table of contents · gulf region. she is the first ambassador of the international osteoporosis...

Ta b l e o f C o n t e n t s

A WORD OF INTRODUCTION BOARD OF DIRECTORS CHAIRMAN’S LETTER

EXECUTIVE GENERAL MANAGER'S LETTER MANAGEMENT TEAM

GROUP STRUCTURE BANKMED HISTORY BEYOND BORDERS

THE BANK OF CHOICE THE SUPPORT SYSTEM

RISK, AUDIT AND CORPORATE GOVERNANCE COMMUNITY CONTRIBUTION

INDEPENDENT AUDITOR'S REPORT CORPORATE DIRECTORY

Annual Report 1-16 new.qxd:Layout 1 8/22/08 8:32 AM

Annual Report 07-08-2008 dergh (1-69):Layout 1 8/11/08 2:13 PM

A W o r d o f I n t r o d u c t i o n

“The secret of success is constancyof purpose”


B o a r d o f D i r e c t o r s


8

B o a r d o f D i r e c t o r s

Mr. Hariri is the Chairman - General Manager of GroupMed,sal (Holding), IRAD Investment Holding, Al Mal InvestmentHolding, as well as BankMed and its banking subsidiaries. Heis also Senior Vice President and General Secretary of theBoard of Directors of Saudi Oger Ltd. He is in charge ofinvestments and transactions on behalf of Saudi Oger Ltd.and its associates. He is the Chairman of Oger TeleCom andserves on the boards of directors of various companies of theSaudi Oger Group, including Oger Telekomunikasyon, Turk

Telecom and AVEA Ilepisim Hizmetleri (AVEA) (in Turkey), 3C Telecommunications(in South Africa), Medgulf Holding sal, Oger international S.A. and Entreprise deTravaux Internationaux (ETI). Mr. Hariri is also a board member of Arab Bank plc - Jordan.

Mr. Mohammed Hariri

Chairman of the Board

Board of Directors

Members

The principal shareholder of the Bank.

GroupMed sal Holding

Member


Mr. Mikdashi is a former Managing Director of Citigroup,Corporate and Investment Banking-Risk Management forEurope, Middle East and Africa. Mr Mikdashi spent his entirecareer with Citibank and Citigroup working in many coun-tries. He had senior responsibilities in the areas of corporatelending, risk management, operations, project finance andgeneral management. He serves as a non executive directoron a number of business entities and in several non-profitorganisations. Mr. Mikdashi holds a BBA and an MBA fromthe American University of Beirut.

Usama Mikdashi

Member

9

Mr. Yared is an attorney at law, with law offices in Paris andBeirut. He is a Board Member of GroupMed sal (Holding), TheLebanese Company for the Development and Reconstructionof the Beirut Central District sal (Solidere), Saudi Oger Ltd.and Oger International.

Basile Yared, ESQ

Member

Mr. Nemeh Sabbagh is Executive General Manager and Boardmember of BankMed and its banking subsidiaries. He is alsoChairman of Turkland Bank (T-Bank) in Turkey, Board mem-ber of Oger Telecom (in Dubai), The Mediterranean and GulfInsurance and Reinsurance Co. (in Saudi Arabia), theMediterranean and Gulf Insurance Co. P.L.C.-Jordan,SaudiMed Investment Company (in Saudi Arabia) andChairman of Med Securities Investment Company (inLebanon). Previously he was Managing Director and ChiefExecutive Officer of Arab National Bank (in Saudi Arabia).

Nemeh Sabbagh

Member

Mrs. Hariri, the wife of H.E late Prime Minister, Mr. RaficHariri, is a board member of GroupMed (Holding) and ArabBank plc - Jordan. She is also the President of the Rafic HaririFoundation and several other humanitarian, cultural andeducational institutions in the Lebanese Republic and theGulf region. She is the First Ambassador of the InternationalOsteoporosis Foundation, as well as President of thisFoundation's 206-A Bone Fund.

Mrs. Nazek Audi Hariri

Member

Mr. Asmar is the Advisor of the Management Committee atBankMed. He is also the Chairman General Manager of MIB(Holding). He is the former Dean of the Faculty ofEngineering at Saint Joseph University. Mr. Asmar served asthe Chairman of the Board of Directors of Electricité du Liban.

Mr. Maroun Asmar

Member


c h a i r m a n ’s l e t t e r

Annual Report 1-16 correctionqxd.qxd:Layout 1 8/22/08 1:45 PM

12

It seems that challenges simply bringout the best in us. If 2006 was the yearof consolidation and new beginnings,a year in which we have laid thegrounds to reposition ourselvesamong the leaders of the Lebanese

banking sector, 2007 was indeed the year of turnaround and achievement.Amidst challenging times, our determination and hard work kept usmoving along the path of our promised mission. We at BankMed are fullyprepared today to reap the benefits of our local expansion and to carry onwith our plans for regional integration.

Despite the difficult political environment, the Lebanese economysurprised on the upside and achieved a 4% growth rate in 2007. The fiscaldeficit was reduced to $2.5 billion, or 10% of GDP, down from 13% of GDPthe previous year. These results have brought us closer to our potential. ForLebanon, with its well established financial system, modern laws andregulations, developed institutions, vibrant private sector, and highlytalented human capital, remains the natural destination of oil-generatedinflows seeking investment opportunities in the region.

In parallel, the banking sector has recorded another stellar performance. Totalassets of the commercial banking sector increased by 10.7% over 2007 andreached $83 billion. Meanwhile total private sector deposits increased to $68billion, almost three times GDP. The sector remains very liquid, and its foreignassets are over 80% of GDP. Net profits have totaled $846 million in 2007.While the return on assets and return on equity ratios are still below theirArab counterparts, the Lebanese banks have proved once more that they arecapable to adapt quickly to challenging environments, and still grow theirbalance sheets regardless of the harshness of the external conditions.

At BankMed, we have contributed our bit in this shining mosaic. In 2006,we undertook a massive revamping of the way we conduct business, byconsolidating our banking operations, reorganizing our structure, andexpanding both vertically and horizontally to tap into new markets,segments, and products. In 2007, we consolidated our position on the localscene, implemented the first round of our expansion strategy, and turnedaround our bottom line.


WE AT BANKMED ARE FULLYPREPARED TODAY TO REAP THEBENEFITS OF OUR LOCALEXPANSION AND TO CARRY ONWITH OUR PLANS FOR REGION-AL INTEGRATION.


13

Liquidity in the system remains abundant and profitability of the sectorincreased year-on-year despite all the challenges. The sector, whichemploys some 16,000 individuals, represents a beacon of stability, withimplications beyond the orderly functioning of the financial market andthe value it adds to the economy, to touch upon the overall well being ofLebanese society.

We, at BankMed, took the time this year to consolidate and reorganize theway we conduct business in order to become more efficient and hencedeliver better services and products to our client base. We completed, in dif-ferent ways, the integration of the two smaller banks of the Group into thelarger BankMed. This was conducted smoothly and with no interruption ofservice or impact on its quality. All of our banking activities are now deliv-ered by a universal entity that employs around 1,000 persons, and is repre-sented by 45 branches throughout the country. Consolidation provided anoccasion to reorganize ourselves in a way that geared the bank towards a bot-tom-line-driven business model. In the process, some executives were offeredgreater responsibilities while others with valuable experience were added to theteam. To enhance shareholder value, we restructured the balance sheet anddiversified revenue resources by looking beyond our borders. In that con-text, we completed an acquisition of a bank in Turkey, and initiated plansto expand regionally in carefully selected markets.

The change of culture at BankMed has been significant. We are more serv-ice-oriented and customer-focused than ever. We are more efficientlyorganized and our operations and processes are now fully geared to opti-mize results. Our strategy for the coming period is to become a leader inretail banking, in parallel to our already established position as a leadingcorporate banking institution in Lebanon. Our aim is also to continue ourcarefully planned expansion program in markets where we can add valueand achieve solid progress.

2006 was a year in transition for BankMed. It was a year of new beginnings,of preparing better for tomorrow. Now we are eager to perform, achievegreater returns to our shareholders, and place our institution on the plat-form it deserves. This institution, which dates back to 1944, is now more thanever prepared to reap the benefits of the integration and advancement inthe financial services industry, not just in Lebanon, but on a regional scale.

Mohammed Hariri

BankMed, whose assets constitute 11% of those of the Lebanese bankingsector, has positioned itself in the Lebanese market as a financialinstitution that caters to its clients’ needs in their various aspects:corporate, retail or investment products. In recent years, we have beenknown as the corporate lender who significantly contributed to thereconstruction and development of the Lebanese economy. We willcontinue to assign an important weight to our corporate operations and weare proud that our list of clients comprises the best names in Lebanonacross industries. In addition we have significantly boosted our retailbanking activities, and are increasingly being recognized for introducing arange of loans and facilities through branches that have been transformedinto sales outlets. Meanwhile, we introduced a broad range of investmentand hedging products allowing clients to participate in the global foreignexchange and equity markets.

Vertical expansion into new segments of the market has been key toallowing a horizontal expansion into the region and beyond. T-Bank, ourbank in Turkey, is in a position that would enable it to benefit from one ofthe most promising markets in the region. Our investment banking entityin Saudi Arabia, the SaudiMed Investment Company, is ready to providecorporate advisory, capital markets and asset management services toclients in the Kingdom where our broader group has significant presence.Meanwhile, we are expanding the operations of our branch in Cyprus, andwe are beefing up our private banking activities through our subsidiary inSwitzerland, BankMed Suisse.

Indeed 2007 was the year of turnaround. From our expansion andintegration, to the modernization of our infrastructure and systems, to ourinvestment in human capital, we achieved a significant improvement inthe bottom line. None of this could have been done without the hard workand dedication of our management and staff and the loyalty and trust ofour clients.

Mohammed Hariri


E x e c u t i v e G e n e r a l

M a n a g e r ’s L e t t e r

Annual Report 1-16 new.qxd:Layout 1 8/22/08 8:32 AM

16


2007 was the year of turnaround atBankMed. Coming out of a veritableconstruction site in the previous year,which included a major restructuring,

reorganization and revamping of the Bank’s operations, and defying thechallenging political circumstances that the country has been goingthrough, BankMed managed to simply reinvent itself. The process resultedin the emergence of a modern and universal bank that is highly sensitiveto clients’ needs and increasingly capable of meeting them in all aspects.This is evident across a range of retail and investment products that wereintroduced this year, as well as via the constant drive to improve customerservice, now enshrined as one of the pillars of BankMed. The Bank, alwaysrecognized as the financial institution that played a key role in supportingcorporate Lebanon during the last decade, continues to be one of thelargest corporate lenders in the country, but is also increasingly recognizedas the Bank of the individual customer and investor, regardless of whattheir needs are. In 2007, BankMed has achieved not only greaterdiversification, but also a major leap in the bottom line, and the numbersclearly speak for themselves: after averaging $13.8 million in the last 5years, net profits reached $40 million in 2007. This is not to say that we arefully satisfied, but just to underline that at BankMed, a new phase hasindeed started.

