Other

Aaa to Aa3

A1 to A3

Baa1 to Baa3

Ba1 to Ba3

Breakdown of Placements with Banks by Region in 2012

Breakdown of Placements with Banks by Rating in 2012

Not rated

45%

6%

38%

5%

6%

14%

71%

1%14%

48 49

Lebanese Bond PortfolioAt end-December 2011, Bank Audi’s exposure to Lebanese sovereign Eurobonds in foreign currency stood at USD 1,679 million, of which USD 971 million of bonds whose risk has been ceded to customers, thus leading to a net exposure of USD 708 million, representing 7.0% of the Bank’s total securities portfolio and 3.5% of adjusted foreign currency denominated customers’ deposits.

Non-Lebanese SecuritiesIn parallel, the international securities portfolio stabilised in 2012, reaching, at end-December 2012, USD 2,571 million broken down over USD 1,853 million of non-Lebanese governmental securities and USD 718 million of other international fixed income securities. Well diversified across sectors, placements in these securities are skewed towards highly-rated financial institutions, which accounted, at end-December 2012, for 60% of the total international bond portfolio, while corporate issuers accounted for 25% and sovereign names for 15% of the total.

The relatively high concentration on banks is mitigated by good issuer diversification and relatively short tenor maturities (under 2 years), making these investments somewhat similar to ordinary placements with banks in terms of implied risk profile and market risk exposure.

In terms of geographical allocation, 40% of non-Lebanese governmental securities relate to issuers domiciled in developed markets (mostly G10), 51% in GCC markets, and a relatively low 9% in other emerging markets. The portfolio does not include any direct exposure to Greece, Ireland, Italy, Portugal or Spain, while the direct exposure to the rest of the Euro zone is immaterial, representing less than 2% of consolidated loans portfolio at end-December 2012.

The charts below show the breakdown of the international bond portfolio by geographical location and by ratings.

Developed markets

GCC

Emerging markets

BBB to BBB+

NR

Non-Lebanese Bonds Allocation by Zone in 2012

Non-Lebanese Bonds Allocation by Rating in 2012

AA- to AAA

A- to A+

24%

65%

2%9%

40%

51%

9%

The international fixed income portfolio enjoys a high average rating, with 89% of the total being invested in issues rated AA- or better. The portfolio is also characterised by a good level of diversification, with the highest single issuer position representing 11% of the total portfolio and the second largest representing 6%, whilst the remaining positions do not exceed individually 4% of the portfolio size. The top exposure at end-December 2012 relates to an A rated issue.

4.3. Results of Operations

Net earnings of Bank Audi sal grew by 5% in 2012, moving from USD 365 million in 2011 to USD 384 million. Adjusting to net profits from discontinued operations stemming from the sale of LIA Insurance sal and the liquidation of Bank Audi sam (Monaco), Bank Audi’s net earnings would have reported an almost flat growth (0.5%), moving from USD 359 million in 2011 to USD 361 million in 2012.

Operating profits before provisions and taxes rose by 7.7% over the year and by 10.6% when including profits from discontinued operations.

The Group’s income stream continues to be well diversified. With the exception of Syria facing significantly tough operating conditions, all entities delivered positive growth and our newly launched entity in Turkey broke even 2 months after the official operations launch. The contribution of entities abroad to consolidated net earnings improved by 11.6% from 11.8% to 23.4%, principally justified by the zero contribution of the Egyptian subsidiary to 2011 net profits, following Management’s allocation of all profits in those entities to collective provisions at a consolidated level as a precautionary measure against the prevailing adverse development.

The table below presents an overview of Bank Audi’s consolidated financial results in 2012 as compared to 2011:

Dec-11 Dec-12 Vol. %

Interest income(1) 549.7 598.4 48.7 8.9%

Non-interest income 437.5 502.9 65.4 14.9%

Total income 987.2 1,101.3 114.1 11.6%

Operating expenses 444.0 516.5 72.5 16.3%

-Loans loss provisions 91.3 121.0 29.7 32.6%

-Net other provisions 0.0 0.1 0.1

-Tax 92.6 102.5 9.9 10.7%

= Total cost 627.9 740.1 112.2 17.9%

= Profit before 359.3 361.2 1.9 0.5%

+ Results of discontinued operations 5.9 22.4 16.5 279.7%

= Profits after tax and discontinued operation 365.2 383.6 18.4 5.0%

Cost to income 44.7% 46.0% 1.3%

Income Statement (USD Million)

(1) Includes interest revenues from financial assets or liabilities at fair value through P&L.

50 51

This growth in net earnings from operations results from an 11.6% increase in total income and a 16.3% rise in general operating expenses, justified to a large extent by the launch of the Turkish entity. The contribution of entities abroad to total revenues increased slightly from 34.6% in 2011 to 36.5% in 2012. On the opposite, their share in consolidated expenses decreased by 7.1% from 46.7% to 39.6% over the same period.

The increase in revenues by USD 114.1 million is split over a USD 48.7 million increase in interest income (8.9%) and a USD 65.4 million increase in non-interest income (14.9%).

On the backdrop of tough operating conditions in Lebanon in 2012, weighed down by persisting low international reference rates impacting yields on primary liquidity and increased market competition with tightening yields on portfolio securities, interest income at Group Audi Lebanon, representing 57.1% of the consolidated interest income, grew by a mere 3.5%, the equivalent of USD 12 million, mainly driven by a quantity effect.

Evolution of Interest Income

The increase in interest income is attributed to a price effect reflected by the widening of the spread by 14 basis points, as well as a volume effect with average assets increasing by 1.47%. A weighted contribution by entity in 2012 reveals that Bank Audi (Egypt) led the widening of the spread by contributing 12 basis points within the context of a contribution by 2 basis points in each Lebanon and Jordan and 4 basis points from Odeabank, offsetting a negative contribution from Bank Audi Syria by 6 basis points, justified by the tough operating conditions in the country.

By currency, the increase in interest income is broken down over a USD 4.9 million increase in the interest income denominated in Lebanese Pounds and an increase in the interest margin denominated in foreign currencies by USD 6.6 million.

The improvement in interest margin in LBP reflects primary a price effect, with the spread in LBP moving from 2.17% in 2011 to 2.21% in 2012. The expansion of the spread is mainly attributed to

2011 2012 Change

Total income

Lebanon 65.4% 63.5% -1.9%

Abroad 34.6% 36.5% 1.9%

Total expenses

Lebanon 53.3% 60.4% 7.1%

Abroad 46.7% 39.6% -7.1%

Net income(2)

Lebanon 88.2% 76.6% -11.6%

Abroad 11.8% 23.4% 11.6%

Breakdown between Lebanon and Abroad

FY-11 FY-12 12/11

Net interest income 549.7 598.4 48.7

Yield on assets 4.84% 5.11% 0.27%

Cost of funds 2.93% 3.06% 0.13%

Spread 1.91% 2.05% 0.14%

Spread Evolution (USD Million)

(2) Includes profits from discontinued operations.

52 53

a decrease in the cost of deposits by a further 17 basis points, amid renewal of maturing TBs at lower yields. The improvement in interest margin in LBP is also driven by increased lending in LBP, focusing on government-subsidised LBP-denominated loans (mainly housing loans).

In parallel, the improvement in interest margin in FC is attributed almost entirely to a quantity effect, with average assets in foreign currencies increasing

by USD 514 million within stable spread underscoring heightening competition in the marketplace.

Evolution of Non-interest Income

The increase in non-interest income by USD 65.4 million is broken down over a USD 6.9 increase in net commissions, a USD 34.4 million increase in net gains from portfolio securities, a USD 41.2 million of net gains on profits from foreign exchange (amid USD 57

2011 2012 Change

Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total

Commercial and Corporate Banking 52.0 3.7 30.9 86.6 48.0 3.6 3.0 23.9 78.5 -4.0 -0.1 3.0 -7.0 -8.1

o.w. Lending operations 15.3 0.2 4.9 20.4 15.0 0.2 4.9 20.1 -0.3 0.0 -0.0 -0.3

o.w. Syndication fees 11.5 0.2 5.4 17.1 10.6 0.3 3.0 3.2 17.1 -0.9 0.2 3.0 -2.2 0.0

o.w. Trade finance 20.2 2.8 16.1 39.1 17.6 2.6 0.0 12.5 32.7 -2.6 -0.2 0.0 -3.6 -6.4

o.w. Other banking operations 0.4 0.3 1.0 1.7 0.3 0.3 0.0 0.6 1.2 -0.1 0.0 0.0 -0.4 -0.5

o.w. Foreign exchange 4.6 0.2 3.5 8.3 4.5 0.2 2.7 7.4 -0.1 0.0 -0.8 -0.9

Private Banking 6.7 36.4 8.9 52.0 7.5 36.2 0.0 9.5 53.2 0.8 -0.2 0.0 0.6 1.3

o.w. Brokerage and custody 2.9 12.9 7.7 23.5 4.0 12.8 8.0 24.8 1.1 -0.1 0.3 1.2

o.w. Fiduciary operations 0.9 2.5 0.2 3.6 0.9 2.4 0.1 3.4 0.0 -0.1 -0.1 -0.2

o.w. Other banking operations 1.3 7.5 1.1 9.9 1.4 9.9 0.0 1.3 12.6 0.1 2.4 0.0 0.2 2.7

o.w. Foreign exchange 1.6 13.5 0.0 15.0 1.2 11.1 0.1 12.4 -0.3 -2.4 0.2 -2.6

Retail and Personal Banking 47.2 2.2 27.1 76.5 54.3 2.4 0.1 28.5 85.3 7.1 0.2 0.1 1.4 8.8

o.w. Lending operations 1.6 0.4 4.3 6.3 2.2 0.8 0.0 5.6 8.6 0.6 0.4 0.0 1.3 2.3

o.w. Retail products 18.9 0.2 4.3 23.4 24.7 0.1 3.8 28.6 5.8 -0.1 -0.5 5.2

o.w. Other banking operations 20.8 1.0 8.6 30.4 21.4 0.9 0.1 10.5 32.9 0.6 -0.1 0.1 1.9 2.5

o.w. Foreign exchange 5.9 0.6 9.9 16.4 6.0 0.6 8.6 15.2 0.1 -0.1 -1.3 -1.2

Treasury and Capital Markets 172.1 -0.7 4.3 175.7 198.4 4.2 1.8 5.7 210.1 26.3 4.9 1.8 1.4 34.4

o.w. Dividends 18.3 0.0 1.6 19.9 20.0 0.0 0.2 20.2 1.7 0.0 -1.4 0.3

o.w. Trading/Sale of financial instruments 148.3 0.0 -2.4 145.9 177.3 0.5 1.8 1.5 181.1 29.0 0.5 1.8 3.9 35.2

o.w. Revaluation 5.5 -0.7 5.1 9.9 1.1 3.7 4.0 8.8 -4.4 4.4 -1.1 -1.1

Other non-interest income 7.5 1.5 37.7 46.7 18.7 0.5 12.0 44.5 75.7 11.2 -1.0 12.0 6.8 29.0

o.w. Insurance 0.2 -0.3 -0.1 1.8 -0.2 1.6 1.6 0.0 1.7

o.w. Outsourcing 26.4 26.4 -26.4 -26.4

o.w. Investment Banking 0.1 0.1 0.2 0.2 0.1 0.1

o.w. Foreign exchange 11.3 11.3 12.1 45.1 57.2 12.1 33.8 45.9

o.w. Other 7.3 1.5 0.2 9.0 16.9 0.5 -0.1 -0.6 16.7 9.6 -1.0 -0.1 -0.8 7.7

Total non-interest Income 285.5 43.1 - 108.9 437.5 326.9 46.9 16.9 112.1 502.8 41.4 3.8 16.9 3.2 65.3

Non-Interest Income (USD Million)

million of gains in 2012 resulting from the revaluation of the structural position in Bank Audi Syria (USD 19 million) and the operational positions in Bank Audi (Sudan) (USD 29 million) and Odeabank (USD 12 million)), with the remaining decrease accounted for by other operating income. By activity, the USD 65.4 million stem from increases in all business lines of the Group, with the exception of Commercial and Corporate Banking posting a contraction by USD 8.1 million justified by lower trade finance

and syndication revenue within the context of the tough regional operating conditions. Subsequently, non-interest income (excluding profits from discontinued operations) represented in 2012 44.7% of total income (44.3% in 2011) and 1.61% of total assets (1.52%) in 2011.

The table below presents a segmental breakdown of non-interest income by markets and business lines.

54 55

Evolution of General Operating Expenses

General operating expenses increased year-on-year by 16.3%, the equivalent of USD 72.5 million, broken down over USD 20.5 million of additional staff expenses, USD 32.7 million of other operating expenses and USD 19.3 million of depreciation, of which a one-time USD 14 million goodwill impairment on the Bank’s investment in AoLB, as prescribed by the revision of the company’s business plan in view of the persisting uncertainties in Egypt. By geography, the increase in general operating expenses is broken down over USD 70.2 million in Lebanese entities and USD 35 million of direct cost booked in Odeabank, totally offsetting a contraction by USD 30.1 million and USD 2.7 million, respectively in entities in the MENA region and in Europe. While the decrease in the MENA entities is principally justified by the depreciation of the currency in Syria and Sudan and by the deconsolidation of Capital Outsourcing, the drop in entities in Europe reflects the deconsolidation of Bank Audi sam (Monaco). The increase in expenses in Lebanon is principally justified by the high cost of living adjustment on salaries and non-recurrent expenses tied principally to the establishment cost of Odeabank booked in Beirut (USD 9.8 million). Adjusting to all non-recurrent flows and to Odeabank, the increase in recurrent consolidated general operating expenses in 2012 relative to 2011 reaches USD 17 million (3.8%). Adjusted to only Odeabank’s cost, general operating expenses would have increased by 6.3%. Subsequently, the cost-to-income ratio (including profits from discontinued operations) moves from 44.7% in 2011 to 46.0% in 2012 and 43.2% when excluding operating expenses in Turkey which mainly consisted of non-recurring expenses attributed to the launch of activities.The table below presents a segmental breakdown of consolidated general operating expenses by type and region.

Evolution of Loan Loss Provision Charges

Within the tough economic conditions prevailing in several countries of presence of the Group, Bank Audi allocated in 2012 USD 121 million of net loan loss provisions, as compared to USD 91.3 million in 2011. By entity, net loan loss provision charge is broken down over USD 60.9 million in Lebanese entities, USD 28.6 million in Syria, USD 16.6 million in Bank Audi (Egypt), USD 6.2 million in Bank Audi Saradar France, USD 7.7 million in Bank Audi (Jordan) and USD 1 million in Bank Audi (Sudan).

Evolution of Income Tax

Income tax increased in 2012 from USD 92.5 million in 2011 to USD 102.5 million in 2012, translating in an increase in effective tax rate from 20.5% to 22.1% over the same period. The evolution of the effective tax rate highlights changing profits mix and increased up-front taxes on interest received on the investment portfolio in Egypt.

Net Profits from Discontinued Operations

In 2012, Bank Audi reports USD 22.4 million of net profits from discontinued operations, reflecting USD 42.4 million of net profits arising from the sale of 81% of the Bank’s majority stake in LIA Insurance Company and a net loss of USD 19.9 million from the liquidation of Bank Audi sam (Monaco) described earlier. The latter represent USD 5.6 million of operating losses in the first nine months of 2012 until liquidation date, and USD 6.5 million of goodwill impairment charges, with the remaining accounted for by liquidation expenses.

Breakdown of General Operating Expenses by Geoghraphy (USD Million)

2011 2012 ChangeLebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total Lebanon Europe Turkey MENA Total

Staff expenses 152.8 28.5 71.3 252.6 167.8 29.8 24.7 50.8 273.1 15.0 1.3 24.7 -20.5 20.5

Other operating expenses 95.2 20.9 44.9 161.0 129.6 17.3 8.3 38.5 193.7 34.4 -3.6 8.3 -6.4 32.7

Depreciation 13.7 2.8 13.9 30.4 34.5 2.5 2.0 10.7 49.7 20.8 -0.3 2.0 -3.2 19.3

Total 261.7 52.2 130.1 444.0 331.9 49.6 35.0 100.0 516.5 70.2 -2.6 35.0 -30.1 72.5

At the time of the sale, assets of LIA Insurance were USD 298 million (USD 289 million at end-December 2011) and were deconsolidated from the Group’s financial position starting end-June 2012. Assets of Bank Audi sam (Monaco) were USD 148 million (USD 202 million at end-December 2011) and were deconsolidated starting end-September 2012. As addressed above, Bank Audi sam (Monaco) was spanned off into a more efficient financial company named Audi Capital Gestion sam.

Key Performance Metrics

Management measures and evaluates the performance of the consolidated operations and each business unit using a number of financial metrics. The ultimate goal continues to be maximising shareholders’ return through achieving a return on average common equity at a premium of the weighted average cost of equity of the banks. The table below highlights in details the evolution of the component of return on average common equity in 2012.

2011 2012 Change

Spread 1.91% 2.05% 0.14%

+ Non-interest income/AA 1.54% 1.80% 0.26%

= Asset utilisation 3.46% 3.85% 0.40%

x Net operating margin 36.77% 34.14% -2.64%

o.w. Cost to income 44.71% 45.96% 1.25%

o.w. Provisions 9.20% 10.78% 1.58%

o.w. Tax cost 9.32% 9.12% -0.20%

= ROAA 1.27% 1.32% 0.04%

x Leverage 12.02 11.54 -0.48

= ROAE 15.29% 15.18% -0.11%

ROACE 16.39% 16.49% 0.10%

Key Performance Metrics

On a backdrop of a higher increase in revenues than in average assets, Bank Audi’s consolidated spread expanded by 14 basis points, coupled with an improvement in non-interest income to average assets ratio by 26 basis points, boosting the asset utilisation ratio by 40 basis points to 3.85%.

The interaction of the asset utilisation ratio with a deteriorating net operation margin (from 36.77% in 2011 to 34.14% in 2012) resulted in a slight improvement in the Bank’s profitability ratios, with the return on average assets reporting 1.32% and the return on average common equity amounting to 16.49%.

Earnings per Share

Bank Audi’s basic common earnings per share reached USD 1.01, as compared to USD 1.0 in 2011, reflecting a growth of 1.2%. Similarly, the diluted common earnings per share reached USD 1.01 in 2012, as compared to USD 1.0 in 2011, a growth of 1.3%. Basic earnings per share are calculated based on the weighted number of common shares actually issued and net profits after tax including profits from discontinued operations.

The table below represents the evolution of Bank Audi’s common earnings per share including net profits from discontinued operations over the past 5 years.

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4.4. Analysis by Business Segments

Bank Audi is managed on the basis of a cross-sectional organisation matrix of business lines and markets, reflecting the following four major business segments: Corporate and Commercial Banking, Retail and Individual Banking, Private Banking and Treasury and Capital Markets activities. Those business segments are determined based on the products and services provided, or the type of customers served, and constitute the basis for Management’s evaluation of financial results. Results of each business segment are intended to reflect the performance of each business line, namely in terms of total assets and total revenues. Senior Management sets the business segment reporting methodology which is approved by the Group Executive Committee. A detailed description of the business segment reporting methodology is provided in Note 4 of the Consolidated Financial Statements.

The performance of the four principal business segments of Bank Audi in 2012 is discussed and analysed in what follows:

Corporate and Commercial Banking

Bank Audi provides integrated Corporate and Commercial Banking solutions, with a coverage span entailing the Middle East, GCC, Africa and Europe through its established headquarters in Lebanon and its entities operating in Turkey, Egypt, Syria, Jordan,

Saudi Arabia, Qatar, Sudan, France and Switzerland. Despite the continuing challenging economic and political conditions prevailing in several key markets that triggered a slowdown in new lending in some markets and a decrease in exposure in other markets, Bank Audi still managed to achieve a double-digit growth of its consolidated corporate and commercial loan portfolio in 2012 (22.4%). This growth was the outcome of a strategy followed by the Corporate and Commercial Banking department to stay close to customers during those challenging times by providing them with suitable solutions across our network, deepening relationships with them. In parallel, the Bank continued, throughout 2012, to leverage its crossroad position in the Near East “Levant” region, taking advantage of the increasing cross-border trade flows opportunities within the various markets of presence.

Corporate and Commercial Banking activities were further reinforced with the launch of Odeabank in Turkey, one of Europe’s fastest-growing economies. Bank Audi is currently focused on expanding its corporate regional franchise to include top tier Turkish clients by developing a sustainable and long-lasting franchise serving not only customers’ borrowing needs, but also their trade finance, advisory, cash management and Treasury needs, all of which are opportunities to grow the Bank’s profits and deposit base. The Bank’s value proposition revolves around differentiating our services while enhancing the Turkish-Arab commercial activities, fostering greater

Earnings per Common Share Growth (USD)

Diluted

Basic

2009

0.80 0.78

2012

1.01 1.01

2011

1.00 1.00

2010

0.96 0.94

2008

0.65 0.62

2007

0.53 0.50

CAGR 13.8%

cooperation, financially and operationally, between our Arab and Turkish client base.

This expansion consolidates the Group’s aim to become the core corporate and commercial bank for the Levant to pan regional clients. The Corporate and Commercial Banking team at Bank Audi is committed to build scale in local markets, particularly in Lebanon and Egypt, which have shown great resilience in light of the regional difficulties. In Syria, the Bank’s strategy will continue to hinge around significantly reducing the exposure to the country, while preserving the network, whereas in France, Jordan and Qatar, the corporate portfolio is set for a moderate growth.

Total assets generated by the corporate and commercial segment reached USD 8,125 million at end-December 2012, up 24.8% relative to end-December 2011 (USD 6,510 million). The substantial growth in net asset reflects the rapid but solid expansion, through Odeabank, into the Turkish market.

Bank Audi was also able to sustain its presence in the fields of project and structured finance by extending new loans covering a variety of sectors including fertilizer production, oil and gas, retail and commercial development, construction and contracting, real estate, cement, steel, hotels, airlines and insurance.

Subsequently, Bank Audi continues to be the largest commercial and corporate lender in the Lebanese sector, with a corporate and commercial loan portfolio standing at USD 7.6 billion at end-December 2012, a level almost equivalent to the consolidated portfolio of its immediate peers. LCs openings during 2012 moved from USD 2,121 million in 2011 to USD 1,795 million in 2012, contracting by 15.4% and reflecting subdued trade finance activity as a result of the recent unrest in the MENA region. Notwithstanding, the increased trade finance activity of the Turkish operations in the first months of 2013 is offsetting all this decrease, leaving a net growth.

Based on the above, the corporate and commercial business generated total revenues of USD 258 million in 2012, as compared to USD 248 million

in 2011, corresponding to a growth by 3.8%. The USD 10 million increase in total revenues is mainly attributed to a USD 13 million increase in interest income, driven by an improvement in spread following the re-pricing of loans, along with a decrease in non-interest income of USD 3 million.

Retail and Individual Banking

Retail and Individual Banking bestow a wide spectrum of innovative products and services covering consumer lending, accounts’ offering, bancassurance, credit cards, internet banking and mobile banking, through a network of more than 150 branches and 309 advanced ATMs servicing the growing needs of a clientele base counting more than half a million clients in a seamless manner.

Consumers today, evolving towards a different set of needs encompassing digital innovation and mobile technology, drove a complete transformation in the way people bank, translating into changes in the retail strategy.

To that end, several initiatives were undertaken in 2012, as follows:

•RapidimplementationoftheTurkishentitywhichwasgeared up from a retail standpoint with a platform supporting a wide variety of innovative features and functionalities, in addition to a full-fledged quantitative and qualitative market assessment process covering customer needs and competition monitoring on products and channels;

•Revamping the Online Banking gateway, addingnew functionalities, while supporting the ever growing traffic. The improved channel promises to offer customers unlimited possibilities to fulfil their banking needs in the most efficient, intuitive and secure way through a state-of-the-art platform that will be rolled out throughout 2013;

•Enhancing the retail approach from the typical“product-based” where retail offering was universal to all clients to “customer-centric approach” where specific retail products are created for a specific segment of customers matching their profile. This segmentation helped increase customers’ satisfaction and create loyalty. Under this transformation, the role of the branches moved from

58 59

being transaction-oriented to advice-oriented. The introduction of the following technologies supported the transformation:

- Novo: the first interactive banking channel in the region enabling customers to navigate on multi-touch screen, applying for loans, and getting the assistance of advisors through video conferencing.

- Smart ATMs: a new generation of ATMs makes it possible to fully automate all cash transactions in the branch. Bank Audi owns more than 60 smart ATMs.

- E-banking: in line with granting customers the most efficient tools to manage their funds from the comfort of their house, mobile banking remains one of the most popular channels with growing potential. At Bank Audi, audimobile and Pin-Pay applications both strive in this direction.

- Customer relationship management: providing branch staff with access to a CRM solution which is fully-integrated with their day-to-day work environment – and makes it easy to translate centralised marketing campaigns into successful customer interactions – will be critical in enabling them to manage the customer experience and to drive sales.

•Introducing a range of market consumer lendingproducts and third party instalment loans, as well as a host of innovative high tech retail products and services developed in association with leading partners. Entities leverage on the group resources to anticipate and answer the needs of an increasingly demanding customer base, while ensuring product diversification, pricing optimisation and risk mitigation;

•IntroducingIslamicproductsinEgyptonthebackdropof an increasing demand combining the traditional Islamic values with the technology and innovation that characterise the best of modern banking.

Driven by the above developments, the consolidated consumer lending portfolio registered a steady growth throughout 2012 by 18.4%, reaching USD 1.4 billion at end-December 2012, with total housing loans exceeding USD 582 million, followed by personal loans with USD 419 million, car loans with USD 227 million and credit cards with USD 194 million. Bank Audi’s market share in retail lending in Lebanon increased from 6.84% in 2011

to 8.27% as at end-December 2012. The consumer lending portfolio reported a 40% increase, mainly driven by home loan growth which registered a 57.9% growth. Personal loans and car loans grew respectively by 28.0% and 20.7% over the year. The Retail cross-selling per customer as at end-December 2012 reached 4.55 products, versus 4.40 in 2011. The Bank’s market penetration in terms of customers reached 25% in 2012, ranking first among competitors, versus 23% in 2011, supported by the best brand image in the domestic market.

Based on the above, the retail business generated total revenues of USD 198 million in 2012 as compared to USD 175 million in 2011, corresponding to a growth by 13.0%. The USD 23 million increase in total revenues is mainly attributed to a USD 6 million increase in interest income driven by an improvement in spread following the re-pricing of loans, along with a increase in non-interest income of USD 17 million.

Private Banking and Wealth Management

Bank Audi benefits from a leading position in Private Banking, servicing the needs of high networth individuals through its subsidiaries. Bank Audi’s Private Banking business line comprises Banque Audi (Suisse) sa, Audi Saradar Private Bank sal, Bank Audi LLC (Qatar), Audi Capital (KSA) cjsc and Audi Capital Gestion sam (Monaco). Despite continuing adverse operating conditions in Europe and the recent issues regarding bank secrecy and tax reporting, consolidated assets under management of Bank Audi stood at USD 8.4 billion at end-December 2012, by far the largest portfolio managed by a Lebanese banking group and which compares competitively with portfolios managed by leading banks in the GCC. The Private Banking activity in 2012 turned total revenues of USD 33 million, growing by 48.4% relative to 2011.

A clearer definition of the Group’s Private Banking perimeter (4 booking centres and 4 sales antennas) was achieved in 2012 in parallel to an acceleration of the convergence of the different teams that compose the Private Banking family; unified front offices allowing clients to book in the entity best suited for their needs, and an investment office offering

“discretionary”, “advisory” and “execution only” services globally and regionally under a unified set of best practices are becoming the norm.

Leveraging its regional footprint and strong brand and making Switzerland, where it has been operating for 36 years the center of excellence of its Private Banking and wealth management activities, will enable the Private Banking business line to become an ever increasing key growth driver in the Group in 2013 and beyond.

Treasury and Capital MarketsBank Audi’s capital market activities encompass Investment banking (market-making, research, advisory and corporate finance), asset management and securities services. The Bank is leveraging its regional scale to develop further its securities services and brokerage platform, consolidating the business towards increased intra-group synergies.

In Lebanon, Bank Audi stays a major market-making player, accounting by itself for a 34.3% market share on the Beirut Stock Exchange in 2012. The Bank also has a dominant share of the Lebanese Eurobond and Treasury notes markets, with an annual turnover of USD 8.3 billion in 2012. Bank Audi is also notably active in equities and fixed income markets of Saudi Arabia and Egypt where the Bank reported a turnover of USD 2.5 billion in 2012. Those activities in Lebanon and the MENA region are supported by an extensive fixed income research coverage.

In 2012, Bank Audi established an institutional fixed income desk aiming at developing and maintaining new and existing institutional coverage of Lebanese securities. This marketing effort for Lebanese risk comes in a current global environment where fund managers are searching for high yield rather than high rating investment solutions, which makes the Lebanese high Beta bonds particularly attractive.

In parallel, the Bank’s asset management, corporate finance and advisory businesses are currently focused on the Saudi Arabian market and are also supported by extensive equity research coverage.

In line with the consolidated position, assets of the Treasury and capital market activities posted a contraction, decreasing from USD 16,752 million

at end-December 2011 to USD 16,460 million at end-December 2012. Still, total revenues of this business segment reported a growth of 21.7%, moving from USD 447 million in 2011 to USD 544 million in 2012.

4.5. Capital Management

Capital management at Bank Audi focuses on sustaining a long-term capital position sufficient to cover all material risks underlying from its various business activity and report a “well-capitalised” status, while considering the requirements of regulators, rating agencies, depositors and shareholders and the Group’s internal capital ratio targets set in our business plans. Management’s goal is to optimise the capital usage while providing support for the expansion of business segments and entities, benefiting from arising inorganic growth opportunities and protecting depositors and shareholders’ interests. Changes in shareholders’ equity, net earnings of the year and dividends policies are inter-linked with the preservation of capital strength.

Evolution of Shareholders’ Equity

Consolidated shareholders’ equity increased by USD 320 million, representing the issuance of USD 150 million Series “F” preferred shares in May 2012 and USD 201 million of internal capital generation in 2012, within the context of a decrease in minority shares by USD 29 million. Shareholders’ equity moved from USD 2,357 million at end-December 2011 to USD 2,677 million at end-December 2012, almost entirely composed of Tier 1 capital. Tier 1 capital rose from USD 2,286 million at end-December 2011 to USD 2,606 million at end-December 2012, while Tier 2 capital remained stable at USD 71 million over the same period. With the stock of preferred equity representing USD 400 million at end-December 2012, as compared to USD 250 million at end-December 2011, core Tier 1 equity would have moved from USD 2,036 million at end-December 2011 to USD 2,206 million at end-December 2012. As a percentage of consolidated assets, consolidated shareholders’ equity represented 8.6% at end-December 2012, as compared to 8.2% at end-December 2011.

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Regulatory Requirements – Basel III (2.5.)

In October 2011, the Central Bank of Lebanon issued a circular requiring banks to report capital ratio following the Basel III framework, setting higher capital requirements to be achieved gradually in phase-in arrangements, as described below:

Since January 1, 2012, Management started to rely on the Basel III requirements before making any decision affecting capital strength outlook, although it has been computing it on an indicative basis starting 2010.

At end-December 2012, Basel III capital adequacy ratio reached 11.79%, versus a 10% minimum regulatory requirement. Common Tier 1 ratio reached 9.45%

(9% at end-December 2011), while additional Tier 1 reached 2.1% (1.4% at end-December 2011). Relative to end-December 2011 (10.7%), the 110 basis points change in the capital adequacy ratio is accounted for by internal generation (33 basis points), the LIA insurance divesture (47 basis points), the issuance of the USD 150 million of Series “F” preferred shares (83 basis points), offsetting the increase in risk-weighted assets consuming additional 53 basis points.

As of December 31 2011 2012 2013 2014 2015

Minimum common equity (including CB): CETl (a) 5.0% 6.0% 7.0% 8.0%

Minimum Tier 1 equity (including CB): TIE (b) 8.0% 8.5% 9.5% 10.0%

Minimum total equity (including CB): TE (c) 10.0% 10.5% 11.5% 12.0%

BASEL III Implementation in Lebanon: Phase-in Arrangements


Risk-weighted assets 18,131 18,956 825

o.w. Credit risk 16,408 17,029 621

o.w. Market risk 413 434 21

o.w. Operational risk 1,310 1,493 183

Core common Tier 1 capital 1,644 1,791 147

(including profits after dividend distribution)

Tier 1 ratio 10.45% 11.56% 1.11%

Tier 2 ratio 0.24% 0.23% -0.01%

Total ratio 10.69% 11.79% 1.10%

Capital Adequacy Ratio as per BASEL III (USD Million)

Regulatory Requirements – ICAAP

As part of the implementation of Pillar 2 of Basel II framework, the Central Bank of Lebanon, in its basic Circular No. 119 dated July 21, 2008, followed by the Banking Control Commission of Lebanon (BCCL) Memorandum 9/2010 dated October 20, 2010, required Lebanese banks to report the Internal Capital Adequacy Assessment Process (ICAAP) at the start of an assessment parallel run period set on June 30, 2011. In 2011, Bank Audi, aligning with best practice, submitted its consolidated ICAAP report to the Central Bank of Lebanon, after it was challenged by the Group Executive Committee and the Board Group Risk Committee and approved by the Board of Directors.

During 2012, the Bank submitted to Senior Management and the Board of Directors the second Internal Capital Adequacy Assessment Process (ICAAP) report. The Bank views the ICAAP as an important internal initiative rather than just a regulatory one by calculating both regulatory and economic capital. This is being reflected by the ICAAP becoming an integral part of the Bank’s decision-making process and an essential tool used by Management and the Board for capital planning. It also acts as an important exercise that drives the Bank to develop and better use risk measurement techniques. Building on the approaches used within the ICAAP 2011 submission,

the Bank further developed and refined various risk methodologies and included more sensitive risk measures able to capture risk more adequately. The assessment was based on quantitative and qualitative methods. In preparation for moving towards more advanced methods in the Basel framework, the Bank adopted the Foundation-IRB approach within the internal credit risk capital charges calculations for certain asset classes in order to better capture the quality and riskiness of the portfolios.The ICAAP was conducted for the Group on a consolidated basis and on an individual basis for some material entities to ensure that stand alone capital is appropriate. The result of the ICAAP shows that, when taking all relevant and material risks to the Bank, including various stress testing scenarios, Bank Audi’s capital adequacy ratio remained well above the minimum requirement.

Common Book per Share

In addition to the regulatory ratios mentioned earlier, Management, investors and analysts use the common book per share as a measure to assess capital adequacy. Common equity represents total equity less minority shares less preferred shares. Common equity per share is based on the outstanding number of common shares net of Treasury stocks. The table below presents the evolution of common equity per share between end-December 2011 and end-December 2012.

Dec-11 Dec-12 Change Percent

Shareholders' equity 2,356,981 2,677,408 320,427 13.6%

- Minority shares 93,646 64,238 -29,408 -31.4%

= Shareholders' equity group share 2,263,335 2,613,170 349,835 15.5%

- Preferred stock (including dividends) 267,187 423,187 156,000 58.4%

= Common shareholders' equity 1,996,148 2,189,983 193,835 9.7%

Outstanding number of shares (net of Treasury stock) 340,942,545 347,851,669 6,909,124 2.0%

Common book per share 5.85 6.30 0.45 7.7%

Share price at December 31 5.64 6.09 0.45 8.0%

P/Common book 0.96 0.97 0.01 1.0%

Equity Metrics (USD 000's)

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Common equity per share of Bank Audi increased from USD 5.85 at end-December 2011 to USD 6.3 at end-December 2012. Accordingly, on the basis of a price of USD 6.09 at end-December 2012, the common share is traded at 1 times the common book value, versus an average of 2 times for regional and emerging markets.

5. Dividend PolicySince 1996, it has been the policy of the Board of Directors of the Bank to recommend the distribution to holders of common shares of a dividend payment of at least 30% of after-tax profits in each year, subject to the approval of the Bank’s shareholders and to the availability of distributable net income for the year.

As per the Bank’s by-laws and applicable Lebanese law, the annual net profits shall be distributed in the following order of priority:

•To legal reserve, in amounts equivalent to 10% ofthe net profits after tax that will be transferred each year until such reserve reaches one-third of the Bank’s share capital. The legal reserve is distributable only upon the liquidation of the Bank;

•To payment of Series “F”, “E” and “D” preferredshares dividends, as approved by the Ordinary General Meeting;

•To general or special reserves and/or to profitsto be carried forward; as per Banque du Liban’s Decision 7129, the Bank is required to set aside a minimum of 0.2% and a maximum of 0.3% of the Bank’s risk-weighted assets as a reserve for

unspecified banking risks, which forms an integral part of the Bank’s Tier I Capital. The aggregate of this reserve should be equivalent to 1.25% of risk-weighted assets within 10 years from Decision 7129’s issuance and 2.0% of risk-weighted assets within 20 years. In addition, the Bank is required to establish a special reserve for properties acquired in satisfaction of debts and not liquidated within the required delays, and the balance;

•Toholdersofcommonshares.

The common dividends distributions are made annually on the dates specified by the General Meeting. Under Lebanese law, dividends not claimed within five years of the date of payment become barred by statute of limitations; half of these unclaimed dividends revert to the Bank, while the balance is paid over to the Lebanese government.

The table below highlights the dividends distribution practices at Bank Audi for the 2007 exercise till that of 2012.During its meeting held on April 10, 2012, the Ordinary General Assembly resolved the payment of dividends on preferred shares of respectively USD 7.75, USD 6, USD 4 respectively per Series “D”, “E” and “F” preferred shares, and a common dividend per share of LBP 603 (before the 5% withholding tax) (USD 0.4). Total dividends paid for the exercise represented 42.4% of net earnings in 2012. On the basis of a share price of listed shares and GDRs of respectively USD 6.25 and USD 6.50 as at March 12, 2012, the dividend yield reached 6.4% for listed shares and 6.2% for GDRs.

In USD '000s 2007 2008 2009 2010 2011 2012

Common earnings 181,834 219,634 279,263 337,560 348,021 360,420

Dividends on common shares 65,805 77,110 120,466 138,422 139,487 139,420

Dividends per common shares (USD) 0.20 0.23 0.35 0.40 0.40 0.40

Payout ratio on common shares 36.2% 35.1% 43.1% 41.0% 40.1% 38.7%

Dividends on preferred shares 18,437 18,437 9,687 14,687 17,188 23,188

Total dividends 84,242 95,548 130,154 153,201 156,675 162,608

Net earnings 200,272 238,071 288,950 352,247 365,208 383,608

Total payout ratio 42.1% 40.1% 45.0% 43.5% 42.9% 42.4%

Consolidated Payout Ratio(1)

(1) Adjusted to the 10:1 stock split approved by the Extraordinary General assembly held on 02/03/2010, and the Central Bank of Lebanon on 21/04/2010, and in effect since 24/05/2010.

6. Risk ManagementThe main theme for 2012 was for the Bank to continue moving towards advanced approaches and adopt the best practices in Risk Management. This was achieved while maintaining the formalisation process and the alignment of the risk management framework across our entities. A concerted effort was made to get our Turkish subsidiary, Odeabank, up to speed with Group risk-aligned charter and policies and to put in place a solid foundation for the Turkish risk practices, in line with local regulations. In addition, the Bank developed a risk training academy to be launched in the coming year, compounded between core risk courses developed and delivered in-house and an online solution with sessions scheduled in a classroom setting. A training policy was put in place based on various principles and guidelines. The purpose of the Risk Academy includes strengthening awareness of risk management and fostering Bank Audi’s risk culture.

From a strategic perspective, the Bank’s risk management objectives are to:

•Accompany thebusiness in itsgrowthand supportManagement in the implementation of the Bank’s strategy;

•PreserveandcontributetotheenhancementoftheBank’s financial strength by ensuring that risks and rewards are properly balanced and by minimising the impact of undesirable events on capital and profits;

•Formulate the risk appetite which determines therisk boundaries within which Management operates;

•ConstantlymonitortheriskprofiletoensurethattheBank is operating within set risk appetite and limits.

The Bank’s achievement of these objectives rests on four pillars:

i- Risk Governance: ensuring a clear and effective organisational structure with proper accountability and responsibility at the Management and Board levels as it relates to risk;

Risk Institutionalisation through risk appetite setting, Internal Capital Adequacy Assessment Process (ICAAP), and policies and procedures;

Risk Infrastructure, with state-of-the-art IT systems that enable better data aggregation, monitoring and reporting;

ii-

iii-

Risk Methodologies using the most appropriate and advanced measurement techniques to assess risk.

Risk Governance

The Risk division at Bank Audi operates independently from the business and provides oversight on risk management and controls. The Risk function is headed by the Chief Risk Officer who is a non-voting member of the Executive Committee and reports directly to the Chief Executive Officer. The Chief Risk Officer has access to the Board of Directors through the Board Group Risk Committee.

The Bank’s Group Risk division is composed of the following functions:

•CorporateCreditRisk•CounterpartyCreditRisk•RetailRisk•MarketRisk•OperationalRisk•RiskIntegrationandAnalytics•Corporate Information Security and Business

Continuity•RiskInfrastructure

Bank Audi has defined the following key guiding principles that underpin its approach to risk management, which include:

- Bank Audi’s risk management responsibilities follow a three-line of defence structure: the first being the business lines; the second being Risk and Compliance; and the third line of defence being Internal Audit and external auditors;

- Risks are properly disclosed to various internal and external stakeholders in a transparent, systematic, structured, timely and accurate manner, in order to allow various stakeholders to make prompt and informed decisions;

- The Risk function is independent from business lines and decision-makers, yet supports them in making informed choices and distinguishing among alternative courses of action.The responsibilities of Bank Audi’s Board of Directors with regards to risk management are to ensure that

iv-

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the risk management framework is designed in a way to enhance and facilitate the Bank’s ability to pursue its strategic objectives, while ensuring that no excessive risk is taken beyond its approved risk appetite and tolerance. Mainly conducted through the Board Group Risk Committee (BGRC) which met on a quarterly basis during 2012, the Board of Directors’ responsibilities also include setting the risk appetite, approving and reviewing the risk framework and policies, and reviewing and following up on the development of the risk function.This year, Board risk committees were set up in most entities in an effort to further enhance the Bank’s risk governance and overall risk coverage of the Group.

Risk Appetite

The risk appetite, which is set on an annual basis, is meant to provide the boundaries within which business lines operate. The setting of the risk appetite at Bank Audi is a result of a formal dialogue between Group Risk, business lines, Senior Management and the Board Group Risk Committee.The risk appetite, which is approved by the Board of Directors, is expressed in both qualitative and quantitative statements. The latter include a set of metrics covering risk appetite or targets, tolerances and limits.

The Bank maintains constant communication of the risk appetite to business lines and monitors the risk profile to ensure that it always remains within the Board of Directors’ approved limits.

Risk Institutionalisation

Risk Charter

The Risk Charter is a Board-approved set of guiding principles underpinning the responsibilities, authority and functioning of risk management across Bank Audi. The purpose of the Charter is to set out consistent and unified Risk Management practices across the Group by defining the mission, scope, principles, risk management framework, risk management process, internal governance, as well as roles and responsibilities of the Risk function designed to support the Bank’s strategic objectives.

The following chart depicts the key components of Group Audi’s risk management framework:

Stress Testing

Stress testing is used by Bank Audi to measure the Bank’s vulnerability to exceptional but plausible events. Bank Audi has formalised stress testing within a Board of Director-approved document and conducts regular stress testing for material risks to which it is exposed and resulting from both on and off-balance sheet transactions. Considered as an integral part of the ICAAP, stress tests’ results also feed into the yearly capital planning and budgeting process.