BankMed has come a long way in a very short period of time, completing toa large extent a total revamp of its operations. Last year, the operations ofthree banks, members of GroupMed, were consolidated into one. Theconsolidation provided an opportunity for the new entity to be reorganizedinto a more flexible and modern institution, and as a result, significantchanges took place on the levels of human resources, organizationalstructure, and systems. This has happened within a relatively compressedtime schedule and in the context of a difficult political environment. Thishas made the turnaround that took place at the level of the bottom linevery revealing of the determination and efforts that went into the



IN 2007, BANKMED HASACHIEVED NOT ONLY GREATERDIVERSIFICATION, BUT ALSO A MAJOR LEAP IN THE BOTTOM LINE, AND THE NUMBERS CLEARLY SPEAK FORTHEMSELVES.


17

restructuring, reorganization and re-branding process.In last year’s annual report, we promised that 2007 would be the year ofperformance after two years of transition in 2005 and 2006. Indeed, netprofits increased to $40 million. This was due, above all, to the commitmentof BankMed staff and their determination to live up to the challenges.Specifically, net interest income was $98 million, or 36% above last year,while fees & commissions revenue was $27 million, or 64% above last year.We have thus improved significantly but we are not yet where we want tobe and we are aware that we still have some hard work ahead of us.

The expansion into promising markets like Turkey and Saudi Arabia haveplaced BankMed on the regional banking scene and constituted a major stepin the diversification of the sources of revenue. Turkland Bank (T-Bank) wasacquired in January 2007 and has since undergone a major reorganizationthat has touched upon management, premises and overall operations.Meanwhile, the SaudiMed Investment Company received the approval fromSaudi regulators, and has been operational since the third quarter of 2008. Itis involved in corporate finance through capital raising in debt or equitystructures as well as in managing and offering investment funds to high networth individuals and institutional investors in the Kingdom.

Domestically, the change at BankMed was felt across the board. However,the most fundamental transformation was the one that touched upon theunderlying culture of the Bank. Be it on the corporate, retail or investmentlevel, customer service has clearly made a leap forward to become centralin our business model. This has happened through a reengineering of allmajor processes in the Bank, and centralizing non-sales related operationsout of the branches. This has allowed more flexibility for the branches tobecome sales outlets. Meanwhile, several initiatives have been taken inorder to ensure quality and continuity of service as well as to evaluate theservice at BankMed and compare it to its peer group.

BankMed has always been recognized as the Bank that supported corporateLebanon in the post-war years. Our clients’ portfolio boasts the top namesin Lebanon across industries. Our commitment to corporate banking runsdeep into our history and culture and we remain as dedicated as ever tothis sector. Furthermore, in a constant drive to meet increasing demand, amiddle market team has been established to be solely dedicated to thisbusiness segment. Fees generated by trade services were boosted, and asenior participation in a high profile international syndication for a majorregional telecom company constituted the first ever for BankMed.

BankMed’s strategic decision to enhance its retail operations and beequally recognized for being the Bank of choice for the consumer started to


18

materialize clearly in 2007, a year that witnessed the launch of a wholerange of products for retail clients. On the consumer lending front, therewas a significant growth in the number of loans as well as the portfolioamount. The surge in credit card issuance was equally impressive, with thenumber of cards tripling in 2007 in comparison with the previous year. Inaddition, the total number of bancassurance policies issued in 2007surpassed by a significant amount the total volume of 2006.

BankMed was one of the top banks in terms of introducing investmentproducts in 2007 and in offering growing brokerage services. A variety ofinnovative capital guaranteed products was launched and sold to clientssuch as the dual currency, the global financial certificate and the 3-continents income note. New trading services are now available as well asa Treasury night shift for FX trading. The successful placement as the jointdistribution agent for a prime regional institution’s international equityplacement was a reflection of the teamwork and coordination effort ofseveral divisions at BankMed.

We believe that our support operations should be as ready as possible toproperly back and sustain the growth that is taking place at the level of thebusiness lines. As a result, several initiatives were taken on the level ofhuman resources, aimed at improving issues relating to job evaluation,performance measurement and career planning. Also, our trainingcapabilities have been significantly boosted and are more than ever in-linewith our business priorities.

2007 was a reassuring year to us at BankMed. It underlined the importanceof the tremendous effort we have invested over the last two years. We arenow better positioned both locally and regionally, we are bottom-linedriven, and we are more customer-focused than ever. We are aware that wehave still some hard work ahead of us in order to reach our full potential.But if the process of change is a long journey, then the results of 2007 wereat least a strong signal that we are on the right path.

Nemeh Sabbagh




19

Total Assets 7,628 8,115 8,858 9,835 13,769

Total Deposits 5,517 6,161 6,144 7,127 10,538

Total Equity 794 781 1,022 857 1,106

In billion LBP 2003 2004 2005 2006 2007

Total Assets 5,060 5,383 5,876 6,524 9,134

Total Deposits 3,660 4,087 4,076 4,727 6,991

Total Equity 527 518 678 569 734

In million USD 2003 2004 2005 2006 2007

Other Data (including overseas entities) 2003 2004 2005 2006 2007Total Staff 1,026 1,027 989 961 1390Number of branches 53 54 53 47 63

K E Y F I N A N C I A L I N F O R M AT I O N

T O T A L A S S E T S I N U S D M I L L I O N


20



T O T A L L O A N S I N U S D M I L L I O N

T O T A L D E P O S I T S I N U S D M I L L I O N


21

N E T I N T E R E S T I N C O M E I N U S D M I L L I O N

C O M M I S S I O N S & F E E S I N U S D M I L L I O N

L OA N L O S S P R OV I S I O N S TO D O U B T F U L L OA N S


M a n a g e m e n t T e a m


24

m a n a g e m e n t t e a m

Front Row

• Diala Choucair Marketing & Communication • Ziad Ghosn Financial Institutions & Trade Finance• Samer Salam Investment Banking

Back Row

• Mazen Soueid Market & Economic Research • Mohammed Ali Beyhum Advisor • Khaled Zeidan MedSecurities • Lina Jebeile Office Manager for Chairman General Manager

Front Row

• Faten Matar Advisor • Samir Hammoud Remedial Management • Ahmad Kanaan Remedial Management

Back Row

• Aref Mneimne Legal Advisor • Omar Sultani Saudi Lebanese Bank • Ameen Bissat Chief Audit Executive • Joy Saba Legal Management


25

Front Row

• Antoine Boustany Operations • Iman Baba Information Security & Business Continuity • Mahmoud Kebbe Administration • Samir Mouawad Risk Management

Back Row

• Fouad Baalbaki Information Technology • Marwan Abiad Financial Control, InformationTechnology & Operations • Nabil Zakka Commercial Credit Risk • Adel Hechme Human Resources

Front Row

• Fouad Saad Advisor • Walid Cheikha Large Corporate Credit• Basil Karam Retail Banking • Mohamad Loutfi Corporate Banking

Back Row

• Muhieddine Fathallah Consumer Credit Products• Hatem Chaarani Electronic Delivery Channels & Card Products

• Fadi Flaihan Branch Network & Retail Liability Products • Adel Jabre Treasury


G r o u p S t r u c t u r e


28

c h a i r m a n ’s l e t t e rg r o u p s t r u c t u r e


29


B a n k M e d H i s t o r y

One of the oldest banking and financial groups in Lebanonand the region, BankMed was originally established in 1944 asa credit institution. Since then, it has grown and flourished tobecome one of the country's largest financial institutions,with assets constituting 11% of the total of the Lebanesebanking sector.

Its role in financing commercial, industrial, and contractingactivities has contributed to the growth of these sectors andthe resurgence of the Lebanese economy since 1990. BankMedis also giving increasing emphasis to developing its retailbanking business and intends to expand its customer base byensuring that its products and services are competitive,relevant and innovative.


B e y o n d B o r d e r s


BANKMED HAS COMPLETED AN IMPORTANT

STAGE OF ITS EXPANSION STRATEGY,

WHICH AIMS AT GROWING ITS BALANCE

SHEET AND DIVERSIFYING ITS INCOME

SOURCES. NOW IT HAS PRESENCE IN FOUR

COUNTRIES, OTHER THAN LEBANON, AND IT

PROVIDES VARIOUS SERVICES IN VERY

DIFFERENT MARKETS.

34

b e y o n d b o r d e r s


35

GDP PER CAPITA: $ 5,400POPULATION: 73 MILLION

Turkland Bank (T-Bank), acquired at the beginning of 2007, has beencompletely revamped. Many senior managers are new recruits who bring awealth and breadth of experience in their relevant domains. This includesthe CEO and most business lines heads. A new Board has been put in place,representing both the Arab Bank and BankMed. An Audit Committee ofthree board members oversees Internal Audit, Internal Control and RiskManagment Departments, and in this respect, all the Bank’s risk guidelineshave been changed. The policies and procedures have also started to berevamped in 2007.

Heavy investment has been made at the level of the infrastructure. T-Bankwas moved to a new head office as the staff doubled to around 430employees. Operations have been beefed up significantly. Branches wereexpanded from 10 to 25, located mostly in major commercial centers. DoublingT-Bank’s balance sheet is not a goal far from reach, and to that end, theshareholders have pumped in more than $100 million in additional capital.

BankMed hopes to capitalize on the high growth and increasedliberalization and openness of the Turkish economy. Going ahead, T-Bankwill continue to carve its niche, focusing mostly on small and medium-sizeenterprises, which is one of the most promising sectors in Turkey.

T U R K E Y


S W I T Z E R L A N D

36

GDP PER CAPITA: $ 57,000POPULATION: 7.5 MILLION

BankMed (Suisse), the banking subsidiary in Switzerland, continues toprovide first rate asset management services to high net worth individualsfrom the most important private banking hub in the world. The Bankbenefits from more than 20 years of proven track record in the field, andenjoys a loyal customer base of Lebanese and Arab investors. With theopening of its Beirut representative office, BankMed (Suisse) firmlyestablished its position as a safe haven for the Lebanese and other regionalhigh net worth clientele.

The Bank intends to implement a more aggressive marketing strategyaimed at attracting new private banking business from the Middle Eastand the GCC. In this context, new investment products are constantly beingintroduced to clients according to their needs.

b e y o n d b o r d e r s


37

GDP PER CAPITA: $ 21,000,POPULATION: 0.79 MILLION

The Cyprus branch provides BankMed with a convenient geographicallocation given that it is simultaneously nearby and within the Europeancommunity. BankMed has taken a fresh look in 2007 at the operations ofthe Cyprus branch and considered ways to take advantage of its strategicposition. Indeed, many of the major corporate clientele have started tomake use of its facilities.