The selection of stress testing scenarios is the result of discussion between Group Risk, Group Finance and business lines, in consultation with the Group Research department. The results are reported to the Group Executive Committee, Board Group Risk

Strategy & Risk Appetite

People & Culture

Governance & Infrastructure

Risk Management Process

Risk Identification Risk Measurement Risk Monitoring Risk Mitigation & Control

Systems & Risk Architecture

Mo

nit

or,

Rev

iew

& Im

pro

ve

Mo

nito

r, Review

& Im

pro

ve

Risk Reporting & Consultation

Committee and Board of Directors depending on the materiality and relevance of the stress test at hand.

The Bank continuously monitors areas of concerns to probe for vulnerabilities within the loan portfolio. This practice was especially accentuated during 2012 given the political situation in Syria and Egypt, where regular stress tests were conducted on liquidity, asset quality and currency devaluation.

Risk Infrastructure

Group Risk and Group Finance have maintained their joint effort towards a strategic project aiming at creating an analytical and reporting platform for the Group from a unified set of data. This project, named Integrated Finance and Risk Management (IFRM) framework, will allow data aggregation to be made in a meaningful manner with a timely, consistent and consolidated view of enterprise data. It will also allow the Bank to rely on advanced analytical tools as part of its decision-making process.

The Bank is moving forward with the various phases of the IFRM. In the meantime, it is running on tactical projects to address its risk-reporting requirements and risk aggregation.

Risk Methodologies

Bank Audi has taken a strategic decision to move toward advanced approaches in risk management, which require both competent quantitative skills and adequate analytical tools. The Bank has made several efforts to strengthen the framework around model validation by adopting best practices for the development, calibration, validation and maintenance of various risk-related models. Such models will not only allow a better quantification of risk, but also support the business in its decision-making process.

Credit Risk Management

Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations.The credit risk culture is embedded within every person taking a commercial decision at Bank Audi. Each commercial transaction is accompanied with an

independent risk assessment that identifies the key risks, as well as the return, on a risk-adjusted basis within the underlying transaction.At Bank Audi, the major sources of credit risk within the Bank stem from sovereign, financial institutions, corporate, commercial and retail exposures.Measurement is performed to effectively assess the probability of risk occurrence and to make assumptions as to their potential severity. During 2012, the rating models for SMEs have been rolled out. One model was aimed at SMEs with reliable financial statements, while the other targeted SMEs with less reliable financial statements. Moreover, the Bank initiated one additional modelling workshop to design and implement a fully-integrated internal rating model for project finance and to refine the existing generic corporate model.

In an effort to optimise the use of capital, the Bank has incorporated a Risk Adjusted Performance Measurement (RAPM) as part of its credit approval process to ensure a proper risk and return balance on any transaction, while contributing to shareholder value.

The Bank’s effort to enhance the retail empirical and expert scorecards was initiated in 2012. The coming year will see the design and roll-out of several scorecards within the retail entities of the Group.

Measurement models and related assumptions are routinely subject to internal model review, empirical validation and benchmarking, with the goal of ensuring that the Bank’s risk estimates are reasonable and reflective of the risk of the underlying positions.

Liquidity Risk Management

Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances.

Liquidity risk can manifest in the following two forms:

• FundingliquidityriskistheriskthattheBank’sfinancialcondition is adversely affected as a result of its inability to meet both expected and unexpected current and future cash flow and collateral needs in a timely and cost-efficient manner;

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financial institutions relative to maturing deposits over 1-month and 3-month horizons) are at healthy levels. For example, the 1-month ratio is nearly 28%.

The Bank maintains pools of liquid unencumbered securities and short-term placements. It also actively monitors the availability of funding across various geographic regions and in various currencies. Its ability to generate funding from a range of sources in a variety of geographic locations and in a range of tenors is intended to enhance financial flexibility and limit funding concentration risk.

In Syria, additional measures are in place to further strengthen liquidity adequacy compared with normal periods. The 1-month liquidity ratio (as defined above) stands at nearly 48% for Bank Audi Syria. Measures taken include daily or intraday monitoring of cash note availability, scale-down of lending activity, and maintenance of short-term liquid assets (placements with their respective central banks or bank counterparts). Contact and reporting to parent Senior Management, Treasury and Market Risk functions are maintained on a regular basis.

In terms of governance, the process is designed to ensure that its liquidity position remains strong at both entity and parent levels. The Asset-Liability Committee (ALCO) formulates and oversees the execution of the Bank’s liquidity policy (which essentially lays down the Bank’s liquidity management strategy). The liquidity risk policy for identifying, measuring, monitoring, and reporting liquidity risk, and the contingency funding plan are recommended by Risk Management, reviewed by ALCO, approved by the Executive Committee, and finally ratified by the Board of Directors. Measurement, monitoring and reporting are performed for the most part by either Treasury or Risk Management, each of which inform and may escalate to ALCO based on key risk indicators and both regulatory and internal limits. Treasury is responsible for executing the Bank’s liquidity policy, as well as maintaining the Bank’s liquidity risk profile according to ALCO directives, all within the risk appetite set by the Board of Directors. The parent bank’s Treasury and Capital Markets division communicates with entity Treasury departments to ensure adequate liquidity conditions at the Group level.

•Market liquidity risk is the risk that the Bankcannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption ultimately leading to loss.

The Bank addresses these risks in two distinct environments:

Normal conditions where the Bank must satisfy daily liquidity needs (flows) and the liquidity risk associated with those needs (e.g. in conjunction with expanding product or business mix, settlement, deposit/loan growth, etc.);

Stressed conditions where the Bank is facing liquidity strains due to idiosyncratic or systemic conditions and may invoke the Contingency Funding Plan (CFP) as a result.

Liquidity Adequacy

Management considers the Bank’s liquidity position to be strong, based on its liquidity metrics as of December 31, 2012, and believes that the Bank’s funding capacity is sufficient to meet its on and off-balance sheet obligations.

The Bank’s funding strategy is intended to ensure sufficient liquidity and diversity of funding sources to meet actual and contingent liabilities through both normal and stress periods.

The Bank’s primary sources of funding include a stable customer deposit base constituting 84% of its funding (liabilities + equity), which was USD 26.4 billion at December 31, 2012, rising by USD 1.7 billion from 2011. Nearly 76% of deposits are Retail/Personal Banking accounts, whereas about 24% are corporate/SME. The large Retail/Personal Banking base emphasises the Bank’s reliance on sources of funding that are considered to be the most stable, as evidenced by their treatment under the recent Basel III Liquidity Standards (not in effect yet, but approved in final form by the Basel Committee).The Bank’s consolidated short-term liquidity ratios (defined as net current accounts and maturing placements with central banks plus banks and

1.

2.

Monitoring and setting of risk appetite for liquidity occur independently for each entity. Given the Bank’s operating environment, the Bank monitors liquidity adequacy in each currency separately, especially for significant currency positions. The Bank employs a variety of metrics to monitor and manage liquidity. One set of analyses used by the Bank relates to the timing of liquidity sources versus liquidity uses (eg. liquidity gap analysis). A second set of analyses focuses on ratios of funding and liquid assets/collateral (e.g., measurements of the Bank’s reliance on short-term unsecured funding as a percentage of total liabilities, as well as analyses of the relationship of short-term unsecured funding to highly-liquid assets, the loans-to-deposits ratio, and other balance sheet measures).The Bank performs liquidity stress tests as part of its liquidity monitoring. The purpose is to ensure sufficient liquidity for the Bank under both idiosyncratic and systemic market stress conditions. These stress tests are produced for the parent and major bank subsidiaries.

Liquidity management at the parent level takes into account regulatory restrictions that limit the extent to which bank subsidiaries may extend credit to the parent and vice versa, and to other non-bank subsidiaries. Although considered as a source of available liquidity, the Bank does not view borrowing capacity at central bank discount windows in the jurisdictions it operates in as a primary source of funding, but rather as a secondary one. In addition, the Bank holds high-quality, marketable securities available to raise liquidity, such as corporate and sovereign debt securities.

Market Risk Management

Market risk is defined as the potential loss in both on and off-balance sheet positions resulting from movements in market risk factors, such as foreign exchange rates, interest rates and equity prices.

The Bank has a very low tolerance to market risk stemming from changes in equity prices and foreign exchange rates. Its main exposure to changes in FX rates stems from its structural FX position resulting from its equity investments in banking subsidiaries in currencies that cannot be hedged against. This leaves interest rate risk in the banking book (IRRBB) as the main contributor to market risk.

IRRBB

Interest rate risk in the banking book arises out of the Bank’s interest-sensitive asset, liability and derivative positions. The mismatch in the repricing dates of these positions creates interest rate risk for the Bank which is inherent in its banking activities.

The sensitivity of net interest income for major currencies is listed below at the consolidated group level.

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Change (Basis Points) Increase Decrease

EUR ± 25 2,103 -2103

USD ± 50 21,050 -21,050

LBP ±100 -902 902

Sensitivity of Net Interest Income (LBP Million)

It is important to note that interest rates on assets do not change in tandem with liability rates. The stickiness of customer deposit rates in Lebanon, an observed phenomenon in the Lebanese market, has been incorporated in the above table. It has been quantified for the Lebanese USD customer deposit market whereby a relationship between changes in deposit rates has proven statistically reliable and reflects historical behaviour. For LBP, the estimated relationship is based on relatively recent history, which Management believes is more relevant in the current economic environment. The relationship, along with Senior Management’s view of current market dynamics, is incorporated for customers’ deposits in Lebanese entities only, whereas other entities are calculated on purely contractual terms. It is worth noting that the relationship does not incorporate the lag in the response of deposit rate changes to changes in market rates.

The interest rate risk profile of the Bank is within acceptable bounds. The negative impact of a fall in USD interest rates, as indicated above, constitutes less than 2.3% of net interest income for the Group. Given the prevailing low interest rate environment in USD, the Bank views a falling rate scenario as unlikely.

Operational Risk Management

Operational risk is the risk of loss arising from system failure, human error, fraud or external events.

Operational risk exists in all activities and can materialise in various ways such as errors, frauds, or business interruptions that can result in direct and indirect lost income, such as reputational damage.

At Bank Audi, the primary responsibility for the management of operational risk resides in the

business. To monitor and control operational risk so as to maintain it within Board-approved risk tolerances, operational risks are assessed on a regular basis by evaluating the effectiveness of the control design against risk scenarios mapped to internal risk registries and implementing corrective actions where needed. These internal risk registries are mapped to seven standardised categories used for reporting to Management and to the Board of Directors: internal and external fraud, employment practices and workplace safety, clients, products and business practices, damage to physical assets, business disruption and system failures, and execution, delivery and process management.

In addition, a system of incident reporting and a set of risk indicators together help confront ex-ante risk assessments to reality and improve controls before a situation develops into lost income exceeding tolerances.

The Bank has recently been in the process of rolling out a special purpose operational risk management tool which closely mirrors the methodologies it had already developed internally. This tool is designed to ensure a more efficient group-wide implementation of the operational risk policy.

As an additional layer of mitigation against operational events, the Bank purchases comprehensive insurance coverage from highly-rated reinsurers. This coverage is purchased wherever economically feasible and includes coverage against political violence, strikes, riots and terrorism in some countries that experienced unrest in 2012.

Notwithstanding its efforts to control operational risks, Bank Audi does incur unexpected operational losses, in particular as the sum of losses incurred below the insurance deductible, losses that are

neither insured nor so predictable as to be priced, as well as setbacks to budgeted revenue (lost income). When these happen, they are escalated to the relevant Manager or Management committee and followed up for possible recoveries and process improvements.

The Bank complies with the qualifying standards of Basel II’s standardised approach (Paragraph 663 of the Basel II Capital Accord) and has tested, documented and discussed with regulatory authorities the mapping necessary to calculate the capital charge according to the standardised approach. Currently, however, the Bank applies the basic indicator approach for the calculation of its capital charge for operational risk.

Finally, the operational risk framework is audited yearly, as per regulatory requirements and standard industry practice.

7. Investor Relations

7.1. Investor Relations Activity in 2012

Within the current political uncertainties in several markets of presence of the Group, the investor

relations activity in 2012 revolved around maintaining the investment community, investors and sell-side analysts informed of current status and outlook of the Group, highlighting the strategies adopted by Management in the face of these developments, managing the underlying risks and sustaining the Group’s performance. Henceforth, communication with the institutional investor community was focused on ensuring they have a good knowledge of the Group’s strategy going forward, have confidence in the opportunities and rewards what a diversified institution like Bank Audi has to offer.

To that end, Bank Audi participated in 2012 in 7 equity conferences, fulfilling 68 meetings with 60 institutional investment companies, represented by 73 fund managers based principally in the United States, the United Kingdom and the MENA region, but also South East Asia, Australia and Eastern Europe. While somehow underscoring the limited equity institutional investors’ appetite prevailing in 2012 as a result of global and regional woes, Bank Audi’s investor relations activity in 2012 reflects only an extension of the Bank’s long-standing track record since 1995. The table below illustrates Bank Audi’s participation since 2005 in equity conferences highlighting Management’s commitment to Investor Relations:

Participation in Equity Conferences/ Non-deal Roadshows

2005 2006 2007 2008 2009 2010 2011 2012 Total

Equity conferences 4 3 6 2 10 13 14 7 59

Number of meetings 87 66 139 68 201 207 170 68 1,006

Number of companies met 74 54 120 66 141 151 116 60 782

Number of portfolio managers met 122 88 171 94 244 248 185 73 1,225

Company/Equity conferences 18.5 18.0 20.0 33.0 14.1 11.6 8.3 8.6 13.3

Meeting/Company 1.2 1.2 1.2 1.0 1.4 1.4 1.5 1.1 1.3

Portfolio manager/Company 1.6 1.6 1.4 1.4 1.7 1.6 1.6 1.2 1.6

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Several site visits were also scheduled for institutional investors that were not able to secure meetings during the equity conferences and for those investors interested in visiting the corporate head office to complement their knowledge on Bank Audi.

The sell-side and buy side communities were also constantly updated through mass mails dispatched on regular basis, with the Bank’s quarterly earnings releases and related corporate actions, as well as through constant updates of the Investor

Management was always keen on providing all necessary resources for in-house meetings or conference calls with the sell-side community, and to answer all information requests in a transparent, effective and timely manner, in full compliance with the Bank’s disclosure policy.

8. Deployed Resources 8.1. Operations

In 2012, the Bank’s operations Management focused on developing its operating model, ensuring a high service quality, while introducing new technologies and guaranteeing a high level of security. In line with the above, operations Management at Bank Audi concentrated its efforts on:

•Continuingtodevelopthecurrentoperatingmodelby deploying the concept of personal bankers. The objective behind this new structure is to move from a product-centric approach towards a bank revolving around customer centricity. To that end, a restructuring plan has been put in place through the creation of Commercial Business Centres throughout

Relations webpage (including the Investor Relations presentation) on a quarterly basis.

7.2. Bank Audi's Stock Research Coverage

Since 2010, several London-based banks and regional financial institutions initiated coverage of Bank Audi’s stock. The table below lists institutions that cover the Bank’s stock till April 2012:

Lebanon, spinning off ”credit” as a focused business and offering our Relationship Managers a unique professional environment, while allowing to cater to our clients’ needs and using a pro-active approach with a competitive response time;

•Upgrading the quality of the service through the introduction of a comprehensive quality program comprised of mystery shopping, phone calls to clients and branch visits. This program was coupled up with prizes and incentives offered to the best branches on a monthly basis and communicated to the whole bank. In addition, key performance indicators have been put in place to measure the operational front liners’ performance which helped the assessment of additional recruitment needs and resources' re-allocation. Academic trainings were also delivered to keep the branch staff updated with the most recent regulatory and compliance frameworks;

•Enhancing our alternative delivery channels to meet the new technology challenges. This led to the deployment of the “Novo” concept, as well as the Cash and Cheque deposit services on the Bank’s ATMs around the country. Late 2012, a teller drive-through concept was also implemented to

Institutions Country Analyst Initiation Date

EFG Hermes Egypt Elena Sanchez-Cabezudo Jan-06

FFA Private Bank sal Lebanon Nadim Kabbara Oct-09

Beltone Financial Egypt David Mikhail Dec-09

HSBC United Kingdom Shirin Panicker Feb-10

Deutsche Bank United Kingdom Rahul Shah Nov-10

Arqaam Capital United Arab Emirates Jaap Meijer Feb-12

Bank Audi's Stock Coverage

complete the enhancement of our alternative channels. All the above goes in line with the Bank’s strategy to alleviate traffic on the traditional delivery channels (branches) by re-directing clients to alternative channels where they can now perform all kinds of operations within the self-service initiative.

•Improving the Bank’s performance and efficiencyby an internal restructuring of the key operational departments, automating processes reengineering workflows to reduce turnaround time, and incorporating new systems to meet with the current operational challenges and workload.

•Insuring business continuity to respond to any unforeseen situation which might affect the Bank’s operations. A disaster recovery site has been launched and a contingency business plan prepared and communicated to concerned parties. The disaster recovery site can respond to any system failure or incidents generated by local turmoil.

8.2. Information Technology

In 2012, Bank Audi’s IT supported the Bank’s growth plans by launching new applications, kick-starting the transformation program and completing the set-up of Odeabank’s IT organisation, in addition to enhancing its operational efficiencies by optimising efficient utilisation of resources and ensuring transparent monitoring of capital consumption. A heightened importance was also given to enhancing the existing security measures and emphasising business continuity.

1. New Applications

In 2012, Bank Audi launched several new applications: 1) Cash and Cheque deposit functionality on the largest ATM network in Lebanon; 2) Capital Market Module on the new Treasury platform (Murex); 3) Operational Risk Management system; 4) Internal Branch Mailing System that automates and tracks the internal mail between branches and departments; and 5) Visa Business Debit that allows companies to manage their everyday expenses (e.g. limits) and cash flow through a convenient and secure payment card, as an alternative to cash and cheques, and also gives business owners full control over their staff expenses through profiling and blocking balance inquiry function.

2. Transformation Program

Bank Audi also kicked-off its IT transformation Program in 2012 where it will replace most of its legacy systems with state-of-the-art products and technologies. To get the most of this transformation, Bank Audi is implementing a best-in-class middleware solution that seamlessly integrates different business applications through service-enabled back-end applications via the middleware. Bank Audi is accomplishing this through a robust environment of web services for fast integration and re-use of functionality across multiple applications and legacy systems. The middleware is the first step for proper and futurist IT architecture. Oracle Service Bus (Middleware) was selected and procured in 2012, and went live early in 2013.

3. Odeabank IT Implementation

Bank Audi expanded to Turkey and set up a greenfield bank (Odeabank). Bank Audi's IT team led the selection of two key local IT strategic partners (InterTech and Probil) for the core banking systems and infrastructure support. The team worked side by side with the providers and Bank Audi business team members in setting up the core banking system and third party applications, configured Odea competitive products, established complete policies and procedures, set up a business continuity centre and disaster recovery, and ensured compliance with the local banking regulators (BRSA). In addition, Bank Audi’s IT team completed the set-up of Odeabank’s IT organisation by recruiting a local team to support the business and the growth of Odeabank. Bank Audi’s IT is currently supporting Odeabank in the implementation of its Treasury platform (Murex).

4. Operational Efficiencies

• InternalOrganisation Bank Audi’s IT team initiated an internal restructuring

of the infrastructure unit with an aim to transform it into a “service-oriented department”. The Infrastructure unit was split in two: an Operations team with dedicated resources for daily operational work, and a Support and Infrastructure team tasked with project fulfilment.

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As for enhancing its technical capabilities to support the transformation, Bank Audi’s IT (a) created two new functions within the Solution Delivery unit, Software Quality Control (Testing) and Integration to better serve the Bank in terms of operational efficiency and project delivery, (b) extensively trained SDM professionals, and (c) upsized the Architecture unit and hired external consultants to assist in designing the target architecture.

• ResourceEfficiency Bank Audi’s IT worked on enhancing its resource

efficiency which is key to ensuring on-time delivery of the project pipeline. For that reason, transparency and planning were stressed by enforcing employees’ use of vendor-based tools such as EPM and Time Sheet. This, coupled with the enhanced visibility on project pipeline generated by the newly structured budget process, enabled Senior Management to better forecast the human capital required to deliver. These tools provided IT Management with visibility of demand versus supply, and helped in the expansion of the IT Organisation from 117 to 139 employees to cover the various projects of the Group.

• TransparentCapitalMonitoring Bank Audi’s IT and Finance department designed

a new IT budget process to enhance transparency on actual spendings and properly allocate costs between IT and business. In addition, the new process ensures clear procurement planning, improved vendor management, and a better understanding of resource needs. The Bank also strengthened strategic partnership with suppliers such as HP, Oracle, IBM, and Cisco.

Bank Audi’s IT CAPEX increased by 74% to reach USD 27.4 million in 2012. This increase is mainly due to the establishment of a new disaster recovery centre in Kfour, a data centre in Plaza, the launch of the Transformation Program, and the purchase of the Oracle Unlimited License Agreement. OPEX exhibited a slight increase of 6% and amounted to USD 12.5 million in 2012.

5. Security and Business Continuity

In response to the existing global security threats, Bank Audi’s IT formulated a comprehensive security plan with a USD 2 million approved budget. The objective is to enhance the Bank’s network security by placing internal firewalls and intrusion/threat prevention systems, to improve the information system security by hardening the different IT components based on best practices, and to increase the Bank’s internal advanced threat detection capabilities by implementing new monitoring tools. In addition, the Bank pressed on with the design and construction of the disaster recovery centre, in line with Tier III classification as per Uptime Institute Standards (appropriate for companies that support clients 24x7 in multiple time zones) and the migration to a new data centre in the head office (Bank Audi Plaza).

9. Human ResourcesHR Developments

The year 2012 was marked by significant achievements by Human Resources (HR), crowned by the launching of the “Training Academy”, a long-awaited milestone that required extensive planning, research and preparation. Areas around Recruitment and Selection, Training and Development, Relationship Management, and Corporate Social Responsibility also had a considerable share of the annual accomplishments.

Recruitment and Selection efforts during 2012 resulted in the engagement of 185 new employees from diverse backgrounds. In addition, the “Student Internship Program” welcomed 455 local and international students (undergraduates/graduates) from top ranking universities who were offered the opportunity to gain knowledge about banking operations and to have a general understanding of the Bank’s corporate culture.

Furthermore, and in line with our continuous efforts to build bridges with graduates from prestigious international universities, 2012 was concluded with two prominent events: 1) the “6th Harvard Arab Weekend” organised by the MENA Club of Harvard

Business School in Boston, and 2) a lunch gathering at the Bank’s headquarters for Lebanese students from top American, British and French universities. These events presented a significant occasion to meet high-performing students and discuss their career/internship opportunities at the Bank.

On the level of Relationship Management, HR experts maintained strong rapport with stakeholders in branches and head office departments through continuous field visits and follow-up. 440 employees were transferred/promoted within the Bank, and presented with opportunities to advance in their careers.

As stated above, 2012 was characterised by the creation of a “Training Academy” (TA) at Bank Audi, which covers various programs targeting the development of branch employees. Accordingly, all branch employees were presented with the “Career Progression Program” which defines requirements for the development of their professional abilities and career advancement (including educational background, years of experience, performance levels, skills and competencies). The program provides a range of soft/technical courses designed for each function/level within the banking field. One-on-one meetings were held with each employee to hand over “training passports” as a road map to guide them through the path for advancement in each field. As a result, 2012 witnessed the completion of 18 sessions offered to 445 registered employees. Within the same scope, the TA also targets branch managers/assistant branch managers through the “Corporate Academy” whereby the latter are invited to a weekend retreat aiming at the enhancement of their technical/general knowledge in the financial sector and during which internal experts from different fields (such as Finance, Economic Research, Audit, HR, etc.) conduct informative and interactive sessions with the audience.

2012 also witnessed the implementation of major phases of the “Talent Management and Succession Planning” system at the Bank, whereby employees were categorised on the basis of performance and potential using the 9-box grid methodology. Furthermore, career progression plans and

retention strategies were developed for identified high-potential individuals/future leaders. In the case of the Group Risk Management department, a succession plan was also mapped for key/critical risk positions, paving the way for the future development of a comprehensive workforce succession plan covering all branches/departments.

Bank Audi is continuously delivering valuable trainings and promoting professional development to its human capital, which encompasses all types of facilitated learning opportunities, ranging from training activities and coursework to development activities and programs. In 2012, a total of 180,700 training and internship hours were delivered to the Bank’s employees, in addition to 125,370 on-the-job training hours. A total of 7 employees were enrolled in special training programs, including the Individual Development Program and Specialised Credit Training Program, aiming at preparing potentials and high performers for present and future opportunities, in alignment with their career progression plan.

2012 Training and Development Activities

Banking

Finance & Economy

Information Technology

Languages

Legal, Compliance, AML, Fraud

Training in 2012

Managerial & Organisational

Behaviour

Retail & CRM

Risk Management

Specialisation field

13%11%

16%

8%

5% 3%

4%14%

26%

74 75

In addition, while aiming at giving equal opportunities to all qualified employees, Bank Audi continues to encourage personal development and improve the quality of work through the Educational Sponsorship Initiatives. In 2012, 46 employees were selected and sponsored to pursue their higher education through 12 local and 2 international Masters programs, 14 banking-related studies, and 18 specialised certifications.

In compliance with the Central Bank’s regulations, employees are continuously enrolled in specific certifications related to regulatory banking functions. As such, Bank Audi remains the market leader in achieving BDL certification requirements. The following table summarises the cumulative figures for certified employees:

BDL Certifications

Lebanese Financial Regulations

CAMS

Financial Derivatives

Risk in Financial Services

Investments & Risks

International Introduction to Investments

Global Securities

26.0%

47.0%

76.0%

77.0%

81.0%

92.0%

95.0%

On another note, at the international level, HR contributed to the global expansion strategy by setting up the HR function of the Bank’s greenfield operation in Turkey, Odeabank. HR business partners carried out several missions over a period of six months, covering main HR areas, resulting in the hiring of 43 employees, and developing major HR policies and practices, as per local regulations and culture.

10. Corporate Social ResponsibilityAt Bank Audi, accepting social responsibility in all markets of presence is an integral part of the conduct of business. To that end, Management devised to create a Corporate Social Responsibility (CSR) unit empowered with the necessary resources to implement our sustainability strategy and execute CSR actions.As a recognition of its practices, the Corporate Social Responsibility (CSR) unit of Bank Audi was selected by ISO (International Organisation for Standardisation) through Libnor (the Lebanese Standards Institution attached to the Ministry of Industry) as the first pilot organisation within the banking sector to implement the ISO 26000 Social Responsibility guidelines, with the aim of being recognised as such with a high level of commitment and accountability. The core subjects of this affiliation encompass organisational governance, human rights, labour practices, the environment, fair operating practices, consumer issues, and community involvement and development. The project aims at:

•Sustaining the Bank’s position as the largestemployer in the Lebanese private sector and as a non-discriminatory and equal opportunity employer;

•Reinforcingitsabilitytoattractandretainemployeesand maintain their morale, commitment and productivity efficiency, as well as further engage employees in volunteering;

•Ensuringhealthyecosystems,socialequity,andgoodorganisational governance through our sphere of influence, especially through our supply chain.

Several CSR initiatives have so far been implemented in that regards, such as:

•The five-year collaboration agreement Bank Audisigned with BADER Young Entrepreneurs Program to support growing businesses and empower future entrepreneurs and the business community as a whole. This project sustains our belief in the value of human capital and the endeavour to boost entrepreneurship and innovation within our core business;

•Sustaining the “Conscientious Driver” campaignintended to increase awareness on road safety by observing the United Nations Decade of Action for Road Safety, and pursuing the signing of pledges for this mission;

•Containingourcarbonfootprintontheenvironmentby implementing a paper recycling program within our branches, in addition to 3 collection hubs for plastic, tin, paper and batteries within our head office, and creating internal awareness on safe-keeping our environment;

•Fulfilling various fund-raising requests for public,private, medical, welfare and humanitarian purposes;

•Promoting various other activities involving sports,health orientations, employee wellness, etc.

A separate CSR report is published as an appendix to this one, which elaborates the Bank’s activities in this area and measures its impact precisely.

76 77

turkeyBank Audi extended its leading role to the wider region by launching its operations in Turkey in late 2012, building on the strong historic ties between Turkey and the Arab world on the back of significant flows of people, capital and goods. Through its newly established subsidiary, Odeabank, the Group started servicing the growing middle corporate segment, offering corporate and trade finance services, while aiming to gradually develop a value added retail franchise.

78 79

general assembly excerpts

Resolution No. 3 In line with the preceding resolution, the Ordinary General Assembly of shareholders of the Bank announced a series “D” preferred shares distribution of USD 0.775 per share, a series “E” preferred shares distribution of USD 6.00 per share, a series “F” preferred shares distribution of USD 4.00 per share, and a dividend to common shares of LBP 603 per share, all subject to the withholding of distribution tax, and resolved that all distributions and dividends will be paid starting April 10, 2013 to the holders of shares on record as at April 5, 2013 (“record date”) as per records of Midclear sal.

* On a stand alone basis.

Amounts in 000s of LBP

Net profits for the year 2012* 435,987,869

Less: • Appropriation of 10% to the legal reserve 43,598,787392,389,082

• Appropriation for general banking risks o.w. Lebanon branches: 55,000,000

337,389,082

Less: • Transfer to reserves appropriated to capital increase resulting from the liquidation of fixed assets acquired in settlement of debt

• Transfer to the reserves for fixed assets earmarked for liquidation and acquired in settlement of debt

1,263,441

0

Net profits available for distribution 336,125,641

Add: •Transfer from previous retained earnings

Less: •Unrealised profits from revaluation of financial instruments classified at fair value - not distributable in accordance with Circular No. 270 issued by the Banking Control Commission

Less: •Distribution to holders of 12,500,000 series “D” preferred shares on the basis of USD 0.775 per share at the exchange rate of LBP 1,507.50 per USD

� - Distribution to holders of 1,250,000 series “E” preferred shares on the basis of USD 6.00 per share at the exchange rate of LBP 1,507.50 per USD

� Distribution to holders of 1,500,000 series “F” preferred shares on the basis of USD 4.00 per share at the exchange rate of LBP 1,507.50 per USD

28,267,929

20,961,919

14,603,906

11,306,250

9,045,000

343,431,651

Net profits available for distribution to holders of common shares 308,476,495

Less: •Dividends to holders of 348,550,907 common shares on the basis of LBP 603 per common share 210,176,197

Net profits after distribution 98,300,298

Less: • Transfer to general reserves 0

Profits carried forward to 2013

o.w. Lebanon branches: 98,300,298

April 8, 2013Resolution No. 1 The Ordinary General Assembly of shareholders of the Bank approved the Bank’s accounts, in

particular the balance sheet and the profit and loss statement as at and for the year ended on December 31, 2012, and granted full discharge to the Chairman and members of the Board of Directors in respect of their management of the Bank’s activities during the year 2012.

Resolution No. 2 The Ordinary General Assembly of shareholders of the Bank resolved to appropriate the stand alone profits of Bank Audi sal - Audi Saradar Group for the year 2012 as follows:

80 81

consolidated financial statements

82 83

Consolidated Income StatementFor the Year Ended December 31, 2012

* Restated for the effect of separate presentation of profit from discontinued operations and earnings per share information.

(Restated)*

2012 2011

Notes LBP Million LBP Million

Continuing operations

Interest and similar income 4 2,208,509 2,056,972

Interest and similar expense 5 (1,344,819) (1,268,750)

Net interest income 863,690 788,222

Fee and commission income 6 330,562 318,952

Fee and commission expense 7 (51,197) (50,060)

Net fee and commission income 279,365 268,892

Net gain on financial assets at fair value through profit or loss 8 197,456 126,171

Net gain on sale of financial assets at amortised cost 9 265,812 221,014

Revenues from financial assets at fair value through other

comprehensive income 27 30,245 27,720

Net gain on sale of subsidiaries and associates 10 - 2,024

Other operating income 11 22,251 48,638

Total operating income 1,658,819 1,482,681

Net credit losses 12 (182,585) (137,659)

Net operating income 1,476,234 1,345,022

Personnel expenses 13 (411,746) (380,856)

Depreciation of property and equipment 29 (46,088) (38,796)

Amortisation of intangible assets 30 (7,663) (7,045)

Impairment of goodwill 33 (21,167) -

Other operating expenses 14 (291,959) (242,679)

Total operating expenses (778,623) (669,376)

Operating profit 697,611 675,646

Share of profit of associates under equity method 551 5,133

Net gain on disposal of fixed assets 850 387

Profit before tax from continuing operations 699,012 681,166

Income tax 15 (154,537) (139,514)

Profit after tax from continuing operations 544,475 541,652

Discontinued operations

Profit from discontinued operations, net of tax 16 33,814 8,899

Profit for the period 578,289 550,551

Attributable to:

Equity holders of the Bank: 564,737 544,239

Profit for the year from continuing operations 531,419 536,798

Profit for the year from discontinued operations 33,318 7,441

Non-controlling interests: 13,552 6,312


Profit for the year from discontinued operations 496 1,458

578,289 550,551

Earnings per share:

LBP LBP

Basic earnings per share 1,527 1,510

Diluted earnings per share 1,526 1,507

Basic earnings per share from continuing operations 1,431 1,488

Diluted earnings per share from continuing operations 1,430 1,485

Consolidated Statement of Comprehensive IncomeFor the Year Ended December 31, 2012

2012 2011



Discontinued operations 33,814 8,899

Profit for the year 578,289 550,551

Other comprehensive income (loss)

Exchange differences on translation of foreign operations (126,143) (50,362)

Net loss/gain on hedge of net investments (3,589) 4,125

48 (129,732) (46,237)

Net unrealised loss on financial assets at fair value through other comprehensive income 5,613 (29,481)

Net deferred income taxes (9,667) (232)

48 (4,054) (29,713)

Other comprehensive loss for the year, net of tax 48 (133,786) (75,950)

Total comprehensive income for the year, net of tax 444,503 474,601

Attributable to:

Equity holders of the Bank 430,951 468,289

Non-controlling interest 13,552 6,312

444,503 474,601

84 85

Consolidated Statement of Financial PositionAs at December 31, 2012

2012 2011


Assets

Cash and balances with central banks 18 9,462,380 8,703,354

Due from banks and financial institutions 19 4,280,978 4,562,602

Loans to banks and financial institutions and reverse

repurchase agreements 20 1,060,267 219,084

Financial assets given as collateral 21 - 17,424

Derivative financial instruments 22 51,046 82,209

Financial assets at fair value through profit or loss 23 510,657 823,926

Loans and advances to customers at amortised cost 24 15,416,403 12,692,177

Loans and advances to related parties at amortised cost 25 304,511 263,666

Debtors by acceptances 182,715 280,819

Financial assets at amortised cost 26 14,549,116 14,307,303

Financial assets at fair value through other comprehensive income 27 245,793 223,984

Investments in associates 28 34,230 43,099

Property and equipment 29 528,710 511,550

Intangible assets 30 49,600 13,508

Non-current assets held for sale 31 50,054 26,379

Other assets 32 238,163 288,171

Goodwill 33 222,846 261,431

Total assets 47,187,469 43,320,686

Liabilities

Due to central banks 34 133,108 133,394

Due to banks and financial institutions 35 1,171,174 1,007,558

Due to banks under repurchase agreements 35 681,487 -

Derivative financial instruments 22 56,042 58,246

Customers’ deposits at amortised cost 36 39,718,890 37,097,210

Deposits from related parties at amortised cost 37 689,101 285,297

Engagements by acceptances 182,715 280,819

Other liabilities 38 408,865 832,087

Provisions for risks and charges 39 95,096 72,925

Non-current liabilities held for sale 31 14,799 -

Total liabilities 43,151,277 39,767,536

Shareholders’ equity – Group share

Share capital – Common shares 40 438,586 438,197

Share capital – Preferred shares 40 19,124 17,243

Issue premium – Common shares 41 659,206 657,846

Issue premium – Preferred shares 41 583,876 359,633

Cash contribution to capital 42 72,586 72,586

Non-distributable reserves 43 808,434 696,360

Distributable reserves 44 551,406 380,215

Treasury shares 47 (20,245) (103,912)

Retained earnings 328,223 328,515

Other components of equity 48 (66,579) 21,056

Result of the year 564,737 544,239

3,939,354 3,411,978

Non-controlling interest 49 96,838 141,172

Total shareholders’ equity 4,036,192 3,553,150

Total liabilities and shareholders’ equity 47,187,469 43,320,686

Consolidated Cash Flow StatementFor the Year Ended December 31, 2012

2012 2011Notes LBP Million LBP Million

Operating activitiesProfit before tax from continuing operations 699,012 681,166Profit before tax from discontinued operations 45,581 10,624Adjustments to reconcile profit before tax to net cash flows:Non-cash: Depreciation and amortisation 29 & 30 55,180 47,380 Impairment of assets acquired in settlement of debt reversed 31 (4) (602) Net gain on financial instruments at amortised cost 9 (265,812) (220,930) Provisions for loans and advances 12 202,104 174,436 Recoveries of provision for loans and advances 12 (19,628) (36,776) Share of net profit of associates (551) (5,133) Net gain on disposal of assets acquired in settlement of debt 11 (8,297) (5,433) Net gain on sale or disposal of fixed assets (850) (230) Provision for risks and charges 39 24,856 4,448 Write-back of provisions for risks and charges 39 (7) (4,639) Provision for impairment of financial instruments 12 110 - Provision for end of service benefits 39 12,826 10,303 Employees’ share-based payments expense 13 - 40 Gain on sale of subsidiaries and associates 10 & 16 (48,622) (2,024) Gain on revaluation due to loss of control 16 (20,439) - Impairment of goodwill 33 31,088 - Effect of entities deconsolidated during the year (47,753) - 658,794 652,630Working capital adjustments:Balances with the central banks, banks and financial institutions maturing in more than 3 months (314,259) (1,990,470)Change in derivatives and financial assets held for trading 342,227 152,092Change in financial assets given as collateral 17,424 (17,424)Change in loans and advances to customers and related parties (2,923,486) (198,120)Change in other assets 220,171 (50,316)Change in deposits from customers and related parties 2,704,245 (75,584)Change in other liabilities (300,357) (187,518)Proceeds from sale of assets obtained in settlement of debt 19,068 9,140Change in non-controlling interest (44,334) (36,278)Cash from (used in) operations 379,493 (1,741,848)Provisions for risks and charges paid 39 (3,997) (4,075)End of service benefits paid 39 (2,908) (1,834)Taxation paid 15 (131,373) (121,485)Net cash flows from (used in) operating activities 241,215 (1,869,242)Investing activitiesChange in financial assets – other than trading 21,776 580,609Purchase of property and equipment and intangibles 29 & 30 (182,499) (65,301)Investments under equity method and related loans 9,420 (7,222)Cash collected from sale of property and equipment and intangibles 18,635 1,927 Proceeds from sale of associates and subsidiaries 16 133,212 20,880Net cash flows from investing activities 544 530,893Financing activitiesIssuance of preferred shares series “F” 40 226,125 -Increase in share capital and issue premium from stock options exercise 1,748 4,395Distribution of dividends 40 (236,179) (230,813)Treasury GDR transactions 59,083 (67,942)Net cash flows from (used in) financing activities 50,777 (294,360)Increase (decrease) in cash and cash equivalents 292,536 (1,632,709)Net foreign exchange difference 186 6,846Cash and cash equivalents at January 1 5,299,740 6,925,603Cash and cash equivalents at December 31 50 5,592,462 5,299,740Operational cash flows from interest and dividendsInterest paid (1,316,918) (1,288,577)Interest received 2,228,143 2,092,214Dividends received 30,418 30,086

86 87

Consolidated Statement of Changes in EquityFor the Year Ended December 31, 2012

Share Capital – Common

Shares LBP Million

Share Capital –

Preferred Shares

LBP Million

Issue Premium –

Common Shares

LBP Million

Issue Premium – Preferred

Shares LBP Million

Cash Contribution

to Capital LBP Million

Non-distributable

Reserves LBP Million

Distributable Reserves

LBP Million

TreasuryShares

LBP Million

Retained Earnings

LBP Million

Other Components

of Equity LBP Million

Result of the

Year LBP Million

TotalLBP Million

Non-controlling

Interest LBP Million

Total Shareholders’

Equity LBP Million

Balance at January 1, 2012 438,197 17,243 657,846 359,633 72,586 696,360 380,215 (103,912) 328,515 21,056 544,239 3,411,978 141,172 3,553,150

Net profits for the year - - - - - - - - - - 564,737 564,737 13,552 578,289

Other comprehensive income - - - - - - - - - (133,786) - (133,786) - (133,786)

Total comprehensive income - - - - - - - - - (133,786) 564,737 430,951 13,552 444,503

Appropriation of 2011 profits - - - - 133,284 1,505 - 172,828 - (307,617) - - -

Distribution of dividends on ordinary shares - - 443 - - - - (210,712) (210,269) - (210,269)

Distribution of dividends on preferred shares - - - - - - - - - (25,910) (25,910) - (25,910)

Issue of preferred shares - 1,881 224,243 - - - - - - - 226,124 - 226,124

Employees' share-based payments 389 - 1,360 - - (587) - - (2,247) - - (1,085) - (1,085)

Entities deconsolidated during the year - - - - (8,219) (19,637) - 24,690 420 - (2,746) - (2,746)

Entities under equity method - - - - - - - (723) - - (723) - (723)

Treasury shares transactions - - - - - (24,583) - 83,667 - - - 59,084 - 59,084

Non-controlling interest share of capital - - - - - - - - - - - (12,840) (12,840)

Non-controlling interest share of reserves - - - - - (138) (4,308) - 5,682 43,810 - 45,046 (45,046) -

Reserve for share option agreements - - - - - - 6,844 - - - 6,844 6,844

Transfer between reserves - - - - - 12,086 186,781 - (200,788) 1,921 - - -

Other movements - - - - - (212) 6 - 266 - - 60 - 60

Balance at December 31, 2012 438,586 19,124 659,206 583,876 72,586 808,434 551,406 (20,245) 328,223 (66,579) 564,737 3,939,354 96,838 4,036,192

Balance at January 1, 2011 before early adoption of IFRS 9 436,990 17,243 652,938 359,633 72,586 549,550 505,597 (37,163) 209,541 195,814 508,556 3,471,285 177,450 3,648,735

Effect of IFRS 9 early adoption - - - - - - - - (5,666) (101,875) - (107,541) - (107,541)

Balance at January 1, 2011 after early adoption of IFRS 9 436,990 17,243 652,938 359,633 72,586 549,550 505,597 (37,163) 203,875 93,939 508,556 3,363,744 177,450 3,541,194

Net profits for the year - - - - - - - - - - 544,239 544,239 6,312 550,551

Other comprehensive income - - - - - - - - - (75,950) - (75,950) - (75,950)

Total comprehensive income - - - - - - - - (75,950) 544,239 468,289 6,312 474,601

Appropriation of 2010 profits - - - - - 147,469 18,822 - 111,452 - (277,743) - - -

Distribution of dividends on ordinary shares - - - - - - - - - - (208,671) (208,671) - (208,671)

Distribution of dividends on preferred shares - - - - - - - - - - (22,142) (22,142) - (22,142)

Employees' share-based payments 1,207 - 4,908 - - (1,720) - - - - - 4,395 - 4,395

Entities deconsolidated during the year - - - - - (348) (4,739) - 2,886 1,140 - (1,061) - (1,061)

Entities under equity method - - - - - - - 594 - - 594 - 594

Treasury shares transactions - - - - - (1,193) (66,749) - - - (67,942) - (67,942)

Non-controlling interest share of capital - - - - - - - - - - - (41,145) (41,145)

Non-controlling interest share of reserves - - - - (7,395) (2,295) - 11,810 (675) - 1,445 (1,445) -

Reserve for share option agreements - - - - - - (126,992) - - - - (126,992) - (126,992)

Transfer between reserves - - - - - 9,628 (10,187) - (2,043) 2,602 - - - -

Other movements - - - - - 369 9 - (59) - - 319 - 319

Balance at December 31, 2011 438,197 17,243 657,846 359,633 72,586 696,360 380,215 (103,912) 328,515 21,056 544,239 3,411,978 141,172 3,553,150

Attributable to the equity holders of the Bank

88 89

notes to the consolidated financial statementsat December 31, 2012

Notes' Index

28. Investments in Associates 13829. Property and Equipment 13930. Intangible Fixed Assets 14031. Non-current Assets Held for Sale 14132. Other Assets 14233. Goodwill 14334. Due to Central Banks 14435. Due to Banks and Financial Institutions 14536. Customers’ Deposits at Amortised Cost 14637. Deposits from Related Parties at Amortised Cost 14738. Other Liabilities 14739. Provisions for Risks and Charges 14840. Share Capital 15041. Issue Premiums 15242. Cash Contribution to Capital 15343. Non-distributable Reserves 15444. Distributable Reserves 15645. Proposed Dividends 15746. Share-based Payments 15747. Treasury Shares 16048. Other Components of Equity 16149. Non-controlling Interest 16250. Cash and Cash Equivalents 16251. Fair Value of Financial Instruments 16352. Contingent Liabilities, Commitments and Leasing Arrangements 16753. Assets under Management 17054. Related-party Transactions 17055. Risk Management 17256. Credit Risk 17457. Market Risk 18858. Liquidity Risk 19659. Operational Risk 20460. Capital Management 204

I. Corporate Information 902. Accounting Policies 903. Segment Reporting 1114. Interest and Similar Income 1145. Interest and Similar Expense 1146. Fee and Commission Income 1157. Fee and Commission Expense 1158. Net Gain Financial Assets at Fair Value through Profit or Loss 1169. Net Gain on Sale of Financial Assets at Amortised Cost 11710. Net Gain on Sale of Subsidiaries and Associates 11811. Other Operating Income 11812. Net Credit Losses 11913. Personnel Expenses 11914. Other Operating Expenses 12215. Income Tax 12316. Profit from Discontinued Operations 12517. Earnings per Share 12618. Cash and Balances with Central Banks 12619. Due from Banks and Financial Institutions 12720. Loans to Banks and Financial Institutions and Reverse Repurchase Agreements 12821. Financial Assets Given as Collateral 12822. Derivative Financial Instruments 12823. Financial Assets at Fair Value through Profit or Loss 13124. Loans and Advances to Customers at Amortised Cost 13225. Loans and Advances to Related Parties at Amortised Cost 13526. Financial Assets at Amortised Cost 13627. Financial Assets at Fair Value through Other Comprehensive Income 137

90 91

I. Corporate InformationBank Audi sal - Audi Saradar Group (the Bank) is a Lebanese joint stock company registered since 1962 in Lebanon under No. 11347 at the Register of Commerce and under No. 56 on the banks’ list at the Bank of Lebanon. The Bank’s head office is located in Bank Audi Plaza, Omar Daouk Street, Beirut, Lebanon. The Bank’s shares are listed on the Beirut Stock Exchange and London SEAQ.