C Y P R U S

GDP PER CAPITA:$ 12,500, POPULATION: 24 MILLION

BankMed has established a financial services company in the Kingdom ofSaudi Arabia under the name “SaudiMed Investment Company”, which willact as a financial intermediary offering the following services: arrangingand advising (financial and investment advisory services), managing(investment funds management), dealing (as principal and as underwriter)and custody. The company was incorporated as a closed joint stock in SaudiArabia in December 2007 and will be regulated by the Saudi Capital MarketAuthority (CMA).

S A U D I A R A B I A


T h e B a n k o f C h o i c e

A culture that puts customers first, is now enshrined as oneof BankMed’s main pillars and guiding principles. Whethera corporation, a consumer, or an investor, clients will find atBankMed a genuine partner, an investor in their future, anda believer in their potential.


40

t h e b a n k o f c h o i c e

The Bank that played a major role in the reconstruction of Lebanon, after adevastating civil war, has always been the Bank of choice for corporate andcommercial banking. BankMed’s list of clients boasts the top namesthroughout the country and across industries. For instance, it providesbanking services to around 90% of the top Lebanese groups. In addition,and in an effort to diversify its income sources, the Bank is boosting itsemphasis on the small and middle markets segments (SME), and to thatpurpose, two dedicated teams have been established to focus solely onthese increasingly important segments of the Lebanese economy.

Indeed, given the importance of the SME sector to BankMed, an agreementwas signed with the European Investment Bank (EIB) in December 2007 inorder to secure long-term financing in favor of the SME customers ofBankMed. This shows the strong commitment that EIB and other agencieshave to Lebanon in general and to BankMed in particular. Other long termfunding agreements for BankMed are under discussion with one or moreregional counterparties and are expected to be closed in 2008.

BankMed provides clients with solutions covering their entire balance sheet,ranging from day-to-day banking transactions to more complex needs suchas equity financing, structured finance, trade finance, correspondentbanking, securities services, and employees’ solutions. Its large spectrum ofskills and expertise allows the flexibility needed to respond to the ever-changing needs of its corporate clients. BankMed has defied very difficultpolitical and economic circumstances in 2007 and has grown both its bookand list of corporate customers in all different segments.

BankMed explored in great depth the numerous opportunities available inthe international and regional primary debt capital market and took part ina number of transactions involving Islamic sukuks and internationalsyndicated loans. This includes the senior participation in a high profilemulti-billion US dollar international loan syndication for a large player inthe regional telecom industry. Participation in other syndications has beendone for the same company in the prior year and for which BankMed andother arrangers of the transaction have obtained in 2007 EUROMONEY’S2006 European Telecom Project Finance Deal of the Year.

Despite the prevailing challenging situation in Lebanon, BankMed was ableto widen the scope of credit facilities availed by its large network ofcorrespondents worldwide in order to support the Bank's various activitiesas well as the expanding business of its clientele overseas.

T H E B A N K O F C H O I C E F O R C O R P O R AT E S


41

BankMed will continue to assign great importance to its corporate lendingbusiness, be it the large corporate segment or the SME market. The Bank iscommitted to a continued involvement in both the development and thegrowth of the Lebanese private sector and intends to enhance further itsrole as a conduit to foreign investment into the country. In addition,BankMed plans to extend its corporate finance services regionally to newlucrative markets, in line with its geographical expansion.

BankMed is increasingly recognized as the Bank of choice for the individualconsumer, after taking giant steps to alter its long time image as a mainlylarge corporate financial institution. The Bank's strategic plan has been toactively increase its retail market share by introducing new consumercredit products, enhancing the branch network, and implementing a salesculture at the level of the branch.

The numbers for 2007 reflect that this strategy has started to bear fruits.The total retail loan portfolio increased significantly without affecting theasset quality of the retail portfolio. The retail loan portfolio increasedconsiderably in all categories, be it housing, car financing, personal, orcredit cards. Add to this a wide range of innovative and smaller scale loan-products such as the student loan and the wedding loan. As a result,BankMed’s market share in retail lending exceeds now 9% of total retailloans of the banking sector in Lebanon.

A large web of branches and ATMs are spread all over Lebanon to supportretail banking. Throughout 2007, the Bank continued to build a diverse andextensive distribution network, acquiring more competitive locations suchas Sineek in the South and Mina in the North. As of end of 2007, and withthe completion of the consolidation of Allied Bank and Saudi LebaneseBank (SLB), BankMed operated a total of 45 (including Cyprus) convenientlylocated, more sales oriented branches. The organization as well as thepolicies and procedures at the level of each branch were reengineered inorder to improve the quality of service, and to free up front line time tofocus more on customers, to grow the customer base, and to increase crossselling opportunities. Furthermore, in order to improve customersatisfaction and reduce waiting time, the electronic queuing systems wereintroduced in two pilot branches, and will be deployed throughout thenetwork by first half 2008. BankMed has also launched a project tomodernize the Bank’s ATM controller, replacing it by a new user friendlyand larger capacity ATM switch.

T H E B A N K O F C H O I C E F O R C O N S U M E R S


42

t h e b a n k o f c h o i c e

The Bank upgraded its technology to meet the increasing demand ofclients, be it through the state of the art call 24/7 center, or through a userfriendly and highly interactive e-banking service. Using a secure personalaccess number, BankMed customers have now access to many servicesincluding inquiries on accounts and cards balances as well as transactions,and can effect transfers between their own accounts and settle their creditcards bills. The center can also respond to current and potential customers’inquiries about the Bank’s products and services (loans, cards,Bancassurance), branch and ATM locations and indicative currencyexchange rates. It is also capable of launching telemarketing campaigns.

Its increasing emphasis on retail banking is a strategic decision ofBankMed. The coming years are sure to enhance the Bank’s position in thisline of service, providing customers with products designed and sold tocater to their growing needs, while allowing an important diversification ofincome sources for the Bank.

BankMed has been more involved than almost any other Lebanese bankduring 2007 in providing investment and hedging products to its clients.Two divisions, MedSecurities and Treasury are heavily involved in thedesign as well as distribution of both tailor-made and retail investmentproducts. These products are often structured with a view to capitalizing onpotential changes in global financial trends in ways that benefit the clientsand investors in the stock, currencies or commodities markets.

MedSecurities, the brokerage arm of the Bank, is set to become a whollyowned subsidiary of BankMed (MedSecurities Investment SAL) by mid2008. Such a structure will enable it to expand this business and run itmore efficiently. During 2007, MedSecurities total assets undermanagement increased significantly, total investment accounts doubled,and volumes of its active trading on the local fixed income and localequities increased 5 times. In addition, MedSecurities participated as adistribution agent in the private placement of a high profile regionalcompany.

The Treasury, composed of the money market desk, the foreign exchangedesk, the capital markets desk, and the treasury marketing unit, has beenvery active in structuring and distributing hedging and investmentproducts in addition to its traditional role of managing the Bank’s liquidity

T H E B A N K O F C H O I C E F O R I N V E S T O R S


43

needs and required funding. The division organized in January 2007 aseminar on alternative investments, in which a product aiming tocapitalize on dollar weakness against a basket of currencies was introducedand sold to clients. The product had returned 22% when it closed inFebruary 2008.

Both MedSecurities and the Treasury work constantly to enhance internalcontrol and monitor market risk while working closely with the RiskManagement division. The internal policies and procedures of doingbusiness were revisited with the objective of tightening the operationaland execution cycle in line with the Bank’s risk division guidelines.

Investment in human capital and in systems are undertaken to constantlyupgrade BankMed’s ability to meet its growing clients’ needs in theinvestments domain. All the trading desk team at MedSecurities passed theSII Unit 2 Securities Certification which is an international certificationrequired by the London Stock Exchange and recently required by theCentral Bank of Lebanon. Meanwhile, on the Treasury side, almost allinternal procedures have become fully automated in order to be betterprepared for today’s market challenges. In addition, a fully automatedasset-liability module has been established that will dynamically measureliquidity, forecast growth, and enhance balance sheet management.

BankMed will continue to work hard on providing its clients and affiliateswith more innovative and exciting financial and investment opportunities.Both MedSecurities and Treasury plan to offer more capital guaranteedproducts, in addition to a diverse array of derivatives instruments, andstructured deposits.


T h e S u p p o r t S y s t e m


46

t h e s u p p o r t s y s t e m

SEVERAL DIVISIONS AND DEPARTMENTS

WORK BEHIND THE SCENES TO ENSURE THE

CONTINUITY, EFFICIENCY, AND EXCELLENCE

OF SERVICE THAT BANKMED PROVIDES TO

ITS CLIENTS. THESE SUPPORT UNITS, WHICH

ARE A VITAL COMPONENT OF THE BANK,

HAVE WORKED VERY HARD IN 2007 ON

UPGRADING THE QUALITY OF THEIR

SERVICE, AND CONTRIBUTING THEIR PART

IN THE BIG STEP FORWARD THAT BANKMED

HAS ACHIEVED DURING THE YEAR.


47

The Bank remains committed to the full implementation of processreengineering throughout the branch network and transforming theminto sales and customer service outlets by centralizing all processingsupport. In addition, notable achievements concluded in 2007 included:

• The successful implementation of a state-of-the-art system formeasuring profitability performance. This new system, provided bySunguard, uses a multi-dimensional matrix to measureperformance by business unit, activity sector, product, customerand individual customer account, all on a daily basis. The secondphase of this project is now underway and includes further systemimplementations to calculate capital adequacy ratios for Basel IIreporting, together with enhanced asset/liability monitoring.

• The Bank took a quantum leap in customer service byimplementing in a short period a highly scalable, modular andstate-of-the-art phone banking contact center. The 24/7 call centeris capable of delivering IVR and operator assisted services.

• The Bank has upgraded its main computers to HP state-of-the artand top-of-the-range Blades server systems. These top performanceand highly scalable machines will facilitate BankMed’s growthstrategy going forward. Together with the introduction of EVAStorage Area Network (SAN), the performance of both online andbatch processing has increased manifold.

I N F O R M AT I O N T E C H N O L O G Y & O P E R AT I O N S


48


• Building on the Bank’s technological edge, several programsfeaturing Straight-Through-Processing (STP) were implementedresulting in marked improvements in speed, accuracy, flexibilityand, more importantly, capacity.

• The Bank successfully centralized a substantial proportion of thebranches' daily operations and relocated the Operations Division tomore suitable premises. The well-planned and executed move wentsmoothly during the third quarter of the year, causing nodisruptions to customer service or internal processes.

• In view of the heightened security situation, there has been aconsiderable focus on contingency planning in order to mitigateany business disruption. An enhanced master business continuityplan for BankMed has been prepared, tested and implemented. TheBank has also initiated a project to relocate the current disasterrecovery site and upgrade its infrastructure to a more modern andscalable one. A new location has been selected, the design has beenfinalized and refurbishment work is expected to be completed bythe first quarter of 2008. The new site will be operational in thesecond quarter of 2008.

During the year, the Bank continued to improve customer service bydeveloping the single point of contact concept, making each transaction asefficient as possible for its corporate and security trading customers, whilesustaining and improving existing services for retail customers. A numberof banking functions, such as incoming clearing and export & importletters of credit were centralized and automated, building on the alreadyhigh level of automation in BankMed and further improving productivityand service delivery. In addition, a comprehensive trade finance servicecenter aiming to provide efficient service for corporate clients has beenestablished and staffed with specialized and dedicated employees.


49

With the objective of better aligning the business with IT and to supportlong-term transformation initiatives at BankMed, the technology supportteam has formalized an IT multi-year strategy roadmap to reach an end-state vision designed to incorporate leading edge technologies andprocesses across all IT domains. The Bank’s strategic decision is to integrateall systems via a Middleware. In fact, the group started systems integrationusing MS Biztalk Middleware to orchestrate cross systems messaging, buildbusiness rules, track alerts and build transactional statistics. This platformprovides BankMed with a flexible tool to manage new systems and initiatethe proper base for a service oriented architecture.

BankMed continues to invest in as well as deploy technology with a view tobetter serving customers and increasing productivity. A significant upgradeof the Bank's main computers to state-of-the-art systems is in progress.Stringent risk management and information security compliance processeshave been put in place to protect the Bank and its customers from cybercrimes such as information theft, computer hacking and viruses.

The Bank will continue to focus on creating a work environment thatdelivers superior customer service by leveraging on the Bank’s optimizedprocesses, motivated staff and modern banking technology.


50


The staff of BankMed remains its strongest asset. In that context, the Bankthrives to provide the work force with the best support and guidance interms of career planning, training and compensation.

In 2007, the Bank moved ahead with the project on "Building an IntegratedHR system”, introducing an integrated advanced approach in job analysisdefining job families and role profiles for BankMed staff; a behavioralcompetency framework to drive performance and achieve superior results;a performance management system that sets ahead measurable keyperformance indicators and allows for true measure of performance andpotential; and the globally acclaimed Hay Guide Chart method of jobevaluation that is a basis for designing and recommending an optimumgrading structure.

The Bank engaged an international consulting company specialized in HRto prepare new policies and procedures for employees’ compensationsbased on the Bank’s long-term and strategic objectives. In that context, theBank intends to implement a newly installed performance managementsystem that leads to the achievement of a performance based pay andreward scheme.

The Bank has installed and implemented the HeRMeS system, a humanresources management system which incorporates the recruitment,personnel administration, organizational design, and career managementaspects of HR, and allows for easier analysis and management of data.

The Bank assigns great importance to investing in its existing staff. To thataim, it has implemented a training program that is designed to enhancestaff skills across a broad range of important functions including customerservice, sales and marketing, credit analysis, product knowledge and risk.

H U M A N R E S O U R C E S


51

L E G A L S U P P O R T

The Legal Division underwent, in 2007, a reorganization process with aview to allowing efficient legal assistance and support to the Bank and itsaffiliates both locally and overseas. The process included an overhaul of theinfrastructure as new advanced legal software programs were installed,allowing rapid processing and sharing of legal services and knowledgewithin the Legal division, with other divisions and with the Bank'scounterparties. The whole legal work process (input and output) wassubject of a deep review in coordination with various divisions and iscurrently being remodeled to establish a new efficient approach of legalservices aiming to avoid work overload problems.

Notwithstanding its involvement in major international loan syndication,initial public offering, private placement and other major local andinternational deals, the Legal Division managed to completestandardization of the Bank's legal documentation, introduced a newcomprehensive version of the Bank's General Terms and Conditionsapplicable to accounts and operations, and developed a set of standardlegal documents and contracts for various products and fields, such assecuritization, risk participation, retail lending, corporate lending,electronic banking, private banking, as well as securities, and capitalmarket products.


R i s k , A u d i t &

C o r p o r a t e G o v e r n a n c e


54

h i g h l i g h t s o f t h e

y e a r 2 0 0 7

54

R I S K G OV E R N A N C E

BankMed considers that the foundation of a successful risk managementpractice is the pragmatic and consistent implementation of strong riskgovernance. BankMed's risk governance platform is based on "three linesof defense" consisting of the business lines, risk management and internalaudit. The risk management framework includes a strong emphasis onaccountability, responsibility, independence, reporting, communicationsand transparency, both internally and with all key external stakeholders asindicated in the various existing policies and procedures.

BankMed's risk management's framework has a number of essentialelements:

• Clearly defined management responsibilities and accountability.

• Clear separation of responsibilities and reporting lines between riskmanagement functions, business lines and support functions inorder to avoid or manage conflicts of interest.

• A system of approvals, limits and authorizations, delegated by theBoard to senior management and then cascaded through the Bank.

• Detailed risk controls for each business line.

• A comprehensive and independent internal audit or complianceprocess for reviewing and testing internal controls and riskmanagement systems.

R I S K C U LT U R E A N D V I S I O N

However, there is more to effective risk management than formalstructures and policies. The risk "culture" of the Bank is crucial. In thatrespect, the Bank aims to ensure that the risk management frameworkpermeates the organization and that staff at all levels understand theirresponsibilities with respect to risk management. Moreover, an ethos ofrespect of risk is developed starting from the top as set by the Board andencompassing the buy-in of business line managers who "own the risk".



R I S K M A N A G E M E N T


The vision and key set objectives of the Risk Management Division aresummarized as follows:

• To manage risks on a holistic approach at enterprise-wide level(credit; market; operations; compliance; etc).

• To play an integral role in supporting management's strategy andgrowth agenda.

• To ensure that understanding, measuring and managing risk arecentral to everything we do.

• To be a partner to growth and value creation instead of a controllerto downside risks as banking is about controlling risk rather thanavoiding it.

• To enable the businesses to achieve their targeted growth bydelivering risk solutions within a well coordinated riskmanagement framework.

• To facilitate a decentralized business model based on delegation ofrisk-based decisions to the respective business units (with clearaccountability) while maintaining a strong independent group riskfunction and enterprise-wide risk culture.

• To achieve world-class best practice risk managementmethodologies.

• To employ and retain high-caliber risk professionals.

R I S K M E A S U R E M E N T A N D R E P O RT I N G

Risk Management calculates and reports regulatory capital requirementsunder Basel I and Basel II (according to regulatory projected quantitativeimpact studies). In this respect, the Bank has contracted for Basel IIimplementation the solution of SunGard’s BWCM, which was achievedthrough a team led by Risk Management in conjunction with members fromIT and Financial Control. Under Basel II, credit risk will be reported accordingto the comprehensive standard methodology; market risk as per the standardmethodology and operations risk along the basic indicator method.

5555


56


y e a r 2 0 0 7

56

Moreover, the Bank plans to shift to the standard calculation method foroperations risk in 2009. Finally, the Bank is enhancing its disclosure policy asrequired under Pillar III for market discipline and aims to start implementingthis new policy in 2008.

There are other types of risks that BankMed assumes but that are notquantifiable and managed via the capital allocation model. These aremitigated through periodic management controls, governance and riskmanagement. Reputation risk which is difficult to quantify and is managedvia controls and processes and liquidity risk which is managed by a rigorouscontrol and Asset and Liabilities Committee (ALCO) process, are bothexamples of such risks.

Stress and scenario testing constitutes a critical component of the proactiverisk management framework. Rapid portfolio reviews are conducted on thecredit portfolio as circumstances arise and stress testing is a core componentof assets and liabilities management (ALM).

R I S K A P P E T I T E

Risk appetite is established at BankMed in light of the Bank's strategy,stakeholders' requirements and risk-reward trade-offs. BankMed's riskappetite is defined across four categories within the risk appetiteframework:

• Group level risk appetite metrics

• Specific risk-type limit setting

• Stakeholders targets (e.g. target debt rating; dividend policy etc)

• Policies, procedures and controls

An Operational Risk Management Unit (ORMU) has been established witha view to providing oversight and control of operational risk across theBank and to ensuring that it remains within acceptable levels. The primeresponsibility for the management of operational risk is embedded inbusiness line management in order for the risks to be managed where theyarise. This is supported by an oversight of the independent ORMU. Inaddition, an operational risk management framework is being establishedto ensure that an integrated and effective risk management approach is




applied consistently across BankMed. The process will include thefollowing steps: identify and assess key operational risks, establish key riskindicators, and produce a comprehensive operational risk report.

Market risk management was also addressed more comprehensively. Inthat context, a Market Risk Management (MRM) unit was established inJuly 2007, in order to support the ALCO and supervise MedSecurities, thebrokerage business. In addition, Treasury worked with the ALCO onreviewing and updating the guidelines. It has also worked with the MRMunit on drafting and putting into action the necessary market risk policiesdealing with liquidity and pricing issues. As a result, a set of variousliquidity and investment ratios were defined and are monitored andupdated on a daily basis.

The ALCO is responsible for setting and supervising the implementation ofasset/liability management policy which the Treasury is responsible toexecute. The objective of the MRM is to oversee interest rate, liquidity,foreign exchange and price risks. This is done through various monitoringof periodic reports (interest rate gap; market access reporting; liquidity; etc)and daily internal limits and trigger reports in order to ensure that actualexposure remains within applicable limits and managed against ALCOimposed triggers.

MRM oversees also the brokerage business. In that respect, policies,procedures and IT systems were established in order to ensure the orderlyand efficient conduct of MedSecurities' business. MRM's responsibility is toensure compliance with these policies and procedures and adequatepreventive and detective controls of the day-to-day activities of thebusiness.

5757


I N T E R N A L A U D I T

58

BankMed Internal Audit Division (IA) pursues a risk-based audit approachthat relies on effective use of technology in the conduct of its business. TheDivision has extensive experience and know-how concerning auditing toolsand techniques and is composed of a dynamic, flexible, and experienced staff.

IA operates in accordance with an approved Internal Audit Charter whichclearly specifies the reporting level, mission and scope of its work. Themission is to provide independent, objective assurance and consultingservices designed to add value and improve the Bank’s operations.

IA is independent of the Management of the Bank, supervised by the ChiefAudit Executive who, in turn, reports both functionally and administrative-ly to the Chairman with full access to the Board of Directors.

IA’s work is guided mainly by: 1) requirements of BDL regulations, 2)international auditing standards 3) internal audit charter 4) standards ofother related professional organizations.

IA plays a vital role in providing an internal checking mechanism to ensureadherence to sound policies and procedures, assures the accuracy of informa-tion and makes a major contribution to overall control, compliance and cor-porate governance at the Bank. In addition, and as required by the Lebaneseregulatory oversight bodies and professional standards, IA reviews the Bank'saffiliated branches, other Group banks and financial institutions' operationsand reports on their status and conditions to the Board. IA also reviews thequality of Internal Audit functions at these affiliated branches and units.

Staff and management of IA stay abreast of the constant changes in thebanking inspection and supervision fields and they are always introducingnew techniques and tackling new areas to introduce continuous improve-ments to the existing controls at the Bank and to the audit methodology.