The Bank, together with its affiliated banks and subsidiaries (collectively “the Group”), provides a full range of Retail, Commercial, Investment and Private Banking activities through its headquarters, as well as its branches in Lebanon and its presence in Europe, the Middle East and North Africa.

During 2012, the Group started its operations in Turkey under its newly established subsidiary, Odeabank. Besides, the Group decided to discontinue its banking operations through Bank Audi Monaco sam pursuant to the decision of the General Assembly of Bank Audi Monaco dated July 27, 2012.

The consolidated financial statements were authorised for issue in accordance with the Board of Directors’ resolution on March 21, 2013.

2. Accounting Policies2.1. Basis of Preparation

The consolidated financial statements have been prepared on a historical cost basis except for: a) the restatement of certain tangible real estate properties in Lebanon according to the provisions of Law No. 282 dated December 30, 1993, and b) the measurement at fair value of derivative financial instruments, financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income.

The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.

The consolidated financial statements are presented in Lebanese Pounds (LBP) and all values are rounded to the nearest million, except when otherwise indicated.

Statement of Compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and the regulations of the Central Bank of Lebanon and the Banking Control Commission (BCC).

Presentation of Financial Statements

The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within one year after the statement of financial position date (current) and more than one year after the statement of financial position date (non-current) is presented in the Risk Management notes.

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore the related assets and liabilities are presented gross in the consolidated statement of financial position. Income and expense will not be offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at December 31, 2012.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated

until the date when such control ceases. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Non-controlling interest represents the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly by the Bank. Non-controlling interests are presented separately in the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, and within Equity in the Consolidated Statement of Financial Position, but separate from Parent Shareholders’ Equity. Losses within a subsidiary are attributed to the Non-controlling Interest even if that results in a deficit balance.A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

•Derecognises the assets (including goodwill) andliabilities of the subsidiary;

•Derecognises the carrying amount of any non-controlling interest;

•Derecognisesthecumulativetranslationdifferences,recorded in equity;

•Recognisesthefairvalueoftheconsiderationreceived;•Recognisesthefairvalueofanyinvestmentretained;•Recognisesanysurplusordeficitinprofitorloss;•Reclassifies the parent’s share of components

previously recognised in Other Comprehensive Income to Profit or Loss or Retained Earnings, as appropriate.

Where the Group loses control of a subsidiary, such that the former subsidiary becomes an associate accounted for under the equity method, the effect is that the Group's interest in the former subsidiary (associate) is reported:

•Using the equity method from the date on whichcontrol is lost in the current reporting period; and

•Using full consolidation for any earlier part of thecurrent reporting period, and of any earlier reporting

period, during which the associate was controlled.

2.2. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS effective as of January 1, 2012:

IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure RequirementsThe amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after July 1, 2011. The Group does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements.

2.3. Early Adoption of Phase I of IFRS 9

In compliance with Circular 265 of the Lebanese Banking Control Commission issued on September 23, 2010, the Group adopted, effective January 1, 2011, Phase I of IFRS 9, as issued in November 2009 and reissued in October 2010 and related consequential amendments to other International Financial Reporting Standards. The effective application date stipulated by the Standard is annual periods beginning on or after January 1, 2015. The initial application date of this standard with respect to the Group is January 1, 2011, in accordance with the transitional provisions of the standard.

Phase I of IFRS 9 addresses the classification and measurement of financial assets and financial liabilities. IAS 39 is still being followed for impairment of financial assets and hedge accounting, as these will be covered when the IASB completes phases 2 and 3 of IFRS 9.

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The Group did not restate comparative information as permitted by the transitional provisions of IFRS 9 and has recognised impact of early adoption of IFRS 9 as at January 1, 2011, in the opening retained earnings and other components of equity as of that date.

The schedule below summarises the new classification and amendments to the Group financial statements

2.4. Standards Issued but not yet Effective

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.

as at January 1, 2011 following the early adoption of IFRS 9 which resulted in adjustment to the opening retained earnings and cumulative changes in fair value of financial instruments designated at fair value through other comprehensive income as at January 1, 2011:

IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (OCI)The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example net gain on hedge of net investment, exchange differences on translation of foreign operations, and net movement on cash flow hedges) would be presented separately from items that will never be reclassified (for example actuarial gains and losses on defined benefit plans, revaluation of land and buildings, and net loss or gain on financial assets at fair value through OCI). The amendment affects presentation only and has no impact on the Group’s financial position or performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012.

Financial Assets Held for Trading LBP Million

Available for Sale Financial

Instruments LBP Million

Financial Assets Classified as Loans

and Receivables LBP Million

Financial Instruments

Held to Maturity LBP Million

Total LBP Million

Carrying value as at December 31, 2010 according to IAS 39 1,009,099 7,677,662 7,011,522 215,031 15,913,314Reclassification following early adoption of IFRS 9:

Financial instruments reclassified to fair value through profit or loss:

Debt securities 782,159 5,481 137,920 - 925,560 Equity instruments 74,588 32,397 - - 106,985 Debt securities reclassified at amortised cost 138,994 7,260,479 6,872,357 215,031 14,486,861Equity instruments reclassified to fair value through other comprehensive income 6,293 255,716 - - 262,009Total reclassified 1,002,034 7,554,073 7,010,277 215,031 15,781,415Effect on opening cumulative fair value changes on financial instruments designated at fair value through other comprehensive income - (126,233) - - (126,233)Less: deferred taxes - 16,437 - - 16,437Effect of previous amendments to IAS 39

-7,921 - - 7,921

Effect on opening cumulative fair value changes on financial instruments at fair value through other comprehensive income, net

-

(101,875) - - (101,875)Effect on opening retained earnings (7,065) 2,644 (1,245) - (5,666)

IAS 19 Employee Benefits (Revised)The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group is currently assessing the impact that this standard will have on the financial position and performance, but based on the preliminary analyses, no material impact is expected. These amendments become effective for annual periods beginning on or after January 1, 2013.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)As a consequence of the new IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures, in addition to associates. The revised standard is not expected to impact the Group’s financial position or performance and becomes effective for annual periods beginning on or after January 1, 2013.

IAS 32 Offsetting Financial Assets and Financial Liabilities — Amendments to IAS 32These amendments clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Group’s financial position or performance and become effective for annual periods beginning on or after January 1, 2014.

IFRS 7 Disclosures — Offsetting Financial Assets and Financial Liabilities — Amendments to IFRS 7These amendments require an entity to disclose information about rights to set-off 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 financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance

with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Group’s financial position or performance and become effective for annual periods beginning on or after January 1, 2013.

IFRS 10 Consolidated Financial StatementsIFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require Management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The Group is currently assessing the impact that this standard will have on its financial position and performance. This standard becomes effective for annual periods beginning on or after January 1, 2013.

IFRS 11 Joint ArrangementsIFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-Controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. IFRS 11 is not expected to impact the Group’s financial position or performance and becomes effective for annual periods beginning on or after January 1, 2013.

IFRS 12 Disclosure of Involvement with Other EntitiesIFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are

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also required, but have no impact on the Group’s financial position or performance. This standard becomes effective for annual periods beginning on or after January 1, 2013.

IFRS 13 Fair Value MeasurementIFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard will require the Group to review its fair value measurement policies across all asset and liabilities classes. The Group is currently assessing the impact that this standard will have on the financial position and performance, but based on the preliminary analyses, no material impact is expected. This standard becomes effective for annual periods beginning on or after January 1, 2013.

Annual Improvements May 2012

These improvements will not have an impact on the Group, but include:

IAS 1 Presentation of Financial StatementsThis improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period.

IAS 32 Financial Instruments’ PresentationThis improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes.

IAS 34 Interim Financial ReportingThe amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures.

These improvements are effective for annual periods beginning on or after January 1, 2013.

2.5. Summary of Significant Accounting Policies

Foreign Currency Translation

The consolidated financial statements are presented in Lebanese Lira which is the Group’s presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

(i) Transactions and BalancesTransactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the date of the statement of financial position. All differences are taken to “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in “Other Comprehensive Income” or “Profit or Loss” is also recognised in “Other Comprehensive Income” or “Profit or Loss” respectively).

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.

(ii) Group CompaniesOn consolidation, the assets and liabilities of subsidiaries and overseas branches are translated

into the Bank’s presentation currency at the rate of exchange as at the reporting date, and their income statements are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Consolidated Income Statement.

Financial Instruments – Classification and Measurement

(i) Date of RecognitionAll financial assets and liabilities are initially recognised on the trade date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

(ii) Classification and Measurement of Financial Instrumentsa. Financial AssetsThe classification of financial assets depends on the basis of each entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Assets are initially measured at fair value plus, in the case of a

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.

The table below presents the exchange rates of the currencies used to translate assets, liabilities and statement of income items of foreign branches and subsidiaries:

financial asset not at fair value through profit or loss, particular transaction costs. Assets are subsequently measured at amortised cost or fair value.

An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an “accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. An entity is required to disclose such financial assets separately from those mandatorily measured at fair value.

Financial Assets at Amortised CostDebt 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 initial recognition) if they meet the following two conditions:

Year-end Rate Average Rate Year-end Rate Average Rate

LBP LBP LBP LBP

US Dollar 1,507.50 1,507.50 1,507.50 1,507.50

Euro 1,987.79 1,948.85 1,948.59 2,102.20

Swiss Franc 1,645.38 1,616.84 1,602.87 1,704.78

Syrian Lira 19.48 22.4 27.05 31.30

Turkish Lira 841.14 837.52 786.18 902.69

Jordanian Dinar 2,123.24 2,127.09 2,126.23 2,126.62

Egyptian Pound 243.58 248.2 249.97 253.67

Sudanese Dinar 251.15 402.81 563.15 566.19

Saudi Riyal 401.94 401.97 401.98 401.97

Qatari Riyal 414.05 414.03 413.99 413.98

2012 2011

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•Theassetisheldwithinabusinessmodelwhoseobjective is to hold assets in order to collect contractual cash flows; and

•The contractual terms of the instrument giverise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

These financial assets are initially recognised at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost of investment. After initial 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 acquisition 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 Income Statement. The losses arising from impairment are recognised in the Income Statement in “Impairment Losses on Other Financial Assets”.

Although the objective of an entity's business model may be to hold financial assets in order to collect contractual cash flows, the entity need not hold all of those instruments until maturity. Thus an entity's business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur. However, if more than an infrequent number of sales are made out of a portfolio, the entity needs to assess whether and how such sales are consistent with an objective of collecting contractual cash flows. If the objective of the entity's business model for managing those financial assets changes, the entity is required to reclassify financial assets.

Gains and losses arising from the derecognition of financial assets measured at amortised cost are reflected under “Net Gain on Sale of Financial Assets at Amortised Cost” in the Consolidated Income Statement.

Balances with Central Banks, Due from Banks and Financial Institutions, and Loans and Advances to Customers and Related Parties – at Amortised CostAfter initial measurement, “Balances with Central Banks”, “Due from Banks and Financial Institutions”, and “Loans and Advances to Customers and Related Parties” are subsequently measured at amortised cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in “Interest and Similar Income” in the Consolidated Income Statement. The losses arising from impairment are recognised in the Consolidated Income Statement in “Net Credit Losses”.

Financial Assets at Fair Value through Profit or LossIncluded 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 initial recognition, and equity instruments at fair value through profit or loss.

Debt Instruments at Fair Value through Profit or LossThese financial assets are recorded in the Consolidated Statement of Financial Position at fair value. Changes in fair value and interest income are recorded under “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement, showing separately those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value. Gains and losses arising from the derecognition of debt instruments and other financial assets at fair value through profit or loss are also reflected under “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement, showing separately those related to financial assets designated at fair value upon initial recognition from those mandatorily measured at fair value.

Equity Instruments at Fair Value through Profit or LossInvestments in equity instruments are classified at fair value through profit or loss, unless the Group designates at initial recognition an investment that is not held for trading as at fair value through other comprehensive income.

These financial assets are recorded in the Consolidated Statement of Financial Position at fair value. Changes in fair value and dividend income are recorded under “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement. Gains and losses arising from the derecognition of equity instruments at fair value through profit or loss are also reflected under “Net Gain from Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement.

Financial Assets at Fair Value through Other Comprehensive IncomeInvestments in equity instruments designated at initial recognition as not held for trading are classified at fair value through other comprehensive income.

These financial assets are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value, with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated under equity. The cumulative gain or loss will not be reclassified to the consolidated income statement on disposal of the investments.

Dividends on these investments are recognised under “ Revenue from Financial Assets at Fair Value through Other Comprehensive Income” in the Consolidated Income Statement when the Group’s right to receive payment of dividend is established in accordance with IAS 18: “Revenue”, unless the dividends clearly represent a recovery of part of the cost of the investment.

b. Financial LiabilitiesLiabilities are initially measured at fair value plus, in the case of a financial liability not at fair value through profit or loss, particular transaction costs. Liabilities are subsequently measured at amortised cost or fair value.

The Group classifies all financial liabilities as subsequently measured at amortised cost using the effective interest method, except for:

•Financialliabilitiesatfairvaluethroughprofitorloss(including derivatives);

•Financial liabilities that arise when a transfer of afinancial asset does not qualify for derecognition or when the continuing involvement approach applies;

•Financial guarantee contracts and commitmentsto provide a loan at a below-market interest rate which, after initial recognition, are subsequently measured at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

The Group may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when:

•Doing so results in more relevant information,because it either eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as “an accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or

•Agroupoffinancialliabilitiesorfinancialassetsandfinancial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the Group is provided internally on that basis to the Group's key Management personnel.

The amount of changes in fair value of a financial liability designated at fair value through profit or loss at initial recognition that is attributable to changes in credit risk of that liability is recognised in “Other Comprehensive Income”, unless such recognition would create an accounting mismatch in the Consolidated Income Statement. Changes in fair value attributable to changes in credit risk are not reclassified to Consolidated Income Statement.

Debt Issued and Other Borrowed Funds and Subordinated NotesFinancial instruments issued by the Group, which are not designated at fair value through profit or loss, are classified as liabilities where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash

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or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, debt issued and other borrowings and subordinated notes are subsequently measured at amortised cost 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.

A compound financial instrument which contains both a liability and an equity component is separated at the issue date. A portion of the net proceeds of the instrument is allocated to the debt component on the date of issue based on its fair value (which is generally determined based on the quoted market prices for similar debt instruments). The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the debt component. The value of any derivative features (such as a call option) embedded in the compound financial instrument other than the equity component is included in the debt component.

Due to Central Banks, Banks and Financial Institutions and Customers’ and Related Parties’ DepositsAfter initial measurement, due to banks and financial institutions, customers’ and related parties’ deposits 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.

c. Derivatives Recorded at Fair Value through Profit or LossThe Group uses derivatives such as interest rate swaps and futures, credit default swaps, cross currency swaps, forward foreign exchange contracts and options on interest rates, foreign currencies and equities.

Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes

in the fair value of derivatives are recognised in “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement.

An embedded derivative is separated from the host and accounted for as a derivative if, and only if: (a) The hybrid contract contains a host that is not

an asset within the scope of IFRS 9; (b) The economic characteristics and risks of the

embedded derivative are not closely related to the economic characteristics and risks of the host;

(c) A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

(d) The hybrid contract is not measured at fair value with changes in fair value recognised in “Profit or Loss”.

(iii) Day 1 Profit or LossWhen the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognises the difference between the transaction price and fair value (a “Day 1” profit or loss) in the Consolidated Income Statement. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the Consolidated Income Statement when the inputs become observable, or when the instrument is derecognised.

(iv) Reclassification of Financial Assets The Group reclassifies financial assets if the objective of the business model for managing those financial assets changes. Such changes are expected to be very infrequent. Such changes are determined by the Group’s Senior Management as a result of external or internal changes when significant to the Group’s operations and demonstrable to external parties.

If financial assets are reclassified, the reclassification is applied prospectively from the reclassification date, which is the first day of the first reporting period following the change in business model that results in the reclassification of financial assets. Any previously recognised gains, losses or interest are not restated.

If a financial asset is reclassified so that it is measured at fair value, its fair value is determined at the reclassification date. Any gain or loss arising from a difference between the previous carrying amount and fair value is recognised in “Profit or Loss”. If a financial asset is reclassified so that it is measured at amortised cost, its fair value at the reclassification date becomes its new carrying amount.

Derecognition of Financial Assets and Financial Liabilities

(i) Financial AssetsA 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;

•TheGrouphastransferred itsrightstoreceivecashflows 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: - The Group has transferred substantially all the

risks and rewards of the asset, or - The Group has neither transferred nor retained

substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group 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 Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group 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 Group could be required to repay.

(ii) Financial LiabilitiesA 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 recognised in the Consolidated Income Statement.

Repurchase and Reverse Repurchase Agreements

Securities sold under agreements to repurchase at a specified future date are not derecognised from the Consolidated Statement of Financial Position as the Group retains substantially all the risks and rewards of ownership. The corresponding cash received is recognised in the Consolidated Statement of Financial Position as an asset with a corresponding obligation to return it, including accrued interest as a liability within “Cash Collateral on Securities Lent and Repurchase Agreements”, reflecting the transaction’s economic substances as a loan to the Group. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agreement using the EIR. When the counterparty has the right to sell or repledge the securities, the Group reclassifies those securities in its Statement of Financial Position to “Financial Assets Given as Collateral”.

Conversely, securities purchased under agreements to resell at a specified future date are not recognised in the Consolidated Statement of Financial Position. The consideration paid, including accrued interest, is recorded in the Consolidated Statement of Financial Position within “Cash Collateral on Securities Borrowed” and “Reverse Purchase Agreements”, reflecting the transaction’s economic substance as a loan by the Group. The difference between the purchase and resale prices is recorded in “Net Interest Income” and is accrued over the life of the agreement using the EIR.If securities purchased under ”Agreement to Resell” are subsequently sold to third parties, the obligation

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to return the securities is recorded as a short sale within “Financial Liabilities at Fair Value through Profit or Loss” and measured at fair value with any gains or losses included in “Net Gain on Financial Instruments at Fair Value through Profit or Loss” in the Consolidated Income Statement.

Determination of Fair Value

The fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction cost.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models.

Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models, credit models and other relevant valuation models. Also, profit or loss calculated when such financial instruments are first recorded (“Day 1” profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument.

Impairment of Financial Assets

The Group 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.

Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation default or delinquency in interest or principal payments, and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(i) Financial Assets at Amortised Cost For financial assets carried at amortised cost (such as due from banks and financial institutions, debt instruments at amortised cost, loans and advances to customers and related parties), the Group 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 Group 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 recognised in the Consolidated Income Statement.

Loans, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised 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 Credit Losses” in the Consolidated Income Statement.

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 Group’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 Group. 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 Group 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.

(ii) Renegotiated Loans Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original effective interest rate as calculated before the modification of terms and the loan is no longer considered past due. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.

(iii) Collateral RepossessedThe Group occasionally acquires properties in settlement of loans and advances. Upon initial recognition, those assets are measured at fair value as approved by the regulatory authorities. Subsequently, these properties are measured at the lower of carrying value or net realisable value.

Upon sale of repossessed assets, any gain or loss realised is recognised in the Consolidated Income Statement under “Other Operating Income” or “Other Operating Expenses”. Gains resulting from the sale of repossessed assets are transferred to “Reserves for Capital Increase” in the following financial year.

Hedge Accounting

The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions and firm commitments. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.

At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge, and the method that will be used to assess the effectiveness of the hedging relationship.

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At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order to qualify for hedge accounting. A formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item, both at inception and at each quarter end on an ongoing basis. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated are expected to offset in a range of 80% to 125% and are expected to achieve such offset in future periods. Hedge ineffectiveness is recognised in the Consolidated Income Statement in “Net Gain (Loss) from Financial Instruments at Fair Value through Profit or Loss”. For situations where that hedged item is a forecast transaction, the Group also assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated income statement.

(i) Fair Value Hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in the Consolidated Income Statement. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in “Net Gain on Financial Assets at Fair Value through Profit or Loss” in the Consolidated Income Statement.

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, the difference between the carrying value of the hedged item on termination and the face value is amortised over the remaining term of the original hedge using the effective interest rate. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the Consolidated Income Statement.

(ii) Cash Flow HedgesFor designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is initially recognised directly in equity in the “Cash Flow Hedge” reserve. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the Consolidated Income Statement. When the forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in the other comprehensive income are removed from the reserve and included in the initial cost of the asset or liability.

When the hedged cash flow affects the Consolidated Income Statement, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the consolidated income statement. When a hedging instrument expires, or is sold, terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged forecast transaction is ultimately recognised in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Consolidated Income Statement.

(iii) Hedge of a Net Investment Hedges of net investments in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the Consolidated Income Statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the Consolidated Income Statement.

Leasing

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment

of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group as a LesseeLeases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the Consolidated Income Statement on a straight line basis over the lease term. Contingent rental payables are recognised as an expense in the period in which they are incurred.

Group as a LessorLeases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Recognition of Income and Expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group 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 ExpenseFor all financial instruments measured at amortised cost, interest income or expense is recorded using the EIR, 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 Group 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 on 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 IncomeThe Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee Income Earned from Services that are Provided over a Certain Period of TimeFees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, 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 EIR 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.

Fee Income from Providing Transaction ServicesFee arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fee or components of fee that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

(iii) Dividend IncomeDividend income is recognised when the right to receive the payment is established.

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(iv) Net Gain on Financial Assets at Fair Value through Profit or LossResults arising from financial assets at fair value through profit or loss, include all gains and losses from changes in fair value and related income or expense and dividends for financial assets at fair value through profit or loss. This includes any ineffectiveness recorded in hedging transactions. This caption also includes the results arising from trading activities including all gains and losses from changes in fair value and related income or expense and dividends for financial assets held for trading.

(v) Insurance RevenueFor the insurance subsidiary, net premiums and accessories (gross premiums) are taken to income over the terms of the policies to which they relate using the prorate temporise method for non-marine business and 25% of gross premiums for marine business. Unearned premiums reserve represents the portion of the gross premiums written relating to the unexpired period of coverage. If the unearned premiums reserve is not considered adequate to cover future claims arising on these premiums a premium deficiency reserve is created.

Cash and Cash Equivalents

Cash and cash equivalents as referred to in the cash flow statement comprise balances with original maturities of a period of three months or less including: cash and balances with central banks, deposits with banks and financial institutions, and deposits due to banks and financial institutions.

Property and Equipment

Property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the property and equipment. When significant parts of property and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the equipment as a replacement if the recognition criteria are

satisfied. All other repair and maintenance costs are recognised in the Consolidated Income Statement as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate and treated as changes in accounting estimates.

Depreciation is calculated using the straight line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:

Buildings 40 to 50 years

Installations and fixtures 5 to 11 years

Motor vehicles 5 to 7 years

Office equipment and computer hardware 5 to 11 years

Office machinery and furniture 5 to 11 years

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in “Net Gain on Disposal of Fixed Assets” in the year the asset is derecognised.

The asset’s residual lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively if applicable.

Non-current Assets Held for Sale and Discontinued Operations

Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition, Management has committed to the sale, and the sale

is expected to have been completed within one year from the date of classification.

In the Consolidated Statement of Comprehensive Income of the reporting period, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Bank retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the Statement of Comprehensive Income.

Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in “Administrative Expenses”.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the Consolidated Income Statement.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised either in “Profit or Loss” or as a change

to “Other Comprehensive Income”. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in “Profit or Loss”.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Intangible Fixed Assets

An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite of indefinite. Intangible assets with finite lives are amortised over the useful economic

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life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Consolidated Income Statement.

Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows:

Computer software 5 years

Key money 70 years

Others 7 to 10 years

Impairment of Non-financial Assets

The Group 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 Group 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 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 recognised 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 estimates 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 recognised for the asset in prior years. Such reversal is recognised in the Consolidated Income Statement.

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

Provisions for Risks and Charges

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the Consolidated Income Statement net of any reimbursement.

Employees’ End of Service Benefits

The Group provides retirement benefits obligation to its employees under defined benefit plans. The cost of providing these benefits is determined using actuarial valuation which involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Those assumptions are unbiased and mutually compatible.

The rate used to discount estimated cash flows should be determined by reference to the market yields at the date of the Statement of Financial Position on high quality corporate bonds.If the accumulated unrecognised actuarial gains and losses exceed 10% of the greater of the defined benefit obligation or the fair value of plan assets, a portion of that net gain or loss is required to be recognised immediately as income or expense.

The portion recognised in the total comprehensive income is the excess divided by the expected average remaining working lives of the participating employees. Actuarial gains and losses that do not breach the 10% limits need not to be recognised.

The amount recognised in the balance sheet is the present value of the defined obligation adjusted for unrecognised actuarial gains and losses and unrecognised past service cost and reduced by the fair value of plan assets at the date of the Statement of Financial Position.

Taxes

Taxes are provided for in accordance with regulations and laws that are effective in the countries where the Group operates.

(i) Current TaxCurrent 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 statement of financial position date.

(ii) Deferred TaxDeferred tax is provided on temporary differences at the Statement of Financial Position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

•Wherethedeferredtaxliabilityarisesfromtheinitialrecognition 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;

•Inrespectoftaxabletemporarydifferencesassociatedwith investments in subsidiaries and associates, 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 thedeductible 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 differencesassociated with investments in subsidiaries and associates, 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 Consolidated Income Statement.

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.

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Assets under Management and Assets Held in Custody and under Administration

The Group provides custody and administration services that result in the holding or investing of assets on behalf of its clients. Assets held in trust, under management or under custody or under administration, are not treated as assets of the Group and, accordingly, are recorded as off-balance sheet items.

Dividends on Ordinary Shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

Treasury Shares

Own equity instruments of the Bank which are acquired by it or by any of its subsidiaries (Treasury shares) are deducted from equity and accounted for at weighted average cost. Consideration paid or received on the purchase sale, issue or cancellation of the Bank’s own equity instruments is recognised directly in equity. No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of the Bank’s own equity instruments.

When the Group holds own equity instruments on behalf of its clients, those holdings are not included in the Group’s Consolidated Statement of Financial Position.

Contracts on own shares that require physical settlement of a fixed number of own shares for a fixed consideration are classified as equity and added to or deducted from equity. Contracts on own shares that require net cash settlement or provide a choice of settlement are classified as trading instruments and changes in the fair value are reported in the Consolidated Income Statement.

Financial Guarantees

In the ordinary course of business, the Group gives financial guarantees consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within “Other Liabilities”) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less, when appropriate, cumulative amortisation recognised in the Consolidated Income Statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the Consolidated Income Statement. The premium received is recognised in the Consolidated Income Statement on a straight line basis over the life of the guarantee.

Customers’ Acceptances

Customers’ acceptances represent term documentary credits which the Group has committed to settle on behalf of its clients against commitments by those clients (acceptances). The commitments resulting from these acceptances are stated as a liability in the Statement of Financial Position for the same amount.

Share-based Payments Plan

Employees (including Senior Executives) of the Bank receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).

The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted and is recognised together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Bank’s best estimate of the number of equity instruments that

will ultimately vest. The income statement expense or credit for a period is recorded under “Personnel Expenses” and represents the movement in cumulative expense recognised as at the beginning and end of that period.

Where the terms of an equity-settled award are modified, the minimum expense is recognised in “Personnel Expenses” in the Consolidated Income Statement as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where any equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-investing conditions within the control of either the entity or the counterparty are not met. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per common share.

2.6. Significant Accounting Judgments and Estimates In the process of applying the Group’s accounting policies, Management has made the following judgments, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements:

Going Concern

The Group’s Management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future.

Furthermore, Management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

Fair Value of Financial Instruments

Where the fair values of financial assets and financial liabilities recorded on the Statement of Financial Position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities.

Impairment Losses on Loans and Advances

The Group reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the Consolidated Income Statement. In particular, judgment by Management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgments about the borrower’s financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality,

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levels of arrears, credit utilisation, loan to collateral ratios, etc.), concentrations of risks and economic data (including levels of unemployment, real estate price indices, country risk and the performance of different individual groups).

Deferred Tax Assets

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.

Business Model

In making an assessment whether a business model’s objective is to hold assets in order to collect contractual cash flows, the Group considers at which level of its business activities such assessment should be made. Generally, a business model is a matter of fact which can be evidenced by the way business is managed and the information provided to Management. However, in some circumstances, it may not be clear whether a particular activity involves one business model with some infrequent asset sales or whether the anticipated sales indicate that there are two different business models.

In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows, the Group considers:

•Management’s stated policies and objectives forthe portfolio and the operation of those policies in practice;

•HowManagementevaluatestheperformanceoftheportfolio;

•WhetherManagement’sstrategyfocusesonearningcontractual interest revenues;

•Thedegreeoffrequencyofanyexpectedassetsales;•Thereasonforanyassetsales;and•Whetherassetsthataresoldareheldforanextended

period of time relative to their contractual maturity.

Contractual Cash Flows of Financial Assets

The Group exercises judgment in determining whether the contractual terms of financial assets it originates or acquires give rise on specific dates to cash flows that are solely payments of principal and interest on the principal outstanding, and so, may qualify for amortised cost measurement. In making the assessment, the Group considers all contractual terms, including any prepayment terms or provisions to extend the maturity of the assets, terms that change the amount and timing of cash flows and whether the contractual terms contain leverage.

Consolidation of Special Purpose Entities (SPEs)

The Bank sponsors the formation of SPEs which may or may not be directly or indirectly owned subsidiaries. The Bank consolidates those SPEs it controls. In assessing and determining if the Bank controls SPEs, judgment is exercised to determine whether the activities of the SPE are being conducted on behalf of the Bank to obtain benefits from the SPE’s operation; whether the Bank has the decision-making powers to control or to obtain control of the SPE or its assets; whether the Bank has rights to obtain the majority of the benefits of the SPE’s activities; and whether the Bank retains the majority of the risks related to the SPE or its assets in order to obtain benefits from its activities.

Pensions Obligation

The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

3. Segment ReportingManagement monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segments are evaluated based on net operating income. Income taxes and depreciation are managed on a group basis and are not allocated to operating segments.

Interest income is reported net, since Management monitors net interest income not the gross income and expense amounts. Net interest income is allocated to the business segment based on the assumption that all positions are funded or invested via a central funding unit. An internal Funds Transfer Pricing (FTP) mechanism was implemented between operating segments.

The assets and liabilities that are reported in the segments are net from inter-segments’ assets and liabilities since they constitute the basis of Management’s measures of the segments’ assets and liabilities and the basis of the allocation of resources between segments.

a) Business Segments

The Group operates in four main business segments which are Corporate and Commercial Banking, Treasury and Capital Markets, Retail and Personal Banking, and Group Functions and Head Office.

Corporate and Commercial Banking

Provides diverse products and services to the corporate and commercial customers including loans, deposits, trade finance, exchange of foreign currencies, as well as all regular Corporate and Commercial Banking activities.

Retail and Personal Banking

Provides individual customers’ deposits and consumer loans, overdrafts, credit cards, and funds transfer facilities, as well as all regular Retail and Private Banking activities.

Treasury and Capital Markets

Provides Treasury services including transactions in money and capital markets for the Group’s customers, manages investment and trading transactions (locally and internationally), and manages liquidity and market risks. This segment also offers Investment Banking and brokerage services, and manages the Group’s own portfolio of stocks, bonds, and other financial instruments.

Group Functions and Head Office

Consists of capital and strategic investments, exceptional profits and losses, as well as operating results of subsidiaries which offer non-banking services.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

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The following table presents net operating income, total assets and total liabilities and shareholders’ equity of the Group’s business segments.

2012

Corporate and Commercial

Banking LBP Million


LBP Million

Treasury and Capital

Markets LBP Million

Group Functions and

Head Office LBP Million

Total LBP Million

Net interest income 272,432 170,736 368,505 52,017 863,690

Non-interest income

Net fee and commission income 112,113 139,524 22,331 5,397 279,365

Foreign exchange operations 4,231 20,886 114,150 132 139,399

Financial operations 20 8,618 315,441 30,035 354,114

Other operating income 43 8,570 364 13,274 22,251

Total non-interest income 116,407 177,598 452,286 48,838 795,129

Total external operating income 388,839 348,334 820,791 100,855 1,658,819

Net credit losses (136,351) (46,184) (50) - (182,585)

Net external operating income 252,488 302,150 820,741 100,855 1,476,234

Share of profit or loss of associates - - - 551 551

Investments in associates - - - 34,230 34,230

Total assets 12,248,359 5,413,046 24,813,627 4,712,437 47,187,469

Total liabilities and shareholders’ equity 8,577,415 32,378,828 1,766,123 4,465,103 47,187,469

Capital expenditures - 2,298 264 180,111 182,673

2011

Corporate and Commercial

Banking LBP Million


LBP Million

Treasury and Capital

Markets LBP Million

Group Functions and

Head Office LBP Million

Total LBP Million

Net interest income 253,241 150,022 330,217 54,742 788,222

Non-interest income

Net fee and commission income 116,689 112,107 30,734 9,362 268,892

Foreign exchange operations 3,623 24,467 48,796 (84) 76,802

Financial operations - 7,039 264,512 28,576 300,127

Other operating income 978 3,984 190 43,486 48,638

Total non-interest income 121,290 147,597 344,232 81,340 694,459

Total external operating income 374,531 297,619 674,449 136,082 1,482,681

Net credit losses (114,823) (22,836) - - (137,659)

Net external operating income 259,708 274,783 674,449 136,082 1,345,022

Share of profit or loss of associates - - - 5,133 5,133

Investments in associates - - - 43,099 43,099

Total assets 9,814,067 4,660,599 25,253,300 3,592,720 43,320,686

Total liabilities and shareholders’ equity 8,951,327 29,174,083 914,630 4,280,646 43,320,686

Capital expenditures - 1,652 242 63,406 65,300

b) Geographical Segments

The Group operates in three geographical segments: Lebanon; Middle East, North Africa and Turkey (MENAT); and Europe. As such, it is subject to different risks and returns. The following tables show the distribution of the Group’s external net operating

income, assets and liabilities, and shareholders’ equity allocated based on the location of the subsidiaries reporting the results or advancing the funds. Transactions between segments are carried at market prices and within pure trading conditions.

Lebanon LBP Million

MENAT LBP Million

Europe LBP Million

Total LBP Million

Net interest income 526,293 289,667 47,730 863,690

Non-interest income

Net fee and commission income 155,343 78,214 45,808 279,365

Foreign exchange operations 18,051 103,511 17,837 139,399

Financial operations 333,298 10,380 10,436 354,114

Other operating income 19,770 1,349 1,132 22,251

Total non-interest income 526,462 193,454 75,213 795,129

Total external operating income 1,052,755 483,121 122,943 1,658,819

Net credit losses (123,405) (49,874) (9,306) (182,585)

Net external operating income 929,350 433,247 113,637 1,476,234

Capital expenditures 83,194 98,042 1,437 182,673

Total assets 33,868,338 9,890,071 3,429,060 47,187,469

Total liabilities and shareholders’ equity 34,129,524 9,827,239 3,230,706 47,187,469

2012

2011

Lebanon LBP Million

MENAT LBP Million

Europe LBP Million

Total LBP Million

Net interest income 501,643 238,316 48,263 788,222

Non-interest income

Net fee and commission income 148,135 78,747 42,010 268,892

Foreign exchange operations 17,665 37,051 22,086 76,802

Financial operations 294,928 3,860 1,339 300,127

Other operating income 28,806 5,134 14,698 48,638

Total non-interest income 489,534 124,792 80,133 694,459

Total external operating income 991,177 363,108 128,396 1,482,681

Net credit losses (15,907) (117,406) (4,346) (137,659)

Net external operating income 975,270 245,702 124,050 1,345,022

Capital expenditures 50,102 10,168 5,030 65,300

Total assets 31,566,706 8,621,701 3,132,279 43,320,686

Total liabilities and shareholders’ equity 32,674,178 7,496,310 3,150,198 43,320,686

114 115

4. Interest and Similar Income

5. Interest and Similar Expense

The components of ”Interest and Similar Income” from ”Financial Assets Classified at Amortised Cost” are detailed as follows:

“Due to Central Banks” include interest expense on repurchase agreements amounting to LBP 1,787 million for the year ended December 31, 2012 (2011: nil).

2012 LBP Million

2011 LBP Million

Balances with central banks 278,433 154,226

Due from banks and financial institutions 49,828 49,269

Loans and advances to customers at amortised cost 890,902 828,286

Loans and advances to related parties at amortised cost 19,902 17,132

Financial assets classified at amortised cost 967,550 1,007,687

Other interest income 1,894 372

2,208,509 2,056,972

2012 LBP Million

2011 LBP Million

Lebanese sovereign 678,934 803,126

Other sovereign 249,951 154,351

Private sector and other securities 38,665 50,210

967,550 1,007,687

2012 LBP Million

2011 LBP Million

Due to central banks 41,216 7,740

Due to banks and financial institutions 31,350 22,341

Customers’ deposits at amortised cost 1,243,161 1,226,869

Deposits from related parties at amortised cost 26,117 10,592

Other interest expense 2,975 1,208

1,344,819 1,268,750

6. Fee and Commission Income

7. Fee and Commission Expense

2012 LBP Million

2011 LBP Million

Commercial Banking income 66,704 59,343

Credit-related fees and commissions 47,452 42,524

Brokerage and custody income 53,212 51,659

Trust and fiduciary activities 5,130 5,470

Trade finance income 49,586 59,373

Electronic Banking 75,045 68,161

Insurance brokerage income 2,797 2,453

Corporate finance fees 25,854 25,815

Other fees and commissions 4,782 4,154

330,562 318,952

2012 LBP Million

2011 LBP Million

Commercial Banking expenses 5,221 4,846

Insurance brokerage fees 386 258

Brokerage and custody fees 7,755 8,861

Electronic Banking 35,387 34,313

Other fees and commissions 2,448 1,782

51,197 50,060

116 117

8. Net Gain Financial Assets at Fair Value through Profit or Loss

“Trading Gain on Financial Assets at Fair Value through Profit or Loss” includes the results of trading in the above classes of securities, as well as the result of the change in their fair values.

“Foreign Exchange Income” includes gains and losses from spot and forward currency contracts and the revaluation of the daily open trading position.

For the year ended December 31, 2012, derivatives include a loss of LBP 4,126 million (2011: LBP 1,608 million) representing the change in fair value of the credit default swaps related to the Lebanese sovereign risk and embedded in some of the Bank’s deposits, as discussed in Note 36 to these Consolidated Financial Statements.

2012 2011

Trading Income (Loss)

LBP Million

Interest Income

LBP MillionTotal

LBP Million

Trading Income (Loss)

LBP Million

Interest Income

LBP MillionTotal

LBP Million

a) Net gain on financial instruments

Lebanese sovereign and Central Bank of Lebanon

Certificates of deposits (89) 216 127 3 - 3

Treasury bills 10,169 16,629 26,798 2,300 25,090 27,390

Eurobonds 5,247 12,202 17,449 4,967 6,250 11,217

15,327 29,047 44,374 7,270 31,340 38,610

Other sovereign

Treasury bills 479 103 582 85 - 85

Other governmental securities (25) 93 68 33 266 299

Eurobonds 93 26 119 137 26 163

547 222 769 255 292 547

Private sector and other securities

Banks and financial institutions

debt instruments 693 7,079 7,772 1,863 7,979 9,842

Corporate debt instruments 1,114 2,073 3,187 206 777 983

Structured products 8 - 8 (12) - (12)

Mutual funds 2,657 - 2,657 1,138 - 1,138

Equity instruments 437 - 437 (5,671) - (5,671)

4,909 9,152 14,061 (2,476) 8,756 6,280

b) Other trading income

Derivatives (1,320) - (1,320) 1,670 - 1,670

Foreign exchange 139,399 - 139,399 76,802 - 76,802

Dividends 173 - 173 2,262 - 2,262

138,252 - 138,252 80,734 - 80,734

159,035 38,421 197,456 85,783 40,388 126,171

9. Net Gain on Sale of Financial Assets at Amortised CostThe Group derecognises some debt instruments classified at amortised cost due to the following reasons:

•Deteriorationofthecreditratingbelowtheceilingallowed in the Group’s investment policy;

•Liquiditygapandyieldmanagement;

During December 2012, the Bank discounted long-term placements at the Central Bank of Lebanon originally maturing on April 1, 2016, which resulted in a gain of USD 32 million (equivalent to LBP 47,548 million).

•Swap of certificates of deposits by the LebaneseCentral Bank;

•Currencyriskmanagementasaresultofchange inthe currency base of deposits; or

•Liquidityforcapitalexpenditures.

The schedule below details the gains and losses arising from the derecognition of these financial assets:

2012 2011

Gains LBP Million

LossesLBP Million

NetLBP Million

GainsLBP Million

LossesLBP Million

NetLBP Million

Lebanese sovereign and CentralBank of Lebanon

Central Bank’s certificates of deposits 160,268 (172) 160,096 98,694 (20) 98,674

Bank placements 47,548 - 47,548 - - -

Treasury bills 12,033 (1,959) 10,074 15,171 (471) 14,700

Eurobonds 29,559 (171) 29,388 83,237 (112) 83,125

249,408 (2,302) 247,106 197,102 (603) 196,499

Other sovereign

Treasury bills 3,479 (10) 3,469 1,197 (7) 1,190

Other governmental securities 2,969 - 2,969 - (666) (666)

Eurobonds 1,139 - 1,139 405 - 405

7,587 (10) 7,577 1,602 (673) 929


Banks and financial institutions debt instruments - (6) (6) 12,873 (2,534) 10,339

Corporate and other debt instruments 5,796 (1,096) 4,700 9,383 - 9,383

Structured products 6,556 (121) 6,435 3,864 - 3,864

12,352 (1,223) 11,129 26,120 (2,534) 23,586

269,347 (3,535) 265,812 224,824 (3,810) 221,014

118 119

”Revenues from Non-core Activities” substantially represent the revenues generated by Capital Outsourcing Limited (Dubai) in 2011 in the amount of LBP 29,205 million from providing Information Technology services.

During 2011, the Group entered into profit-sharing agreements under which it became entitled to 30% of CGI’s profits for a period of 5 years ending during the second quarter of 2016, and 33% of Globalcom Holding sal’s profits up to December 31, 2016. The Group’s share of these profits for the year 2012 amounted to LBP 5,907 million (2011: LBP 411 million).

10. Net Gain on Sale of Subsidiaries and AssociatesDuring December 2011, Capital Outsourcing Limited (Dubai) exchanged a liability due to a related party amounting to the equivalent of LBP 5,276 million in US Dollars for 50% ownership in the company through the issuance of new shares. This was treated as a deemed disposal by the Group whereby its ownership dropped from 75% to 37.5% as of December 31, 2011. The investment was recognised at its fair value under “Investments in Associates”. The loss from the sale amounted to LBP 161 million for the year ended December 31, 2011.

During December 2011, the Group sold its 49% stake in Globalcom Holding sal, an associate, for a total consideration equivalent to LBP 13,567 million in US Dollars, in addition to 33% of future dividends up to end of year 2016. The gain from the sale amounted to LBP 4,236 million for the year ended December 31, 2011.

During June 2011, the Executive Committee of the Bank approved the sale of the Bank’s investment in Arabian Opportunities Fund (“AOF”) and the sale was completed before year-end. The loss from the sale amounted to LBP 2,547 million for the year ended December 31, 2011.

During June 2011, the Group sold to a related party 79 shares of the share capital of Conseil et Gestion Immobilière sal (“CGI”) representing 79% of its share capital for a total consideration equivalent to LBP 7,312 million in US Dollars. The gain from the sale amounted to LBP 1 million for the year ended December 31, 2011. As such, the Group’s ownership as of December 31, 2011 dropped to 19% and the investment was recorded under “Financial Assets at Fair Value through Other Comprehensive Income”.

Other gains in the amount of LBP 495 million resulted from the liquidation of Orion Systems sal and the sale of Safwa Fund, which was previously consolidated by Audi Capital (KSA), a subsidiary.

11. Other Operating Income

2012 LBP Million

2011 LBP Million

Revenues from non-core activities - 30,532

Income from disposal of assets acquired against debts 8,297 5,433

Net provision recoveries (Note 39) 7 2,909

Other income 13,947 9,764

22,251 48,638

12. Net Credit Losses

13. Personnel Expenses

2012 LBP Million

2011 LBP Million

Charges for the year

Loans and advances to customers at amortised cost (Note 24) 201,900 174,435

Loans directly written off 203 -

Impairment of financial instruments 110 -

202,213 174,435

Recoveries for the year – Loans and advances to customers

Impairment allowance recovered (Note 24) (11,636) (22,022)

Unrealised interest recovered (Note 24) (2,082) (2,335)

Recoveries of debts previously written off (5,877) (12,419)

Recoveries for the year – Banks and financial institutions

Impairment allowance recovered (33) -

(19,628) (36,776)

182,585 137,659

2012 LBP Million

2011 LBP Million

Salaries and related benefits 328,739 303,232

Social security contributions 33,023 32,340

End of service benefits (Note 39) 12,826 10,217

Transportation 12,179 10,252

Schooling 6,241 6,129

Medical expenses 4,489 3,600

Food and beverage 4,227 4,054

Training and seminars 4,173 5,075

Share-based payments (Note 46) - 40

Other staff expenses 5,849 5,917

411,746 380,856

120 121

122 123

14. Other Operating Expenses

2012 LBP Million

2011 LBP Million

Operating leases 29,371 26,409

Professional fees 27,116 26,138

Executive Management bonuses 26,381 24,120

Advertising fees 22,742 21,834

Taxes and similar disbursements 19,258 13,532

Outsourcing services 16,935 9,873

Premium for guarantee of deposits 16,315 16,144

Information Technology 14,619 10,423

Donations and social aids 13,552 2,073

Provisions for risks and charges (Note 39) 13,088 4,388

Travel and related expenses 12,240 10,886

Telephone and mail 10,380 12,978

Electricity, water and fuel 8,310 8,434

Maintenance 7,692 6,467

Insurance premiums 7,617 8,078

Facilities services 6,363 6,224

Subscription to communication services 6,116 5,485

Office supplies 5,806 5,342

Receptions and gifts 4,457 3,729

Credit cards expenses 3,654 2,543

Board of Directors fees 3,643 3,388

Regulatory charges 3,448 2,644

Documentation and miscellaneous subscriptions 2,379 2,155

Others 10,477 9,392

291,959 242,679

15. Income TaxThe components of income tax expense for the year ended December 31 are detailed as follows:

The tax rates applicable to the parent and subsidiaries vary from 0% to 40% in accordance with the income tax laws of the countries where the Group operates. For the purpose of determining the taxable results of the subsidiaries for the year, the accounting results have been adjusted for tax purposes. Such adjustments include items relating

to both income and expense and are based on the current understanding of the existing tax laws and regulations and tax practices.

The relationship between taxable profit and accounting profit is as follows:

2012 LBP Million

2011 LBP Million

Current tax

Current income tax 151,252 133,170

Adjustment in respect of current income tax of prior years 756 6,805

Other taxes treated as income tax 11,811 3,037

163,819 143,012

Deferred tax

Relating to origination and reversal of temporary differences (9,282) (3,498)

154,537 139,514

2012 2011Balance

LBP MillionTax

LBP MillionBalance

LBP MillionTax

LBP Million

Accounting profit before tax 699,012 104,852 681,166 102,175

Add:

Non-deductible expenses 112,707 16,906 79,660 11,949

Non-deductible provisions 194,127 29,119 71,675 10,751

Other non-deductibles 10,067 1,510 6,809 1,022

316,901 47,535 158,144 23,722

Less:

Revenues previously subject to tax 29,542 4,431 34,423 5,163

Provision recoveries previously subject to tax 4,736 710 15,466 2,320

Provisions write-off previously subject to tax 111 17 6,530 980

Exempted revenues 189,884 28,483 30,472 4,571

Unrealised gains on financial instruments 21,100 3,165 1,616 242

Other deductibles 79,147 11,872 25,118 3,768

324,520 48,678 113,625 17,044

Impact subject to tax 691,393 103,709 725,685 108,853

Impact of differently taxed profits 47,543 24,317

Tax due 151,252 133,170

Effective income tax rate 21.63% 19.55%

124 125

The movement of current tax liabilities during the year is as follows:

Deferred taxes recorded in the consolidated statement of financial position result from the following items:

* Represents taxes paid on interest received from Treasury bills and central banks’ certificates of deposits.

2012 LBP Million

2011 LBP Million

Balance at January 1 86,756 65,185

Charges for the year 163,819 143,012

Transfers (1,144) 40

162,675 143,052

Less taxes paid:

Current year tax liability* 68,315 67,473

Prior years tax liabilities 57,834 53,048

Foreign exchange difference 5,224 960

131,373 121,481

Balance at December 31 118,058 86,756

Deferred Tax Assets

LBP Million

Deferred Tax Liabilities

LBP Million

Provisions 3,731 (1,292)

Impairment allowance for loans and advances 13,794 -

Fair value of financial instruments 546 10,508

Carried forward taxable losses 1,282 -

Difference in depreciation rates - 3,962

Other temporary differences 276 162

19,629 13,340

2012

2011

Deferred Tax Assets

LBP Million

Deferred Tax Liabilities

LBP Million

Provisions 6,117 (495)

Fair value of financial instruments (125) 169

Carried forward taxable losses 1,282 -

Difference in depreciation rates - 1,921

Other temporary differences 358 158

7,632 1,753

16. Profit from Discontinued OperationsDuring May 2012, the Bank entered into a Sale and Purchase Agreement through which it sold 81% (926,437 shares) of its investment in LIA Insurance sal (“LIA”), the insurance arm of the Group. Consideration received amounted to USD 89 million (equivalent to LBP 133 billion) in cash.

The business of LIA Insurance sal was included in the “Group Functions and Head Office” business segment and “Lebanon” geographic segment. The cash flows generated by the sale of the discontinued operation during 2012 have been considered in the

Consolidated Statement of Cash Flows as part of the investing activities.

On July 26, 2012, the Directors of Banaudi Holding Limited, sole shareholder of Bank Audi sam, decided to cease the activities of the subsidiary bank and to liquidate it and withdraw its banking license.

Bank Audi sam exercised banking activities in Monaco under banking license provided by “Autorité de Contrôle Prudentiel”. The cessation of activities involves restitution of the assets of the clients, transfer of credit in process, and cancellation of all arrangements concluded with the external services providers.

The results of LIA Insurance sal and Bank Audi sam are as follows:

2012 2011

Bank Audi sam

LBP Million

LIA Insurance sal

LBP MillionTotal

LBP Million

Bank Audi sam

LBP Million

LIA Insurance sal

LBP MillionTotal

LBP Million

Interest and similar income 3,467 8,870 12,337 4,717 18,705 23,422

Interest and similar expense (1,874) (15) (1,889) (1,980) (41) (2,021)

Net interest income 1,593 8,855 10,448 2,737 18,664 21,401

Fee and commission income 813 8,620 9,433 919 20,088 21,007

Fee and commission expense (429) (4,889) (5,318) (440) (9,600) (10,040)

Net fee and commission income 384 3,731 4,115 479 10,488 10,967

Other operating income 79 334 413 424 909 1,333

Total operating income 2,056 12,920 14,976 3,640 30,061 33,701

Total operating expenses (16,146) (6,342) (22,488) (11,709) (11,368) (23,077)

Operating (loss) profit (14,090) 6,578 (7,512) (8,069) 18,693 10,624

Non-operating expenses (6,046) - (6,046) - - -

Tax attributable to operating profit - (793) (793) - (1,725) (1,725)

Loss for the period from discontinued operations (20,136) 5,785 (14,351) (8,069) 16,968 8,899

(Loss) gain recognised from fair value remeasurement (9,922) 20,439 10,517 - - -

Tax attributable to fair value remeasurement - (3,065) (3,065) - - -

(Loss) gain on disposal - 48,621 48,621 - - -

Tax attributable to gain on disposal - (7,908) (7,908) - - -

(30,058) 63,872 33,814 (8,069) 16,968 8,899

Cash inflow from sale:

Total consideration received 133,212

Cash included as cash and cash equivalents on January 1 in the Cash Flow statements (14,506)

118,706

Earnings per share: LBP LBP

Basic, from discontinued operations 96 22

Diluted, from discontinued operations 96 22

126 127

After remeasurement to fair value, the remaining investment in LIA Insurance sal amounted to LBP 32,199 million and was classified under “Financial Assets at Fair Value through Other Comprehensive Income”.

17. Earnings per ShareBasic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year.

There were no transactions involving common shares or potential common shares between the reporting date and the date of the completion of these

18. Cash and Balances with Central Banks

Diluted earnings per share is calculated by the same manner after adding to the weighted average number of common shares outstanding the weighted average number of dilutive shares that would have been issued pursuant to the Bank’s share-based payments plan. The number of shares issued has been calculated at the date of the statement of financial position for the purpose of calculating diluted earnings per share based on the realisation of accomplishment conditions as if the accomplishment date is the current statement of financial position date.

The following table shows the income and share data used to calculate basic and diluted earnings per share:

consolidated financial statements which would require the restatement of earnings per share.

2012 LBP Million

2011 LBP Million

Profit attributable to equity holders of the Bank 564,737 544,239

Less: dividends attributable to preferred shares (34,955) (25,910)

Profit available to holders of ordinary shares 529,782 518,329

Weighted average number of shares outstanding 346,903,074 343,334,701

Weighted average number of common shares outstanding after dilutive effect of share-based payments 347,048,590 344,036,106

Basic earnings per share 1,527 1,510

Diluted earnings per share 1,526 1,507

2012 LBP Million

2011 LBP Million

Cash on hand 249,347 278,110

Central Bank of Lebanon

Current accounts 541,387 680,068

Time deposits 7,287,985 6,420,737

Accrued interest 53,382 59,587

7,882,754 7,160,392

Other central banks


Time deposits 484,777 365,356

Accrued interest 34 128

1,330,279 1,264,852

9,462,380 8,703,354

Obligatory Reserves

•In accordance with the Central Bank of Lebanon’srules and regulations, banks operating in Lebanon are required to deposit with the Central Bank of Lebanon an obligatory reserve calculated on the basis of 25% of sight commitments and 15% of term commitments denominated in Lebanese Pounds. This is not applicable for investment banks which are exempted from obligatory reserve requirements on commitments denominated in Lebanese Pounds. Additionally, all banks operating in Lebanon are required to deposit with the Central Bank of Lebanon

The movement of the impairment allowance was as follows:

interest-bearing placements representing 15% of total deposits in foreign currencies, regardless of nature.

•Subsidiary banks operating in foreign countriesare also subject to obligatory reserve requirements determined based on the banking rules and regulations of the countries in which they operate.

Compulsory reserve deposits are not available for use in the Bank’s day-to-day operations. The following table summarises the Group’s placements in central banks available against the compulsory reserves as of December 31:

19. Due from Banks and Financial Institutions

2012 LBP Million

2011 LBP Million

Placements in Lebanese Pounds 453,024 614,151

Placements in foreign currencies 3,885,816 3,723,652

4,338,840 4,337,803

2012 LBP Million

2011 LBP Million

Current accounts 1,582,867 1,230,400

Time deposits 2,493,183 3,080,621

Checks for collection 171,449 158,363

Other amounts due 34,080 89,172

Accrued interest 397 5,074

Less: impairment allowance (998) (1,028)

4,280,978 4,562,602

2012 LBP Million

2011 LBP Million


Recoveries (33) -

Foreign exchange difference 3 (3)

998 1,028

128 129

20. Loans to Banks and Financial Institutions and Reverse Repurchase Agreements

21. Financial Assets Given as Collateral

22. Derivative Financial InstrumentsThe tables below show the positive and negative fair values of derivative financial instruments, together with the notional amounts analysed by the term to maturity. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year-end and are indicative of neither the market risk nor the credit risk. Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligations and is limited to the positive market value of instruments that are favourable to the Group.

The Group has positions in the following types of derivatives:

2012 LBP Million

2011 LBP Million

Loans and advances 272,282 218,556

Reverse repurchase agreements 787,087 -


1,060,267 219,084

2012 LBP Million

2011 LBP Million

Due from banks - 16,975

Due from other counterparties - 449

- 17,424

December 31, 2012

Positive Fair Value

LBP Million

Negative Fair Value

LBP Million

NotionalAmount

LBP Million

Within 3 Months

LBP Million

3 to12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP Million

Derivatives held for trading

Forward foreign exchange contracts 7,218 4,992 72,825 46,796 26,029 - -

Forward precious metals contracts 134 44 10,545 9,045 1,500 - -

Currency swaps 15,293 15,842 2,449,196 2,201,792 247,404 - -

Precious metals swaps 477 30 42,204 35,374 6,830 - -

Currency options 25,449 25,557 2,122,281 719,125 1,403,156 - -

Indices swaps and options 135 - 76,544 - 76,544 - -

Credit default swaps 2,339 829 1,442,219 779,425 647,169 15,625 -

Total 51,045 47,294 6,215,814 3,791,557 2,408,632 15,625 -

Derivatives held to hedge net

investments in foreign operations

Forward foreign exchange contracts - 552 40,036 40,036 - - -

Currency swaps - 8,196 167,968 51,682 116,286 - -

- 8,748 208,004 91,718 116,286 - -

Derivatives used as cash flows hedge

Interest rate swaps 1 - 30,128 - 4,844 25,284 -

51,046 56,042 6,453,946 3,883,275 2,529,762 40,909 -

Notional Amount by Term to Maturity

December 31, 2011

Positive Fair Value

LBP Million

Negative Fair Value

LBP Million

NotionalAmount

LBP Million

Within 3 Months

LBP Million

3 to12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP Million

Derivatives held for trading

Forward foreign exchange contracts 6,598 3,669 464,765 412,338 52,427 - -

Forward precious metals contracts 568 49 19,940 9,970 9,970 - -

Precious metals swaps 1,695 1 26,374 25,371 1,003 - -

Currency swaps 11,623 15,289 1,687,318 1,652,309 35,009 - -

Currency options 39,239 39,238 1,958,561 891,480 1,067,081 - -

Indices swaps and options - - 21,182 21,182 - - -

Credit default swaps 5,636 - 1,616,854 1,484,200 77,503 55,151 -

Equity options 290 - 8,906 - - 3,576 5,330

Total 65,649 58,246 5,803,900 4,496,850 1,242,993 58,727 5,330

Derivatives held to hedge net

investments in foreign operations

Currency swaps 16,560 - 164,558 - 164,558 - -

82,209 58,246 5,968,458 4,496,850 1,407,551 58,727 5,330

Notional Amount by Term to Maturity

130 131

Derivative Financial Instruments Held for Trading Purposes

Most of the Group’s derivative trading activities relate to deals with customers which are normally offset by transactions with other counterparties. Also included under this heading are any derivatives entered into for risk management purposes which do not meet the IAS 39 hedge accounting criteria.

Derivative Financial Instruments Held for Hedging Purposes

As part of its asset and liability management, the Bank uses derivatives for hedging purposes in order to reduce its exposure to credit and market risks. This is achieved by hedging specific financial instruments, portfolios of fixed rate financial instruments and forecast transaction, as well as strategic hedging against overall financial position exposures.

During 2012, the Bank renewed its currency swap contracts designated to hedge the net investment in its subsidiaries in Cyprus and France. The notional amount of these contracts amounted to LBP 167,968 million as of December 31, 2012 (2011: LBP 164,558). In order to maintain the effectiveness of the hedge, the Group entered into forward contracts with a notional amount of LBP 40,036 million to reduce the hedged amount. The negative fair value of these contracts amounted to LBP 8,748 million (2011: positive fair value of LBP 16,560) and was transferred to “Foreign Currency Translation Reserve” in equity to offset gains on translation of the net investment in the subsidiaries. No ineffectiveness from hedges of net investments in foreign operations was recognised in profit or loss during the year.

Forwards and Futures

Forwards and futures contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Futures contracts are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements.

Options

Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or to sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.

Swaps

Swaps are contractual agreements between two parties to exchange movements in interest or foreign currency rates, as well as the contracted upon amounts for currency swaps.

In a currency swap, the Bank pays a specified amount in one currency and receives a specified amount in another currency. Currency swaps are mostly gross-settled.

A Credit Default Swap (CDS) is a credit derivative between two counterparties, whereby they isolate the credit risk of at least one third party and trade it. Under the agreement, one party makes periodic payments to the other and receives the promise of a payoff if the third party defaults. The former party receives credit protection and is said to be the “buyer”, while the other party provides credit protection and is said to be the “seller”. The third party is known as the “reference entity”.

The notional amount of credit default swaps represents the carrying value of certain time deposits held by the Group as of December 31, 2012 and 2011 (Note 36).

23. Financial Assets at Fair Value through Profit or Loss

The classification of the above instruments according to the type of interest is as follows:

During 2012, the Group acquired, through its two wholly-owned subsidiaries, Banque Audi (Suisse) and Beryte International NV, a European real estate mortgage loan extended to Wel 1: Euro Elysee II real estate fund. The loan is fully secured by first mortgage deeds against properties in Germany.

This loan matures in September 2014, with option to extend by one year. It is remunerated at a fixed interest rate of 4.75% per annum on the face amount.

2012 LBP Million

2011 LBP Million


Central Bank's certificates of deposits 11,268 -

Treasury bills 124,843 461,941

Eurobonds 232,410 158,999

368,521 620,940

Other sovereign

Eurobonds 1,615 322


Banks and financial institutions debt instruments 2,404 133,522

Loans and advances to customers 75,555 -

Corporate debt instruments 10,340 15,520

Structured products - 1,882

Mutual funds 49,010 48,653

Equity instruments 3,212 3,087

140,521 202,664

510,657 823,926

2012 LBP Million

2011 LBP Million

Fixed interest

Lebanese sovereign and Central Bank of Lebanon 368,521 620,940

Other sovereign 1,615 322


458,436 770,304

Non-interest bearing


510,657 823,926

132 133

24. Loans and Advances to Customers at Amortised Cost

The breakdown and movement of the impairment allowance during the year are as follows:

2012

Corporate LBP Million

SME LBP Million


LBP Million

Public Sector

LBP MillionTotal

LBP Million

Overdraft accounts 2,408,650 764,158 634,556 65,560 3,872,924

Loans 7,403,071 1,681,182 2,695,458 56,264 11,835,975

Discounted bills and commercial paper 111,132 58,440 24,609 15,250 209,431

9,922,853 2,503,780 3,354,623 137,074 15,918,330

Impairment allowance (308,129) (28,540) (101,342) (3,732) (441,743)

Unrealised interest (40,403) (4,424) (15,357) - (60,184)

9,574,321 2,470,816 3,237,924 133,342 15,416,403

2011


SME LBP Million


LBP Million

Public Sector

LBP MillionTotal

LBP Million

Overdraft accounts 2,123,667 763,413 514,140 640 3,401,860

Loans 5,792,815 1,167,612 2,377,051 162,130 9,499,608

Discounted bills and commercial paper 136,708 74,716 26,522 20,741 258,687

8,053,190 2,005,741 2,917,713 183,511 13,160,155

Impairment allowance (191,395) (56,788) (115,780) (4,575) (368,538)

Unrealised interest (37,512) (30,888) (31,040) - (99,440)

7,824,283 1,918,065 2,770,893 178,936 12,692,177

2012


SME LBP Million


LBP Million

Public Sector

LBP MillionTotal

LBP Million

Balance at January 1 191,395 56,788 115,780 4,575 368,538

Add:

Charges for the year (Note 12) 150,832 7,018 41,306 2,744 201,900

Transfers 4,726 (4,726) 363 (582) (219)

Less:

Recoveries (Note 12) (4,000) (2,879) (3,914) (843) (11,636)

Write-offs (20,684) (27,728) (45,976) - (94,388)

Foreign exchange difference (14,140) 67 (6,217) (2,162) (22,452)

Balance at December 31 308,129 28,540 101,342 3,732 441,743

Individual impairment 196,703 14,284 61,917 2,187 275,091

Collective impairment 111,426 14,256 39,425 1,545 166,652

308,129 28,540 101,342 3,732 441,743

The movement of unrealised interest during the year is as follows:

2011


SME LBP Million


LBP Million

Public Sector

LBP MillionTotal

LBP Million

Balance at January 1 89,858 67,536 79,364 1,062 237,820

Add:

Charges for the year (Note 12) 118,050 5,071 46,830 4,484 174,435

Transfers (178) 315 127 - 264

Less:

Recoveries (Note 12) (10,063) (6,920) (4,106) (933) (22,022)

Write-offs (190) (8,286) (3,141) - (11,617)

Foreign exchange difference (6,082) (928) (3,294) (38) (10,342)

Balance at December 31 191,395 56,788 115,780 4,575 368,538

Individual impairment 97,538 40,730 78,747 - 217,015

Collective impairment 93,857 16,058 37,033 4,575 151,523

191,395 56,788 115,780 4,575 368,538

2012


SME LBP Million


LBP MillionTotal

LBP Million

Balance at January 1 37,512 30,888 31,040 99,440

Add:

Unrealised interest applied on non-performing loans 20,948 3,643 8,648 33,239

Less:

Unrealised interest written off (16,993) (28,954) (23,394) (69,341)

Unrealised interest recovered (Note 12) (587) (746) (749) (2,082)

Foreign exchange difference (477) (407) (188) (1,072)

Balance at December 31 40,403 4,424 15,357 60,184

2011


SME LBP Million


LBP MillionTotal

LBP Million

Balance at January 1 21,592 28,470 26,476 76,538

Add:

Unrealised interest applied on non-performing loans 17,104 5,280 5,905 28,289

Less:

Unrealised interest written off (103) (2,112) (473) (2,688)

Unrealised interest recovered (Note 12) (767) (710) (858) (2,335)

Foreign exchange difference (314) (40) (10) (364)

Balance at December 31 37,512 30,888 31,040 99,440

134 135

In accordance with the Banking Control Commission Circular No. 240, bad loans and related provisions and unrealised interest which fulfil certain requirements have been transferred to off-balance sheet accounts. The gross balance of these loans amounted to LBP 163,729 million as of December 31, 2012 (2011:

LBP 14,305 million). Besides, amounts recovered from off-balance sheet accounts during 2012 amounted to LBP 5,877 million (2011: LBP 12,419 million).

The distribution by economic sector of loans and advances to customers at amortised cost is as follows:

2012 LBP Million

2011 LBP Million

Manufacturing industries 3,091,234 2,167,091

Individuals – excluding housing 2,528,147 2,276,419

Wholesale and retail trade 2,278,118 1,843,934

Financial services and brokerage 1,671,096 1,502,606

Real estate services 1,222,188 885,883

Construction 1,142,268 1,038,408

Transportation and warehousing 1,134,051 970,876

Individuals – housing 1,030,297 853,001

Hotels and restaurants 451,869 364,125

Electricity, gas, water and telecommunication 304,378 362,352

Professional services 292,191 238,013

Agriculture 129,501 53,764

Extractive industry 19,784 31,902

Public administration 3,194 3,535

Regional and international organisations 802 2,048

Others 117,285 98,220

15,416,403 12,692,177

25. Loans and Advances to Related Parties at Amortised Cost

The distribution by economic sector of loans and advances to related parties at amortised cost is as follows:

2012


SME LBP Million


LBP MillionTotal

LBP Million

Overdraft accounts - 187,284 38,659 225,943

Loans 8,172 - 70,396 78,568

8,172 187,284 109,055 304,511

2011


SME LBP Million


LBP MillionTotal

LBP Million

Overdraft accounts - 169,166 37,836 207,002

Loans 8,295 1,076 47,293 56,664

8,295 170,242 85,129 263,666

2012 LBP Million

2011 LBP Million

Construction 177,021 167,979

Individuals – excluding housing 66,339 57,593

Real estate services 36,865 29,020

Individuals – housing 21,957 7,945

Hotels and restaurants 2,104 1,103

Financial services and brokerage 33 26

Others 192 -

304,511 263,666

136 137

26. Financial Assets at Amortised Cost

The classification of the above instruments according to the type of interest is as follows:

2012 LBP Million

2011 LBP Million


Central Bank’s certificates of deposits 5,008,977 5,423,957

Treasury bills 3,379,072 2,823,032

Eurobonds 2,222,422 2,750,853

10,610,471 10,997,842

Other sovereign

Treasury bills 2,425,358 1,716,371

Eurobonds 121,725 165,673

Other governmental securities 244,427 327,543

2,791,510 2,209,587


Banks and financial institutions debt instruments 853,948 660,692

Corporate debt instruments 299,713 446,451

Loans related to investments in equity instruments 539 482

1,154,200 1,107,625

14,556,181 14,315,054

Less: impairment allowance (7,065) (7,751)

14,549,116 14,307,303

2012 LBP Million

2011 LBP Million

Fixed interest

Lebanese sovereign and Central Bank of Lebanon 10,610,471 10,997,842

Other sovereign 2,757,698 2,209,587

Private sector and other securities 1,130,621 1,063,302

14,498,790 14,270,731

Variable interest


Other sovereign 33,813 -

Loans related to investments in equity instruments 143 143

50,326 36,572

14,549,116 14,307,303

27. Financial Assets at Fair Value through Other Comprehensive Income

During 2012, the Group realised a gain of LBP 1,416 million (2011: LBP 679 million) in equity reserves

upon disposal of financial assets at fair value through other comprehensive income.

The Group classified the following instruments at fair value through other comprehensive income as it intends to hold them for strategic reasons.The tables below list those equity instruments and dividends received:

2012Numbersof Shares

Fair Value LBP Million

Dividends LBP Million

AZA Holding SAL 49,900 125,371 6,110LIA Insurance sal (Note 16) 217,063 32,199 9BankMed SAL 7.75% series “1” preferred shares 100,000 15,075 1,168Visa NC – Class “C” 63,438 14,216 66Phoenicia – Aer Rianta Co. SAL 16,354 10,729 15,076Banque de l’Habitat SAL 502,599 10,125 56Solidere International Limited 58,083 6,479 131Liban Lait SAL 8,500 5,232 -Saraya Aqaba Real Estate Development 1,965,396 3,015 2,156Master Card Inc Class B 3,814 2,778 4Kafa Holding SAL 3,268 2,049 -Kafalat 3,800 1,628 -International Payment Network SAL 6,496 1,392 122Arab Trade Finance Program 122 1,366 -Abdel Wahab 618 Holding SAL 232 1,272 -Fransabank SAL 28,923 1,221 52Societe ABC SAL (bearer) 41,093 1,022 174D.F. Arem, Media Ltd 255 841 1,843Kayan 150,000 736 -C-Mobile Group Holding Ltd 5,487,273 - -Other equity instruments 9,047 3,278

245,793 30,245

2011Numbersof Shares


Dividends LBP Million

AZA Holding SAL 49,900 118,186 6,037BBAC 8.25% N-CP preferred shares series “A” 1,200,000 18,090 1,493BankMed SAL 7.75% series “1” preferred shares 100,000 15,075 1,168C-Mobile Group Holding Ltd 5,487,273 12,795 -Phoenicia – Aer Rianta Co SAL 16,354 10,729 14,820Visa NC – Class “C” 63,364 9,698 30Liban Lait SAL 8,500 5,232 -Solidere International Limited 58,083 7,005 -Banque de l’Habitat SAL 517,599 4,359 382Saraya Aqaba Real Estate Development 1,965,396 4,179 -Kafa Holding SAL 3,268 2,049 -Blom Bank SAL “GDR” 167,900 1,886 107Fransabank SAL 28,923 1,221 47Arab Trade Finance Program 122 1,280 2Abdel Wahab 618 Holding SAL 232 1,272 -Kayan 150,000 1,049 -Societe ABC SAL (bearer) 41,093 1,022 309D.F. Arem Media Ltd 255 1 2,260Other equity instruments 8,856 1,065

223,984 27,720

138 139

28. Investments in Associates

During 2012, Pinpay increased its share capital in cash by an amount equal to LBP 1,500 million representing 10,000 new shares, in addition to LBP 200,010 issue premium per share, conferring equal rights to the shareholders as the existing shares. The share capital of PinPay after the capital increase amounts to LBP 3,000 million. The Bank did

not subscribe in the capital increase and, as a result, its ownership percentage was diluted.

The Bank’s investments accounted for under the equity method are not listed on public exchanges. The following table illustrates the summarised financial information of these investments:

Country of Incorporation Ownership %

Cost LBP Million Ownership %

Cost LBP Million

Investments

Assurex sal Lebanon 23.82 3,540 23.92 3,555

Syrian Arab Insurance sal Syria 36.00 8,175 49.50 14,929

Pinpay sal Lebanon 24.93 480 39.00 648

Capital Outsourcing Ltd (Dubai) UAE 37.50 3,958 37.50 3,958

16,153 23,090

Related loans

Capital Outsourcing Ltd (Dubai) UAE 18,077 20,009

34,230 43,099

2012 2011

2012 LBP Million

2011 LBP Million

Share of associates’ statement of financial position

Current assets 23,516 41,362

Non-current assets 11,647 6,280

Current liabilities (4,936) (6,686)

Non-current liabilities (18,159) (21,473)

Net assets 12,068 19,483

Share of associates' revenues and profits

Revenues 6,348 23,886

Share of profits for the year 551 5,133

Land and Buildings

LBP Million

Installations and Fixture LBP Million

Motor Vehicles

LBP Million

Office Equipment

and Computer Hardware

LBP Million

Office Machinery

and Furniture

LBP Million

Other Fixed Assets

LBP MillionTotal

LBP Million

Cost or revaluation:

At January 1, 2011 439,648 145,985 4,351 92,094 87,766 15,001 784,845

Entities deconsolidated during the year - (4,148) (60) (4,851) (502) - (9,561)

Additions 3,086 23,161 608 20,963 8,763 1,342 57,923

Disposals (1,932) (634) (668) (2,509) (265) (10) (6,018)

Transfers - 75 - 488 (563) - -

Foreign exchange difference (4,639) (4,839) (127) (1,692) (2,810) (302) (14,409)

At December 31, 2011 436,163 159,600 4,104 104,493 92,389 16,031 812,780

Depreciation:

At January 1, 2011 61,853 88,114 2,286 65,904 47,547 9,212 274,916

Entities deconsolidated during the year - (1,212) (60) (2,696) (291) (20) (4,279)

Charge for continuing operations 8,546 12,711 550 9,244 6,806 939 38,796

Charge for discontinued operations 212 122 28 147 139 1 649

Disposals (564) (522) (502) (2,479) (249) (4) (4,320)

Transfers - 84 - 290 (374) - -

Foreign exchange difference (335) (1,668) (80) (985) (1,353) (111) (4,532)

At December 31, 2011 69,712 97,629 2,222 69,425 52,225 10,017 301,230

Net book value:

At December 31, 2011 366,451 61,971 1,882 35,068 40,164 6,014 511,550

29. Property and Equipment

Land and Buildings

LBP Million

Installations and Fixture LBP Million

Motor Vehicles

LBP Million

Office Equipment

and Computer Hardware

LBP Million

Office Machinery

and Furniture

LBP Million

Other Fixed Assets

LBP MillionTotal

LBP Million

Cost or revaluation:

At January 1, 2012 436,163 159,600 4,104 104,493 92,389 16,031 812,780

Entities deconsolidated during the year (7,283) (1,056) (91) (1,043) (316) (69) (9,858)

Additions 40,496 48,897 552 30,086 15,177 1,358 136,566

Disposals (19,886) (5,520) (513) (2,195) (3,498) - (31,612)

Transfers to non-current assets held for sale (32,303) (77) (189) (445) (90) (23) (33,127)

Other transfers - - - 29 (29) (88) (88)

Foreign exchange difference (9,440) (6,178) (346) (2,763) (4,032) (443) (23,202)

At December 31, 2012 407,747 195,666 3,517 128,162 99,601 16,766 851,459

Depreciation:

At January 1, 2012 69,712 97,629 2,222 69,425 52,225 10,017 301,230

Entities deconsolidated during the year (576) (647) (46) (894) (269) (51) (2,483)

Charge for continuing operations 8,421 16,247 425 12,508 7,528 959 46,088

Charge for discontinued operations - 624 - 382 423 - 1,429

Disposals (3,541) (4,811) (283) (2,050) (3,142) - (13,827)

Transfers to non-current assets held for sale (2,076) (14) (23) (105) (79) - (2,297)

Other transfers 9 - - - (9) - -

Foreign exchange difference (1,219) (2,163) (208) (2,043) (1,836) 78 (7,391)

At December 31, 2012 70,730 106,865 2,087 77,223 54,841 11,003 322,749

Net book value:

At December 31, 2012 337,017 88,801 1,430 50,939 44,760 5,763 528,710

140 141

30. Intangible Fixed Assets

Key Money LBP Million

Computer Software

LBP Million

Existing Technology LBP Million

Customer Relationships

LBP MillionOther

LBP MillionTotal

LBP Million

Cost:

At January 1, 2011 3,879 54,177 2,542 5,738 1,183 67,519

Entities deconsolidated during the year - (10,881) (2,542) (5,738) (1,183) (20,344)

Additions 1,868 5,509 7,377

Disposals (102) (130) - - - (232)

Foreign exchange difference (624) (737) - - - (1,361)

At December 31, 2011 5,021 47,938 - - - 52,959

Amortisation:

At January 1, 2011 352 40,157 469 1,060 13 42,051

Entities deconsolidated during the year - (7,136) (704) (1,590) (154) (9,584)

Charge for the year 39 6,100 235 530 141 7,045

Charge for discontinued operations 688 202 - - - 890

Disposals (102) (130) - - - (232)

Foreign exchange difference (86) (633) - - - (719)

At December 31, 2011 891 38,560 - - - 39,451

Net book value:

At December 31, 2011 4,130 9,378 - - - 13,508

Key Money LBP Million

Computer Software

LBP Million

Existing Technology LBP Million

Customer Relationships

LBP MillionOther

LBP MillionTotal

LBP Million

Cost:

At January 1, 2012 5,021 47,938 - - - 52,959

Entities deconsolidated during the year - (1,104) - - - (1,104)

Additions 38 45,781 - - 289 46,108

Disposals - (276) - - - (276)

Transfers to non-current assets held for sale (1) (160) - - - (161)

Foreign exchange difference (656) (1,028) - - 2 (1,682)

At December 31, 2012 4,402 91,151 - - 291 95,844

Amortisation:

At January 1, 2012 891 38,560 - - - 39,451

Entities deconsolidated during the year - (943) - - - (943)

Charge for the year 28 7,608 - - 27 7,663

Disposals - (276) - - - (276)

Transfers to non-current assets held for sale (1) (147) - - - (148)

Foreign exchange difference 1,317 (820) - - - 497

At December 31, 2012 2,235 43,982 - - 27 46,244

Net book value:

At December 31, 2012 2,167 47,169 - - 264 49,600

31. Non-current Assets Held for SaleThe Group occasionally takes possession of properties in settlement of loans and advances. The Group is in the process of selling these properties which are, as such, included in “Non-current Assets Held for Sale”. Gains or losses on disposal and revaluation losses are

recognised in the Consolidated Income Statement for the year.

Besides, as at December 31, 2012, the Bank continued to recognise in its financial statements the assets and liabilities from three subsidiaries which represent non-core businesses. Management expects to complete the sale of these disposal groups during 2013.

Properties Acquired in

Settlement of Debts LBP Million

Investments Acquired in


Other Disposal Groups

LBP MillionTotal

LBP Million

Cost:

At January 1, 2012 27,001 - - 27,001

Additions 211 - - 211

Transfers 254 - 34,941 35,195

Disposals (11,025) - - (11,025)

Foreign exchange difference (698) - - (698)

At December 31, 2012 15,743 - 34,941 50,684

Impairment:

At January 1, 2012 622 - - 622

Reversal due to disposals (4) - - (4)

Foreign exchange difference 12 - - 12

At December 31, 2012 630 - - 630

Net book value:

At December 31, 2012 15,113 - 34,941 50,054

Properties Acquired in


Investments Acquired in


Other Disposal Groups

LBP MillionTotal

LBP Million

Cost:

At January 1, 2011 30,478 15 - 30,493

Additions 4,468 - - 4,468

Transfers (806) (15) 706 (115)

Disposals (2,886) - (706) (3,592)

Adjustment (3,723) - - (3,723)


At December 31, 2011 27,001 - - 27,001

Impairment:

At January 1, 2011 1,239 - - 1,239

Reversal due to disposals (602) - - (602)


At December 31, 2011 622 - - 622

Net book value:

At December 31, 2011 26,379 - - 26,379

142 143

The major classes of assets and liabilities of the entities classified as held for sale as at December 31, 2012 are as follows:

There is no cumulative income or expenses in “Other Comprehensive Income” relating to assets held for sale.

32. Other Assets

Agence Saradar d’Assurances sal

LBP Million Clover Building sal

LBP Million

Eagle One Third Investment

Company sal LBP Million

Total LBP Million

Assets

Intangible fixed assets 13 - - 13

Property and equipment 969 29,000 861 30,830

Other assets 3,985 111 2 4,098

4,967 29,111 863 34,941

Liabilities

Other liabilities 3,634 11,143 22 14,799

3,634 11,143 22 14,799

2012 LBP Million

2011 LBP Million

Advances on acquisition of tangible fixed assets 67,819 69,932

Advances on acquisition of intangible fixed assets 6,460 13,794

Prepaid charges 36,194 50,480

Reinsurers’ shares in technical provisions - 20,566

Electronic cards and regularisation accounts 21,790 19,181

Trade receivables related to non-banking operations 2,345 17,038

Advances to staff 8,124 14,849

Hospitalisation and medical care under collection 14,980 11,920

Advances on investments 7,123 7,837

Deferred tax assets (Note 15) 19,629 7,632

Interest and commissions to be received 3,225 5,445

Funds’ management fees 3,152 3,737

Consolidation differences - 2,860

Fiscal stamps, bullions and commemorative coins 1,672 1,606

Management and advisory fees receivable 495 535

Miscellaneous debtors and other debtor accounts 45,155 40,759

238,163 288,171

33. Goodwill

For the purpose of impairment testing, goodwill is allocated to the Cash-generating Units (CGUs) which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes. The cost of equity assigned to an individual CGU and used to discount its future cash flows can have a significant effect on its valuation. The cost of equity percentage is generally derived from an appropriate capital asset pricing model, which itself depends on inputs reflecting a number of financial and economic variables including the risk rate in the country concerned and a premium to reflect the inherent risk of the business being evaluated.

Management judgment is required in estimating the future cash flows of the CGUs. These values are sensitive to cash flows projected for the periods for which detailed forecasts are available, and to assumptions regarding the term sustainable pattern of cash flows thereafter. While the acceptable range within which underlying assumptions can be applied is governed by the requirement for resulting forecasts to be compared with actual performance and verifiable economic data in future years, the cash

flow forecasts necessarily and appropriately reflect Management’s view of future business prospects.