IA has set high standards in qualifying for the certified internal auditor certifi-cation (CIA) and the certified information systems auditor certification (CISA),which create a knowledgeable and well-trained team of internal auditors.

During 2008, the Internal Audit is planning to enhance the auditmethodology over "continuous auditing" by implementing one of the bestcomputer aided audit techniques (CAATs) known in the industry auditcommant language(ACL). ACL will aid IA in advising the Bank'sManagement on the status of compliance with regulatory requirements,effectiveness of internal control systems and fraud detection in a timelyfashion.




C O R P O R AT E G O V E R N A N C E

59

BankMed is committed to practice and promote a responsible and soundcorporate governance policy. The Board of Directors is actively involved insetting the highest standards of corporate governance and in exercisingstrong oversight of an independent management team. These standardsare founded on the core principles of transparency and accountability at alllevels of the organization and are ultimately safeguarded by a long-standing commitment to a high moral standard of honesty and integrity.

Sound corporate governance at the Bank emphasizes a set of fundamentalprinciples that include protecting shareholders' rights, respecting,protecting and treating equitably the interests of all other stakeholders,clearly defined responsibilities of the Board and Executive Management,pursuing a policy of full disclosures, transparency and sound practice, andenforcing the functions of internal and external auditors, as well as thoseof other Banking inspectors and supervisors.

The Board also ensures that any issues with the potential to preventmanagement from running the Bank according to the best interests ofshareholders and other stakeholders are identified, and that processes arein place to address those issues in a timely manner.

To that effect, the Board has approved an organizational structure thatreflects best practices in corporate governance. The Bank has anorganizational structure in place that segregates functions andresponsibilities, reflecting a division of roles and responsibilities betweenthe Board, Executive Management and Operating Management.

1- Members of the Board have a clear understanding of their role incorporate governance. The Board includes independent members whoare committed to comply with best practices in corporate governance,including those set by the Central Bank of Lebanon and Basel IIrecommendations. The Board also observes the regulatoryrequirements of other countries in which the Bank operates.

a- New members are elected to the Board as needed to address thechanges in the size and complexity of the Bank's operations and itsstrategic plans. During 2007, two additional members were elected toserve on the Board. Further, several committees are in place to reviewand study special operations, among these committees are "ALCO –Assets & Liabilities Committee" and an "Investment Committee".


60

b- The Board includes members that are independent from the Bank'sExecutive Management, which helps strengthening the objectivity ofthe Board's monitoring and review activities.

c- The shareholders' assembly elects the external auditors based onreputation and experience of the auditors and the Board exercises duediligence and oversight of the external auditors work.

d- The Board reviews and approves the Bank's overall business strategy,especially those related to investment, sources of borrowing andfinancing.

e- The Board exercises oversight over senior management of the Bankthrough exercising its duty and authority.

f- The Board reviews internal audit reports regularly in order to assesspolicies, establish communication lines and monitor progress towardachieving corporate objectives.

g- The Board selects, monitors, and, when necessary, replaces keyexecutives, ensuring at the same time that the Bank has anappropriate plan for executive succession. In this respect, during 2007,the Board made several resolutions concerning replacements and newappointments at the Executive and Senior Management levels.

2- "Code of Ethics and Professional Conduct" issued by the Chairman ofthe Board. The Code was circulated to the Bank's entire staff for use asa guideline while conducting the Bank's business.

3- The Board has set and enforced, through its Chairman, clear lines ofresponsibility and accountability at all levels throughout the Bank.

a- The Bank's By-Laws clearly defines the Board's rights, duties andresponsibilities in managing the Bank and monitoring the work of itstop management. The By-laws also defines the powers of theChairman of the Board, and requires that any amendment to thesepowers must be subject to the Shareholder’s Assembly approval.

b- The Board and Executive Management, acting in the discharge of theirown corporate governance responsibilities, have established thegeneral strategy and policies of the corporate governance structure ataffiliated foreign banks that corresponds with the bank's own policiesand with the local laws in the hosting countries. In this respect, during2007, the Bank has established several policies in the Turkish affiliatedBank (T-Bank) including a corporate governance policy, Audit




61

Committee, and internal policies for the Internal Audit and InternalControl functions and a Code of Ethics and Professional Conduct.

c- As per Central Bank's Circular No. 110 which requires Banks to performan effective and adequate control over the bank's affiliated foreignbanks (units), the Bank has established a committee to follow up onthe status of these "units". The Committee consists of members fromthe Board and specialists in risk management. Further, IA regularlyvisits these "units" to review their operations and prepare reports ontheir status and financial conditions.

4- The Board works to ensure that Senior Management exercises effectivesupervision over the Bank's operations consistent with the Board'spolicy and guidelines.

a- The Board acknowledges the importance of senior managers incontributing to the Bank’s sound corporate governance by overseeingline managers in specific business areas and activities consistent withpolicies and procedures set by the Bank’s Board. In this respect, theBoard ensures that individuals appointed to senior positions have thenecessary skills to manage the business under their supervision aswell as have the appropriate control over the key individuals in thoseareas.

b- The senior management, in return, established, enforced andmaintained systems of internal control that require appropriatesegregation of duties and duality in completing and reviewingoperations, in order to ensure that all banking operations arecompleted as per related policies and procedures.

5- The Board, executive and senior management utilize effectively theresults of work conducted by the internal auditors, external auditorsand other control functions at the Bank.

a- The Board undertakes all necessary measures to ensure theindependence and adequate qualifications of IA and other controlfunctions at the Bank. In this respect, the Chairman of the Boardapproved and issued an Internal Audit Charter. The Charter requiredthe Chief Audit Executive to report directly to the Board of Directors.Also, the Charter authorized the staff of IA, under the supervision of theChief Audit Executive, to have unrestricted access to all functions,records, property and personnel. Further, Central Bank Circular No. 77requires the Board to determine the remunerations for the Chief AuditExecutive.


62

b- The Internal Audit, based on its Charter and Central Bank Circular No.77, prepares and sends to the Board, semiannually, activity reportsdetailing the results of their audits. Also, IA is required to opine on theadequacy, efficiency and effectiveness of the systems of internalcontrol and other control functions at the Bank. All reports sent, arethoroughly reviewed by the Board, and the related Divisions arerequested to comply with the Internal Audit recommendations.

c- To emphasize independence and objectivity of the external auditfunction, the shareholders' assembly elects external auditors. TheBoard is also responsible to exercise due diligence and oversight of theexternal auditors' work. The external auditors are also required toreview and prepare reports to the Board concerning the internal audit'sreview methodologies and anti-money laundering activities.

d- Based on Law 28 issued in 1967, the Banking Control Commission(BCC), an oversight body in Central Bank, is required to prepare periodicreports about the Bank's operations and the degree of compliance withthe Banking Laws and Central Bank circulars. These reports areforwarded to the Board, who in return, reviews these reports and takenecessary measures based on the recommendations of the BCC.

6- The Board, through its Chairman, is effectively involved in setting andimplementing the frameworks of compensation and remunerationpolicies and practices that are consistent with the Bank's corporateculture, long-term objectives and strategy and control environment.

7- The Bank is governed in a transparent manner.

a- In order to enable the shareholders and other stakeholders toeffectively monitor and properly hold accountable the Board andSenior Management, the Bank's By-Laws stipulate the following:

• Any shareholder has the right, fifteen days before the shareholdersassembly meeting, to have a copy of the Board of Directors reports,external audit reports, financial statements and the list ofshareholders.

• The regular Shareholders' Assembly enjoys extensive powers. It reviewsBoard of Directors and external auditors reports related to the Bank'sactivities and statements and it has the right to accept or reject thesestatements as well as the right to take decisions in all matters that it




63

sees fit or adequate for the proper progress and prosperity of the Bank.The assembly's decisions are binding to the Board and its Chairman.

• The Board is required, within two months from the date of approvalof the Shareholders' Assembly, to publish in the official gazette, in aneconomic and in a local daily newspaper, the financial statements,lists of board members and the appointed external auditors.

b- Article 190 of the Commercial Law stipulates that if shareholdersattending the general assemblies find that their knowledge of theissues listed in the meeting agenda is inadequate, a quarter of theassembly's members can request to postpone the meeting for eightdays.

c- The BCC requires Banks to periodically provide it with financial data andother information related to the activities of the Bank, which helps thesecontrolling bodies to constantly monitor the financial position of theBank.

d- The Bank discloses several topics of interest to stakeholders and thoseinterested, through the annual reports, or through the Bank's internetsite (www.bankmed.com.lb).


C o m m u n i t y C o n t r i b u t i o n


66

c o m m u n i t y c o n t r i b u t i o n

SOCIAL AND CULTURAL RESPONSIBILITIES

CONTINUE TO BE AT THE CORE OF BANKMED’S

VIEW OF ITS ROLE AND CONTRIBUTION IN THE

COMMUNITY IN WHICH IT EXISTS AND

OPERATES. THE BANK CONSTANTLY ACTS AS A

DIRECT SPONSOR OF VARIOUS EVENTS THAT

ATTEMPT TO REFLECT THE TRUE FACE OF

LEBANON AND THE BREADTH AND WEALTH OF

ITS CULTURAL HERITAGE. DIRECT SUPPORT

THROUGH DONATIONS IS ANOTHER VENUE FOR

BANKMED TO CARRY ITS MORAL OBLIGATIONS

TO THE SOCIETY IT SERVES. IN THIS CONTEXT

DONATIONS WERE GIVEN, AMONG OTHERS, TO

ASSOCIATIONS OR PROJECTS THAT ARE RELATED

TO THE DISABLED, ORPHANS, STUDENTS’

SCHOLARSHIPS AND HEALTH SUPPORT.