The online brokerage CGU in Egypt (Arabeya Online) is a separate legal entity performing brokerage activities to its customers and is reported under “Retail and Personal Banking” business segment and “MENA” geographic segment. Due to the adverse events currently witnessed in Egypt, the volume of trading activities has drastically dropped in that market and, accordingly, the earnings of this CGU were significantly affected. As a result, an impairment loss on goodwill amounting to USD 14 million (equivalent to LBP 21,167 million) has been recognised during the year ended December 31, 2012 (2011: nil). The recoverable amount of this cash-generating unit is its value in use. Pursuant to Management's decision to discontinue its banking operations carried through Bank Audi sam (Monaco), the goodwill attributable to that Private Banking CGU was deemed to be impaired by effect of discontinuing the operations. The Group's activities in Monaco were included in the “Retail and

Lebanon LBP Million

Switzerland LBP Million

Egypt LBP Million

Sudan LBP Million

United States LBP Million

Monaco LBP Million

Others LBP Million

Total LBP Million

Cost:

At January 1, 2012 54,716 45,064 144,216 5,587 - 9,846 2,002 261,431

Entities deconsolidated during the year - - - - - - (1,996) (1,996)

Impairment – Continuing operations - - (21,167) - -

- (21,167)

Impairment – Discontinued operations - - - - - (9,922) - (9,922)

Foreign exchange difference - 1,667 (4,150) (3,087) - 76 (6) (5,500)

At December 31, 2012 54,716 46,731 118,899 2,500 - - - 222,846

Lebanon LBP Million

Switzerland LBP Million

Egypt LBP Million

Sudan LBP Million

United States LBP Million

Monaco LBP Million

Others LBP Million

Total LBP Million

Cost:

At January 1, 2011 54,716 45,108 149,824 5,652 8,128 10,093 3,683 277,204

Entities deconsolidated during the year - - - - (8,128) - - (8,128)

Foreign exchange difference - (44) (5,608) (65) - (247) (1,681) (7,645)

At December 31, 2011 54,716 45,064 144,216 5,587 - 9,846 2,002 261,431

144 145

Personal Banking” business segment and “Europe” geographic segment. The net results of Bank Audi sam were included under “Profit from Discontinued Operations” in the Income Statement for the years ended December 31, 2012 and 2011.

At December 31, 2011, aggregate goodwill of LBP million 2,002 was allocated to CGUs that were not considered individually significant.

The key assumptions described above may change as economic and market conditions change. The

During 2009, the Bank signed a credit agreement with the Central Bank of Lebanon based on the provisions of article 102 of the Code of Money and Credit. The purpose of this loan is to finance subsidised

The following CGUs include in their carrying value goodwill that is a significant proportion of total goodwill reported by the Group. These CGUs do not carry on their statement of financial position any intangible assets with indefinite lives, other than goodwill. The following schedule shows the discount and terminal growth rates used for CGUs subject to impairment testing.

Group estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of either unit to decline below the carrying amount.

loans. Interest expense on the loan amounted to LBP 4,797 million and LBP 6,341 million for the years ended December 31, 2012 and 2011, respectively.

2012 2011

Discount Rate %

Terminal Growth Rate %

Discount Rate %

Terminal Growth Rate %

Cash-generating units

Commercial and Private Banking – Lebanon 17.00 2.00 15.50 2.00

Private Banking – Switzerland 10.00 2.00 10.00 2.00

Commercial Banking – Egypt 17.00 3.00 16.50 3.00

Commercial Banking – Sudan 22.00 2.00 18.00 2.00

Private Banking – Monaco - - 13.00 2.00

Online Brokerage – Egypt 17.00 4.00 16.50 4.00

34. Due to Central Banks

2012 LBP Million

2011 LBP Million

Subsidised loan 132,612 132,612


133,108 133,394

The commitments arising from bank facilities received are disclosed in Note 52 to these Consolidated Financial Statements.

During the last quarter of 2012, the Group entered into repurchase agreements against pledging Treasury bills as collateral. The terms of these agreements are as follows:

35. Due to Banks and Financial Institutions

2012 LBP Million

2011 LBP Million


Term loans 512,337 324,000

Time deposits 475,488 372,311

Accrued interest 2,770 2,327

1,171,174 1,007,558

Repurchase agreements 681,487 -

1,852,661 1,007,558

JordanLBP Million

Egypt LBP Million

Total LBP Million

Central banks 126,697 114,613 241,310

Other banks - 440,177 440,177

126,697 554,790 681,487

Carrying value of collateral 127,171 567,968 695,139

Interest expense 1,787 3,364 5,151

Annual interest rate 4.25% 9.75% - 10.15%

Maturity date December 6, 2013Between January 2 and

February 25, 2013

146 147

Time deposits include special deposits amounting to LBP 1,442,219 million as at December 31, 2012 (2011: LBP 1,616,854 million) that pay a preferential (simple) interest rate. The principal is settled at maturity according to the full discretion of the Bank either in cash or in Lebanese government Eurobonds

denominated in US Dollars and having the same nominal amount. As these deposits are linked to the credit risk of the Lebanese Republic, the Bank separated the embedded derivative and accounted for it at fair value through profit or loss.

36. Customers’ Deposits at Amortised Cost

2012

Corporate and SME

LBP Million


LBP Million

Public Sector

LBP MillionOther

LBP MillionTotal

LBP Million

Sight deposits 1,830,807 4,632,182 42,575 547 6,506,111

Time deposits 5,286,250 24,369,381 246,110 2,434 29,904,175

Saving accounts 11,366 1,720,479 - - 1,731,845

Certificates of deposits 9,389 850,902 - - 860,291

Margins on LC’s and LG’s 286,492 58,926 - 6 345,424

Other margins 66,474 149,735 - 2 216,211

Other deposits 72,224 82,598 - 11 154,833

7,563,002 31,864,203 288,685 3,000 39,718,890

Deposits pledged as collateral 3,586,547

2011

Corporate and SME

LBP Million


LBP Million

Public Sector

LBP MillionOther

LBP MillionTotal

LBP Million

Sight deposits 1,564,690 4,065,442 39,299 1,165 5,670,596

Time deposits 6,648,552 22,435,674 211,727 1 29,295,954

Saving accounts 104,361 472,013 - - 576,374

Certificates of deposits 648,130 18,297 - - 666,427

Margins on LC’s and LG’s 345,378 63,670 - 15 409,063

Other margins 148,089 107,587 - 2 255,678

Other deposits 72,693 149,747 669 9 223,118

9,531,893 27,312,430 251,695 1,192 37,097,210

Deposits pledged as collateral 3,247,424

37. Deposits from Related Parties at Amortised Cost

38. Other Liabilities

2012

Corporate and SME

LBP Million


LBP MillionTotal

LBP Million

Sight deposits 21,122 177,504 198,626

Time deposits 304,578 177,703 482,281

Saving accounts - 1,268 1,268

Other deposits and margin accounts 6,781 145 6,926

332,481 356,620 689,101

Deposits pledged as collateral 66,557

2011

Corporate and SME

LBP Million


LBP MillionTotal

LBP Million

Sight deposits 32,229 956 33,185

Time deposits 235,128 15,243 250,371

Saving accounts - 468 468

Other deposits and margin accounts 483 790 1,273

267,840 17,457 285,297

Deposits pledged as collateral 56,732

2012 LBP Million

2011 LBP Million

Current tax liabilities (Note 15) 118,058 86,756

Accrued expenses 59,545 52,484

Miscellaneous suppliers and other payables 58,803 23,736

Credit balances of factoring clients 56,740 72,218

Operational taxes 32,620 32,766

Employee accrued benefits 29,195 24,594

Unearned commissions and premiums 12,267 14,847

Deferred tax liabilities (Note 15) 13,340 1,753

Electronic cards and regularisation accounts 6,493 5,554

Social security dues 6,258 5,749

Consolidation difference 2,054 -

Due to National Institute for Guarantee of Deposits 1,330 271

Provisions for technical reserves related to insurance operations - 312,968

Reinsurers’ and brokers’ accounts - 8,270

Liabilities on revaluation of share option agreements (Note 44) - 185,858

Other credit balances 12,162 4,263

408,865 832,087

148 149

39. Provisions for Risks and Charges

a) Provisions for Risks and Charges

The movement of provision for risks and charges is as follows:

2012 LBP Million

2011 LBP Million

Provisions for risks and charges (a) 38,571 24,523

End of service benefits (b) 56,525 48,402

95,096 72,925

2012 LBP Million

2011 LBP Million

Provision for contingencies 19,510 18,638

Provision for insurance risks - 1,718

Provision for legal claims 1,723 1,539

Provision for bonus 11,818 -

Other provisions 5,520 2,628

38,571 24,523

2012 LBP Million

2011 LBP Million


Add:

Charge for operating expenses (Note 14) 13,088 4,388

Charge for personnel expenses 11,767 -

Transfer from other liabilities - 1,928

24,855 6,316

Less:

Paid during the year 3,997 4,075

Net provisions recoveries – Continued operations (Note 11) 7 2,909

Net provisions recoveries – Discontinued operations - 750

Entities deconsolidated during the year 2,019 -

Transfer to other liabilities 3,981 -

Foreign exchange difference 803 1,103

10,807 8,837

Balance at December 31 38,571 24,523

b) End of Service Benefits

The movement of provision for staff retirement benefit obligation is as follows:

The amount provided during the year is as follows:

Defined Benefit PlanLBP Million

Other Retirement Obligations LBP Million

Total LBP Million

Balance at January 1, 2012 40,861 7,541 48,402

Charge for the year (Note 13) 9,778 3,048 12,826

Transfer from deconsolidated entities 114 - 114

Paid during the year (1,366) (1,542) (2,908)

Transfer to non-current assets held for sale (502) - (502)

Deconsolidated entities (977) - (977)

Foreign exchange difference (430) - (430)

Balance at December 31, 2012 47,478 9,047 56,525

Balance at January 1, 2011 36,746 4,194 40,940

Charge for the year (Note 13) 6,668 3,549 10,217

Charge for the year – Discontinued operations 86 - 86

Paid during the year (1,632) (202) (1,834)

Provision no more required (979) - (979)

Foreign exchange difference (28) - (28)

Balance at December 31, 2011 40,861 7,541 48,402

2012 LBP Million

2011 LBP Million

Current service cost 6,736 6,077

Interest on obligation 4,475 4,002

Expected return on plan assets (1,636) (1,602)

Other termination benefits 3,048 3,549

Gain on curtailments and settlements - (1,809)

Net actuarial losses recognised during the year 203 -

Total charge for the year 12,826 10,217

150 151

The share capital of Bank Audi sal - Audi Saradar Group as at December 31 is as follows:

Pursuant to the resolution of the Extraordinary General Assembly of shareholders held on April 10, 2012, the Bank issued preferred shares series “F” under the following terms:

•Numberofshares:1,500,000.•Share’sissueprice:USD100.•Share’snominalvalue:LBP1,254.•Issue premium: calculated in USD as the difference

between USD 100 and the counter value of the par value per share based on the exchange rate at the underwriting dates.

•Benefits: annual dividends of USD 6 per share, non-cumulative (exceptional for the 2012 fiscal year was set to USD 4 per share).

•Repurchaseright:theBankhastherighttopurchasethe shares in 5 years after issuance, as well as to call them off by that date.

Pursuant to the resolution of the Extraordinary General Assembly of shareholders held on March 2, 2010, the Bank issued 1,250,000 preferred shares series “E” according to the following terms:

The key assumptions used in the calculation of retirement benefit obligation are as follows:

2012 2011

Economic assumptions

Discount rate (p.a.) 2.15% - 8.50% 2.90% - 8.00%

Salary increase (p.a.) 2.50% - 8% 2.50% - 6.00%

Interest rate credited to account balance 2.50% - 6 % 3.00% - 6.00%

Demographic assumptions

Retirement 64 - 65 64 - 65

Pre-termination mortality None None

Pre-termination turnover rates (age related with average of) 2.00% - 13.00% 2.00% - 15.00%

40. Share Capital

2012 2011

Stock Exchange listing

Number of Shares LBP Million

Number of Shares LBP Million

Ordinary shares Beirut 247,731,553 310,656 249,358,514 312,695

Global depository receipts London SEAQ and Beirut 102,017,651 127,930 100,081,430 125,502

349,749,204 438,586 349,439,944 438,197

Preferred shares series “D” Beirut 12,500,000 15,675 12,500,000 15,675

Preferred shares series “E” Beirut 1,250,000 1,568 1,250,000 1,568

Preferred shares series “F” Beirut 1,500,000 1,881 - -

15,250,000 19,124 13,750,000 17,243

364,999,204 457,710 363,189,944 455,440

•Numberofshares:1,250,000.•Share’sissueprice:USD100.•Share’s nominal value: LBP 1,225 (later became

LBP 1,254 upon increasing the nominal value).•Issuepremium: calculated inUSDas thedifference

between USD 100 and the counter value of the par value per share based on the exchange rate at the underwriting dates.

•Benefits: annual dividends of USD 6 per share, non-cumulative.

•Repurchaseright:theBankhastherighttopurchasethe shares in 5 years after issuance, as well as to call them off by that date.Pursuant to the resolution of the Extraordinary General Assembly held on September 5, 2005, the Bank issued 1,250,000 preferred shares series “D” according to the following terms:

•Numberofshares:12,500,000(afterthestocksplit).•Share’sissueprice:USD100.•Share’s nominal value: LBP 10,000 (subsequently

increased to LBP 12,250 due to the increase of the share’s nominal value).

•Issuepremium:calculatedinUSDasthedifferencebetween USD 100 and the counter value of the par value per share (LBP 10,000).

•Benefits: annual dividends of USD 7.75 per share,non-cumulative.

•Repurchaseright:theBankhastherighttopurchasethe shares in 5 years after issuance, as well as to call them off by that date.

During 2012, 1,936,221 common shares were transferred to Global Depository Receipts (2011: 6,393,576 shares).

In accordance with the resolution of the Extraordinary General Assembly of shareholders held on June 22, 2012, the Bank increased the share capital by LBP 389 million by issuing 309,260 common shares at the nominal value of LBP 1,254 per share, entirely designated for options holders who exercised their rights (2011: increased the share capital by LBP 1,207 million by issuing 962,830 common shares at the nominal value of LBP 1,254 per share).

Paid Dividends

In accordance with the resolution of the General Assembly of shareholders held on April 10, 2012, dividends were distributed as follows:

152 153

The movements on the issue and merger premiums are detailed as follows as at December 31, 2012 and 2011:

•The increase in common shares issuepremiumdueto the issuance of 309,260 common shares pursuant to the exercise of stock options (Note 40). The subscribers paid the difference between USD 2.719 and the nominal amount per share based on the exchange rates at the exercise dates. Besides, an amount of LBP 587 million was transferred from the employees’ share-based payments reserve to the issue premium of subscribed shares (Note 46).

•Theincreaseintheissuepremiumofpreferredsharesfor the year ended December 31, 2012 amounting

to LBP 224,243 million resulted from the issuance of 1,500,000 preferred shares series “F” (Note 40).

•In2011,theincreaseincommonsharesissuepremiumwas due to the issuance of 962,830 common shares pursuant to the exercise of stock options. The subscribers paid the difference between USD 2.719 and the nominal amount per share based on the exchange rates at the exercise dates for 708,610 shares and the difference between USD 4.033 and the nominal amount per share based on the exchange rates at the exercise dates for 254,220 shares. An amount of LBP 1,720 million was transferred from the employees’ share-based payments reserve to the issue premium of subscribed shares (Note 46).

In accordance with the resolution of the General Assembly of shareholders held on April 4, 2011, dividends were distributed as follows:

41. Issue Premiums

2012

Number of Shares

Distribution per Share

LBPTotal

LBP Million

Preferred shares series “D” 12,500,000 1,168 14,604

Preferred shares series “E” 1,250,000 9,045 11,306

Common shares and Global Depository Receipts 349,439,944 603 210,712

236,622

2011

Number of Shares

Distribution per Share

LBPTotal

LBP Million

Preferred shares series “D” 12,500,000 1,168 14,604

Preferred shares series “E” 1,250,000 6,030 7,538

Common shares and Global Depository Receipts 346,055,290 603 208,671

230,813

2012 LBP Million

2011 LBP Million

Issue premium – Common shares 659,206 657,846

Issue premium – Preferred shares 583,876 359,633

1,243,082 1,017,479

42. Cash Contribution to Capital

In previous years, agreements were entered between the Bank and its shareholders whereby the shareholders granted cash contributions to the Bank amounting to LBP 72,586 million (USD 48,150,000) as at December 31, 2012 and 2011 subject to the following conditions:

•These contributions will remain placed as a fixed deposit as long as the Bank performs banking activities;

•If theBank incurs lossesandhas to reconstitute its

capital, these contributions may be used to cover the losses if needed;

•The shareholders have the right to use thesecontributions to settle their share in any increase of capital;

•Nointerestisdueontheabovecontributions;•Theabovecashcontributionsareconsideredaspart

of Tier I capital for the purpose of determining the Bank’s capital adequacy ratio; and

•The right to these cash contributions is for thepresent and future shareholders of the Bank.

154 155

43. Non-distributable Reserves

Legal Reserve

LBP Million

Reserves Appropriated

for Capital Increase

LBP Million

Gain on Sale of

Treasury Shares

LBP Million

Reserve for General Banking

Risks LBP Million

Employees' Share-based

Payments LBP Million

Reserve for Foreclosed

Assets LBP Million

Other Reserves

LBP Million Total

LBP Million

Balance at January 1, 2012 286,273 33,453 47,076 323,971 587 5,000 - 696,360

Appropriation of 2011 profits 57,901 11,174 - 63,705 - 351 153 133,284

Distribution of dividends on ordinary shares - - 443 - - - - 443

Employees’ share-based payments - - - - (587) - - (587)

Entities deconsolidated during the year (8,219) - - - - - - (8,219)

Treasury shares transactions - - (24,583) - - - - (24,583)

Non-controlling interest share of reserves (137) (1) - - - - -

(138)

Transfers between reserves 1,649 - - 6,223 - (1,626) 5,840 12,086

Other movements (212) - - - - - - (212)

At December 31, 2012 337,255 44,626 22,936 393,899 - 3,725 5,993 808,434

Legal Reserve

LBP Million

Reserves Appropriated

for Capital Increase

LBP Million

Gain on Sale of

Treasury Shares

LBP Million

Reserve for General Banking

Risks LBP Million

Employees' Share-based

Payments LBP Million

Reserve for Foreclosed

Assets LBP Million

Other Reserves

LBP Million Total

LBP Million

Balance at January 1, 2011 229,167 12,602 48,269 252,423 2,307 4,782 - 549,550

Appropriation of 2010 profits 59,872 14,361 - 72,840 - 396 - 147,469

Employees’ share-based payments - - - - (1,720) - - (1,720)

Entities deconsolidated during the year (348) - - - - - - (348)

Treasury shares transactions - - (1,193) - - - - (1,193)

Non-controlling interest share of reserves (2,418) - - (4,977) - - - (7,395)

Transfers between reserves - 6,490 - 3,316 - (178) - 9,628

Other movements - - - 369 - - - 369

At December 31, 2011 286,273 33,453 47,076 323,971 587 5,000 - 696,360

Legal Reserve

The Lebanese Commercial Law and the Bank’s articles of association stipulate that 10% of the net annual profits be transferred to legal reserve. In addition, subsidiaries and branches are also subject to legal reserve requirements based on the rules and regulations of the countries in which they operate. This reserve is not available for dividend distribution.

The Bank and different subsidiaries transferred to legal reserve an amount of LBP 57,901 million (2011: LBP 59,872 million) as required by the laws applicable in the countries in which they operate.

Reserves Appropriated for Capital Increase

The Bank and the subsidiaries transferred LBP 11,174 million from 2012 profits (2011: LBP 14,361 million) to reserves appropriated for capital increase. This amount represents the net gain on the disposal of fixed assets acquired in settlement of debt, in addition to reserves on recovered provisions for doubtful loans and debts previously written off, whenever recoveries exceed booked allowances.

Gain on Sale of Treasury Shares

These gains arise from the Global Depository Receipts (GDRs) owned by the Group. Based on the applicable regulations, the Bank does not have the right to distribute these gains.The net loss arising from the Treasury GDRs amounted to LBP 24,583 million for the year ended December 31, 2012 (2011: LBP 1,193 million).

Reserves for General Banking Risks

According to the Bank of Lebanon’s regulations, banks are required to appropriate from their annual net profit a minimum of 0.2 percent and a maximum of 0.3 percent of total risk-weighted assets and off-balance sheet accounts based on rates specified by the Central Bank of Lebanon to cover general banking risks. The consolidated ratio should not be less than 1.25 percent of these risks by the year 2017 and 2 percent by the year 2027. This reserve is part of the Group’s equity and is not available for distribution.

Reserve for Foreclosed Assets

The reserve for foreclosed assets represents appropriation against assets acquired in settlement of debt in accordance with the circulars of the Lebanese Banking Control Commission. Appropriations against assets acquired in settlement of debt shall be transferred to unrestricted reserves upon the disposal of the related assets.

Other Reserves

In accordance with decision 362 of the Council of Money and Credit of Syria, unrealised accumulated foreign exchange profits from the revaluation of the structural position in foreign currency maintained by the subsidiary bank in Syria are non-distributable.

156 157

Reserve for Share Option Agreements

During January 2010, the Bank entered into share option agreements with two structured investment vehicles (SIVs) who undertook the issuance of 5% callable notes exchangeable into shares of the Bank and maturing on July 19, 2013 (the “Series 1” notes). The nominal value of the issued notes amounted to USD 355 million. The share option agreement provides the Bank with the right but not the obligation, in its sole discretion, to purchase or cause to be purchased, all or any part of the shares held by the SIVs. The share option agreements also cause the purchase, subject to all necessary approvals

and authorisations or procure the purchase of all or part of the Bank’s shares to fund the cash reserves of the SIVs in case they were insufficient to pay their obligations when they fall due.

During 2012, the Bank settled an amount of LBP 179,014 million to finance the cash reserves of the SIVs pursuant to their early redemption of the “Series 1” notes. Besides, the SIVs issued new “Series 2” notes with a nominal amount of USD 205 million exchangeable into shares of the Bank, bearing 5% annual interest and maturing on May 11, 2016. The “Series 2” notes are subject to terms and conditions similar to those described above which used to be applicable to the “Series 1” notes.

44. Distributable Reserves

General


Reserve for Share Option Agreements LBP Million

Other Reserves

LBP MillionTotal

LBP Million

Balance at January 1, 2012 567,742 (185,858) (1,669) 380,215

Appropriation of 2011 profits 1,505 - - 1,505

Entities deconsolidated during the year (19,637) - - (19,637)

Non-controlling interest share of reserves (4,308) - - (4,308)

Reserves for share option agreements - 6,844 - 6,844

Transfers between reserves 7,767 179,014 - 186,781

Other movements 6 - - 6

Balance at December 31, 2012 553,075 - (1,669) 551,406

General


Reserve for Share Option Agreements LBP Million

Other Reserves

LBP MillionTotal

LBP Million

Balance at January 1, 2011 566,218 (58,866) (1,755) 505,597

Appropriation of 2010 profits 18,822 - - 18,822

Entities deconsolidated during the year (4,825) - 86 (4,739)

Non-controlling interest share of reserves (2,295) - - (2,295)

Reserves for share option agreements - (126,992) - (126,992)

Transfers between reserves (10,187) - - (10,187)

Other movements 9 - - 9

Balance at December 31, 2011 567,742 (185,858) (1,669) 380,215

45. Proposed DividendsIn its meeting held on March 21, 2012, the Board of Directors of Bank Audi sal - Audi Saradar Group resolved to propose to the annual Ordinary General Assembly the distribution of dividends of LBP 603 per common share and GDR which amounts to LBP 210,194 million in total, after deductions made on Treasury shares held on the date of record. Proposed dividends related to preferred shares amounted to LBP 34,955 million. These dividends are subject to the General Assembly’s approval.

46. Share-based PaymentsAccording to the Extraordinary General Assembly dated February 2, 2006, the Board of Directors was authorised to initiate a stock option plan and to issue, in accordance with Law 308/2001, up to 5,000,000 common shares of the Bank’s capital.

As part of the initial phase of the stock option plan, the Board of Directors resolved, on April 24, 2006, to grant 3,200,000 stock options. Furthermore, on April 26, 2006, the Board of Directors specified the names of the beneficiaries and the number of rights that will be granted to each, along with the related terms and conditions. On May 6, 2006, the Central Bank of Lebanon approved the share-based payment plan whereby the Bank can grant stock options to all or certain individuals specified in Article 3 of Law No. 308 dated April 3, 2001.

As a result, the individuals referred to above were granted the right to subscribe in 3,200,000 common shares of the Bank’s capital. These stock options are vested over a period of four years and upon completion of each year from the grant date. The

Board of Directors can set certain growth targets to be achieved in its consolidated earnings per share for the options to be vested. The exercise price for each option was set at USD 27.19 (USD 2.719 after the stock split). The options are exercisable over a period of 2 years from the vesting date.

The Board of Directors also resolved that the vesting of one-half of the granted options is not contingent on any conditions or target achievement. As such, these options become exercisable after specified periods of time, regardless of achieving any earnings thresholds. The other half will vest and become exercisable only if the Bank achieves certain growth targets in its adjusted consolidated earnings per share. For this purpose, the determination of the consolidated earnings per share will be based on the consolidated net income of the Group, less the amount paid in dividends in respect of preferred shares and adding back the expenses relating to the share-based payment plan.

The growth in earnings per share is measured at each year in which these options vest against the earnings achieved at the end of the fiscal year preceding the grant date and was set at 10%, 20%, 30% and 40% to be achieved at year-end 2006, 2007, 2008, and 2009, respectively. At any vesting date, in case 50% of the targeted growth was achieved, 50% of the performance options will vest. In case 50% to 100% of the targeted growth was achieved, a proportionate percentage of performance options will vest. However, in case less than 50% of the targeted growth was achieved, then no stock options vest. The non-achievement of the target leads to rolling forward the vesting date to the next year. In case the targeted growth rates were not achieved by the end of the fourth year from the grant date, the remaining unvested options will be cancelled.

158 159

Based on the above, the vested and exercised stock options are as follows:

The fair value of the options was determined at the grant date by using the Black-Scholes Model after taking into consideration the terms and conditions according to which these options were granted. The following table illustrates the model inputs used:

Dividend yield 5%Expected volatility 12.1%Historical volatility 12.1%Weighted risk-free rate 5.7%Expected life of the option 4 yearsFair value per share USD 39

The expected life of the option is based on historical data and is not necessarily indicative of the exercise patterns that may actually occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options grants were incorporated into the measurement of fair values.

In its meeting dated May 10, 2007, the Board of Directors was notified that 218,424 options related to 100 beneficiaries were nullified. Furthermore, the Board of Directors resolved to grant 170,112 new stock options to 31 beneficiaries, in connection with the 5,000,000 stock-option plan. These stock options vest as follows:

•90,000stockoptionsoveraperiodoffouryears;•80,112 stock options over a period of three

years (50% during 2008; 25% during 2009 and 25% during 2010).

The exercise price for each option was set at USD 40.33 (USD 4.033 after stock split). The options are exercisable over a period of 1 or 2 years from the vesting date. The Board of Directors also resolved that the vesting of one-half of the 90,000 granted options is not contingent on any condition or target achievement. As such, these options become exercisable after specified periods of time, regardless of achieving any earnings thresholds. The other half will vest and become exercisable only if the Group achieves certain growth targets in its adjusted consolidated earnings per share against the adjusted earnings per share for the Group’s fiscal year immediately preceding the date of grant (2006). Regarding the 80,112 granted options, the Board of Directors resolved that the vesting of 62.5% of these options is not contingent on any conditions or target achievement; whereas the remaining 37.5% is related to the Group’s achievement of certain growth targets in its adjusted consolidated earnings per share on each year during the vesting period, against the adjusted earnings per share for the Group’s fiscal year ending on December 31, 2005.

Based on the above, the vested and exercised stock options are as follows:

Vested

Number of Date Stock Options

April 26, 2007 745,394April 26, 2008 724,765April 26, 2009 708,667April 26, 2010 (after the stock split) 6,929,340

Exercised


September 3, 2007 (136,069)July 8, 2008 (1,230,442)July 27, 2009 (220,848)October 1, 2010 (after the stock split) (11,717,760 )July 27, 2011 (708,610)June 22, 2012 (309,260)

Vested


April 26, 2008 57,960April 26, 2009 36,258April 26, 2010 (after the stock split) 346,860

Exercised


July 8, 2008 (56,638)July 27, 2009 (8,704)October 1, 2010 (after the stock split) (599,700)July 25, 2011 (254,220)

Targets were set as follows:•90,000 stock options: The growth in earnings per share is measured at each

year in which these options vest against the earnings achieved at the end of the fiscal year preceding the grant date (2006) and was set at 10%, 20%, 30% and 40% to be achieved at year-end 2007, 2008, 2009, and 2010, respectively.

•80,112 stock options: The growth in earnings per share is measured at each

year in which these options vest against the earnings achieved at the end of the fiscal year 2005 and was set at 20%, 30% and 40% to be achieved at year-end 2007, 2008, and 2009, respectively.

At any vesting date, in case 50% to 100% of the target was achieved, then a proportionate percentage of performance options will vest. However, in case less than 50% of the targeted growth was achieved, then no performance options vest. The non-achievement of the target leads to rolling forward the vesting date to the next year. In case the targeted growth rates were not achieved by the end of the last year, the remaining unvested performance options will be cancelled.

The fair value of the options was determined by using the Black-Scholes Model after taking into

consideration the terms and conditions according to which these options were granted. The following table illustrates the model inputs used:

Dividend yield 3.96%Expected volatility 20%Historical volatility 20%Weighted risk-free rate 5.7%Expected life of the option 3 or 4 yearsFair value per share USD 53

The expected life of the option is based on historical data and is not necessarily indicative of exercise patterns that may actually occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options grants were incorporated into the measurement of fair values.

The cost of share-based payments amounted to LBP 40 million for the year ended December 31, 2011. This cost was accounted for under “Personnel Expenses” in the Consolidated Income Statement and under “Reserve for Share-based Payments” in Shareholders’ Equity (Note 13).

The following table illustrates the movement in share-based payments reserve for the year ended December 31:

160 161

The following table illustrates the movement in stock options granted for the year ended December 31:

47. Treasury Shares

2012 LBP Million

2011 LBP Million

Balance at January 1 587 2,308

Cost of share-based payments (Note 13) - 40

Less:

Stock options nullified (unrealised) 107 96

Stock options exercised 480 1,665

Balance at December 31 - 587

2012 2011

Number of Stock Options

Weighted Average Price

USD

Number of Stock Options

Weighted Average Price

USD

Number of shares at January 1 363,660 2.72 1,387,170 2.97

Stock options nullified (unrealised) (54,400) 2.72 (60,680) 2.86

Stock options exercised (Note 41) (309,260) 2.72 (962,830) 3.07

Number of shares at December 31 - - 363,660 2.72

Number of GDRs

Cost LBP Million

Balance at January 1 8,497,399 103,912

Purchase of Treasury shares 8,364,532 75,213

Sale of Treasury shares (14,964,396) (158,880)

Balance at December 31 1,897,535 20,245

2012

Number of GDRs

Cost LBP Million

Balance at January 1 2,891,629 37,163

Purchase of Treasury shares 6,674,434 80,054

Sale of Treasury shares (1,068,664) (13,305)

Balance at December 31 8,497,399 103,912

2011

48. Other Components of Equity

Reserve for Real Estate Revaluation

During the year 1995, the Bank revalued certain real estate properties based on the provisions of Law No. 282 dated December 30, 1993 and Decree No. 5451 dated July 26, 1994. The revaluation differences amounted to LBP 16,600 million. Another LBP 2,000 million relate to the revaluation of some of the Bank’s assets in 1994 and LBP 2,319 is due to the reclassification of real estate revaluation differences made during 2011 by the National Bank of Sudan.

Cumulative Changes in Fair Value

The cumulative changes as at December 31, 2012 represent the fair value differences from the revaluation of financial assets measured at fair value through other comprehensive income.

The movement of the cumulative changes in fair value is as follows:

2012

Reserve for Real Estate

Revaluation LBP Million


LBP Million


Reserve LBP Million

Total LBP Million

Balance at January 1, 2012 20,375 87,228 (86,547) 21,056

Other comprehensive income - (4,054) (129,732) (133,786)

Entities deconsolidated during the year - 275 145 420

Non-controlling interest share of reserves - 130 43,680 43,810

Transfers between reserves - 3,226 (1,305) 1,921

Balance at December 31, 2012 20,375 86,805 (173,759) (66,579)

2011

Reserve for Real Estate

Revaluation LBP Million


LBP Million


Reserve LBP Million

Total LBP Million

Balance at January 1, 2011 18,600 217,524 (40,310) 195,814

Effect of IFRS 9 early adoption - (101,875) - (101,875)

Other comprehensive income - (29,713) (46,237) (75,950)

Entities deconsolidated during the year - 1,140 - 1,140

Non-controlling interest share of reserves (544) (131) - (675)

Transfers between reserves 2,319 283 - 2,602

Balance at December 31, 2011 20,375 87,228 (86,547) 21,056

162 163

49. Non-controlling Interest

50. Cash and Cash Equivalents

Change in Fair Value

LBP MillionDeferred Tax

LBP MillionNet

LBP Million

Balance at January 1, 2012 87,522 (294) 87,228

Other comprehensive income 5,613 (9,667) (4,054)

Entities deconsolidated during the year 275 - 275

Non-controlling interest share of reserves 130 - 130

Transfers between reserves 3,226 - 3,226

Balance at December 31, 2012 96,766 (9,961) 86,805

Balance at January 1, 2011 235,466 (17,942) 217,524

Effect of IFRS 9 early adoption (119,755) 17,880 (101,875)

Other comprehensive income (29,481) (232) (29,713)

Entities deconsolidated during the year 1,140 - 1,140

Non-controlling interest share of reserves (131) - (131)

Transfers between reserves 283 - 283

Balance at December 31, 2011 87,522 (294) 87,228

2012 LBP Million

2011 LBP Million

Capital 118,613 125,141

Capital reserves 21,380 16,935

Retained earnings 6,781 12,461

Profit for the year 13,552 6,312

Other components of equity (63,488) (19,677)

96,838 141,172

2012 LBP Million

2011 LBP Million

Cash and balances with central banks 2,160,406 1,576,501

Due from banks and financial institutions 4,025,200 4,317,250

Loans to banks and financial institutions and reverse repurchase agreements 819,808 46,145

Due to banks and financial institutions (731,465) (640,156)

Due to banks under repurchase agreements (681,487) -

5,592,462 5,299,740

51. Fair Value of Financial InstrumentsThe following describes the methodologies and assumptions used to determine the fair values of the financial instruments which are not recorded at fair value in the financial statements.

Assets for Which Fair Value Approximates Carrying Value

For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months), the Group assumed that the carrying values approximate the fair values. This assumption is also applied to demand deposits which have no specific maturity and financial instruments with variable rates.

Fixed Rate Financial Instruments

The fair value of fixed rate financial assets and liabilities carried at amortised cost is estimated by comparing market interest rates when they were first recognised with current market rates offered

for similar financial instruments. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using prevailing market interest rates for debts with similar credit risk and maturity. The fair value of quoted debt instruments is determined based on quoted market prices. For those debt instruments where quoted market prices are not available, a discounted cash flow model is used with the discount rate being the current market yield to maturity.

Fair Value of Loans and Advances

In order to compute the fair value of loans and advances to customers, the Group considers that these loans will mature in principal and interest at the first day in which interest is repriced. These future cash flows have been discounted using the appropriate benchmark rate at the statement of financial position date for the remaining term to maturity plus the appropriate risk premium of the customer.

The fair value of financial instruments that are carried at amortised cost as of December 31, 2012 is as follows:

2012


Book Value LBP Million

Unrealised Gain (Loss) LBP Million

Financial assets

Cash and balances with central banks 9,462,172 9,462,380 (208)

Due from banks and financial institutions 4,281,096 4,280,978 118

Loans to banks and financial institutions and reverse repurchase agreements 1,060,265 1,060,267 (2)

Loans and advances to customers at amortised cost 15,497,755 15,416,403 81,352

Loans and advances to related parties at amortised cost 305,040 304,511 529

Financial assets at amortised cost 14,694,614 14,549,116 145,498

45,300,942 45,073,655 227,287

Financial liabilities

Due to central banks 133,108 133,108 -

Due to banks and financial institutions 1,171,265 1,171,174 (91)

Due to banks under agreements 681,487 681,487 -

Customers’ deposits at amortised cost 39,725,231 39,718,890 (6,341)

Deposits from related parties at amortised cost 690,350 689,101 (1,249)

42,401,441 42,393,760 (7,681)

164 165

The breakdown by major class of financial assets is as follows:

The fair value of financial instruments that are carried at amortised cost as of December 31, 2011 is as follows:

2011




Financial assets

Cash and balances with central banks 8,703,068 8,703,354 (286)

Due from banks and financial institutions 4,549,159 4,562,602 (13,443)

Loans to banks and financial institutions and reverse repurchase agreements 218,306 219,084 (778)

Financial assets given as collateral 17,424 17,424 -

Loans and advances to customers at amortised cost 12,761,582 12,692,177 69,405

Loans and advances to related parties at amortised cost 264,054 263,666 388

Financial assets at amortised cost 14,547,891 14,307,303 240,588

41,061,484 40,765,610 295,874

Financial liabilities

Due to central banks 133,446 133,394 (52)

Due to banks and financial institutions 1,007,724 1,007,558 (166)

Due to banks under repurchase agreements - - -

Customers’ deposits at amortised cost 37,097,811 37,097,210 (601)

Deposits from related parties at amortised cost 285,528 285,297 (231)

38,524,509 38,523,459 (1,050)

2012




Net loans and advances to customers at amortised cost

Corporate 9,610,690 9,574,321 36,369

SME 2,487,608 2,470,816 16,792

Retail and Personal Banking 3,266,118 3,237,924 28,194

Public sector 133,339 133,342 (3)

15,497,755 15,416,403 81,352

Net loans and advances to related parties at amortised cost

Corporate 8,172 8,172 -

SME 187,284 187,284 -

Retail and Personal Banking 109,584 109,055 529

305,040 304,511 529

Financial assets classified at amortised cost

Lebanese sovereign and Central Bank 10,731,384 10,610,471 120,913

Other sovereign 2,811,325 2,791,510 19,815

Private sector and other securities 1,151,762 1,146,992 4,770

Loans related to other comprehensive income investments 143 143 -

14,694,614 14,549,116 145,498

The breakdown by major class of financial assets is as follows:

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable market data, either directly or indirectly.

The following table shows an analysis of financial instruments recorded at fair value by fair value hierarchy at December 31:

2011




Net loans and advances to customers at amortised cost

Corporate 7,852,715 7,824,283 28,432

SME 1,938,255 1,918,065 20,190

Retail and Personal Banking 2,791,676 2,770,893 20,783

Public sector 178,936 178,936 -

12,761,582 12,692,177 69,405

Net loans and advances to related parties at amortised cost

Corporate 8,313 8,295 18

SME 170,242 170,242 -

Retail and Personal Banking 85,499 85,129 370

264,054 263,666 388

Financial assets classified at amortised cost

Lebanese sovereign and Central Bank 11,285,928 10,997,842 288,086

Other sovereign 2,163,162 2,209,587 (46,425)

Private sector and other securities 1,098,658 1,099,731 (1,073)

Loans related to other comprehensive income investments 143 143 -

14,547,891 14,307,303 240,588

166 167

The Group did not transfer any amount between Level 1 and Level 2 during the year ended December 31, 2012.

2011

Level 1 LBP Million

Level 2 LBP Million

Total LBP Million

Financial assets

Derivative financial assets 59,069 23,140 82,209

Financial assets at fair value through profit or loss

Lebanese sovereign

Treasury bills 112 461,829 461,941

Eurobonds 158,999 - 158,999

Other sovereign

Eurobonds 322 - 322


Banks and financial institutions debt instruments 88,758 44,764 133,522

Corporate debt instruments 15,520 - 15,520

Structured products 1,029 853 1,882

Investment and mutual funds 30,878 17,775 48,653

Equity instruments 3,087 - 3,087

298,705 525,221 823,926

Financial assets designated at fair value through other comprehensive income


Equity instruments 5,927 218,057 223,984

5,927 218,057 223,984

Financial liabilitites

Derivative financial liabilities 51,248 6,999 58,247

2012Level 1

LBP MillionLevel 2

LBP MillionTotal

LBP Million

Financial assets

Derivative financial assets 43,815 7,231 51,046

Financial assets at fair value through profit or loss

Lebanese sovereign

Central Bank’s certificates of deposits 592 10,676 11,268

Treasury bills - 124,843 124,843

Eurobonds 232,410 - 232,410

Other sovereign

Eurobonds 1,615 - 1,615


Banks and financial institutions debt instruments 617 1,787 2,404

Corporate debt instruments 10,338 2 10,340

Loans and advances to customers at amortised cost - 75,555 75,555

Investment and mutual funds 30,810 18,200 49,010

Equity instruments 3,212 - 3,212

279,594 231,063 510,657

Financial assets designated at fair value through other comprehensive income


Equity instruments 4,308 241,485 245,793

4,308 241,485 245,793

Financial liabilitites

Derivative financial liabilities 51,462 4,580 56,042

52. Contingent Liabilities, Commitments and Leasing Arrangements

Credit-related Commitments and Contingent Liabilities

To meet the financial needs of customers, the Group enters into various commitments, guarantees and other contingent liabilities, which are mainly credit-related instruments including both financial and non-financial guarantees and commitments to

Guarantees

Guarantees are given as security to support the performance of a customer to third parties. The main types of guarantees provided are:

•Financial guarantees given to banks and financialinstitutions on behalf of customers to secure loans, overdrafts, and other banking facilities; and

extend credit. Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group. The table below discloses the nominal principal amounts of credit-related commitments and contingent liabilities. Nominal principal amounts represent the amount at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being withdrawn, the total of the nominal principal amount is not indicative of future liquidity requirements.

•Other guarantees are contracts that have similarfactures to the financial guarantee contracts but fail to meet the strict definition of a financial guarantee contract under IFRS. These mainly include performance and tender guarantees.

2012

Banks LBP Million

Customers LBP Million

Total LBP Million

Guarantees and contingent liabilities

Financial guarantees 314,140 1,099,601 1,413,741

Other guarantees 76,764 821,691 898,455

390,904 1,921,292 2,312,196

Commitments

Documentary credits - 353,763 353,763

Undrawn credit lines - 3,508,070 3,508,070

- 3,861,833 3,861,833

2011

Banks LBP Million

Customers LBP Million

Total LBP Million

Guarantees and contingent liabilities

Financial guarantees 274,500 1,359,604 1,634,104

Other guarantees 144,280 894,998 1,039,278

418,780 2,254,602 2,673,382

Commitments

Documentary credits - 387,781 387,781

Undrawn credit lines - 3,527,229 3,527,229

- 3,915,010 3,915,010

168 169

Documentary Credits

Documentary credits commit the Group to make payments to third parties, on production of documents, which are usually reimbursed immediately by customers.

Undrawn Credit Lines

Undrawn credit lines and other commitments to lend are agreements to lend a customer in the future, subject to certain conditions. Such commitments are either made for a fixed period, or have no specific maturity, but are cancellable by the lender subject to notice requirements.

Commitments Resulting from Credit Facilities

The Bank has the following commitments resulting from the credit facilities received from non-resident financial institutions:

•The net past due loans (after the deduction ofprovisions) should not exceed 5 percent of the net credit facilities granted;

•The provision for past due loans which includesspecific and collective provisions and unrealised interest should not fall below 70 percent of the past due loans;

•Thenetdoubtfulloansshouldnotexceed20percentof the Tier 1 capital;

•Sustainingaliquidityratioexceeding115percent;•Sustaining a capital adequacy exceeding the

minimum ratio as per the regulations applied by the Central Bank of Lebanon and the requirements of the Basel agreements to the extent it is applied by the Central Bank of Lebanon.

Legal Claims

Litigation is a common occurrence in the banking industry due to the nature of the business. The Group has an established protocol for dealing with such legal claims. Once professional advice has been obtained and the amount of damages reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year-end, the Group had several unresolved legal claims. Based on advice from legal counsel, Management believes that legal claims will not result in any material financial loss to the Group.

Other Commitments and Contingencies

Financial assets at amortised cost include Lebanese government Treasury bills amounting to LBP 133,714 million (2011: same) pledged to the Central Bank of Lebanon against credit facilities. They also include Jordanian and Egyptian Treasury bills amounting to LBP 695,139 million pledged against repurchase agreements (Note 35).

The Extraordinary General Assembly, in its meeting held on June 22, 2012, decided to acquire 29,500 shares in Dawra Real Estate Company sal representing 98.33% of its total shares for the amount of USD 3 million. The sale contract was signed on November 5, 2012 with LIA Insurance sal. The Bank obtained the approval for the purchase transaction from the Central Bank of Lebanon on January 29, 2013.

Operating Lease and Capital Expenditure Commitments

2012 LBP Million

2011 LBP Million

Capital expenditure commitments 13,421 13,247

Operating lease commitments – Group as lessee 50,838 63,774

Within one year 12,663 12,446

One to five years 32,617 41,900

More than five years 5,558 9,428

64,259 77,021

170 171

The Board of Directors of the Bank decided, in its meeting held on August 22, 2012, to acquire 30% of Elite Insurance and Reinsurance Brokers for an amount not exceeding USD 4.5 million. The Bank obtained the approval of the purchase transaction from the Central Bank of Lebanon on November 20, 2012. The investment transaction is pending on the approval of the Saudi regulatory authorities.

The Bank’s books in Lebanon remain subject to the review of the tax authorities for the period from January 1, 2008 to December 31, 2012 and the review of the National Social Security Fund (NSSF) for the period from September 30, 2011 to December 31, 2012. In addition, the subsidiaries’ books and records are subject to review by the tax and social security authorities in the countries in which they operate. Management believes that adequate provisions were recorded against possible review results to the extent that they can be reliably estimated.

During 2011, Syria, one of the significant credit markets of the Group, witnessed a period of political and civil unrest, together with adverse events which can affect the economic environment of future periods. As part of its collective provisioning process, Management performed a stress test on the loan portfolio exposed to the Syrian market risks and, as a result, the necessary provisions were booked. The Group’s Management continues to monitor its loan portfolio and evaluate the impact of these events during 2012.

53. Assets under ManagementAssets under management include client assets managed or deposited with the Group. For the most part, the clients decide how these assets are to be invested.

2012 LBP Million

2011 LBP Million

Assets under management 11,274,636 10,522,174

54. Related-party TransactionsParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operation decisions, or one other party controls both. The definition includes subsidiaries, associates, key Management personnel and their close family members, as well as entities controlled or jointly controlled by them.

Key Management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of

the Bank, directly or indirectly. At the level of the Group, key Management personnel includes the Chairman of the Board and members of the Group Executive Committee.

Loans to related parties (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with others, and (c) did not involve more than a normal risk of collectability or present other unfavourable features.

Related-party balances included in the Group’s Statement of Financial Position are as follows as of December 31:

Related-party balances included in the Group’s Income Statement are as follows for the year ended December 31:

Subsidiaries

Transactions between the Bank and its subsidiaries meet the definition of related-party transactions. However, where these are eliminated on consolidation, they are not disclosed in the Group’s financial statements. The following table shows information related to the significant subsidiaries of the Bank.

2012 LBP Million

2011 LBP Million

Interest income on loans 19,902 17,132

Interest expense on deposits 26,117 10,592

* Bank Audi sal - Audi Saradar Group established Bank Audi Syria sa, signed a technical assistance agreement, and retained de facto control over it.

Country of Incorporation

Principal Activity

FunctionalCurrency

Bank Audi Saradar France sa 100.00% 100.00% France Banking (Commercial) EUR

Audi Saradar Investment Bank sal (ASIB) 100.00% 100.00% Lebanon Banking (Investment) LBP

Audi Saradar Private Bank sal (ASPB) 100.00% 100.00% Lebanon Banking (Private) LBP

Banque Audi (Suisse) sa 100.00% 100.00% Switzerland Banking (Private) CHF

Bank Audi Syria sa* 47.00% 47.00% Syria Banking (Commercial) SYP

National Bank of Sudan 76.56% 76.56% Sudan Banking (Commercial) SDD

Bank Audi sae (Egypt) 100.00% 100.00% Egypt Banking (Commercial) EGP

Audi Capital (KSA) 99.99% 99.99% Saudi Arabia Financial services SAR

Bank Audi LLC Qatar 100.00% 100.00% Qatar Banking services USD

Société Libanaise de Factoring sal 90.85% 91.00% Lebanon Factoring LBP

Odeabank sa 100.00% - Turkey Banking (Commercial) TRY

LIA Insurance sal - 91.42% Lebanon Insurance LBP

Infi Gamma Holding sal 99.97% 99.97% Lebanon Investment USD

Percentage of Ownership2012 2011

2012 LBP Million

2011 LBP Million

Loans and advances 304,511 263,666

Of which: granted to key Management personnel 33,207 17,431

Indirect facilities 3,957 2,807

Deposits 467,122 63,319

Cash collateral received against loans 221,979 221,978

172 173

Associates

The Group provides banking services to its associates and to entities under common directorships. As such, loans, overdrafts, interest and non-interest bearing deposits and current accounts are provided to these entities, as well as other services. These transactions are conducted on the same terms as third-party transactions. Summarised financial information for the Group’s associates is set out in Note 28 to these financial statements. Interest income on loans

Short-term benefits comprise of salaries, bonuses, profit-sharing, attendance fees and other benefits.

During 2011, key Management personnel exercised 225,350 options.

granted to associates amounted to LBP 920 million (2011: LBP 231 million).

Key Management Personnel

Total remuneration awarded to key Management personnel represents the awards made to individuals that have been approved by the Board Remuneration Committee as part of the latest pay round decisions. Figures are provided for the period that individuals met the definition of key Management personnel.

2012 LBP Million

2011 LBP Million

Short-term benefits 43,703 42,702

Post-employment benefits 677 488

55. Risk ManagementAs a growing financial institution with operations on three continents, the Group is faced with a constantly changing array of business risks, some of which are:

•Creditrisk:theriskofdefaultordeteriorationintheability of a borrower to repay a loan.

•Market risk: the risk of loss in balance sheet and off-balance sheet positions arising from movements in market prices. Movements in market prices include changes in interest rates (including credit spreads), exchange rates and equity prices.

•Liquidityrisk:theriskthattheBankcannotmeetitsfinancial obligations when they come due in a timely manner and at reasonable cost.

•Operational risk: the risk of loss resulting frominadequate or failed internal processes, people and systems, or from external events.

•OtherrisksfacedbytheGroupincludeconcentrationrisk, reputation risk, legal risk and business/ strategic risk.

Risks are managed through a process of ongoing identification, measurement and monitoring,

mitigating and control, while being subject to risk limits and procedural controls. Risk management is important for the continuous profitability and solvency of the Group, and every employee is tasked with the prudent management of risks within the parameters of his or her responsibilities.

Governance

Board of Directors

The Board of Directors (the Board) is ultimately responsible for identifying and setting the level of tolerable risks to which the Group is exposed, and as such, defines the risk appetite for the Group. In addition, the Board approves policies and procedures related to all types of risks. Periodic reporting is made to the Board on existing and emerging risks in the Group. A number of Management committees and departments are also responsible for various levels of risk management, as set out below.

Board Group Risk Committee

The role of the Board’s Group Risk Committee (BGRC) is to oversee the risk management framework and assess its effectiveness, review and recommend to the Board the group risk policies and risk appetite, monitor the group risk profile, review stress tests scenarios and results, and provide access for the Group Chief Risk Officer (CRO) to the Board. The members of the BGRC are the Group Chief Financial

Officer and Strategy Director (CFO) and two Non-executive Directors. The BGRC meets at least every quarter in the presence of the CRO.

Executive Committee

The mandate of the Group Executive Committee is to support the Board in the implementation of its strategy, to support the Group CEO in the day-to-day management of the Group, and to develop and implement business policies for the Group and issue guidance for the Group within the strategy approved by the Board. The Executive Committee is involved in drafting and submitting to the Board the risk policy and risk tolerances and appetite. Executive Committee members include the Group CEO, Group Chief Risk Officer (CRO), Group CFO & Strategy Director and a number of Board members and Senior Managers.

Asset Liability Committee

The Asset Liability Committee (ALCO) is a Management committee responsible in part for managing market risk exposures, liquidity, funding needs and contingencies. It is the responsibility of this committee to set up strategies for managing market risk exposures and ensuring that Treasury implements those strategies so that exposures are managed within approved limits and in a manner consistent with the risk policy and limits approved by the Board.

Internal Audit

All risk management processes are independently audited by the Internal Audit department at least annually. This includes the examination of both the adequacy and effectiveness of risk control procedures. Internal Audit discusses the results of its assessments with Management and reports its findings and recommendations to the Audit Committee of the Board.

Group Risk Division

The Group Risk Division (GRD) is a function independent of business lines and headed by the Group’s CRO. The Division has the responsibility to ensure that risks are properly identified, measured,

monitored, and reported to heads of business lines, Senior Management, ALCO, the Board Group Risk Committee and the Board. In addition, GRD works closely with Senior Management to assist in ensuring proper controls are set up in order to mitigate various operational risks. GRD has the responsibility to set policies and procedures at the Group level for its final adoption at each entity within the Group. In addition, GRD is in charge of monitoring risks across the Group and aggregating such risks. From time to time, GRD provides technical support for the various entities within the Group in their effort to develop the local risk function within the parameters set at the Group level.

Local Risk Management Functions

Local risk management functions vary in size depending on local needs and any additional need in human resources is met by GRD. The roles of local risk managers are to comply with GRD policies, to assess risks using a blend of methodologies developed at the Group level and others sometimes more attuned to their local circumstances, to provide an independent opinion on risks, to report on them to their Senior Management and to their Board of Directors, and to adapt to local needs and regulations.

Risk Monitoring and Control

The primary drivers behind monitoring and controlling risks are the Risk Appetite and Limits established by the Board. These limits reflect the business strategy and market environment of the Group, as well as the level of risks that the Group is willing to tolerate.

Risk Appetite and Limits are formalised in a document which is reviewed by the Executive Committee and the Board Group Risk Committee and approved by the Board. The Risk Appetite and Limits comprise limits to various types of risk which the Bank is exposed to.

Information independently compiled from all business lines and risk-taking units is examined and processed in order to identify and measure the risk profile. The results are reported and presented on a regular basis to Management and to the Board.

174 175

56. Credit RiskCredit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. Credit risk appetites and strategies are set at the Group level by the Board and are communicated to Senior Management, which, in turn, formulates credit policies and procedures in line with these strategies. These policies are approved by the Executive Committee and the Board and are reviewed on an annual basis.

Credit Limits

The Group controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and for geographical and industry concentration, and by monitoring exposures in relation to such limits. These limits are set for the following classes of assets:

Financial Institutions

Percentage floors and absolute limits are set on the Group’s deposits that should be placed with highly-rated financial institutions.

Sovereign Exposure and Other Financial Instruments

Limits are placed on sovereign exposures and other financial instruments according to ratings of the instruments and risk appetite of the Group as determined by the Board mainly for foreign currency-denominated issues.

Loans and Advances to Customers

The Group sets limits per country, economic sector, tenor of the loan, rating, and group of obligors among others in order to avoid significant risk concentrations.

Credit Granting andMonitoring Processes

The Group has set clearly established processes related to loan origination, documentation and maintenance of extensions of credits.

Initiation

Initiation of the credit facilities is done by the business originating function which is shared between branches and the Corporate and Commercial departments.

Analysis

Credit analysis is performed within the business originating function and is reviewed independently by the Credit Risk Management department, which, in turn, prepares a written opinion about the credit facilities and submits it to the respective credit committees.

Approval

Credit committees are exclusively responsible for the approval of facilities per obligor and geographical entity up to the limit assigned to them. The Group has various levels of credit-approving authorities, depending on the nature and limit of the requested facilities, namely:

•TheBoardofDirectors;•TheExecutiveCommittee;•Other credit committees, depending on the limit

and region.

Once approved by the Credit Committee, facilities are disbursed when all requirements set by the respective committee are met and documents intended as security are reviewed and verified by the Credit Administration function.

Monitoring

The Group maintains continuous monitoring in the quality of its portfolio. Timely reports are sent to the Executive Committee and to the Board detailing credit risk profile including Group follow-up accounts, large exposures, risk ratings and concentration by industry, geography and group of obligors.

Recovery and Restructuring

The Group assesses impaired loans by evaluating the exposure to loss on a case by case basis. They are directly managed by the Recovery and Restructuring

department which is responsible for formulating a workout strategy, in coordination with the Legal and Compliance department. Credit committees are responsible for approving these workout strategies.

Provisioning Policy

In the normal course of business, some loans may become unrecoverable. Such loans would then be required to be partially or fully written off, after taking into consideration the following guidelines:

a) The loan is written off with proper approval when:•Alleffortstorecoverthebaddebthavefailed;•The borrower’s bankruptcy or inability to repay

is established;•Legal remedies have proved to be futile and/or

cost prohibitive.

b) Requests for write-offs are to be submitted to the Remedial Committee for approval. Approved write-offs are notified to the Executive Committee and then to the Board.

As part of the conservative approach to sustain the quality of the Group’s loan portfolio, an evaluation of loan loss provisions is made on a quarterly basis. As such, all adversely classified accounts are reviewed on a quarterly basis (earlier if need be) and the Recovery and Restructuring department makes recommendations for specific provisions against the accounts. These recommendations are submitted to the Remedial Committee for approval before they are implemented. In this regard, mainly for tax reasons, specific approval from the regulatory authority might be necessary depending on the regulatory environment of the concerned entity.

Besides, impairment is assessed on a collective basis for loans that are not individually impaired.

Derivative Financial Instruments

Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as recorded in the statement of financial position. In the case of credit derivatives, the Group is also exposed to or protected from the risk of default of the underlying entity referred by the derivative.

Management of Risk Concentration

Credit concentrations arise when a number of counterparties are engaged in similar business activities in the same geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political and other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. Similarly for liquidity, concentration is measured with respect to the source and type of funding.

In order to avoid excessive concentrations of risk, the Group’s Risk Appetite and Limits document includes specific guidelines and limits to maintain a diversified funding and portfolio, including Board-approved measures in line with the pillar two requirements.

Credit-related Commitments Risks

The Group makes available to its customers guarantees which may require payments on their behalf. Such payments are collected from customers based on the terms of the letter of credit. They expose the Group to risks similar to loans and these are mitigated by the same control processes and policies.

Where financial instruments are recorded at fair value, the amounts shown below represent the current credit risk exposure, but not the maximum risk exposure that could arise in the future as a result of changes in values.

176 177

Analysis to Maximum Exposure to Credit Risk and Collateral and Other Credit Enhancements

The following table shows the maximum exposure to credit risk by class of financial asset. It further shows the total fair value of collateral, capped to the maximum exposure to which it relates and the net exposure to credit risk.

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 3,508,070 million as at December 31, 2012.

2012

Maximum Exposure

LBP Million

Cash Collateral and Margins

LBP MillionSecurities

LBP Million

Guarantees Received from

Banks and Financial Institutions LBP Million

Real Estate LBP Million

Other Guarantees LBP Million

Netting Agreements LBP Million

Net Credit Exposure

LBP Million

Cash and balances with central banks 9,213,033 - - - - - - 9,213,033

Due from banks and financial institutions 4,280,978 - - 1,149 - - - 4,279,829

Loans to banks and financial institutions and reverse repurchase agreements 1,060,267 - 786,466 - - - - 273,801

Derivative financial instruments 48,707 - - - - - - 48,707

Financial assets at fair value through profit or loss 458,435 - - - - - - 458,435

Loans and advances to customers at amortised cost 15,416,403 2,593,801 1,750,630 356,700 2,919,554 662,665 13,727 7,119,326

Corporate 9,574,321 1,184,225 1,491,882 266,781 1,400,670 403,783 618 4,826,362

SME 2,470,816 511,548 20,226 82,125 398,446 122,354 13,109 1,323,008

Retail and Personal Banking 3,237,924 898,028 238,522 7,794 1,120,438 136,528 - 836,614

Public sector 133,342 - - - - - - 133,342

Loans and advances to related parties at amortised cost 304,511 221,979 - 225 33,705 1,314 - 47,288

Debtors by acceptances 182,715 17,883 - 251 7,378 9,949 1 147,253

Financial assets at amortised cost 14,549,116 - - - - - 1,463,553 13,085,563

Contingent liabilities 1,767,504 191,060 9,507 35,712 86,694 3,306 3 1,441,222

Letters of credit 353,763 52,308 - 90 8,260 2,528 - 290,577

Letters of guarantee given to banks and financial institutions 314,140 43,586 - 13,849 - - - 256,705

Letters of guarantee given to customers 1,099,601 95,166 9,507 21,773 78,434 778 3 893,940

Total 47,281,669 3,024,723 2,546,603 394,037 3,047,331 677,234 1,477,284 36,114,457

Guarantees received from banks, financial institutions and customers

Utilised collateral 3,024,723 2,546,603 394,037 3,047,331 677,234 - 9,689,928

Surplus of collateral before undrawn credit lines 628,382 619,724 53,902 630,893 1,905,166 - 3,838,067

3,653,105 3,166,327 447,939 3,678,224 2,582,400 - 13,527,995

178 179

The surplus of collateral mentioned above is presented before offsetting additional credit commitments given to customers amounting to LBP 3,527,229 million as at December 31, 2011.

2011

Maximum Exposure

LBP Million

Cash Collateral and Margins

LBP MillionSecurities

LBP Million

Guarantees Received from

Banks and Financial Institutions LBP Million

Real Estate LBP Million

Other Guarantees LBP Million

Netting Agreements LBP Million

Net Credit Exposure

LBP Million

Cash and balances with central banks 8,425,244 - - - - - - 8,425,244

Due from banks and financial institutions 4,562,602 - - - - - - 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements 219,084 - - - - - - 219,084

Financial assets given as collateral 17,424 - - - - - - 17,424

Derivative financial instruments 76,573 - - - - - - 76,573

Financial assets at fair value through profit or loss 772,186 - - - - - - 772,186

Loans and advances to customers at amortised cost 12,692,177 2,208,033 1,529,788 388,858 2,362,275 727,451 4,611 5,471,161

Corporate loans 7,824,283 844,174 1,257,236 306,830 1,008,576 541,922 382 3,865,163

SME loans 1,918,065 559,184 76,638 66,770 499,998 107,639 2,064 605,772

Retail loans and Personal Banking 2,770,893 804,675 195,914 15,258 853,701 77,890 2,165 821,290

Public sector 178,936 - - - - - - 178,936

Loans and advances to related parties at amortised cost 263,666 221,978 - 388 15,870 304 - 25,126

Debtors by acceptances 280,819 30,361 1,110 34,261 17,499 4,908 67 192,613

Financial assets at amortised cost 14,307,303 - - - - - 1,657,474 12,649,829

Contingent liabilities 2,021,885 343,077 7,748 27,842 18,723 131,048 33 1,493,414

Letters of credit 387,781 81,740 775 387 5,692 15,455 - 283,732

Letters of guarantee given to banks and financial institutions 274,500 52,492 - 3,101 - - - 218,907

Letters of guarantee given to customers 1,359,604 208,845 6,973 24,354 13,031 115,593 33 990,775

Total 43,638,963 2,803,449 1,538,646 451,349 2,414,367 863,711 1,662,185 33,905,256

Guarantees received from banks, financial institutions and customers

Utilised collateral 2,803,449 1,538,646 451,349 2,414,367 863,711 - 8,071,522

Surplus of collateral before undrawn credit lines 500,708 690,153 61,597 854,614 2,177,599 - 4,284,671

3,304,157 2,228,799 512,946 3,268,981 3,041,310 - 12,356,193

180 181

Analysis to Maximum Exposure to Credit Risk and Collateral and Other Credit Enhancements

Collateral and Other Credit Enhancements

The amount and type of collateral required depend on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.

The main types of collateral obtained are as follows:

Securities: the balances shown above represent the fair value of the securities.

Letters of Credit/Guarantees: the Group holds, in some cases, guarantees, letters of credit and similar instruments from banks and financial institutions which enable it to claim settlement in the event of default on the part of the counterparty. The balances shown represent the notional amount of these types of guarantees held by the Group.

Real Estate (Commercial and Residential): the Group holds, in some cases, a first degree mortgage over residential property (for housing loans) and commercial property (for commercial loans). The value shown above reflects the fair value of the property limited to the related mortgaged amount.

Netting Agreements: the Group makes use of netting agreements where there is a legally enforceable right to offset in the event of counterparty default, and

where as a result there is a net exposure for credit risk. However, there is no intention to settle these balances on a net basis under normal circumstances, and they do not qualify for offset. The amounts above represent available netting agreements in the event of default of the counterparty.

This includes netting agreements for loans and advances to customers and financial assets at amortised cost. In addition, derivatives may also be settled net when there is a netting agreement in place, providing for this in the event of default, reducing the Group’s exposure to counterparties on derivative asset positions. The reduction in risk is the amount of liability held.

In addition to the above, the Group also obtains guarantees from parent companies for loans to their subsidiaries, personal guarantees for loans to companies owned by individuals, second degree mortgages, and assignments of insurance or bills proceeds and revenues, which are not reflected in the above table.

Renegotiated Loans

Restructuring activity aims to manage customer relationships, maximise collection opportunities and, if possible, avoid foreclosure or repossession. Such activities include extended payment arrangements, deferring foreclosure, modification, loan rewrites and/or deferral of payments pending a change in circumstances.

Restructuring policies and practices are based on indicators or criteria which, in the judgment of local Management, indicate that repayment will probably continue. The application of these policies varies according to the nature of the market and the type of the facility.

2012 LBP Million

2011 LBP Million

Corporate 181,371 181,264

SME 11,203 14,544

Retail and Personal Banking 1,359 232

193,933 196,040

Credit Rating System

The Group assesses the quality of its credit portfolio using the following credit rating methods:

(i) External ratings from approved credit rating agencies for financial institutions, financial assets and large corporate borrowers;

(ii) Expert-judgment models which take into consideration financial factors as well as non-financial factors such as observations on Management quality, operating environment and company standing. In addition to the existing corporate model, two SME models have been designed and rolled out in 2012. The Bank has also initiated the design of a Project Finance model to complement the existing models and accurately rate and rank-order Project Finance obligors;

(iii) Scorecards for retail borrowers which help in assessing their creditworthiness, evaluating potential risk, and reaching a final credit decision;

(iv) Supervisory ratings, comprising six main categories: (a) “Regular“ includes borrowers demonstrating good to excellent financial condition, risk factors, and capacity to repay. These loans demonstrate regular and timely payment of dues, adequacy of cash flows, timely presentation of financial statements, and sufficient collateral/guarantee when required; (b) “Follow-up“ represents a lack of

documentation related to a borrower’s activity, an inconsistency between facilities’ type and related conditions; (c) “Follow-up and regularisation“ includes credit-worthy borrowers requiring close monitoring without being impaired. These loans might be showing weaknesses; insufficient or inadequate cash flows; highly leveraged; deterioration in economic sector or country where the facility is used; loan rescheduling more than once since initiation; or excess utilisation above limit; (d) “Substandard loans“ include borrowers with incapacity to repay from identified cash flows. Also included under this category are loans where full repayments suppose the liquidation of assets/collateral or those with recurrent late payments and financial difficulties; (e) “Doubtful loans“ where full repayment is questioned even after asset liquidation of collateral. It also includes loans stagnating for over 6 months and debtors who are unable to repay restructured loans; finally, (f) “Bad loans“ with no or little expected inflows from business or assets. This category also includes borrowers who witness significant delays and are insolvent.

Credit Quality

The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group’s internal credit rating system. The amounts presented are gross of impairment allowances.

2012

Neither Past Due nor Impaired

LBP Million

Past Due but not Impaired

LBP MillionSubstandard

LBP Million

Doubtful and Bad

LBP MillionTotal

LBP MillionCash and balances with central banks 9,213,033 - - - 9,213,033Due from banks and financial institutions 4,280,978 - - 998 4,281,976Loans to banks and financial institutions and reverse repurchase agreements 1,060,267 - - - 1,060,267Derivative financial instruments 48,707 - - - 48,707Financial assets at fair value through profit or loss 458,435 - - - 458,435Loans and advances to customers at amortised cost 15,072,862 390,484 17,750 437,234 15,918,330Loans and advances to related parties at amortised cost 304,511 - - - 304,511Financial assets at amortised cost 14,547,829 - - 8,352 14,556,181

44,986,622 390,484 17,750 446,584 45,841,440Loans and advances:

Corporate 9,358,813 242,450 12,867 316,895 9,931,025SME 2,639,902 28,772 1,761 20,629 2,691,064Retail and Personal Banking 3,246,170 119,262 3,122 95,124 3,463,678Public sector 132,488 - - 4,586 137,074

15,377,373 390,484 17,750 437,234 16,222,841

Past Due and Impaired

182 183

The aging analysis of past due but not impaired loans and advances to customers at amortised cost as at December 31 are as follows:

2011

Neither Past Due nor Impaired

LBP Million

Past Due but not Impaired

LBP MillionSubstandard

LBP Million

Doubtful and Bad

LBP MillionTotal

LBP Million

Cash and balances with central banks 8,425,244 - - - 8,425,244

Due from banks and financial institutions 4,562,260 - - 1,370 4,563,630

Loans to banks and financial institutions and reverse repurchase agreements 219,084 - - - 219,084

Financial assets given as collateral 17,424 - - - 17,424

Derivative financial instruments 76,573 - 76,573

Financial assets at fair value through profit or loss 771,333 - - - 771,333

Loans and advances to customers at amortised cost 12,248,030 389,310 133,414 389,401 13,160,155

Loans and advances to related parties at amortised cost 263,666 - - - 263,666

Financial assets at amortised cost 14,306,085 - - 8,969 14,315,054

40,889,699 389,310 133,414 399,740 41,812,163

Loans and advances:

Corporate 7,538,137 213,114 123,539 186,695 8,061,485

SME 2,052,885 43,687 2,348 77,063 2,175,983

Retail and Personal Banking 2,737,163 132,509 7,527 125,643 3,002,842

Public sector 183,511 - - - 183,511

12,511,696 389,310 133,414 389,401 13,423,821

Past Due and Impaired

2012

Less than 30 Days

LBP Million

31 to 60 Days

LBP Million

61 to 90 Days

LBP Million

More than 90 Days

LBP MillionTotal

LBP Million

Corporate 32,992 76,609 6,919 125,930 242,450

SME 3,701 8,190 1,527 15,354 28,772

Retail and Personal Banking 51,435 27,305 19,382 21,140 119,262

88,128 112,104 27,828 162,424 390,484

2011

Less than 30 Days

LBP Million

31 to 60 Days

LBP Million

61 to 90 Days

LBP Million

More than 90 Days

LBP MillionTotal

LBP Million

Corporate 58,246 51,204 23,734 79,930 213,114

SME 7,148 6,571 7,501 22,466 43,686

Retail and Personal Banking 73,651 23,988 19,911 14,960 132,510

139,045 81,763 51,146 117,356 389,310

2012

Gross Balance

LBP Million

Unrealised Interest

LBP Million

Impairment Allowances LBP Million

Net Balance

LBP Million

Regular 14,501,112 - - 14,501,112

Follow-up 228,875 - - 228,875

Follow-up and regularisation 1,037,870 - - 1,037,870

Substandard 17,750 (1,835) - 15,915

Doubtful 220,530 (28,388) (112,097) 80,045

Bad 216,704 (29,961) (162,994) 23,749

16,222,841 (60,184) (275,091) 15,887,566

Collective impairment - - (166,652) (166,652)

16,222,841 (60,184) (441,743) 15,720,914

2011

Gross Balance

LBP Million

Unrealised Interest

LBP Million

Impairment Allowances LBP Million

Net Balance

LBP Million

Regular 11,903,653 - - 11,903,653

Follow-up 154,795 - - 154,795

Follow-up and regularisation 842,558 - - 842,558

Substandard 133,414 (15,988) - 117,426

Doubtful 157,860 (30,070) (60,082) 67,708

Bad 231,541 (53,382) (156,933) 21,226

13,423,821 (99,440) (217,015) 13,107,366

Collective impairment - - (151,523) (151,523)

13,423,821 (99,440) (368,538) 12,955,843

The classification of loans and advances to customers and related parties at amortised cost as in accordance with the ratings of the Central Bank of Lebanon Circular 58 is as follows:

184 185

The classification of the Group's financial instruments and balances due from banks and financial institutions as per international ratings is as follows:

2012

AAA to AA- LBP Million

A+ to BBB- LBP Million

BB+ to B- LBP Million

Unrated LBP Million

Total LBP Million




Unrated LBP Million

Total LBP Million

Grand Total LBP Million

Cash and balances with central banks 449,366 339,480 8,395,262 28,925 9,213,033 - - - - - 9,213,033

Due from banks and financial institutions - - - - - 1,180,968 2,624,431 114,388 361,191 4,280,978 4,280,978

Loans to banks and financial institutions and reverse repurchase agreements - - - - - - 892,480 91,185 76,602 1,060,267 1,060,267

Financial assets at fair value through profit or loss 1,614 - 368,521 - 370,135 82,605 3,905 1,788 2 88,300 458,435

Financial assets at amortised cost 146,431 79,124 13,142,614 33,813 13,401,982 123,163 839,192 148,797 35,982 1,147,134 14,549,116

597,411 418,604 21,906,397 62,738 22,985,150 1,386,736 4,360,008 356,158 473,777 6,576,679 29,561,829

2011




Unrated LBP Million

Total LBP Million




Unrated LBP Million

Total LBP Million

Grand Total LBP Million

Cash and balances with central banks 309,977 19,632 8,095,636 - 8,425,245 - - - - - 8,425,245

Due from banks and financial institutions - - - - - 2,728,964 1,231,993 189,597 412,048 4,562,602 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements - - - - - - 101,337 56,979 60,768 219,084 219,084

Financial assets given as collateral - - - - - 16,935 40 - 449 17,424 17,424

Financial assets at fair value through profit or loss 322 - 620,940 - 621,262 15,601 - 134,470 - 150,071 771,333

Financial assets at amortised cost 224,189 16,407 12,966,833 - 13,207,429 386,291 434,994 222,517 56,072 1,099,874 14,307,303

534,488 36,039 21,683,409 - 22,253,936 3,147,791 1,768,364 603,563 529,337 6,049,055 28,302,991

Sovereign and Central Banks

Sovereign and Central Banks

Non-sovereign

Non-sovereign

186 187

The Group controls credit risk by setting credit limits on the amount of risk it is willing to accept by geographic location. The distribution of financial assets by geographic region as of December 31 is as follows:

2011

Lebanon LBP Million

Turkey LBP Million

MENA LBP Million

Europe LBP Million

North America LBP Million

Asia LBP Million

Rest of Africa LBP Million

Rest of the World LBP Million

Total LBP Million

Cash and balances with central banks 7,319,870 - 1,051,684 331,800 - - - - 8,703,354

Due from banks and financial institutions 304,388 - 355,128 3,123,353 472,661 187,939 - 119,133 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements 56,127 56,630 79,146 27,181 - - - - 219,084

Financial assets given as collateral 8,978 - 489 7,957 - - - - 17,424

Derivative financial instruments 8,890 - 2,485 66,579 21 1,483 1,751 1,000 82,209

Financial assets at fair value through profit or loss 758,754 - 49,584 15,588 - - - - 823,926

Loans and advances to customers at amortised cost 5,635,084 - 5,714,396 792,248 3,920 14,505 440,400 91,624 12,692,177

Loans and advances to related parties at amortised cost 228,752 - 34,893 - - - - 21 263,666

Debtors by acceptances 114,365 - 119,269 1,312 - 152 37,304 8,417 280,819

Financial assets at amortised cost 11,119,357 - 2,560,630 389,654 104,149 114,682 - 18,831 14,307,303

Financial assets at fair value through other comprehensive income 186,972 - 13,199 1,142 9,710 166 - 12,795 223,984

25,741,537 56,630 9,980,903 4,756,814 590,461 318,927 479,455 251,821 42,176,548

2012

Lebanon LBP Million

Turkey LBP Million

MENA LBP Million

Europe LBP Million

North America LBP Million

Asia LBP Million

Rest of Africa LBP Million

Rest of the World LBP Million

Total LBP Million

Cash and balances with central banks 8,038,803 344,680 829,122 249,775 - - - - 9,462,380

Due from banks and financial institutions 226,145 269,663 521,362 2,764,257 440,939 51,767 - 6,845 4,280,978

Loans to banks and financial institutions and reverse repurchase agreements 54,452 978,618 - 27,197 - - - - 1,060,267

Derivative financial instruments 13,284 727 1,463 35,176 - 60 32 304 51,046

Financial assets at fair value through profit or loss 373,742 - 40,778 92,697 3,440 - - - 510,657

Loans and advances to customers at amortised cost 6,985,775 1,466,330 5,695,716 566,863 61,016 20,542 417,804 202,357 15,416,403

Loans and advances to related parties at amortised cost 268,787 - 34,517 1,067 - 1 - 139 304,511

Debtors by acceptances 107,164 - 27,957 12,065 4,466 1,522 24,124 5,417 182,715

Financial assets at amortised cost 10,751,890 65,860 3,197,748 323,871 28,633 117,326 - 63,788 14,549,116

Financial assets at fair value through other comprehensive income 218,602 - 8,891 1,306 16,994 - - - 245,793

27,038,644 3,125,878 10,357,554 4,074,274 555,488 191,218 441,960 278,850 46,063,866

188 189

57. Market RiskMarket risk is defined as the potential loss in both on-balance sheet and off-balance sheet positions resulting from movements in market risk factors such as foreign exchange rates, interest rates and equity prices.

The Market Risk unit’s responsibilities are to identify, measure, report, and monitor all potential and actual market risks to which the Group is exposed. The purpose is to introduce transparency around the Treasury, investment portfolio, and asset and liability risk profile through consistent and comprehensive risk measurements, aggregation, management and analysis. Policies are set and limits monitored in order to ensure the avoidance of large, unexpected losses and the consequent impact on the Group’s safety and soundness.

Tools developed in-house by a centralised unit of specialists offer a holistic view of risk exposures and are customised to meet the requirements of all end users (Group Risk, Senior Management, business lines and Legal Compliance). Stress scenarios now include the various manifestations of the credit crisis, such as increased volatilities and correlations, and widening of credit spreads.

A. Currency Risk

Foreign exchange (or currency) risk is the risk that the value of a portfolio will fall as a result of changes in foreign exchange rates. The major sources of this type of market risk are imperfect correlations in the movements of currency prices and fluctuations in interest rates. Therefore, exchange rates and relevant interest rates are acknowledged as distinct risk factors.

The Central Bank of Lebanon allows the Bank to maintain a currency exchange position, receivable or payable, that does not exceed at any time 1% of total net equity on condition that the global currency exchange position does not exceed 40% of total net equity. This is subject to the Bank’s commitment to comply in a timely and consistent manner with the required solvency rate.

In addition to regulatory limits, the Board has set limits on positions by currency. These positions are monitored constantly to ensure they are maintained within established limits.

The following tables present the breakdown of assets and liabilities by currency:

2012

LBP LBP Million

USD LBP Million

GBP LBP Million

EUR LBP Million

TRY LBP Million

Other LBP Million

Total LBP Million

Assets

Cash and balances with central banks 2,042,183 5,329,506 4,942 1,027,787 228,683 829,279 9,462,380

Due from banks and financial institutions 45,840 2,666,196 164,240 712,760 204,410 487,532 4,280,978

Loans to banks and financial institutions and reverse repurchase agreements 53,916 141,069 - 78,195 787,087 - 1,060,267

Derivative financial instruments - 13,301 3,646 21,278 2,387 10,434 51,046

Financial assets at fair value through profit or loss 135,519 269,473 - 83,619 - 22,046 510,657

Loans and advances to customers at amortised cost 1,333,523 9,098,148 154,923 1,268,262 710,502 2,851,045 15,416,403

Loans and advances to related parties at amortised cost 27,142 272,852 21 2,429 - 2,067 304,511

Debtors by acceptances - 128,111 1,320 44,042 - 9,242 182,715

Financial assets at amortised cost 6,252,800 5,417,652 - 185,955 65,860 2,626,849 14,549,116

Financial assets at fair value through other comprehensive income 52,525 176,260 - 9,483 - 7,525 245,793

Investments in associates 3,553 22,503 - - - 8,174 34,230

Non-current assets held for sale 1,738 44,994 - 616 - 2,706 50,054

Property and equipment 292,330 949 - 7,130 34,774 193,527 528,710

Intangible fixed assets 28,477 - - 1,147 14,964 5,012 49,600

Other assets 66,104 59,116 92 13,545 22,588 76,718 238,163

Goodwill - 54,715 - (463) - 168,594 222,846

Total assets 10,335,650 23,694,845 329,184 3,455,785 2,071,255 7,300,750 47,187,469

Liabilities and shareholders’ equity

Due to central banks 133,108 - - - - - 133,108

Due to banks and financial institutions 17,602 817,118 2,135 81,793 33 252,493 1,171,174

Due to banks under repurchase agreements - - - - - 681,487 681,487

Derivative financial instruments - 11,995 3,805 31,034 - 9,208 56,042

Customers’ deposits at amortised cost 7,998,960 21,596,458 386,718 3,118,954 1,801,847 4,815,953 39,718,890

Deposits from related parties at amortised cost 81,895 517,710 1,698 12,203 - 75,595 689,101

Engagements by acceptances - 128,111 1,320 44,042 - 9,242 182,715

Other liabilities 131,601 111,422 439 15,383 20,260 129,760 408,865

Provisions for risks and charges 61,943 4,627 - 1,238 11,818 15,470 95,096

Non-current liabilities held for sale 119 14,680 - - - - 14,799

Shareholders’ equity 1,266,855 2,494,678 - 85,747 - 188,912 4,036,192

Total liabilities and shareholders’ equity 9,692,083 25,696,799 396,115 3,390,394 1,833,958 6,178,120 47,187,469

190 191

The Group’s Exposure to Currency Risk

The Group is subject to currency risk on financial assets and liabilities that are listed in currencies other than the Lebanese Pounds. Most of these financial assets and liabilities are listed in US Dollars or Euros.

The table below shows the currencies to which the Group had significant exposure at December 31 on its non-trading monetary assets and liabilities and its forecast cash flows. The numbers represent the

effect of a reasonably possible movement of the currency rate against the Lebanese Pound, with all other variables held constant, first on the income statement (due to the potential change in fair value of currency sensitive non-trading monetary assets and liabilities) and equity (due to the impact of currency translation gains/losses of consolidated subsidiaries and the change in fair value of currency swaps used to hedge net investment in foreign subsidiaries). A negative amount reflects a potential net reduction in income or equity, while a positive amount reflects a net potential increase.

2011

LBP LBP Million

USD LBP Million

GBP LBP Million

EUR LBP Million

TRY LBP Million

Other LBP Million

Total LBP Million

Assets

Cash and balances with central banks 1,499,579 5,316,465 3,503 793,600 - 1,090,207 8,703,354

Due from banks and financial institutions 25,740 2,730,399 121,054 1,011,457 - 673,952 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements 55,737 114,946 - 43,829 - 4,572 219,084

Financial assets given as collateral - 17,424 - - - 17,424

Derivative financial instruments 943 13,818 6,670 47,877 - 12,901 82,209

Financial assets at fair value through profit or loss 461,941 311,453 3,035 23,083 - 24,414 823,926

Loans and advances to customers at amortised cost 1,125,205 7,689,478 121,375 1,021,162 - 2,734,957 12,692,177

Loans and advances to related parties at amortised cost 31,335 228,400 13 1,293 - 2,625 263,666

Debtors by acceptances - 198,578 1,329 66,436 - 14,476 280,819

Financial assets at amortised cost 6,181,869 5,613,436 - 440,833 - 2,071,165 14,307,303

Financial assets at fair value through other comprehensive income 11,519 204,439 - 221 - 7,805 223,984

Investments in associates 3,555 20,657 - - - 18,887 43,099

Non-current assets held for sale 828 21,701 - 604 - 3,246 26,379

Property and equipment 284,725 16,841 - 3,172 - 206,812 511,550

Intangible fixed assets 5,349 16 - 2,319 - 5,824 13,508

Other assets 89,447 104,450 323 10,465 - 83,486 288,171

Goodwill 992 54,715 - 7,076 - 198,648 261,431

Total assets 9,778,764 22,657,216 257,302 3,473,427 - 7,153,977 43,320,686


Due to central banks 133,394 - - - - - 133,394

Due to banks and financial institutions 30,264 698,892 13,410 102,911 - 162,081 1,007,558

Derivative financial instruments - 9,478 7,669 31,287 - 9,812 58,246

Customers’ deposits at amortised cost 7,749,829 20,541,903 386,941 3,102,042 - 5,316,495 37,097,210

Deposits from related parties at amortised cost 30,975 161,835 1,395 5,236 - 85,856 285,297

Engagements by acceptances - 198,578 1,329 66,436 - 14,476 280,819

Other liabilities 133,403 595,233 931 14,527 - 87,993 832,087

Provisions for risks and charges 52,687 8,903 - 250 - 11,085 72,925

Shareholders’ equity 1,863,211 1,137,909 - 74,152 - 477,878 3,553,150

Total liabilities and shareholders’ equity 9,993,763 23,352,731 411,675 3,396,841 - 6,165,676 43,320,686

B. Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair value of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. Positions are monitored on a daily basis by Management and, whenever possible, hedging strategies are used to ensure positions are maintained within established limits.

Interest Rate Sensitivity

The table below shows the sensitivity of interest income and shareholders’ equity to reasonably possible parallel changes in interest rates, all other variables being held constant.

The impact of interest rate changes on net interest income is due to assumed changes in interest paid and received on floating rate financial assets and liabilities, and to the reinvestment or refunding of fixed rated financial assets and liabilities at the

assumed rates. The result includes the effect of hedging instruments and assets and liabilities held at December 31, 2012 and 2011. The change in interest income is calculated over a 1-year period. The impact also incorporates the fact that some monetary items do not immediately respond to changes in interest rates and are not passed through in full, reflecting sticky interest rate behaviour. The pass-through rate and lag in response time are estimated based on historical statistical analysis and are reflected in the outcome.

There is no direct effect for the change in interest rates on equity pursuant to the early adoption of IFRS9 in 2011 whereby no debt instruments can be classified at fair value through other comprehensive income.

The effect of any future associated hedges made by the Group is not accounted for. The sensitivity of equity was calculated for an increase in basis points whereby a similar decrease has an equal and offsetting effect.

CurrencyIncrease

in Currency Rate %

Effect on Profit Before Tax

LBP Million

Effect on Equity LBP Million

Effect on Profit Before Tax

LBP Million

Effect on Equity LBP Million

USD 1% (1,579) 6,183 3,760 4,435

EUR 1% (61) 1,297 (1,575) 2,974

GBP 1% (75) (594) (1,104) (418)

EGP 1% - 3,676 - 2,982

SYP 1% - 162 (814) 507

TRY 1% - 1,970 - -

2012 2011

Change inBasis Points

LBP MillionIncrease

LBP Million Decrease

LBP MillionIncrease

LBP Million Decrease

LBP ± 100 2,381 17,249 (30,187) 108

USD ± 50 11,151 (9,644) 17,169 2,350

EUR ± 25 1,581 (1,512) 740 (340)

2012 2011

Sensitivity of Net Interest Income

192 193

The Group’s interest sensitivity position based on contractual repricing arrangements is shown in the table below. The expected repricing and maturity

dates may differ significantly from the contractual dates, particularly with regard to the maturity of customer demand deposits.