67


I n d e p e n d e n t

A u d i t o r ’s R e p o r t


70


y e a r 2 0 0 7

70

i n d e p e n d e n t

a u d i t o r ’s r e p o r t

Annual Report 08-08-2008 dergh (70-200).qxd7:Layout 1 8/11/08 2:20 PM

7171


B A N K M E D S . A . L . A N D S U B S I D I A R I E S

C O N S O L I D AT E D B A L A N C E S H E E T

72


y e a r 2 0 0 7

72



ASSETS

Cash, compulsory reserves and central banks 5 1,440,295,836 1,168,340,877

Deposits with banks and financial institutions 6 2,921,412,313 931,091,065

Trading assets 7 171,352,969 5,045,894

Loans and advances to customers 8 2,709,908,881 1,715,244,196

Loans and advances to related parties 9 393,664,515 452,141,600

Available-for-sale investment securities 10 3,622,741,068 2,923,805,532

Held-to-maturity investment securities 10 1,701,039,678 1,968,440,545

Customers' acceptance liability 11 62,304,148 46,338,621

Investments in associates and investments held for sale 12 72,263,795 83,048,106

Investment properties 6,034,649 5,175,375

Assets acquired in satisfaction of loans 13 81,565,839 86,732,018

Goodwill 14 166,868,380 86,861,653

Property and equipment 15 181,582,521 180,581,041

Other assets 16 238,396,386 182,393,145

Total Assets 13,769,430,978 9,835,239,668

FINANCIAL INSTRUMENTS WITHOFF-BALANCE SHEET RISK 38

Guarantees and standby letters of credit 328,883,212 329,301,545

Documentary and commercial letters of credit 640,429,345 87,938,148

Forward exchange contracts 354,517,309 800,939,755

FIDUCIARY DEPOSITS 39 1,958,509,804 1,683,465,536

Notes December 31, 2007 December 31, 2006LBP’000 LBP’000

THE ACCOMPANYING NOTES 1 TO 47 FORM AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS


7373

LIABILITIES

Deposits and borrowings from banks 17 728,889,109 725,017,807

Customers’ deposits designated at fair value through profit or loss 18 155,797,027 31,212,505

Customers' accounts at amortized cost 19 7,669,874,068 5,890,758,108

Related parties' accounts at fair value throughprofit or loss 20 3,207,682 -

Related parties' accounts at amortized cost 21 2,709,500,463 1,204,632,116

Acceptances payable 11 62,304,148 46,338,621

Other borrowings 22 417,352,068 7,694,034

Certificates of deposit 23 715,609,642 946,542,355

Other liabilities 24 179,434,847 107,297,551

Provisions 25 21,546,043 18,427,427

Total liabilities 12,663,515,097 8,977,920,524

EQUITY

Share capital 26 530,000,000 530,000,000

Legal reserves 27 25,212,282 23,458,080

Property revaluation surplus 3,213,000 3,213,000

Reserve for general banking risks 27 41,168,527 40,271,533

Retained earnings 109,862,157 107,734,650

Cumulative change in fair value ofavailable-for-sale securities 28 251,366,987 146,834,366

Currency translation adjustment 7,976,435 -

Profit for the year net of deferred tax 55,154,633 4,778,703

Equity attributable to the Group 1,023,954,021 856,290,332

Minority interest 29 81,961,860 1,028,812

Total equity 1,105,915,881 857,319,144

Total Liabilities and Equity 13,769,430,978 9,835,239,668

Notes December 31, 2007 December 31, 2006LBP’000 LBP’000



C O N S O L I D AT E D B A L A N C E S H E E T



C O N S O L I D AT E D I N C O M E S T AT E M E N T

74


y e a r 2 0 0 7

74



Interest income 31 795,671,563 598,819,730

Interest expense 32 (648,516,296) (490,690,442)

Net interest income 147,155,267 108,129,288

Fee and commission income 33 45,477,281 26,883,751

Fee and commission expense 34 (5,035,748) (2,256,028)

Net fee and commission income 40,441,533 24,627,723

Net interest and gains and losses ontrading portfolio 35 24,620,341 (58,628)

Net interest and gains and losses on financialinstruments designated at fair value throughprofit or loss 36 (4,664,338) (428,732)

Other operating income 37 85,972,896 55,843,977

Net financial revenues 293,525,699 188,113,628

Allowance for impairment of loans andadvances less write-back 8 900,815 (18,162,420)

Provision for collective impairment less write back 8 (36,554,792) (12,373,560)

Loss from write-off of loans (659,864) (3,932,728)

Net financial revenues after impairment chargefor credit losses 257,211,858 153,644,920

Staff costs (82,023,999) (56,334,833)

Administrative expenses (87,777,450) (59,663,586)

Depreciation and amortization 15 & 16 (14,116,596) (12,504,316)

Provision for impairment of assets acquired insatisfaction of loans 13 (1,434,937) (4,424,817)

Provision for contingencies (1,700,123) (3,800,000)

Profit before taxes 70,158,753 16,917,368

Income tax provision (2,962,261) (4,268,093)

Tax withheld on interest on account ofcorporate income tax (6,550,482) (7,794,156)

PROFIT FOR THE YEAR 30 60,646,010 4,855,119

Attributable to:

Equity holders of the Group 61,184,633 4,778,703

Minority interest (538,623) 76,416

60,646,010 4,855,119

Notes 2007 2006LBP’000 LBP’000

Year Ended December 31,



Bala

nce

31/1

2/20

0553

0,00

0,00

021

,409

,819

3,21

3,00

039

,353

,203

91,3

34,3

85

282,

157,

725

-19

,366

,856

986,

834,

988

35,1

13,2

781,

021,

948,

266

Prof

it fo

r the

yea

r 200

6-

--

--

--

4,77

8,70

34,

778,

703

76,4

164,

855,

119

Chan

ge in

fair

valu

e of

avai

labl

e-fo

r-sa

le s

ecur

ities

--

--

-(1

35,3

23,3

59)

--

(135

,323

,359

)-

(135

,323

,359

)

Tota

l Com

preh

ensi

ve in

com

e-

--

--

(135

,323

,359

)-

4,77

8,70

3(1

30,5

44,6

56)

76,4

16(1

30,4

68,2

40)

Allo

catio

n of

200

5 pr

ofit

-2,

048,

261

-91

8,33

0 16

,400

,265

-

-(1

9,36

6,85

6)-

--

Purc

hase

of m

inor

ity in

tere

stin

a s

ubsi

diar

y-

--

--

--

--

(34,

160,

882)

(34,

160,

882)

Bala

nce

31/1

2/20

0653

0,00

0,00

023

,458

,080

3,21

3,00

0 40

,271

,533

10

7,73

4,65

0 14

6,83

4,36

6-

4,77

8,70

3 85

6,29

0,33

2 1,

028,

812

857,

319,

144

Prof

it fo

r the

yea

r 200

7-

--

--

--

61,1

84,6

33

61,1

84,6

33

(538

,623

)60

,646

,010

Def

erre

d ta

x on

und

istr

ibut

edin

com

e fr

om s

ubsi

diar

ies

--

--

--

-(6

,030

,000

)(6

,030

,000

)-

(6,0

30,0

00)

Chan

ge in

fair

valu

e of

avai

labl

e-fo

r-sa

le s

ecur

ities

--

--

-10

4,53

2,62

1-

-10

4,53

2,62

1-

104,

532,

621

Curr

ency

tran

slat

ion

adju

stm

ent

--

--

--

7,97

6,43

5-

7,97

6,43

511

,617

,176

19,5

93,6

11

Tota

l Com

preh

ensi

ve in

com

e-

--

--

104,

532,

621

7,97

6,43

555

,154

,633

167,

663,

689

11,0

78,5

5317

8,74

2,24

2

Allo

catio

n of

200

6 pr

ofit

-1,

754,

202

-89

6,99

4 2,

127,

507

--

(4,7

78,7

03)

--

-

Min

ority

inte

rest

in s

ubsi

diar

y ba

nk-

--

--

--

--

69,8

54,4

9569

,854

,495

Bala

nce

31/1

2/20

0753

0,00

0,00

025

,212

,282

3,21

3,00

041

,168

,527

109,

862,

157

251,

366,

987

7,97

6,43

555

,154

,633

1,02

3,95

4,02

181

,961

,860

1,10

5,91

5,88

1

Equi

ty A

ttri

buta

ble

to th

e G

roup

Capi

tal

LBP’

000

Lega

lRe

serv

esLB

P’00

0

Prop

erty

Reva

luat

ion

Rese

rve

LBP’

000

Rese

rve

for

Gen

eral

Bank

ing

Risk

LBP’

000

Reta

ined

Earn

ings

LBP’

000

Cum

ulat

ive

Chan

ge in

Fai

rVa

lue

ofAv

aila

ble-

for-

sale

sec

uriti

esLB

P’00

0

Curr

ency

Tran

slat

ion

Adj

ustm

ent

LBP’

000

Prof

it fo

rth

e ye

arLB

P’00

0

Tota

lLB

P’00

0

Min

orit

yIn

tere

stLB

P’00

0

Tota

lEq

uity

LBP’

000

75

BA

NK

ME

D S

.A

.L

. A

ND

S

UB

SI

DI

AR

IE

S

CO

NS

OL

ID

AT

ED

S

TA

TE

ME

NT

O

F

CH

AN

GE

S I

N E

QU

IT

Y


BA N K M E D S . A . L . A N D S U B S I D I A R I E S

C O N S O L I DAT E D STAT E M E N T O F C A S H F L OW S

76


y e a r 2 0 0 7

76



Notes 2007 2006LBP’000 LBP’000


Cash flows from operating activities:

Profit for the year 60,646,010 4,855,119

Adjustments for:

Provision for impairment of assets acquired insatisfaction of loans 1,434,937 4,424,818

Depreciation and amortization 14,116,596 12,504,315

(Write-back)/provision for credit losses (net) (900,815) 18,162,420

Provision for collective impairment 36,554,792 12,373,560

Loss from write-off of loans 659,864 3,932,728

Effect of exchange rate fluctuation on goodwill (2,527,534) (2,273,587)

Effect of exchange rate fluctuation on a loanto an investee - (340,094)

Amortization of commissions and discount oncertificates of deposit 962,997 952,929

Realized gain on sale of trading securities (418,506) (241,622)

Realized gain on sale of available-for-sale securities (5,958,748) (14,691,366)

Unrealized (gain)/loss on trading securities (10,639,208) 481,722

Equity income from investments in associates (3,493,520) (2,051,181)

Accretion of securities premium/(discounts) 26,010,725 22,975,198

Loss/(gain) from sale of property and equipment 78,436 (43,979)

Gain on sale of assets acquired in satisfaction of loans (634,202) (1,115,719)

Gain from sale of investment in an associate (11,314,653) -


(Increase)/decrease in trading assets (61,209,748) 1,179,252

Increase in loans and advances to customers 42 (733,826,776) (7,128,755)(Increase)/decrease in loans and advances torelated parties 58,477,085 (215,053,170)

(Increase)/decrease in deposits with banks andfinancial institutions and compulsory depositsand deposits with central banks (410,312,921) 13,819,395

(Increase)/decrease in other assets 42 (53,244,888) 3,873,648

(Decrease)/increase in deposits and borrowingsfrom banks (9,561,357) 546,985,910

Increase/(decrease) in other liabilities 42 39,151,971 (17,417,429)

Increase in customers’ accounts at fair valuethrough profit or loss 125,865,388 31,212,505

Increase in related parties’ accounts at fair valuethrough profit or loss 3,207,682 -

Increase in customers’ accounts at amortized cost 42 1,411,526,144 97,331,078

Increase in related parties’ accounts at amortized cost 1,504,868,347 783,519,462

Increase in provisions for contingencies 659,218 5,222,427

Increase/(decrease) in minority interest 36,206,335 (34,160,882)

Net cash provided by operating activities 2,024,360,086 1,269,288,702


7777


C O N S O L I DAT E D STAT E M E N T O F C A S H F L OW S

Notes 2007 2006LBP’000 LBP’000



Cash flows from investing activities:

Acquisition of subsidiary bank, net of cash acquired (86,656,822) -

Increase in available-for-sale and held to maturityinvestment securities 42 (326,598,294) (693,121,379)