2012

Up to 1 Month LBP Million

1 to 3 Months LBP Million

3 Months to 1 Year

LBP Million

Total Less than 1 Year LBP Million

1 to 5 Years LBP Million

Over 5 Years LBP Million

Total More than 1 Year LBP Million

Non-interest Bearing

LBP MillionTotal

LBP Million

Assets

Cash and balances with central banks 2,633,792 3,341,484 1,661,602 7,636,878 42,979 14,687 57,666 1,767,836 9,462,380

Due from banks and financial institutions 3,521,048 97,851 11,846 3,630,745 - 49 49 650,184 4,280,978

Loans to banks and financial institutions and reverse repurchase agreements 864,624 47,538 147,352 1,059,514 - - - 753 1,060,267

Derivative financial instruments 11,293 4,799 22,202 38,294 9,932 61 9,993 2,759 51,046

Financial assets at fair value through profit or loss 32,931 45,839 34,425 113,195 228,523 113,537 342,060 55,402 510,657

Loans and advances to customers at amortised cost 3,455,179 4,492,166 3,562,551 11,509,896 2,895,533 843,391 3,738,924 167,583 15,416,403

Loans and advances to related parties at amortised cost 232,003 49,556 1,507 283,066 7,736 2,356 10,092 11,353 304,511

Debtors by acceptances 54,430 46,154 50,364 150,948 - - - 31,767 182,715

Financial assets at amortised cost 180,861 441,489 3,246,365 3,868,715 8,472,648 1,989,826 10,462,474 217,927 14,549,116

Financial assets at fair value through other comprehensive income - - - - - - - 245,793 245,793

Investments in associates 18,538 - - 18,538 - - - 15,692 34,230

Non-current assets held for sale - - - - - - - 50,054 50,054

Property and equipment - - - - - - - 528,710 528,710

Intangible fixed assets - - - - - - - 49,600 49,600

Other assets - - - - 380 - 380 237,783 238,163

Goodwill - - - - - - - 222,846 222,846

Total assets 11,004,699 8,566,876 8,738,214 28,309,789 11,657,731 2,963,907 14,621,638 4,256,042 47,187,469


Due to central banks - - 132,612 132,612 - - - 496 133,108

Due to banks and financial institutions 482,776 185,201 409,876 1,077,853 - - - 93,321 1,171,174

Due to banks under repurchase agreements 392,529 288,806 - 681,335 - - - 152 681,487

Derivative financial instruments 10,438 7,871 26,121 44,430 9,357 - 9,357 2,255 56,042

Customers’ deposits at amortised cost 21,501,121 6,849,744 4,124,497 32,475,362 961,245 9,195 970,440 6,273,088 39,718,890

Deposits from related parties at amortised cost 182,250 138,166 11,876 332,292 112,354 33,076 145,430 211,379 689,101

Engagements by acceptances 54,430 46,154 50,364 150,948 - - - 31,767 182,715

Other liabilities 85,884 1,078 215 87,177 - 35 35 321,653 408,865

Provisions for risks and charges - - - - - - - 95,096 95,096

Non-current liabilities held for sale - - - - - - - 14,799 14,799

Shareholders’ equity - - - - - - - 4,036,192 4,036,192

Total liabilities and shareholders’ equity 22,709,428 7,517,020 4,755,561 34,982,009 1,082,956 42,306 1,125,262 11,080,198 47,187,469

Interest rate sensitivity gap (11,704,729) 1,049,856 3,982,653 10,574,775 2,921,601 (6,824,156)

Cumulative gap (11,704,729) (10,654,873) (6,672,220) 3,902,555 6,824,156 -

194 195

2011

Up to 1 Month LBP Million

1 to 3 Months LBP Million

3 Months to 1 Year

LBP Million





Non-interest Bearing

LBP MillionTotal

LBP Million

Assets

Cash and balances with central banks 2,301,569 3,214,723 1,110,882 6,627,174 340,685 16,357 357,042 1,719,138 8,703,354

Due from banks and financial institutions 3,350,845 209,324 52,936 3,613,105 4,370 68 4,438 945,059 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements 85,247 26,159 78,191 189,597 - - - 29,487 219,084

Financials assets given as collateral 5,057 12,359 - 17,416 - - - 8 17,424

Derivative financial instruments 4,712 2,707 19,031 26,450 109 200 309 55,450 82,209

Financial assets at fair value through profit or loss 27 547 527,609 528,183 94,771 137,886 232,657 63,086 823,926

Loans and advances to customers at amortised cost 1,920,182 4,398,110 2,144,476 8,462,768 2,605,771 575,046 3,180,817 1,048,592 12,692,177

Loans and advances to related parties at amortised cost 211,550 33,727 1,881 247,158 5,289 1,027 6,316 10,192 263,666

Debtors by acceptances 165,171 5,257 38,899 209,327 - - - 71,492 280,819

Financial assets at amortised cost 329,812 202,643 2,858,166 3,390,621 8,511,100 2,399,327 10,910,427 6,255 14,307,303


Investments in associates - - - - - - - 43,099 43,099




Other assets - - - - - - - 288,171 288,171

Goodwill - - - - - - - 261,431 261,431

Total assets 8,374,172 8,105,556 6,832,071 23,311,799 11,562,095 3,129,911 14,692,006 5,316,881 43,320,686


Due to central banks - - 132,612 132,612 - - - 782 133,394

Due to banks and financial institutions 579,951 83,692 297,720 961,363 - - - 46,195 1,007,558

Derivative financial instruments 6,110 652 237 6,999 - - - 51,247 58,246

Customers’ deposits at amortised cost 21,913,037 6,145,381 2,601,204 30,659,622 828,210 13,223 841,433 5,596,155 37,097,210

Deposits from related parties at amortised cost 181,527 12,468 42,557 236,552 - - - 48,745 285,297

Engagements by acceptances 161,112 289 24,612 186,013 - - - 94,806 280,819

Other liabilities 84,434 10 70,496 154,940 38,722 156,368 195,090 482,057 832,087



Total liabilities and shareholders’ equity 22,926,171 6,242,492 3,169,438 32,338,101 866,932 169,591 1,036,523 9,946,062 43,320,686

Interest rate sensitivity gap (14,551,999) 1,863,064 3,662,633 10,695,163 2,960,320 (4,629,181)

Cumulative gap (14,551,999) (12,688,935) (9,026,302) 1,668,861 4,629,181 -

196 197

C. Prepayment Risk

Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay or request repayment earlier than expected, such as fixed rate mortgages when interest rates fall.

Market risks that lead to prepayments are not material with respect to the markets where the Group operates. Accordingly, the Group considers prepayment risk on net profits as not material after considering any penalties arising from prepayments.

D. Equity Price Risk

Equity price risk is the risk that the value of a portfolio will fall as a result of a change in stock prices. Risk factors underlying this type of market risk are a whole range of various equity (and index) prices corresponding to different markets (and currencies/maturities) in which the Group holds equity-related positions.

The Group sets tight limits on equity exposures and the types of equity instruments that traders are allowed to take positions in. Nevertheless, depending on the complexity of financial instruments, equity risk is measured in first cash terms, such as the market value of a stock/index position, and also in price sensitivities, such as sensitivity of the value of a portfolio to changes in the underlying asset price. These measures are applied to an individual position and/or to a portfolio of equities.

58. Liquidity RiskLiquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, Management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency

plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required.

The Group maintains a portfolio of marketable and diverse assets that can be liquidated in the event of an unforeseen interruption of cash flow. In addition, the Group maintains statutory deposits with central banks. As per Lebanese banking regulations, the Bank must retain obligatory reserves with the Central Bank of Lebanon calculated on the basis of 25% of the sight deposits and 15% of term deposits denominated in Lebanese Pounds, in addition to interest-bearing placements equivalent to 15% of all deposits in foreign currencies, regardless of their nature.

The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to the market in general, and specifically to the Group. The Group maintains a solid ratio of highly liquid net assets in foreign currencies to deposits and commitments in foreign currencies, taking market conditions into consideration.

Regulatory Ratios and Limits

In accordance with the Central Bank of Lebanon circulars, the ratio of net liquid assets to deposits in foreign currencies should not be less than 10%. The net liquid assets consist of cash and all balances with the Central Bank of Lebanon (excluding reserve requirements), certificates of deposits issued by the Central Bank of Lebanon irrespective of their maturities and deposits due from other banks that mature within one year, less deposits due to the Central Bank of Lebanon and deposits due to banks that mature within one year. Deposits are composed of total customers’ deposits (excluding blocked accounts) and due from financial institutions, irrespective of their maturities, and all certificates of deposits and acceptances and other debt instruments issued by the Group and loans from the public sector that mature within one year.

The Group stresses the importance of customers’ deposits as source of funds to finance its lending activities. This is monitored by using the advances to deposits ratio, which compares loans and advances to customers as a percentage of clients’ deposits.

Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities

The table below summarises the maturity profile of the Group’s financial assets and liabilities as of December 31 based on contractual undiscounted cash flows. The contractual maturities have been determined based on the period remaining to reach maturity as per the

statement of financial position actual commitments. Repayments which are subject to notice are treated as if notice were to be given immediately. Concerning deposits, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay.

The table does not reflect the expected cash flows indicated by the Group’s deposit retention history.

2012 %

2011 %

Year-end 39 35

Maximum 39 36

Minimum 36 34

Average 37 35

Loans to Deposits

2012

Less than1 Month

LBP Million

1 to 3 Months

LBP Million

3 to 12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP MillionTotal

LBP Million

Financial assets:

Cash and balances with central banks 3,371,590 221,231 1,213,563 3,667,931 2,369,729 10,844,044

Due from banks and financial institutions 4,223,885 88,754 11,734 - 49 4,324,422

Loans to banks and financial institutions and reverse repurchase agreements 816,257 3,560 187,438 - 80,391 1,087,646

Derivative financial instruments 16,140 4,564 20,395 9,947 - 51,046

Financial assets at fair value through profit or loss 115,957 325 25,173 283,684 196,671 621,810

Loans and advances to customers at amortised cost 3,272,618 1,611,583 3,270,397 7,001,782 952,292 16,108,672

Loans and advances to related parties at amortised cost 251,225 33,927 9,419 6,842 5,075 306,488

Debtors by acceptances 64,971 57,498 55,450 4,796 - 182,715

Financial assets at amortised cost 1,034,583 348,221 4,362,753 9,585,939 2,144,651 17,476,147

Total financial assets 13,167,226 2,369,663 9,156,322 20,560,921 5,748,858 51,002,990

Financial liabilities:

Due to central banks 585 - - 166,235 - 166,820

Due to banks and financial institutions 595,006 179,540 245,456 130,103 176,386 1,326,491

Due to banks under repurchase agreements 466,561 214,926 - - - 681,487

Derivative financial instruments 15,370 5,506 25,809 9,357 - 56,042

Customers’ deposits at amortised cost 28,175,881 7,055,421 4,272,165 1,145,780 10,716 40,659,963

Deposits from related parties at amortised cost 217,691 140,538 12,980 141,584 222,932 735,725

Engagements by acceptances 57,481 64,988 55,450 4,796 - 182,715

Total financial liabilities 29,528,575 7,660,919 4,611,860 1,597,855 410,034 43,809,243

198 199

The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest

date it can be drawn down. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

2011

Less than1 Month

LBP Million

1 to 3 Months

LBP Million

3 to 12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP MillionTotal

LBP Million

Financial assets:

Cash and balances with central banks 2,525,967 144,900 530,498 5,359,703 1,418,639 9,979,707

Due from banks and financial institutions 4,399,661 91,466 67,357 4,370 68 4,562,922

Loans to banks and financial institutions and reverse repurchase agreements 33,626 16,771 113,291 - 87,055 250,743

Financial assets given as collateral 15,672 1,820 189 - - 17,681

Derivative financial instruments 5,418 40,207 36,282 102 200 82,209

Financial assets measured at fair value 8,231 7,166 556,777 135,678 179,571 887,423

Loans and advances to customers at amortised cost 3,410,722 1,409,460 1,954,430 5,333,251 1,337,437 13,445,300

Loans and advances to related parties at amortised cost 215,626 33,399 9,006 5,158 3,934 267,123

Debtors by acceptances 102,699 98,859 79,213 49 - 280,820

Financial assets at amortised cost 405,672 292,563 3,686,717 9,741,400 2,660,187 16,786,539

Total financial assets 11,123,294 2,136,611 7,033,760 20,579,711 5,687,091 46,560,467

Financial liabilities:

Due to central banks 782 - - 135,758 - 136,540

Due to banks and financial institutions 627,711 67,978 49,224 178,201 178,085 1,101,199

Derivative financial instruments 7,055 35,159 16,032 - - 58,246

Customers’ deposits at amortised cost 27,604,649 6,173,561 2,671,589 897,264 14,074 37,361,137

Deposits from related parties at amortised cost 67,128 14,308 44,734 188,133 30,999 345,302

Engagements by acceptances 102,698 98,858 79,214 49 - 280,819

Total financial liabilities 28,410,023 6,389,864 2,860,793 1,399,405 223,158 39,283,243

Maturity Analysis of Assets and Liabilities

The table below summarises the maturity profile of the Group’s 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 Group’s deposit retention history and the availability of liquid funds. The maturity profile is monitored by Management to ensure adequate liquidity is maintained.

2012

On DemandLBP Million

Less than 3 Months

LBP Million

3 to 12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP MillionTotal

LBP Million

Financial guarantees 56,844 828,094 426,915 30,529 71,359 1,413,741

Other guarantees 898,455 - - - - 898,455

Documentary credits 2,037 279,501 62,950 9,275 - 353,763

Undrawn credit lines 3,309,318 50,813 122,635 25,258 46 3,508,070

4,266,654 1,158,408 612,500 65,062 71,405 6,174,029

2011

On DemandLBP Million

Less than 3 Months

LBP Million

3 to 12 Months

LBP Million

1 to 5 Years

LBP Million

Over 5 Years

LBP MillionTotal

LBP Million

Financial guarantees 95,531 1,210,232 166,510 32,101 129,730 1,634,104

Other guarantees 1,039,278 - - - - 1,039,278

Documentary credits 7,204 292,975 72,087 15,515 - 387,781

Undrawn credit lines 3,014,156 160,677 23,563 310,905 17,928 3,527,229

4,156,169 1,663,884 262,160 358,521 147,658 6,588,392

200 201

The maturity profile of the assets and liabilities at December 31, 2012 is as follows:

2012

Less than 1 Month

LBP Million

1 to 3 Months

LBP Million

3 Months to 1 Year

LBP Million





Amount without Maturity

LBP MillionTotal

LBP Million

Assets

Cash and balances with central banks 3,318,055 221,094 1,207,780 4,746,929 3,376,570 1,338,881 4,715,451 - 9,462,380

Due from banks and financial institutions 4,206,838 62,357 11,734 4,280,929 - 49 49 - 4,280,978

Loans to banks and financial institutions and reverse repurchase agreements 816,321 3,551 186,479 1,006,351 - 53,916 53,916 - 1,060,267

Derivative financial instruments 16,140 4,564 20,395 41,099 9,947 - 9,947 - 51,046


Loans and advances to customers at amortised cost 2,656,962 1,873,999 3,255,051 7,786,012 6,727,452 898,342 7,625,794 4,597 15,416,403

Loans and advances to related parties at amortised cost 249,846 33,927 10,801 294,574 7,756 2,181 9,937 - 304,511

Debtors by acceptances 64,971 57,498 55,450 177,919 4,796 - 4,796 - 182,715

Financial assets at amortised cost 175,468 183,279 3,330,402 3,689,149 8,650,287 2,209,680 10,859,967 - 14,549,116


Investments in associates - - - - 18,545 - 18,545 15,685 34,230




Other assets 125,924 19,031 23,556 168,511 10,252 443 10,695 58,957 238,163

Goodwill - - - - - - - 222,846 222,846

Total assets 11,663,871 2,504,832 8,136,018 22,304,721 19,037,433 4,616,851 23,654,284 1,228,464 47,187,469


Due to central banks - - - - 133,108 - 133,108 - 133,108

Due to banks and financial institutions 523,894 236,318 278,789 1,039,001 117,090 15,083 132,173 - 1,171,174

Due to banks under repurchase agreements 392,602 288,885 - 681,487 - - - - 681,487

Derivative financial instruments 15,370 5,506 25,809 46,685 9,357 - 9,357 - 56,042

Customers’ deposits at amortised cost 27,244,497 7,108,325 4,391,195 38,744,017 965,150 9,723 974,873 - 39,718,890

Deposits from related parties at amortised cost 211,830 139,472 16,586 367,888 288,136 33,077 321,213 - 689,101

Engagements by acceptances 57,481 64,988 55,450 177,919 4,796 - 4,796 - 182,715

Other liabilities 229,713 52,666 64,959 347,338 1,361 36 1,397 60,130 408,865

Provision for risks and charges - - 149 149 448 - 448 94,499 95,096

Non-current liabilities held for sale - - - - - - - 14,799 14,799



Liquidity gap (17,011,516) (5,391,328) 3,303,081 17,517,987 4,558,932 (2,977,156)

Cumulative gap (17,011,516) (22,402,844) (19,099,763) (1,581,776) 2,977,156 -

202 203

The maturity profile of the assets and liabilities at December 31, 2011 is as follows:

2011

Less than 1 Month

LBP Million

1 to 3 Months

LBP Million

3 Months to 1 Year

LBP Million





Amount without Maturity

LBP MillionTotal

LBP Million

Assets

Cash and balances with central banks 2,466,641 144,514 527,151 3,138,306 4,792,950 772,098 5,565,048 - 8,703,354

Due from banks and financial institutions 4,400,687 91,208 66,269 4,558,164 4,370 68 4,438 - 4,562,602

Loans to banks and financial institutions and reverse repurchase agreements 33,588 16,750 113,012 163,350 - 55,734 55,734 - 219,084

Financial assets given as collateral 15,578 1,806 40 17,424 - - - - 17,424

Derivative financial instruments 5,418 40,207 36,283 81,908 101 200 301 - 82,209


Loans and advances to customers at amortised cost 3,356,714 1,378,898 1,872,507 6,608,119 4,954,365 1,125,926 6,080,291 3,767 12,692,177

Loans and advances to related parties at amortised cost 214,409 33,476 9,454 257,339 5,300 1,027 6,327 - 263,666

Debtors by acceptances 102,699 98,858 79,213 280,770 49 - 49 - 280,819

Financial assets at amortised cost 333,928 194,115 2,867,886 3,395,929 8,542,124 2,369,250 10,911,374 - 14,307,303


Investments in associates - - - - - - - 43,099 43,099




Other assets 29,690 13,514 66,106 109,310 9,792 1,374 11,166 167,695 288,171

Goodwill - - - - - - - 261,431 261,431

Total assets 10,965,780 2,017,423 6,165,556 19,148,759 18,404,358 4,463,563 22,867,921 1,304,006 43,320,686


Due to central banks - - - - 133,394 - 133,394 - 133,394

Due to banks and financial institutions 624,625 66,623 38,034 729,282 143,398 134,878 278,276 - 1,007,558

Derivative financial instruments 7,055 35,159 16,032 58,246 - - - - 58,246

Customers’ deposits at amortised cost 27,501,168 6,126,130 2,628,342 36,255,640 828,346 13,224 841,570 - 37,097,210

Deposits from related parties at amortised cost 55,402 13,667 46,559 115,628 169,669 - 169,669 - 285,297

Engagements by acceptances 102,699 98,859 79,212 280,770 49 - 49 - 280,819

Other liabilities 124,131 39,698 224,141 387,970 226,361 156,441 382,802 61,315 832,087




Liquidity gap (17,449,300) (4,362,713) 3,133,236 16,903,141 4,159,020 (2,383,384)

Cumulative gap (17,449,300) (21,812,013) (18,678,777) (1,775,636) 2,383,384 -

204 205

59. Operational RiskOperational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss.

The operational risk management framework is implemented by an independent Operational Risk Management team, in coordination with other essential elements of the Group’s control framework, such as Internal Audit or Corporate Information Security and Business Continuity.

Central to this framework are tried-and-tested principles such as redundancy of mission-critical systems, segregation of duties, strict authorisation procedures, daily reconciliation, risk management responsibility at the operational level, and the requirement to be able to price and value independently any proposed transaction.

Incidents are reported, analysed and fed into a risk map also originating from other sources such as control self-assessments, key risk indicators or audit reports. This risk map is then used as a tool to follow up on outstanding issues and as the basis for reporting operational risk to Management and to the Board.

Insurance coverage is used as an external mitigant and is commensurate with activity, both in terms of volume and characteristics.

60. Capital ManagementBy maintaining an actively managed capital base, the Group’s objectives are to cover risks inherent in the business, to retain sufficient financial strength and flexibility to support new business growth, and to meet national and international regulatory capital requirements at all times. The adequacy of the Group’s capital is monitored using, among other measures, the rules and ratios established by the Central Bank of Lebanon. These ratios measure capital adequacy by comparing the Group’s eligible capital with its statement of financial position assets and off-balance sheet commitments at a weighted amount to reflect their relative risk. To satisfy Basel III capital requirements, the Central Bank of Lebanon requires maintaining a ratio of total regulatory capital to risk-weighted assets at or above 12% to be achieved in 2015. The limit of the common equity Tier 1 ratio is expected to increase to 8%, the Tier 1 ratio to 10% and the total capital ratio to 12% by the end of 2015. The first step of this increase was due by the end of 2012.

Each banking subsidiary is directly regulated by its local banking supervisor which sets and monitors its capital adequacy requirements. In addition, Bank Audi sal - Audi Saradar Group monitors capital adequacy at the Group level.

2012 LBP Million

2011 LBP Million

Risk-weighted assets:

Credit risk 25,670,611 24,734,378

Market risk 653,868 622,866

Operational risk 2,251,204 1,974,927

Total risk-weighted assets 28,575,683 27,332,171

The capital base as per Basel II requirements as of December 31 (including profit for the year less proposed dividends) is as follows:

The capital adequacy ratio as of December 31 (including profit for the year less proposed dividends) is as follows:

Tier 1 capital consists of share capital, share premium, reserves, retained earnings including current year profit less proposed dividends, foreign currency translation losses, gross unrealised losses from financial instruments at fair value through other comprehensive income and corresponding amounts of non-controlling interest. Tier 2 capital consists of revaluation variance recognised in the complementary equity, subordinated loans, preferred shares, a percentage of foreign currency translation gains, a percentage of gross unrealised gains from financial instruments at fair value through other

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment

comprehensive income and corresponding amounts of non-controlling interest. Certain adjustments are made to IFRS based results, reserves, retained earnings, preferred shares, subordinated loans and non-controlling interests, as prescribed by the Central Bank of Lebanon and the Banking Control Commission.

In accordance with the Central Bank of Lebanon's main Circular No. 44, the Group should maintain the following minimum required capital adequacy ratio for the years ended December 31, 2012 and thereafter:

to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years. However, they are under constant scrutiny of the Board.

2012 2011

Capital adequacy – Tier 1 11.56% 10.45%

Capital adequacy – Total capital 11.79% 10.69%

Tier 1 Capital Ratio Total Capital Ratio

Year ended December 31, 2012 8.0 % 10.0 %




2012 LBP Million

2011 LBP Million

Tier 1 capital 3,302,459 2,855,238

Tier 2 capital 65,885 65,235

Total capital 3,368,344 2,920,473

206 207

europeThrough its presence in France, Switzerland and

Monaco, Bank Audi provides commercial banking,

private banking and wealth management services.

The steady activity of the Bank’s European

subsidiaries represents a testimony to a solid

banking heritage that stands the test of time.

208 209

shareholding structure

Shareholders/Groups of Shareholders

Country (Ultimate Economic

Ownership)

Percentage Ownership(1) of the Total Number of Common

Shares Issued and Outstanding

Audi Family(2) Lebanon 7.0%

Al Homaizi Family(2) Kuwait 6.1%

Saradar Family(2) Lebanon 5.8%

Sheikh Dhiab Bin Zayed Al Nehayan United Arab Emirates 5.1%

Investment Finance Opportunities Ltd. Lebanon 4.9%

Middle East Opportunities For Structured Finance Ltd. Lebanon 4.9%

Al Sabbah Family(2) Kuwait 4.8%

Investment and Business Holding sal(3) Lebanon 3.9%

MAL Investment One Holding sal(3) Lebanon 3.9%

Al Hobayb Family(2) Kingdom of Saudi Arabia 2.7%

El Khoury Family Lebanon 2.5%

Executives and employees(6) 5.1%

Others 14.1%

Deutsche Bank Trust Company Americas(4) 29.2%

Total shareholding 100.0%

The following table sets out the composition of the holders of common shares(5) as at March 31, 2013:

(1) Percentage ownership figures represent common shares owned by the named shareholders and are expressed as a percentage of the total number of common shares issued and outstanding.

As at the date hereof, the Bank (and its affiliates) is the custodian of shares and/or GDRs representing 80.15 % of the Bank’s common shares.

(2) The Audi Family, Al Homaizi Family, Saradar Family, Al Sabbah Family and Al Hobayb Family include the following members of the Board: (i) Raymond Wadih Audi and Marc Jean Audi, (ii) Suad Hamad Al Saleh Al Homaizi, (iii) Mario Joseph Saradar, (iv) Mariam Nasser Sabbah Al Nasser Al Sabbah, and (v) Abdallah Al Hobayb, respectively.

(3) The ultimate beneficial owners of Investment and Business Holding sal and of MAL Investment One Holding sal are members of the Mikati Family.

(4) As at the date hereof, Deutsche Bank Trust Company Americas, in its capacity as depositary under the Bank’s GDR Program, owned 102,017,651 common shares represented by GDRs.

(5) As at March 31, 2013, the total number of common shares is 349,749,204.

(6) Excluding members of the Audi Family accounted for in a separate row appearing above.

The major subsidiaries of Bank Audi sal - Audi Saradar Group as at 31/03/2013 are:

corporate structure

Banking

Holding

Factoring

Financial intermediation/Brokerage

* Represents the economic ownership of the Bank with direct and/or indirect ownership through subsidiaries.** Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group (please refer to Page 232).

100.00%

100.00%

99.99%

99.98%

90.85%

Infi Gamma Holding sal*

Banaudi InternationalHolding ltd*

Bank Audi SaradarFrance sa

Audi Capital (Syria) LLC

Audi Saradar PrivateBank sal

Bank Audi LLC (Qatar)*

Banaudi Holding ltd

Bank Audi sae (Egypt)*

Audi Capital (KSA) cjsc*

Odeabank A.Ş.*

Bank Audi Syria sa*

National Bank of Sudan

Audi Saradar InvestmentBank sal

Arabeya Online Brokerage*

SOLIFAC sal

100.00%

100.00%

Audi Capital Gestion sam

Banque Audi (Suisse) sa*

99.99%

99.99%

100.00%

100.00%

99.99%

99.69%

47.00%

76.56%

99.99%

90.00%

Bank Audi sal -Audi Saradar Group

210 211

BankingOther financial services(Insurance, Brokerage, Investments etc.)

group high level chart

Board CommitteesCorporate Secretariat

GR

OU

P SU

PPO

RT

FUN

CTI

ON

S Regional Expansion

Risk Management

Internal Audit

Legal & Compliance

Finance

Operations

Executive Committee

Audit Committee

Corporate Governance & Remuneration Committee

Risk Committee

External auditors

External solicitorsShareholders

Chief Executive Officer

Chairman

Board of Directors

Group geographical presence

LEBANON

Bank Audi sal - Audi Saradar Group

Audi Saradar Investment Bank sal

Audi Saradar Private Bank sal

JORDAN

Bank Audi sal -Jordan Branches

SYRIA

Bank Audi Syria sa

Audi Capital (Syria) LLC

KINGDOM OF SAUDI ARABIA

Audi Capital (KSA) cjsc

UAE

Bank Audi sal - Abu Dhabi Representative Office

QATAR

Bank Audi LLC

EGYPT

Bank Audi sae

Arabeya Online Brokerage

SUDAN

National Bank of Sudan

FRANCE

Bank Audi Saradar France sa

MONACO

Audi Capital Gestion sam*

SWITZERLAND

Banque Audi (Suisse) sa

TURKEY

Odeabank A.Ş.

STANDING MANAGEMENT COMMITTEES •AssetLiabilityCommittee •CreditCommittee •InformationTechnologyCommittee •FinancialInstitutionsCommittee •Anti-moneyLaunderingCommittee •DisclosureCommittee •RealEstateCommittee •CorporateSocialResponsibilityCommittee

Private Banking

Retail Banking

Cards & e-Payment Solutions

Islamic Banking

Corporate Banking

Investment Banking

GR

OU

P B

USI

NES

S LI

NES

* Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group (please refer to Page 232).

organisation chart

BOARD OF DIRECTORS

GROUP ExECUTIVE COMMITTEE

GROUP AUDIT COMMITTEE

GROUP RISK COMMITTEE

CORPORATE GOVERNANCE & REMUNERATION

COMMITTEE

CHAIRMAN OF THE BOARD

VICE-CHAIRMAN OF THE BOARD

GROUP CHIEF ExECUTIVE OFFICER

GROUP LEGAL & COMPLIANCE

GROUP RISK

GROUP ISLAMIC BANKING

GROUP RETAIL BANKING

GROUP CARDS & E-PAYMENT SOLUTIONS

GROUP CORPORATE BANKING

GROUP PRIVATE BANKING

GROUP INFORMATION MANAGEMENT

GROUP FINANCE

Chahdan E. Jebeyli Group Chief Legal & Compliance Officer

Adel N. Satel Group Chief Risk Officer

Imad I. Itani Head of Group Islamic Banking

Randa T. Bdeir Head of Group Cards &

e-Payment Solutions

Imad I. Itani Head of Group Retail Banking

Khalil I. Debs Head of Group Corporate Banking

Philippe R. Sednaoui Head of Group Private Banking

Danny N. Dagher Acting Group Chief Information Officer

Tamer M. Ghazaleh Assistant Group CFO

Raymond W. Audi

Marwan M. Ghandour

Samir N. Hanna

STRATEGY DIRECTOR & GROUP CHIEF

FINANCIAL OFFICERFreddie C. Baz

212 213

north africaBeyond the temporary atypical conditions that the North Africa region is witnessing, the medium term outlook looks brighter, namely at the level of political governance, economic efficiency and corollary demand for financial services, offering the financial sector in general and Bank Audi in particular a core under-banked market with potentially rapid growth opportunities.

214 215

management

Bank Audi sal - Audi Saradar Group Management of Bank Audi sal - Audi Saradar Group

Mr. Gaby G. Kassis General ManagerMr. Elia S. Samaha General Manager – Group Chief Credit Officer

Mr. Joseph I. Kesrouani Assistant General Manager – Head of Business Development – South America & Africa

Office of the CEO

Mr. Michel E. Aramouni Assistant General Manager – Group Capital MarketsMrs. Jocelyne A. Jalkh Assistant General Manager – Head of the CEO’s Office

Mr. Naoum J. Moukarzel Information Technology

Advisors

Mr. Georges Y. Azar AdvisorMr. Yacoub G. Nadda Advisor

Central Departments

Mr. Chahdan E. Jebeyli General Manager – Group Chief Legal & Compliance OfficerMr. Adel N. Satel General Manager – Group Chief Risk Officer

Dr. Marwan S. Barakat Assistant General Manager – Group Chief Economist & Head of ResearchMrs. Randa T. Bdeir Assistant General Manager – Head of Group Cards & e-Payment SolutionsMr. Danny N. Dagher Assistant General Manager – Acting Group Chief Information OfficerMr. Khalil I. Debs Assistant General Manager – Group Head – Corporate BankingMr. Tamer M. Ghazaleh Assistant General Manager – Assistant Group Chief Financial Officer Mr. Marwan O. Arakji Deputy Head of Group Retail BankingMr. Georges J. Boustany Head of Group Remedial ManagementMr. Abdul-Salam E. Chebaro Head of Group Trade Finance Mrs. Bassima G. Harb Head of Regional Corporate Banking & Structured FinanceMr. Elie J. Kamar Head of Group Corporate Review & MISMr. Farid F. Lahoud Group Corporate Secretary

(Continued from Page 22)

Mr. Mahmoud M. Majzoub Head of Group Internal AuditMr. Elie A. Nahas Head of Group Real Estate & EngineeringMr. Mounir R. Tabet Head of Group Finance Infrastructure & Technical Support

Group Financial Institutions & Correspondent Banking

Mr. Khalil G. Geagea Group Head of Financial Institutions & Correspondent Banking Tel: (961-1) 964817. Fax: (961-1) 989494. E-mail: [email protected]

Mr. Joseph A. Nader Deputy Group Head of Financial Institutions & Correspondent Banking Tel: (961-1) 977644. Fax: (961-1) 989494. E-mail: [email protected]

Investor Relations

Ms. Sana M. Sabra Investor Relations Tel: (961-1) 977496. Fax: (961-1) 999399. E- mail: [email protected]

216 217

Bank Audi sal - Audi Saradar Group Country Management Lebanon

Mr. Marc J. Audi General Manager – Country Manager

Branches Network Management

Mrs. Wafaa’ S. Daouk Assistant General Manager – Network Manager – Verdun Corporate branch Mr. Salam G. Nadda Assistant General Manager – Network Manager – Ashrafieh SOFIL Corporate branch

Mrs. Ghina M. Dandan Network Manager – Bab Idriss Corporate branch

Mr. Rabih E. Berbery Network ManagerMr. Hani A. Bidawi Network ManagerMr. Pierre Y. Harfouche Network ManagerMr. Kamal S. Tabbara Network Manager

Mr. Abdo M. Abi-Nader Regional ManagerMrs. Lina T. Cherif Regional ManagerMr. Michel R. Geammal Regional Manager

Operations

Mr. Hassan A. Saleh Assistant General Manager – Chief Operating Officer

Central Departments

Mr. Bechara J. Khachan Assistant General Manager – Head of Human ResourcesMr. Ibrahim M. Salibi Assistant General Manager – Head of Corporate & Commercial Banking

Mr. Ramzy S. Abouezzeddine Head of Marketing & CommunicationsMrs. Grace E. Eid Head of Retail BankingMr. Mahmoud A. Kurdy Chief Financial Officer

Advisors

Mrs. Najla E. Haddad Advisor

Audi Saradar Investment Bank sal

Member of the Audit

Committee

Member of the Risk Committee

Dr. Imad I. ITANI Chairman & General Manager

Mr. Michel E. ARAMOUNI Member

Dr. Khalil M. BITAR Member

Mr. Khalil I. DEBS Member

Mr. Georges S. DOUMITH Member

Mr. Rami S. JISR Member

Mr. Farid F. LAHOUD Member

Bank Audi sal - Audi Saradar Group Member

Mrs. Marie-Josette A. AFTIMOS Secretary of the Board

Board of Directors

Dr. Imad I. ITANI Chairman & General Manager

Mr. Rami S. JISR General Manager

Management

Chair

Chair

218 219

Management

Mr. Fady G. AMATOURY Chairman & General Manager

Mr. Toufic R. AOUAD General Manager

Mrs. Martine S. HOCHAR Assistant General Manager

Mrs. Samira E. HARB-ABOURJAILY Executive ManagerMrs. Nada M. RIZK Executive ManagerMs. Nada M. SAFA Executive Manager

Mr. Fadi S. CHABO Regional ManagerMrs. Dima I. JAROUDI Regional ManagerMr. Maher A. RAHAM Regional ManagerMrs. Lina H. UTHMAN Regional ManagerMr. Ahmad A. YOUNES Regional ManagerMr. Hani A. ZURUB Regional Manager

Mrs. Rania S. ABOU EL-OULA NAHRY Head of Legal & Compliance

Mrs. Aline S. KARAM Manager – Head of Operations & OrganisationMrs. Eugenie E. RIZKALLAH Manager – Head of Internal Control Mrs. Marie G. TOUMA Manager – Head of Credit

Audi Saradar Private Bank salBoard of Directors

Member of the Audit

Committee


Mr. Fady G. AMATOURY Chairman

Mr. Toufic R. AOUAD Member

Dr. Khalil M. BITAR Member

Mrs. Wafaa S. DAOUK Member

Dr. Joe A. DEBBANE Member

Mr. Georges S. DOUMITH Member

Mr. Salam G. NADDA Member

Mr. Istvan I. NAGY Member


Chair

Chair

Management

Mr. Philippe SEDNAOUI General Manager – Chief Executive Officer

Mrs. Christiane AUDI Deputy General Manager – Head of Private BankingMr. Michel NASSIF Deputy General Manager – Chief Investment Officer

Mr. Ibrahim ABDELNOUR Manager – Senior Private BankerMr. Ali AZIZ Manager – Senior Private BankerMr. Elie BAZ Manager – Head of Forex & TreasuryMrs. Mireille GAVARD Manager – Corporate Secretary, Head of Legal & ComplianceMr. Fouad HAKIM Manager – Senior Private BankerMr. Christopher JOHNSON Manager – Chief Financial OfficerMr. Wolfram PIETSCH Manager – Head of Operations & IT

Banque Audi (Suisse) saBoard of Directors

Member of the Audit

Committee

Member of the Remuneration

Commitee

Dr. Marwan GHANDOUR Chairman

Mr. Dominique ROCHAT Vice-chairman

Mr. Marc AUDI Member

Dr. Freddie BAZ Member

Mr. Pierre DE BLONAY Member

Mr. Michel CARTILLIER Member

Mr. Samir HANNA Member

Mr. Jean-Pierre JACQUEMOUD Member

Mr. Pierre RESPINGER Member

H.E. Mr. Raymond AUDI Honorary Chairman

(Chair until December 2012)

(Chair since January 2013)

Chair

220 221

Bank Audi Saradar France saBoard of Directors

Member of the Executive Credit

Committee

Member of the Audit Committee

Dr. Freddie C. BAZ Chairman

Mrs. Sherine R. AUDI Member & General Manager

H.E. Mr. Raymond W. AUDI Member

Mr. Maurice H. SAYDE Member

Mr. Pierre A. SOULEIL Member

Bank Audi sal - Audi Saradar Group(represented by Mr. Samir N. HANNA)

Member

Mrs. Sherine R. AUDI General Manager

Mr. Noel J. HAKIM Deputy General Manager

Mr. Emile G. GHAZI Assistant General Manager –Head of Corporate Banking

Management

Bank Audi sal - Jordan Branches

Mr. Yousef A. ENSOUR General Manager

Mr. Samer I. AL ALOUL Deputy General Manager – Corporate & Commercial Banking

Management

222 223

Bank Audi Syria saBoard of Directors


Member of the Nomination & Remuneration

Committee

Member of the Corporate Governance Committee

Member of the Audit

Committee

Dr. Georges A. ACHI Chairman

Dr. Ahmad M. ABBOUD Deputy Chairman

H.E. Mr. Raymond W. AUDI Member

Dr. Freddie C. BAZ Member

Mr. Bassel S. HAMWI Member

Mr. Samir N. HANNA Member

Mr. Elia S. SAMAHA Member

Mr. Adnan N. TAKLA Member

Mrs. Rana T. ZEIN Member

Advisors to the Board

Mr. Abdulateef A. AL-RAJIHIMrs. Nada N. ASSAADMrs. Yasmina R. AZHARIMr. Mohamed Said Z. ZAIM

Management

Mr. Bassel S. HAMWI Chief Executive Officer

Mr. Antoine G. EL-ZYR Deputy General Manager

Mr. Abdulrahman M. AL-ABRASH Assistant General Manager – Chief Financial OfficerMr. Jamil R. SHOCAIR Assistant General Manager – Head of Corporate Banking Division

Chair

Chair Chair

Chair

Bank Audi sae (Egypt)Board of Directors

Member of the

Executive Committee

Member of the Corporate Governance,

Nomination and Remuneration

Committee


Member of the

High Credit Committee

Member of the Audit

Committee

Mr. Hatem A. SADEK

Chairman & Managing Director Chair Chair

Mrs. Fatma I. LOTFY

Deputy Chairman & Managing Director

Mr. Yehia K. YOUSSEF

Member & Deputy Managing Director

H.E. Mr. Raymond W. AUDI

Member

Dr. Freddie C. BAZ MemberChair

Dr. Marwan M. GHANDOUR

MemberChair Chair

Mr. Samir N. HANNA

Member

Mr. Abdullah I. AL HOBAYB

Member

Mr. Maurice H. SAYDE

Member

Dr. Mohamed E. TAYMOUR

Member

Mr. Ahmed F. IBRAHIM Secretary of the Board

Management

Mr. Hatem A. SADEK Chairman & Managing Director

Mrs. Fatma I. LOTFY Deputy Chairman & Managing Director

Mr. Yehia K. YOUSSEF Deputy Managing Director

224 225

226 227

Business Lines

Mr. Assem K. AWWAD Senior General Manager – Head of Corporate Banking

Mr. Mohamed L. AHMED General Manager – Head of Branch Network

Mr. Mostafa A. GAMAL General Manager – Head of Treasury & Capital Markets

Mr. Mohamed R. LATIF General Manager – Head of Financial Institutions & Correspondent Banking

Mr. Ihab E. DORRA Deputy General Manager – Acting as Head of Retail Banking

Mrs. Maha A. HASSAN Deputy General Manager – Head of Mortgage

Mr. Khaled F. EL DAFRAWY Deputy General Manager – Head of Small & Medium Enterprises

Mr. Walid M. HASSOUNA Deputy General Manager – Head of Islamic Banking

Mr. Maroun A. AOUAD Assistant General Manager – Head of Global Transaction Services

Support Functions

Mr. Mohamed M. BEDIER(1) Senior General Manager – Chief Financial Officer

Mrs. Amany A. SHAMS EL-DIN(1) Senior General Manager – Chief Operating Officer

Mr. Hesham S. MABROUK General Manager – Chief Information Officer

Mr. Walid K. EL-WATANY General Manager – Head of Human Resources

Mr. Ahmed F. IBRAHIM Deputy General Manager – Head of Strategic Support

Ms. Heba M. GABALLA Assistant General Manager – Head of Communications

Mr. Mohamed N. SHALABY Senior Manager – Head of Project Management Office

Mrs. Samar A. HOBEIKA Manager – Head of Quality Assurance & Market Research

Risk Function

Mr. Afdal E. NAGUIB(1) Senior General Manager – Chief Risk Officer

Mr. Bassel E. KELADA Deputy General Manager – Head of Retail Credit

Control Functions

Mr. Mohamed A. EL GUEZIRY General Manager – Head of Internal Audit

Mr. Hesham F. RAGAB Senior Legal Council

Mr. Ali M. AMER Assistant General Manager – Head of Compliance

Mr. Ahmed M. KAMEL Executive Manager – Head of Corporate Information Security & Business Continuity

(1) Member of the Executive Committee.