Decrease in investment in associates andinvestments held for sale 42 14,605,275 4,523,809

Increase in investment properties (859,274) (150,750)

Increase in assets acquired in satisfaction of loans 42 (803,099) (13,608,891)

Increase in property and equipment (18,932,511) (14,958,049)

Increase in goodwill 42 (616,569) (12,544,833)

Proceeds from sale of investment in an associate 25,014,598 -

Proceeds from sale of assets acquired in satisfactionof loans 42 20,588,454 80,785,752

Proceeds from sale of property and equipment 42 10,666,459 262,195

Net cash used in investing activities (363,591,783) (648,812,146)

Cash flows from financing activities:

Decrease in certificates of deposit (231,895,710) (156,445,986)

Increase/(decrease) in other borrowings 409,658,034 (758,540)

Net cash provided by/ (used in) financing activities 177,762,324 (157,204,526)

Net increase in cash and cash equivalents 1,838,530,627 463,272,030

Cash and cash equivalents - Beginning of year 1,422,521,605 959,249,575

Cash and cash equivalents - Ending of year 42 3,261,052,232 1,422,521,605


78


y e a r 2 0 0 7

78

1. GENERAL INFORMATION

BankMed S.A.L. is a Lebanese joint stock company, registered under Number5261 in the Lebanese Commercial Register on August 13, 1950 and underNumber 22 in the list of banks published by the Central Bank of Lebanon, fullyowned by GroupMed S.A.L. (the holding company). The principal activities ofthe Bank and its subsidiaries consist of conventional commercial and privatebanking through a network of 51 branches in Lebanon in addition to a branchin Cyprus, a subsidiary in Switzerland and an associate in Turkey acquiredduring 2007, where the Bank has control over the latter’s financial andoperational policies. The Group headquarters are located in Beirut.

2. ADOPTION OF NEW AND REVISED STANDARDS

In the current year, the Group has adopted IFRS 7 Financial Instruments:Disclosures which is effective for annual reporting periods beginning on orafter January 1, 2007, and the consequential amendments to IAS 1Presentation of Financial Statements.

The impact of the adoption of IFRS 7 and the changes to IAS 1 has been toexpand the disclosures provided in these financial statements regardingthe Group’s financial instruments and management of capital.

Four Interpretations issued by the International Financial ReportingInterpretations Committee are effective for the current period. These are:IFRIC 7 Applying the Restatement Approach under IAS 29, FinancialReporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9Reassessment of Embedded Derivatives; and IFRIC 10 Interim FinancialReporting and Impairment. The adoption of these Interpretations has notled to any changes in the Group’s accounting policies.

At the date of authorisation of these financial statements the followingStandards and Interpretations were in issue but not yet effective:

IAS 23 (Revised) Borrowing Costs(effective for accounting periods beginning on or after January 1, 2009);

IFRS 8 Operating Segments(effective for accounting periods beginning on or after January 1, 2009);

IFRIC 11 IFRS 2Group and Treasury Share Transactions (effective March 1, 2007);




N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L

STAT E M E N T S Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 7


IFRIC 12 Service Concession Arrangements(effective January 1, 2008); and

IFRIC 13 Customer Loyalty Programmes(effective for accounting periods beginning on or after July 1, 2008).

IFRIC 14 IAS 19The Limit on a Defined Benefit Asset, Minimum Funding Requirements andtheir Interaction (effective January 1, 2008).

The directors anticipate that the adoption of the above Standards andInterpretations will have no material impact on the financial statements ofthe Group in the period of initial application.

3. SIGNIFICANT ACCOUNTING POLICIES

A. STATEMENT OF COMPLIANCEThe consolidated financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRSs).

B. BASIS OF PREPARATION AND MEASUREMENTThe consolidated financial statements have been prepared on the historicalcost basis except for the following:

• Land and buildings acquired prior to 1993 are measured at their revaluedamounts based on market prices prevailing during 1996, to compensate forthe effect of the hyper-inflationary economy prevailing in the earlier years.

• Financial assets and liabilities at fair value through profit and loss aremeasured at fair value.

• Available-for-sale financial assets are measured at fair value.• Derivative financial instruments are measured at fair value.

Assets and liabilities are grouped according to their nature and arepresented in an approximate order that reflects their relative liquidity.

The principal accounting policies adopted are set out below:

C. BASIS OF CONSOLIDATIONThe consolidated financial statements of BankMed S.A.L. include thefinancial statements of the Bank as at December 31, 2007 and companies inwhich the Bank has a controlling financial interest (subsidiaries andassociates, as applicable). Control is achieved where the Bank has thepower to govern the financial and operating policies of an entity so as toobtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate.

7979


80


y e a r 2 0 0 7

80

The consolidated subsidiaries and associates as at December 31, 2007 comprise:



Banks and Financial Institutions

Saudi Lebanese Bank S.A.L. Lebanon 100 January 1, 1995 Commercial Banking

Méditerranée Investment Bank S.A.L. Lebanon 100 January 24, 1996 Investment Banking

BankMed Suisse - S.A. Switzerland 100 August 31, 2001 Private Banking

Allied Business Investment Financial and FundCorporation S.A.L. Lebanon 66 November 30, 2001 Management

Turkland Bank A.S.(formerly MNG Bank A.S.) Turkey 41 January 28, 2007 Commercial Banking

Saudi Med Investment Company Saudi Arabia 100 May 21, 2007 Corporate FinanceAdvisory and Asset

Management

MedSecurities InvestmentCompany S.A.L. Lebanon 100 November 19, 2007 Financial institution

Real Estate

Al Hana S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises

Al Jinan S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises

Al Shams S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises

Centre Méditerranée S.A.L. Lebanon 100 January 16, 1996 Owns Bank’s Premises

Al Hosn Real Estate II S.A.L. Lebanon 100 February 27, 2004 Owns Bank’s Premises

Al Hosn Real Estate III S.A.L. Lebanon 100 February 27, 2004 Owns Bank’s Premises

333 Achrafieh Real Estate S.A.L. Lebanon 100 September 21, 2004 Real estate company

Insurance

Med Bancassurance S.A.L. Lebanon 100 May 20, 2003 Insurance brokerage

Other

Medfinance Holding Ltd. BVI 100 January 1, 2003 Any activity outsideof BVI

Méditerranée Investment Bank Holding Lebanon 100 December 24, 1996 Investment in shares

Country ofIncorporation

Percentage ofOwnership

Date of Acquisition orIncorporation Business Activity

Where necessary, adjustments are made to the financial statements of thesubsidiaries and consolidated associates to bring their accounting policiesinto line with those used by other entities of the Group.

All intra-group transactions balances, income and expenses are eliminatedin full on consolidation.

Minority interests in the net assets (excluding goodwill) of consolidatedsubsidiaries and associates are identified separately from the Group’sequity therein. Minority interests consist of the amount of those interestsat the date of the original business combination and the minority’s share of


8181

changes in equity since the date of the combination. Losses applicable tothe minority in excess of the minority’s interest in the subsidiary’s equityare allocated against the interests of the Group except to the extent thatthe minority has a binding obligation and is able to make an additionalinvestment to cover the losses.

During January 2007, the Group purchased a 41% equity state in TurklandBank A.S. (formerly MNG Bank A.S.) in Turkey. The Group, with the consentof the other major shareholder, has the power to govern the financial andoperating policies of the bank and therefore the bank is considered as aconsolidated entity.

During the first half of 2007, the Group incorporated Saudi Med InvestmentCompany, a wholly owned financial institution in the Kingdom of SaudiArabia with total capital of SAR 100 million.

During November 2007, the Group incorporated Med Securities InvestmentCompany S.A.L., a wholly owned financial institution incorporated inLebanon with total capital of LBP 5 billion.

During the first half of 2006, Allied Bank S.A.L., a wholly owned subsidiary,was merged with BankMed S.A.L. in accordance with the resolution of theGeneral Assembly dated April 5, 2006 and the approval of the Central Bankof Lebanon dated May 19, 2006.

On May 11, 2006, the Group purchased the minority interest of 25% in SaudiLebanese Bank S.A.L. in accordance with the resolution of the GeneralAssembly dated November 28, 2005 and the approval of the Central Bank ofLebanon dated June 9, 2006.

On September 8, 2006, the Group sold its entire share in Al Shua’a S.A.L. toGroupMed S.A.L., the Group’s parent company, effective December 31, 2005, inaccordance with the resolution of the General Assembly dated July 14, 2006and the approval of the Central Bank of Lebanon dated November 17, 2006.

Méditerranée Investment Bank S.A.L. is a wholly owned subsidiaryestablished on January 24, 1996. This bank is a medium and long-terminvestment bank subject to the regulations provided in Decree Nº. 50 datedJuly 15, 1983, and the Central Bank of Lebanon Decision Nº. 6101, datedFebruary 8, 1996.

“Centre Méditerranée S.A.L.” owns a commercial building used as theheadquarters of the Group.

Al Hosn Real Estate II S.A.L. and Al Hosn Real Estate III S.A.L. own land usedas an extension to the Group’s headquarters.


82


y e a r 2 0 0 7

82

D. BUSINESS COMBINATIONS

The acquisition of subsidiaries is accounted for using the purchase method.The cost of the acquisition is measured at the aggregate of the fair values,at the date of exchange, of assets given, liabilities incurred or assumed, andequity instruments issued by the Group in exchange for control of theacquiree, plus any costs directly attributable to the business combination.The acquiree's identifiable assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 Business Combinationsare recognized at their fair values at the acquisition date, except for non-current assets (or business units to be disposed of) that are classified asheld for sale in accordance with IFRS 5 Non-Current Assets Held for Sale andDiscontinued Operations, which are recognized and measured at fair valueless costs to sell.

Goodwill arising on acquisition is recognized as an asset and initiallymeasured at cost, being the excess of the cost of the business combinationover the Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities recognized. If, after reassessment, theGroup's interest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognized immediately in the income statement.

The interest of minority shareholders in the acquiree is initially measuredat the minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognized.

E. FOREIGN CURRENCIESThe consolidated financial statements are presented in Lebanese Poundwhich is the Group’s reporting currency. However, the primary currency ofthe economic environment in which the Group operates (functionalcurrency) is the U.S. Dollar.

In preparing the financial statements of the individual entities,transactions in foreign currencies are recorded at the rates of exchangeprevailing at the dates of the transactions. At each balance sheet date,monetary items denominated in foreign currencies are retranslated at therates prevailing at the balance sheet date. Non-monetary items carried atfair value that are denominated in foreign currencies are retranslated atthe rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreigncurrency are not retranslated.

Exchange differences are recognised in profit or loss in the period in whichthey arise except for exchange differences on transactions entered into inorder to hedge certain foreign currency risks, and exchange differences onmonetary items receivable from or payable to a foreign operation for which




settlement is neither planned nor likely to occur, which form part of the netinvestment in a foreign operation, and which are recognised in the foreigncurrency translation reserve and recognised in profit or loss on disposal ofthe net investment.