228 229

National Bank of SudanBoard of Directors

Member of the Audit Committee

Member of the

Executive Committee

Dr. Imad I. ITANI Chairman

Mr. Osman A. MALIK Member

Mr. Ahmad B. EL NEFEIDI Member

Mr. Hatem A. SADEK Member

Mr. Ramzi N. SALIBA Member


Dr. Imad I. ITANI Chairman

Mr. Elnour A. ELHILU Member

Mr. Osman A. MALIK Member

Mr. Adel N. SATEL Member

Mr. Yehia K. YOUSSEF Member

Ms. Manal K. OSMANSecretary of the Board

Until October 31, 2012

Since October 31, 2012

Chair

General Manager

General Manager

Mr. Moawia A. MOHAMAD ALI Deputy General Manager

Management

Mr. Abdul-Salam E. CHEBARO(until November 2012)

Mr. Fadi M. CHEHADE(since November 2012)

Chair

Chair

Chair

Arabeya Online Brokerage (Egypt)

Management

Mr. Hisham A. TAWFIK Chairman

Mr. Ayman M. SADEK Managing Director

Mr. Hisham A. TAWFIK Chairman

Mr. Michel E. ARAMOUNI(since February 2013) Member

Mr. Danny N. DAGHER Member

Mrs. Fatma I. LOTFY Member

Mr. Ashraf I. RACHED(since February 2013) Member

Mr. Ayman M. SADEK Member

Mr. Hatem A. SADEK Member

Board of Directors

230 231

Bank Audi LLC (Qatar)

Board of Directors

Member of theExecutive Credit

Committee

H.E. Mr. Raymond W. AUDI Chairman

Mr. Fady G. AMATOURY Member & Managing Director

Mr. Rashed Nasser S. AL-KAABI Member

Mr. Elia S. SAMAHA Member

Mr. Fady G. AMATOURY Managing Director

Mr. Hani R. ZAOUK General Manager

Mr. Chadi A. JABER Head of Corporate & Commercial Banking

Mrs. Stephanie S. MALAAB Head of Risk Management & Compliance

Mrs. Maya N. MOUJAES Head of Operations

Mr. Elie B. NEMR Acting COO, Head of Treasury & Capital Markets

Mr. Georges Y. TALGE Head of Finance

Management

Authorised by the QFC Regulatory Authority - License No. 00027

Chairman

Audi Capital (KSA) cjscBoard of Directors

Member ofthe Audit

Committee


Committee

Mr. Abdullah I. AL HOBAYB Chairman

Member

Dr. Marwan M. GHANDOUR Member

Mr. Samir N. HANNA Member

Member

Independent member

Independent member

Dr. Khalil A. KORDI Independent member

Chair

Mr. Philippe R. SEDNAOUI(since January 2013)

Dr. Freddie C. BAZ(until January 2013)

Dr. Asem T. ARAB(since January 2013)

Dr. Abdullah A. ALABDULKADER(until October 2012)

Chair

Management

Mr. Abdallah I. SAADE Chief Executive Officer

Mr. Ammar H. BAKHEET Executive Director – Asset Management

Mr. Joseph M. HALLIT Executive Director – Private Banking

Mr. Elie A. NAHAS Executive Director – Real Estate

Mr. Tony G. ABOU FAYSSAL Finance Manager

Mr. Raafat F. EL-ZOUHEIRY Compliance Manager & Money Laundering Reporting Officer

232 233

Odeabank A.Ş.Board of Directors

Member of the Credit Committee

Member of the Audit

Committee

Member of the Corporate Governance Committee



Committee

Mr. Samir HANNA Chairman

Dr. Marwan GHANDOUR Vice-chairman

H.E. Mr. Raymond AUDI Member

Dr. Freddie BAZ Member

Mr. Adbullah AL HOBAYB Member

Dr. Imad ITANI Member

Mrs. Ayşe KORKMAZ Member

Mr. Hüseyin OZKAYA Member

Mr. Hatem SADEK Member

Management

Mr. Hüseyin OZKAYA General Manager

Mr. Yalçın AVCI Assistant General Manager – Corporate Banking

Mr. Antoine BOUFARAH Assistant General Manager – Operations & Support Services

Mr. Gökhan ERKIRALP Assistant General Manager – Treasury & Capital Markets

Mr. Naim HAKIM Assistant General Manager – Financials

Mr. Fevzi Tayfun KUÇUK Assistant General Manager – Business Solution & Transactional & Direct Banking

Mr. Cem MURATOGLU Assistant General Manager – Retail Banking

Mr. Serkan OZCAN Assistant General Manager – Economic Research & Strategic Planning

Mr. Erol SAKALLIOGLU Assistant General Manager – Commercial Banking

Mr. Alpaslan YURDAGUL Assistant General Manager – Financial Institutions & Investment Banking

Alternate

Alternate

Chair

Chair

Chair Chair

Chair

* Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group that was liquidated pursuant to the resolution of its shareholders’ extraordinary Assembly of 27/07/2012, within the Group’s decision to turn its operation in Monaco into an asset management company.

Audi Capital Gestion sam (Monaco)*Board of Directors

Management

Mr. Philippe SEDNAOUI Managing Director

Mr. Fouad HAKIM Managing Director

Mr. Philippe SEDNAOUI Chairman & Managing Director

Mr. Fouad HAKIM Member & Managing Director

Banque Audi (Suisse) sa (represented by Mr. Jean-Pierre JACQUEMOUD) Member

234 235

addresses

LebanonBank Audi sal - Audi Saradar GroupMember of the Association of Banks in LebanonCapital: LBP 457,709,001,816 (as at December 2012)

Consolidated shareholders’ equity: LBP 4,036,192,088,992 (as at December 2012)

C.R. 11347 BeirutList of Banks No. 56

HeadquartersBank Audi Plaza, Bab Idriss P.O. Box 11-2560 Beirut - LebanonTel: (961-1) 994000. Fax: (961-1) 990555.E-mail: [email protected] http://www.banqueaudi.com

Country Management Lebanon

Bank Audi Palladium, Bab IdrissP.O. Box: 11-2560 Beirut - LebanonTel: (961-1) 994000. Fax: (961-1) 990555.E-mail: [email protected] http://www.banqueaudi.com

Commercial Banking Network

Ashrafieh – Clover

Clover Bldg., Charles Malek Avenue.Tel: (961-1) 204825-6-7, 215492-3, 332129-30.Fax: (961-1) 201992.SOS Branch Manager: Ms. Mirella A. Karam Dora

Cité Dora 1, Dora Highway.Tel: (961-1) 255686-7-8-9, 255691-2-3-4, 258877,259064-5-6-7-8, 259072-3-4-5-6, 254646.Fax: (961-1) 255695, 259071.Branch Manager: Mr. Fadi V. Saade

GefinorGefinor Center, Clemenceau Street.Tel: (961-1) 743400-1-2-3-4-5-6. Fax: (961-1) 743412.Commercial Area Manager:Mrs. Joumana A. Moughrabi

Hazmieh

Dar Assayad Bldg., Sa�d Freiha Street,Hazmieh Roundabout.Tel: (961-5) 450179, 451850, 452456,452494, 459213, 952904-5. Fax: (961-5) 457963.Branch Manager: Mrs. Hilda G. Sadek

Jnah

Tahseen Khayat Bldg., Khalil Moutran Street.Tel: (961-1) 844870-1-2-3. Fax: (961-1) 844875.Branch Manager: Mrs. Elissar A. Halawi

Mazraa

Wakf El-Roum Bldg., Saeb Salam Blvd.Tel: (961-1) 305612, 311886-7, 311892.Fax: (961-1) 316873.Branch Manager: Mrs. Rania J. Tamraz

Nabatieh

Office 2000 Bldg., Hassan Kamel El-Sabbah Street.Tel: (961-7) 767812-3-4, 761241. Fax: (961-7) 767816.Branch manager: Mrs. Zeina H. Kehil

Saida – South

Moustapha Saad Street.Tel: (961-7) 728601-2-3-4, 723673. Fax: (961-7) 752704.Branch Manager: Mr. Jean Y. Azar

Shtaura

Daher Bldg., Main Road. Tel: (961-8) 540745, 542960-1-2, 545034.Fax: (961-8) 544853.Branch Manager: Mrs. Mona K. Cherro

Tripoli – El-Mina

Mandarine Bldg., Riad El-Solh Street, El-Mina Blvd. Tel: (961-6) 205100-1-2-6-8. Fax: (961-6) 205103.Branch Manager: Mr. Georges A. Khodr

TyreAbou Saleh & Moughnieh Bldg., Main Road.Tel: (961-7) 345196-7-8. Fax: (961-7) 345201.Commercial Area Manager: Mr. Georges K. Karam

Zouk

Val de Zouk Center, Zouk Mikhael.Tel: (961-9) 211138-9, 211140-1, 211054, 226771-2-3-4. Fax: (961-9) 223603, 225505.Branch Manager: Mr. Georges Z. Sayess

Corporate Banking Network

Ashrafieh – Main Branch

SOFIL Center, Charles Malek Avenue.Tel: (961-1) 200250-1-2-3-4-5, 200572-3,216810, 331813, 333094. Fax: (961-1) 200724, 339092.Network Manager – Corporate Banking:Mr. Salam G. Nadda

Bab Idriss

Bank Audi Plaza, Omar Daouk Street.Tel: (961-1) 977588. Fax: (961-1) 999410, 971502.Network Manager – Corporate Banking:Mrs. Ghina M. Dandan

Verdun

Verdun 2000 Center, Rashid Karameh Avenue.Tel: (961-1) 790761-2 805805,861892, 814202, (961-3) 395500. Fax: (961-1) 865635.Network Manager – Corporate Banking:Mrs. Wafaa S. Daouk

Retail & Personal Banking Network

Beirut

Ashrafieh – Sassine

Bahri Center, Sassine Square.Tel/Fax: (961-1) 200640-1-2-3-4.Branch Manager: Ms. Rita C. Haddad

Ashrafieh – Saydeh

Shibli Bldg., Istiklal Street.Tel: (961-1) 200753-4, 202943, 204971-3, 320825.Fax: (961-1) 204972.Retail Area Manager: Mr. Fadi E. Chedid

BadaroIbrahim Ghattas Bldg., Badaro Street.Tel: (961-1) 387395-6-7. Fax: (961-1) 387398.Branch Manager: Mrs. Nayla S. Hanna

BastaOuza� Street, Noueiri Quarter.Tel: (961-1) 661323-4-5-6. Fax: (961-1) 651798.Branch Manager: Mr. Zahi K. Chatila

Beshara El-Khoury

Banna & Sayrawan Bldg., Beshara El-Khoury Street.Tel/Fax: (961-1) 664093-4-5-6.Acting Branch Manager: Mrs. Leila K. Barakat

Bliss

Kanater Bldg., Bliss Street.Tel: (961-1) 361714-5, 361793-4-5. Fax: (961-1) 361796.Branch Manager: Ms. Afaf M. Khoury

El-Horge

Khattab Bldg., Hamad Street.Tel: (961-1) 660636, 660646, 660656.Fax: (961-1) 660686.Branch Manager: Mrs. Karima A. Baltagi

Hamra

Mroueh Bldg., Hamra Street.Tel: (961-1) 341490-1-2-3-4-5-6-7,346749, 348352, 353206-7. Fax: (961-1) 344680.Branch Manager: Mr. Sami R. Samara

Mousseitbeh

Makassed Commercial Center,Mar Elias Street.Tel: (961-1) 707331-2, 818277-8-9, 818280.Fax: (961-1) 303084.Branch Manager: Ms. Nisrine A. Ismail

Port

El-Hadissa Bldg., El-Arz Street, Sa�fi.Tel: (961-1) 580530-1-6, 445117. Fax: (961-1) 580885.Branch Manager: Mrs. Rawan K. Baydoun

Raousheh

Majdalani Bldg., Raousheh Corniche. Tel: (961-1) 786212-3, 805068, 864752.Fax: (961-1) 805071.Branch Manager: Ms. Yousra I. Younes

Selim Salam

Sharkawi Bldg., Selim Salam Avenue.Tel: (961-1) 318824, 319295-6. Fax: (961-1) 318657.Branch Manager: Mrs. Hind A. Ghalayini

Sodeco

Alieh Bldg., Istiklal Street.Tel: (961-1) 612779, 612790-1-2-6. Fax: (961-1) 612793.Retail Area Manager: Mrs. Raghida N. BachaZarif

Salhab Center, Algeria Street.Tel: (961-1) 747550-1-2. Fax: (961-1) 747553.Retail Area Manager: Mr. Mouayad A. Tabbara

Mount Lebanon

Ain El-Remmaneh

Etoile Center, El-Areed Street.Tel: (961-1) 292870-1-2-3-4. Fax: (961-1) 292869.Branch Manager: Mrs. Roula E. Fayad

Ajaltoun

Bou Shaaya & Khoury Center, El-Midane.Tel/Fax: (961-9) 234439, 234619, 234620-1.Branch Manager: Mr. Antoine F. Boueiri

236 237

Baabda

Boulos Brothers Bldg., Damascus International Road.Tel: (961-5) 451452, 953237-8-9, 953240-1-3.Fax: (961-5) 953236.Branch Manager: Mrs. Marthe A. Kanaan

Bhamdoun

Main Road.Tel: (961-5) 261285-6-7, 260132. Fax: (961-5) 261289.Branch Manager: Mr. Elias J. Daniel

Bourj Hammoud

Mekheterian Bldg., Municipality Square. Tel: (961-1) 242631-2, 258146, 263325.Fax: (961-1) 265679.Branch Manager: Mrs. Grace G. Nercessian

Broummana

Lodge Center, Main Road.Tel: (961-4) 860163-4-6, 860451. Fax: (961-4) 860167.Retail Area Manager: Mr. Tanios F. Nabhan

Dbayeh

Dbayeh Highway, East Side.Tel: (961-4) 521671-2-3-4-5. Fax: (961-4) 521677.Branch Manager: Mrs. Georgina Y. Nakad

Dekwaneh

El-Nefaa, Main Road.Tel: (961-1) 693790-1-2-4. Fax: (961-1) 693795.Branch Manager: Mr. Pierre A. Mezher

Dora – City Mall

City Mall, Dora Highway.Tel: (961-1) 884114, 884081, 884098.Fax: (961-1) 884115.Branch Manager: Mrs. Grace E. Moussa

Dora – VartanianVartanian Center, Dora Highway.Tel: (961-1) 250202, 250303, 250404, 250606.Fax: (961-1) 241647.SOS Branch Manager: Mr. Wahib N. Ibrahim

Elyssar

Elyssar Main Road, Mazraat Yashouh.Tel: (961-4) 913927-8-9, 916152-4. Fax: (961-4) 913932.Branch Manager: Mrs. Lizia E. Chidiac

Fanar

La Rose Center, Main Road.Tel: (961-1) 879637-8, 879640, 870820.Fax: (961-1) 879641.Branch Manager: Mrs. Haifa A. Awad

Furn El-Shebbak

Michel & Antoine Badaro Bldg.,Damascus International Road.

Tel: (961-1) 290713-4-5-6, 282105. Fax: (961-1) 282104.Branch Manager: Mr. Georges J. Tabet

Ghazir

Haddad Bldg., Kfarhebab, Main Road.Tel/Fax: (961-9) 851720-1-2-3.Branch Manager: Ms. Michele P. Nader

Ghobeyri

Hoteit Bldg., Shiyah Blvd.,Mousharrafieh Square.Tel: (961-1) 541125-6, 541534. Fax: (961-1) 272342.Branch Manager: Mrs. Ghada S. Al-Ameen

Hadath

El-Ain Square, Main Road.Tel: (961-5) 461916, 464050-1, 465726, 471854.Fax: (961-5) 471853.Branch Manager: Mr. Charles A. Berberi

Haret Hreik

Ahmad Abbas Bldg.,Baajour Street, Main Road.Tel/Fax: (961-1) 277270, 278654, 278656-7.Branch Manager: Mr. Nader M. Hajj Ali

Jal El-Dib

Milad Sarkis Bldg., Main Road.Tel: (961-4) 710391-2-3-4. Fax: (961-4) 710395.Branch Manager: Mrs. Carol S. Abou-Jaoude

Jbeil – EastByblos Sun Bldg., Jbeil Roundabout.Tel: (961-9) 541410, 543890-1-2-3-4. Fax: (961-9) 543895.Branch Manager: Mr. Chady F. Kassis

Jeita – AntouraAntoura Square.Tel: (961-9) 235257-8-9. Fax: (961-9) 235260.SOS Branch Manager: Mrs. Christiane Y. Akiki

Jounieh

La Joconde Center, Fouad Shehab Blvd.Tel: (961-9) 641660-1-2-3-4. Fax: (961-9) 644224.Branch Manager: Mr. Emile J. Moukarzel

Jounieh – El-Shir

Beaino Bldg., Notre Dame du Liban Hospital Street.Tel: (961-9) 638060-1-2, 915503. Fax: (961-9) 915511.Branch Manager: Mrs. Nada S. Ghanem

Khaldeh

Lebanese Commercial Mall, Saida Highway.Tel: (961-5) 801985-6-7-8. Fax: (961-5) 806405.Branch Manager: Mr. Ghassan M. Kaed Bey

Mansourieh

Kikano Bldg., Main Road.Tel: (961-4) 533610-1-2-3. Fax: (961-4) 533614.Branch Manager: Mr. Salam N. Dagher

Mreijeh

Mreijeh Plaza Center, Abdallah Yaffi Avenue.Tel: (961-1) 477980-1-2-4. Fax: (961-1) 477200.Branch Manager: Mr. Bassam M. Harake

Rabieh

Rabieh First Entrance, Street No. 5.Tel: (961-4) 405950, 410336, 419881,521265, 525296, 525096. Fax: (961-4) 416105.Retail Area Manager: Mrs. Yolla Y. Hajjar

Roueiss

Hoteit Bldg., Hady Nasrallah Blvd.Tel: (961-1) 541146-7-8. Fax: (961-1) 541149.Branch Manager: Mr. Ali A. Jaber

Shiyah

Youssef Khalil Bldg., Assaad El-Assaad Street.Tel: (961-1) 541120-1-2. Fax: (961-1) 541123.SOS Branch Manager: Mr. Hilal N. Zeineddine

Sin El-FilHayek Street.Tel/Fax: (961-1) 482335, 490301, 490365, 510384.Branch Manager: Mr. Antoine Y. Asmar

Zalka

Romeo & Juliette Bldg., Zalka Highway.Tel: (961-1) 875123-4-5, 901962. Fax: (961-1) 900274.Branch Manager: Mrs. Karla M. Ghaoui

Zouk – Espace

Vega Center, Zouk Mikhael Highway. Tel: (961-9) 210898-9, 210900-1, 210780, 216174-5.Fax: (961-9) 210897.Branch Manager: Mr. Edgard A. Aoun

North

Amyoun

Main Road.Tel: (961-6) 955600-1-2-3. Fax: (961-6) 955604.Branch Manager: Mrs. Rana A. Khoury

Halba

Main Road.Tel/Fax: (961-6) 692020-1-2-3-4.SOS Branch Manager: Mr. Tannous N. Abi-Saab

Shekka

Main Road.Tel: (961-6) 545379, 545048, 545283.Fax: (961-6) 541526.Branch Manager: Mr. Antoine T. Douaihy

Tripoli – Azmi

Fayad Bldg., Azmi Street.Tel: (961-6) 430132-3, 445590-1-2-3.Fax: (961-6) 435348.Retail Area Manager: Mr. Hachem R. Zouk

Tripoli – El-Bohsas

Fattal Tower 1, El-Bohsas Blvd.Tel: (961-6) 410200-1-2. Fax: (961-6) 410799.Branch Manager: Mr. Ziad M. Kabbara

Tripoli – Square 200

Akkad Bldg., Square 200.Tel: (961-6) 437343, 448840-2. Fax: (961-6) 437383.Branch Manager: Mr. Nasser N. Chahal

South

Abra

Nhouli & Solh Bldg., Main Road.Tel: (961-7) 752267-8-9. Fax: (961-7) 752271.Branch Manager: Mr. Roni C. Tannous

Bent Jbeil

Ahmad Beydoun Bldg., Serail Square.Tel: (961-7) 450900-1-2-5. Fax: (961-7) 450904.Branch Manager: Mr. Fares M. Ghostine

Saida – East

Dandashli Bldg., Eastern Blvd.Tel: (961-7) 751885-6-7. Fax: (961-7) 751889.Branch Manager: Mr. Mohamad M. Bizri

Saida – Riad El-Solh

Wakf El-Roum Catholic Bldg., Riad El-Solh Blvd.Tel: (961-7) 720411-2, 733750-1-2-3-4.Fax: (961-7) 724561.Retail Area Manager: Mr. Mohamad M. Kalo

Bekaa

Jeb Jannine

Majzoub Bldg., Main Road. Tel: (961-8) 661486-7-8. Fax: (961-8) 661481.Branch Manager: Mr. Ibrahim M. Harati

ZahlehBeshwati Bldg., El-Boulevard.Tel/Fax: (961-8) 813592-3-4-5.Retail Area Manager: Mr. Robert J. Moubarak

238 239

Audi Saradar Investment Bank salBank Audi Plaza, Block B, Bab Idriss.P.O. Box: 16-5110 Beirut - Lebanon.Tel: (961-1) 994000. Fax: (961-1) 987626.E-mail: [email protected]

Audi Saradar Private Bank salBank Audi Plaza, Block D, Bab Idriss, Beirut.P.O. Box: 11-1121 & 11-3312 Beirut - Lebanon.Tel: (961-1) 205400, 208400. Fax: (961-1) 205480, 205454.E-mail: [email protected]://www.audisaradarpb.com

SwitzerlandBanque Audi (Suisse) sa18, Cours des Bastions.P.O. Box: 384. 1211 Geneva 12,Switzerland.Tel: (41-22) 704 11 11 Fax: (41-22) 704 11 00.E-mail: [email protected]://www.bankaudi.ch

Beirut Representative Office

Bank Audi Plaza, Bab Idriss.P.O. Box: 11-2666 Beirut - Lebanon.Tel: (961-1) 977 544. Fax: (961-1) 980 535.

FranceBank Audi Saradar France sa

73, Avenue des Champs-Elysées.75008 Paris, France.Tel: (33-1) 53 83 50 00. Fax: (33-1) 42 56 09 74.E-mail: [email protected]

JordanBank Audi sal -Jordan Branches

HeadquartersLe Royal Hotel Complex, Zahran Street,3rd Circle, Jabal Amman, Amman.P.O. Box 840006 Amman. 11184, Jordan.Tel: (962-6) 4604000. Fax: (962-6) 4680015.E-mail: [email protected]

Shmeissani (Main Branch)

Salah Center, Al-Shareef Abdul Hameed Sharaf Street, Shmeissani, Amman.Tel: (962-6) 5606020. Fax: (962-6) 5604545.Branch Manager: Mrs. Ghada A. Tawil

Al-Khalidy

Ajnihat Ibn Khaldoun, Ibn Khaldoun Street,3rd Circle, Jabal Amman, Amman.Tel: (962-6) 4648834. Fax: (962-6) 4648835.Acting Branch Manager: Mr. Tarek F. Fadda

Le Royal Hotel

Le Royal Hotel Complex, Zahran Street,3rd Circle, Jabal Amman, Amman. Tel: (962-6) 4604004. Fax: (962-6) 4680010.Branch Manager: Ms. Samar H. Toukan

Mecca Mall

Mecca Mall Center (Ground Floor - Main Entrance), Mecca Street, Amman.Tel: (962-6) 5518736. Fax: (962-6) 5518724.Branch Manager: Mrs. Suha H. Abu-Ghosh

Jabal Hussein

Al-Husseini Center, Khaled Ben Walid Street,Firas Circle, Jabal Hussein, Amman.Tel: (962-6) 5605252. Fax: (962-6) 5604242.Branch Manager: Mr. Mohamad M. Abu Anzeh

Sweifieh

Al Yanbouh Center, Abd El-Rahim Al-Hajj Mohamad Street, Sweifieh, Amman.Tel: (962-6) 5865432. Fax: (962-6) 5853185.Branch Manager: Mrs. Miran M. Sirriyeh

Abdoun

Moussa Nakho Complex, Queen Zain Al-Sharaf Street,Abdoun, Amman.Tel: (962-6) 5935597. Fax: (962-6) 5935598.Branch Manager: Mrs. Samar B. Homsi

Al-Madina Al-Mounawara Street

Al-Ameer Complex,Al-Madina Al-Mounawara Street, Amman.Tel: (962-6) 5563850. Fax: (962-6) 5563851.Branch Manager: Mr. Marwan M. Abu-Yousef

Wadi SaqraSaqra Complex, Wadi Saqra Street, Amman.Tel: (962-6) 5672227. Fax: (962-6) 5652321.Branch Manager: Mrs. Grace B. Atallah

Dabouq

Bldg. 179, King Abdullah II Street, Amman.Tel: (962-6) 5333305. Fax: (962-6) 5332704.Branch Manager: Mrs. Shada S. Abu-Saad

IrbidAl Busoul Complex, Feras Al Ajlouni Street,Al Qubbeh Circle, Irbid.Tel: (962-2) 7261550. Fax: (962-2) 7261660.Branch Manager: Mr. Jihad A. Al-Zubi

Aqaba

Dream Mall,Sharif Hussein Bin Ali Street, Aqaba.Tel: (962-3) 2063200. Fax: (962-3) 2063201.Branch Manager: Mr. Odeh T. Odeh

SyriaBank AudiSyria sa

Headquarters1- Plaza 86 Bldg., Cham City Center, Street No. 2,Kafarsouseh, Damascus. P.O. Box 6228 Damascus, Syria.Tel: (963-11) 23888000. Fax: (963-11) 2248510.E-mail: [email protected]://www.bankaudisyria.com

2- Mohafaza Bldg., Youssef Al-Azmeh Square,Damascus. P.O. Box 6228 Damascus, Syria.Tel: (963-11) 23888000. Fax: (963-11) 2254197.E-mail: [email protected]://www.bankaudisyria.com

Damascus

Mohafaza (Main Branch)

Mohafaza Bldg., Youssef Al-Azmeh Square.Tel: (963-11) 23888000. Fax: (963-11) 2247782.Branch Manager: Mr. Bechara G. Charbel

Mazzeh

Mazzeh Highway (next to Bakri Kadora school).Tel: (963-11) 6626612. Fax: (963-11) 6626619.Branch Manager: Ms. Fadia N. Awad

Abu Rummaneh

Al-Jalaa 7 Street (facing Japanese Embassy),Abu Rummaneh.Tel: (963-11) 3346408. Fax: (963-11) 3346410.Branch Manager (on mission): Mr. Fadi B. Al-Kaed

West Mazzeh**Al Massoudi Street (facing “City Mall” main entrance).Tel: (963-11) 6630397. Fax: (963-11) 6630385.Retail Branch Manager: Mr. Roger N. Obeid

Malki

Abdul Mona’em Riad Street (next to“German Cultural Center - Goethe”).Tel: (963-11) 3739695. Fax: (963-11) 3739503.Retail Branch Manager: Ms. Saria G. Ali

Kafarsouseh

Cham City Center, Street No. 2, Kafarsouseh.Tel: (963-11) 2111593. Fax: (963-11) 2111897.Branch Manager: Mr. Alaa A. Abbas

Kassaa

Droubi Bldg., Al Akhtal Street,Kassaa Street extension, Al Abbassyeen Square.Tel: (963-11) 4459160. Fax: (963-11) 4459322.Retail Branch Manager: Mr. Hani J. Dahdouh

Harika

Abd El Kader Al Husseini Street, Al Harika Square.Tel: (963-11) 2217870. Fax: (963-11) 2218420.Branch Manager: Mr. Shadi E. Khouli

Dummar

Island No. 1, Cham Mall, Dummar Project.Tel: (963-11) 3142320. Fax: (963-11) 3142324.Retail Branch Manager: Mr. Hassan R. Baghdadi

Midan

Bardan Bldg., Al Kawkabi Avenue,Cornishe Street, Midan.Tel: (963-11) 8839110. Fax: (963-11) 8839116.Branch Manager: Mr. Abdulmajid M. Laham

240 241

Damascus Reef

Harasta*

Basal Area (next to Dacia Cars Agency), Harasta.Tel: (963-11) 4475890. Fax: (963-11) 4475891.

Jaramana

Al Baladia Square, Jaramana.Tel: (963 11) 5637272. Fax: (963-11) 5637279.Retail Branch Manager: Mr. Omar M. Salahi

Aleppo

Regional Office – Northern Area

Baghdad Station, Ameen Al Rihani Street(next to Shabab Al Ouruba Club), Al Aziziyah.Tel: (963-21) 2279801-6. Fax: (963-21) 2279809.Regional Manager – North (Aleppo, Al Qameshli,Deir Al Zour): Mr. Melhem J. Abou-Antoun

Aziziyah (Main Branch)

Baghdad Station, Ameen Al Rihani Street(next to Shabab Al Ouruba Club), Al Aziziyah.Tel: (963-21) 2279801-6. Fax: (963-21) 2288952.Branch Manager: Mr. Nebras M. Khayata

Souk Al Intaj**

Bldg. No 6810/5, Souk Al Intaj Street, Mohafaza.Tel: (963-21) 2241033. Fax: (963-21) 2241023.Retail Branch Manager: Mrs. Josepha Z. Hadaya

Lattakia

Lattakia

Bldg. 896/1, Old Port Area, Al-Jazair Street, Slaybeh.Tel: (963-41) 486023. Fax: (963-41) 486024.Branch Manager: Mr. Mohamad M. Sahyouni

Homs

Homs*

Al Atassi Bldg., Dablan Street, Downtown.Tel: (963-31) 2454413. Fax: (963-31) 2454420.Area Manager for Homs,Hama and Tartous: Mr. Jean E. Nseir

Tartous

Tartous

Salah Daniel Bldg., 8 March Street,Amn Al-Dawlah Square.Tel: (963-43) 324876. Fax: (963-43) 324866.Acting Branch Manager: Mr. Firas N. Bashour

Al Hasaka

Al Qameshli

Bldg. 116, Port Said Street (facing public park),Al Qameshli.Tel: (963-52) 427222. Fax: (963-52) 447616.Branch Manager: Mr. Abdulghani A. Al-Ali

Hama

Hama

Al Assi Square (behind Government Palace),facing Al Nawaeer (next to MTN).Tel: (963-33) 2219561. Fax: (963-33) 2219567.Acting Branch Manager: Mr. Basem R. Lazkany

Daraa

Daraa

Daraa Tourism Hotel (next to Police Headquarters).Tel: (963-15) 211400. Fax: (963-15) 211407.Retail Branch Manager: Mr. Omar M. Salahi

Deir Al Zour

Deir Al Zour*

Al Nahr Street (next to Nour Specialist Hospital).Tel: (963-51) 375900. Fax: (963-51) 375907.

Sweida

Sweida

Al Muhwari Street.Tel: (963-16) 228146. Fax: (963-16) 228137.Branch Manager: Mr. Malek H. Hamzeh

* Temporarily closed upon Central Bank’s approval due to current circumstances.** Temporarily merged with other branch upon Central Bank’s approval due to current circumstances.

EgyptBank Audi sae

HeadquartersPyramids Heights Office Park, Cairo-Alexandria Desert Road, Km 22, Sixth of October City.P.O. Box 300 El Haram. Postal Code 12556.Tel: (20-2) 35343300. Fax: (20-2) 35362120.E-mail: [email protected]

Head ofBranch Network

Deputy Heads ofBranch Network

Regional Managers

Area Managers

Mr. Mohamed Labib Ahmed

Mr. Ahmad M. Abdel-Kader SaadMr. Ashraf M. Ryad

Mrs. Khaireya M. AkefMr. Hatem A. GheithMr. Mohamed A. Hafeez

Mr. Khaled A. AbbassMr. Mohamed M. AttiaMr. Magdy A. El-AshwahMr. Amgad I. El-ZawawyMr. Adel H. GomaahMr. Amr Y. RizkMr. Mohammad H. Saad

Giza

Dokki (Main Branch)

104 El Nile Street, Dokki.Tel: (20-2) 33337100. Fax: (20-2) 37483818.Area Manager: Mr. Mohammad H. Saad

Mosaddak (Islamic Branch)

56 Mosaddak Street, Dokki.Tel: (20-2) 37480241. Fax: (20-2) 37480242.Branch Manager: Mr. Mohamed A. El-Ahmadawy

Lebanon

60 Lebanon Street (Lebanon Tower),Lebanon Square, Mohandesseen.Tel: (20-2) 33006400. Fax: (20-2) 33026454.Branch Manager: Mr. Tamer N. Kamel

El Batal Ahmed Abdel Aziz

44 El Batal Ahmed Abdel Aziz Street, Mohandesseen.Tel: (20-2) 33332000. Fax: (20-2) 37480599.Area Manager: Mr. Amgad I. El-Zawawy

El Haram (Islamic Branch)

42 El Haram Street, El Haram.Tel: (20-2) 33865056. Fax: (20-2) 33865103.Area Manager: Mr. Mohamed M. Attia

Cairo

Tahrir

94 Tahrir Street, Dokki.Tel: (20-2) 33319500 . Fax: (20-2) 37486310.Branch Manager: Mr. Raymond Y. Sleiman

Makram Ebeid1 Makram Ebeid Street, Nasr City.Tel: (20-2) 26731300. Fax: (20-2) 22726755.Area Manager: Mr. Magdy A. El-Ashwah

Beirut

54 Demeshk Street, Heliopolis.Tel: (20-2) 24567600. Fax: (20-2) 24508653.Regional Manager: Mr. Mohamed A. Hafeez

Shoubra

128 Shoubra Street, Shoubra.Tel: (20-2) 22075682. Fax: (20-2) 22075779.Branch Manager: Mr. Ahmed M. Ebeid

Masaken Sheraton

11 Khaled Ibn El Waleed Street, Masaken Sheraton.Tel: (20-2) 22683381, 22683397. Fax: (20-2) 22683433.Acting Branch Manager: Mrs. Christine R. Farag

Nady El Shams

17 Abdel Hamid Badawy Street, Heliopolis.Tel: (20-2) 26210943, (20-10) 68822192.Fax: (20-2) 26210945.Branch Manager: Mrs. Maha A. Hegazy

Mukattam

Plot 6034, Street 9, Mukattam.Tel: (20-2) 25057040, 25053634. Fax: (20-2) 25057566.Branch Manager: Mrs. Eman A. Khazragy

Abbassia

109 Abbassia Street, Abbassia.Tel: (20-2) 24664455-1. Fax: (20-2) 24664453.Acting Branch Manager:Mr. Mohamed S. Abdel-Fattah

El-Obour

Shops 43, 44, 45, Golf City, El-Obour City.Tel: (20-2) 46104325, (20-10) 68822189.Fax: (20-2) 46104324.Branch Manager: Mr. Karim A. El-Touny

242 243

Alexandria

Smouha

35 Victor Ammanuel Square, Smouha.Tel: (20-3) 4193700. Fax: (20-3) 4244510.Branch Manager: Mr. Mohamed A. Mohamed Ahmed

Sultan Hussein

33 Sultan Hussein Street, Azarita.Tel: (20-3) 4855791-2. Fax: (20-3) 4877198.Branch Manager: Mr. Mahmoud A. Khalaf Miami

489 Street 4, Montazah.Tel: (20-3) 5505212-3, 5505227.Fax: (20-3) 5505136.Branch Manager: Mrs. Hanan M. Ouf

Gleem

1 Mostafa Fahmy Street, Gleem.Tel: (20-3) 5816000. Fax: (20-3) 5825866.Branch Manager: Mr. Sherif S. El-Nozahy

Daqahlia

Mansoura

26 Saad Zaghloul Street, Toreil, Mansoura.Tel: (20-50) 2281600. Fax: (20-50) 2309782.Area Manager: Mr. Amr Y. Rizk

Gharbia

Tanta

El Gueish Street and El Nahda Street Intersection, Tanta.Tel: (20-40) 3389600. Fax: (20-40) 3403100.Branch Manager: Mr. Amr A. Dorgham

Red Sea

El Gouna

Service Area Fba-12e, El Balad District,El Gouna, Hurghada.Tel: (20-65) 3580096, (20-10) 66614840.Fax: (20-65) 3580095.Branch Manager: Mr. Hossam S. Zaki

Sheraton Road

23 Taksim El Hadaba El Shamaleya,167 Sheraton Road, Hurghada.Tel: (20-65) 3452017. Fax: (20-65) 3452015.Reporting to Area Manager: Mr. Amr Y. Rizk

El-Manial

90 El-Manial Street, El-Manial.Tel: (20-2) 23629935-55. Fax: (20-2) 23630099.Branch Manager: Mr. Omar M. Wally

Triumph

8 Othman Ibn Affan Street, Plot 740, Heliopolis.Tel: (20-2) 26342243, 26352220. Fax: (20-2) 26424900.Branch Manager: Mrs. Sandra G. Cossery

Abd El Khalek Tharwat42 Abd El Khalek Tharwat Street, Downtown.Tel: (20-2) 23904866, 23910638. Fax: (20-2) 23904162.Branch Manager: Mr. George F. Badra

Garden City

1 Aisha El Taymoria Street, Garden City.Tel: (20-2) 27928976-8. Fax: (20-2) 27928977.Branch Manager: Mr. Hisham M. Oweida

Salah Salem

15 Salah Salem Street, Heliopolis.Tel: (20-2) 24006400. Fax: (20-2) 22607168.Branch Manager: Mrs. Rasha M. Ramadan

Sixth of October

Sixth of October

Plot 2/23, Central District, Sixth of October.Tel: (20-2) 38270900. Fax: (20-2) 38353780.Area Manager: Mr. Adel H. Gomaah

Pyramids Heights

Pyramids Heights Office Park, Cairo-AlexandriaDesert Road, Km 22, Sixth of October.Tel: (20-2) 35343667, 35343712. Fax: (20-2) 35362053.Branch Manager: Mr. Tarek A. Negm

Helwan

Maadi – Degla

1-B, 256 Street, Degla, Maadi.Tel: (20-2) 25162094, 25195238. Fax: (20-2) 25162017.Branch Manager: Mr. Mohamed A. Kandil

New Maadi

Plot 1/2, 5 Taksim El-Laselky, New Maadi.Tel: (20-2) 25197901. Fax: (20-2) 25197921.Area Manager: Mr. Khaled A. Abbass

South Sinai

Naema Bay

207 Rabwet Naema Bay Street, Sharm El Sheikh.Tel: (20-69) 3604513-5. Fax: (20-69) 3604520.Branch Manager: Mr. Mohamed K. Abbas

Arabeya Online Brokerage12, El Shaheed Ismail Mohie El Din Street,Ard El Golf, Heliopolis, Cairo, Egypt.P.O. Box: 11341.Tel: (20-2) 24140025. Fax: (20-2) 24180666.Hotline: 16225.E-mail: [email protected]://www.aolbeg.com

SudanNational Bank of Sudan

HeadquartersNational Bank of Sudan Bldg., Block 1,Kasr Avenue, Khartoum.P.O. Box 1183, Khartoum, Sudan.Tel: (249-183) 778154. Fax: (249-183) 779545.E-mail: [email protected]://www.nbs.com.sd

Khartoum (Main Branch)

National Bank of Sudan Bldg., Main Floor,Kasr Avenue, Khartoum.Tel: (249-183) 774090. Fax: (249-183) 779497.

Omdurman

Kabashi Bldg., Block 4-1,Al Mowrada Street, Omdurman.Tel: (249-187) 573231. Fax: (249-187) 555771.

Bahry

Bldg. No. 98, Block 1,Industrial Area, Bahry, North Khartoum.Tel: (249-185) 330669. Fax: (249-185) 336493.

Portsudan

National Bank of Sudan Bldg. No. 4, Block 8,Portsudan Market (next to Al-Baladia gardens).Tel: (249-311) 822803. Fax: (249-311) 839970.

Saudi ArabiaAudi Capital (KSA) cjsc

HeadquartersCentria Bldg., 3rd Floor,Prince Mohammad Bin Abdul Aziz Road (Tahlia).P.O. Box 250744, Riyadh 11391Kingdom of Saudi Arabia.Tel: (966-1) 2199300. Fax: (966-1) 4627942.E-mail: [email protected]://www.audicapital.com

QatarBank Audi LLC

Authorised by the QFC Regulatory AuthorityLicense No. 00027

Qatar Financial Centre, 18th Floor,Qatar Financial Centre Tower,Diplomatic Area, Doha.P.O. Box: 23270 Doha, Qatar.Tel: (974) 44967365. Fax: (974) 44967373.E-mail: [email protected]

MonacoAudi Capital Gestion sam*Monte-Carlo Palace, 3-9 Boulevard des Moulins.MC - 98000 Monaco.Tel: (377) 97 97 65 11. Fax: (377) 97 97 65 19.E-mail: [email protected] http://www.bankaudi.ch

* Audi Capital Gestion sam replaces Bank Audi sam - Audi Saradar Group (please refer to Page 232).

244

TurkeyOdeabank A.Ş.

HeadquartersMaslak Mahallesi, Ahi Evran Caddesi, Olive Plaza No. 11, Zemin Kat. 34398, Şişli, Istanbul.Tel: (90-212) 3048644. Fax: (90-212) 3048445.E-mail: [email protected] http://www.odeabank.com.tr

Istanbul

Maslak (Main Branch)

Maslak Mahallesi, Ahi Evran Caddesi, Olive Plaza No. 11, Zemin Kat. 34398, Şişli, Istanbul.Tel: (90-212) 3048100. Fax: (90-212) 3481835.Branch Managers: Mr. Ayhan Şahin (Commercial); Mr. Kudret Uslu (Corporate); Mrs. Pemra Hiçsönmez (Retail)

Güneşli

Bağlar Mahallesi, Osmanpaşa Caddesi No. 65, 34209, Bağcilar, Istanbul.Tel: (90-212) 4646000. Fax: (90-212) 3481840.Branch Manager: Mr. Namik Ülke (Commercial)

Kozyataği

Saniye Ermutlu Sokak, G. Kemal Persentili Iş Merkezi, 34742, Kadiköy, Istanbul.Tel: (90-216) 6657000. Fax: (90-212) 3481839.Branch Managers: Mrs. Arzu Ertekin (Commercial); Mr. Zafer Seyar (Corporate)

Caddebostan

Bağdat Caddesi No. 270, Ak. Apartmani No. 17-18, Göztepe, Istanbul.Tel: (90-216) 4686800. Fax: (90-212) 3481850.Branch Manager: Ms. Seda Tokgöz (Retail)

Nişantaşi

Nişantaşi Bostan Sk., A. Ipekçi Köş., No. 15 Louis Vuitton Orjin Bina, Teşvikiye, Şişli, Istanbul.Tel: (90-212) 3739689. Fax: (90-212) 3481853.Branch Manager: Mrs. Hülya Küçük (Retail)

Bebek

Bebek Mahallesi Cevdetpaşa, Caddesi No. 36, 34342, Beşiktaş, Istanbul.Tel: (90-212) 3624700. Fax: (90-212) 3481851.Branch Manager: Mrs. Aylin Bakay Tercan (Retail)

Ankara

Ankara

Eskişehir Devlet Yolu (Dumlupinar Bulvari), 9 Km, B Blok, Zemin Kat. No. 11, Çankaya, Ankara.Tel: (90-312) 2489800. Fax: (90-312) 2489801.Branch Managers: Mr. Mustafa Bora Gencer (Commercial); Ms. Gülhan Erol (Corporate)

Izmir

Izmir

Anadolu Caddesi, No. 41/20A, Bayrakli, Izmir.Tel: (90-232) 4951500. Fax: (90-212) 3481837.Branch Managers: Mr. Orhan Timurhan (Commercial); Mr. Hüseyin Cem Taner (Corporate)

Bursa

Bursa

Izmir Yolu, No. 116 No. 13-14, Nilüfer, Bursa.Tel: (90-224) 2753400. Fax: (90-224) 2753401.Branch Manager: Mrs. Şebnem Cengiz (Commercial)

United Arab EmiratesBank Audi sal -Audi Saradar Group Representative OfficeArab Monetary Fund Bldg., 9th Floor,Corniche Street. P.O. Box 94409 Abu Dhabi,United Arab Emirates.Tel: (971-2) 6331180. Fax: (971-2) 6336044.E-mail: [email protected]

annual report · 7.1. investor relations activity in 2012 69 7.2. bank audi's stock research...

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