For the purpose of presenting consolidated financial statements, the assetsand liabilities of the Group’s foreign operations are expressed in CurrencyUnits using exchange rates prevailing at the balance sheet date. Incomeand expense items are translated at the average exchange rates for theperiod. Exchange differences arising, if any, are classified as equity andrecognized in the Group’s foreign currency translation reserve. Suchexchange differences are recognized in profit or loss in the period in whichthe foreign operation is disposed of.

F. FINANCIAL ASSETS AND LIABILITIES

Recognition and Derecognition:The Group initially recognizes loans and advances, deposits debt securitiesissued and subordinated liabilities on the date that they are originated. Allother financial assets and liabilities are initially recognized on the tradedate at which the Group becomes a party to the contractual provisions ofthe instrument.

A financial asset (or a part of a financial asset, or a part of a group of similarfinancial assets) is derecognized, when the contractual rights to the cashflows from the financial asset expire.

In instances where the Group is assessed to have transferred a financialasset, the asset is derecognized if the Group has transferred substantiallyall the risks and rewards of ownership. Where the Group has neithertransferred nor retained substantially all the risks and rewards ofownership, the financial asset is derecognized only if the Group has not retained control of the financial asset. The Group recognizes separatelyas assets or liabilities any rights and obligations created or retained inthe process.

A financial liability (or a part of a financial liability) can only bederecognized when it is extinguished, that is when the obligation specifiedin the contract is either discharged, cancelled or expires.

Offsetting:Financial assets and liabilities are set off and the net amount is presentedin the balance sheet when, and only when, the Group has a legal right to setoff the amounts or intends either to settle on a net basis or to realize theasset and settle the liability simultaneously.

8383


84


y e a r 2 0 0 7

84

Fair Value Measurement:The fair values of financial assets and financial liabilities are determined asfollows:

• the fair value of financial assets and financial liabilities with standardterms and conditions and traded on active liquid markets are determinedwith reference to quoted market prices;

• the fair value of other financial assets and financial liabilities and thosetraded in inactive markets (excluding derivative instruments) aredetermined either based on quoted prices adjusted downward for factorsrelated to illiquidity or in accordance with generally accepted pricingmodels based on discounted cash flow analysis using prices fromobservable current market transactions, as applicable; and

• the fair value of derivative instruments, are calculated using quotedprices. Where such prices are not available, use is made of discounted cashflow analysis using the applicable yield curve for the duration of theinstruments for non-optional derivatives, and option pricing models foroptional derivatives.

Impairment of Financial Assets:Financial assets, other than those at “fair value through profit and loss”, areassessed for indicators of impairment at each balance sheet date. Financialassets are impaired where there is objective evidence that as a result of oneor more observable loss events, including significant or prolonged declinein fair value beyond one business cycle that occurred after the initialrecognition of the financial asset or group of financial assets, the estimatedfuture cash flows of the investment have been impacted.

For financial assets carried at amortized cost, the amount of theimpairment loss or specific provision for credit losses on non-performingloans and advances to customers, is the difference between the asset’scarrying amount and the present value of estimated future cash flows,discounted at the original effective interest rate, taking into consideration,for non-performing loans and advances to customers, the liquidating valueof any security on hand.

In addition to specific provision for credit losses on non-performing loansand advances to customers, provision for collective impairment is made ona portfolio basis for credit losses where there is objective evidence thatunidentified losses exist at the reporting date. This provision is estimatedbased on various factors including credit ratings allocated to a borrower orgroup of borrowers, the current economic conditions, the experience theGroup has had in dealing with a borrower or group of borrowers andavailable historical default information.




With the exception of available-for-sale equity instruments, if, in asubsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss isreversed through profit or loss to the extent that the carrying amount of theinvestment at the date the impairment is reversed does not exceed what theamortized cost would have been had the impairment not been recognized.

In respect of available-for-sale equity securities, any increase in fair valuesubsequent to an impairment loss is recognized directly in equity.

Designation at Fair Value Through Profit or Loss:The Group has designated financial assets and liabilities at fair valuethrough profit or loss when either:

• The assets or liabilities are managed, evaluated and reported internally ona fair value basis;

• The designation eliminates or significantly reduces an accountingmismatch which would otherwise arise; or

• The asset or liability contains an embedded derivative that significantlymodifies the cash flows that would otherwise be required under thecontract.

Financial assets and liabilities designated at fair value through profit orloss are initially recognized and subsequently measured at fair value.

G. INVESTMENT SECURITIESInvestment securities are initially measured at fair value plus incrementaldirect transaction costs, and subsequently accounted for depending ontheir classification as either held-to-maturity or available-for-sale.

Held-to-Maturity Investment Securities:Held-to-maturity investments are non-derivative assets with fixed ordeterminable payments and fixed maturity that the Group has the positiveintent and ability to hold to maturity, and which are not designated at fairvalue through profit or loss or available-for-sale.

Held-to-maturity investments are carried at amortized cost using thestraight line method where results approximate those resulting from theeffective interest method, less any impairment loss. Any sale orreclassification of a significant amount of held-to-maturity investmentsnot close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from

8585


86


y e a r 2 0 0 7

86

classifying investment securities as held-to-maturity for the current andthe following two financial years.

Available-for-Sale Investment Securities:Available-for-sale (AFS) investments are non derivative investments thatare not designated as another category of financial assets. Available-for-sale securities are stated at fair value, except for unquoted equity securitieswhose fair value cannot be reliably measured are carried at cost. Fair valueis determined in the manner described in note 3(F). Gains and lossesarising from changes in fair value are recognized directly in equity in the“change in fair value of available-for-sale securities” with the exception ofimpairment losses, interest and foreign exchange gains and losses onmonetary assets, which are recognized directly in profit or loss. Where theinvestment is disposed of or is determined to be impaired, the cumulativegain or loss previously recognized in the “change in fair value of available-for-sale securities” is included in profit or loss for the period.

The change in fair value on available-for-sale debt securities reclassified toheld-to-maturity is segregated from the change in fair value of available-for-sale debt securities under equity and is amortized over the remainingterm to maturity of the debt security as a yield adjustment.

Exchange of Debt Securities:Debt securities exchanged against securities with longer maturities, withsimilar risks, and issued by the same issuer, are not derecognized fromfinancial assets because they do not meet the conditions for derecognition.Premiums and discounts derived from the exchange of said securities aredeferred to be amortized as a yield enhancement on time proportionatebasis, over the period of the extended maturities.

Cost of Put Option:Cost of exercise of the put option related to the redemption right of debtsecurities is netted from the underlying cost of the related securities.

H. TRADING ASSETSA financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the nearfuture; or

• it is a part of an identified portfolio of financial instruments that theGroup manages together and has a recent actual pattern of short-termprofit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.




Financial assets held-for trading are stated at fair value, with any resultantgain or loss recognized in profit or loss. Fair value is determined in themanner described in note 3(F).

Subsequent to their initial recognition, trading securities are notreclassified.

I. LOANS AND ADVANCESLoans and advances are non-derivative financial assets that have fixed ordeterminable payments that are not quoted in an active market and areclassified as ‘loans and receivables’. Loans and receivables are measured atamortized cost, less any impairment. Interest income is recognized byapplying the effective interest rate.

Non-performing loans and advances to customers are stated net ofunrealized interest and provision for credit losses because of doubts andthe probability of non-collection of principal and/or interest.

J. FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS ISSUEDBY THE GROUPClassification as debt or equity:

Debt and equity instruments are classified as either financial liabilities oras equity in accordance with the substance of the contractualarrangement.

Equity instruments:An equity instrument is any contract that evidences a residual interest inthe assets of an entity after deducting all of its liabilities. Equityinstruments are recorded at the proceeds received, net of direct issue costs.

Financial guarantee contract liabilities:Financial guarantees contracts are contracts that require the Group tomake specified payments to reimburse the holder for a loss it incursbecause a specified debtor fails to make payment when due in accordancewith the terms of a debt instrument. These contracts can have variousjudicial forms (guarantees, letters of credit, credit-insurance contracts).

Financial guarantee contract liabilities are measured initially at their fairvalues and are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined inaccordance with IAS 37 Provisions, Contingent Liabilities and ContingentAssets; and

8787


88


y e a r 2 0 0 7

• the amount initially recognized less, where appropriate, cumulativeamortization recognized in accordance with the revenue recognitionpolicies set out above.

Other financial liabilities:Other financial liabilities, including borrowings, are initially measured atfair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost,with interest expense recognized on an effective yield basis.

K. DERIVATIVE FINANCIAL INSTRUMENTSDerivative financial instruments including foreign exchange contracts,currency and interest rate swaps, (both written and purchased) are initiallymeasured at fair value at the date the derivative contract is entered intoand are subsequently re-measured to their fair value at each balance sheetdate. All derivatives are carried at their fair value as assets where the fairvalue is positive and as liabilities where the fair value is negative. Theresulting gain or loss is recognized in the income statement immediatelyunless the derivative is designated and effective as a hedge instrument inwhich event the timing of the recognition in the income statementdepends on the hedge relationship. The Group designates certainderivatives as either hedges of the fair value recognized assets or liabilitiesor firm commitments (fair value hedges), hedges of highly probableforecast transactions or hedges of foreign currency risk of firmcommitments (cash flow hedges), or hedges of net investments inforeign operations.

Fair values are generally obtained by reference to quoted market prices,discounted cash flow models or pricing models as appropriate as indicatedunder Note 3 (F).

Embedded derivatives:Derivatives embedded in other financial instruments or other hostcontracts are treated as separate derivatives when their risks andcharacteristics are not closely related to those of the host contracts and thehost contracts are not measured at fair value with changes in fair valuerecognised in profit or loss.

Hedge accounting:The Group designates certain hedging instruments, which includederivatives, embedded derivatives and non-derivatives in respect of foreigncurrency risk, as either fair value hedges, cash flow hedges, or hedges of netinvestments in foreign operations. Hedges of foreign exchange risk on firmcommitments are accounted for as cash flow hedges.




89

At the inception of the hedge relationship, the entity documents therelationship between the hedging instrument and the hedged item, alongwith its risk management objectives and its strategy for undertakingvarious hedge transactions. Furthermore, at the inception of the hedge andon an ongoing basis, the Group documents whether the hedginginstrument that is used in a hedging relationship is highly effective inoffsetting changes in fair values or cash flows of the hedged item.

Fair Value Hedge:Changes in the fair value of derivatives that are designated and qualify asfair value hedges are recorded in profit or loss immediately, together withany changes in the fair value of the hedged item that are attributable to thehedged risk. The change in the fair value of the hedging instrument and thechange in the hedged item attributable to the hedged risk are recognised inthe line of the income statement relating to the hedged item.

Hedge accounting is discontinued when the Group revokes the hedgingrelationship, the hedging instrument expires or is sold, terminated, orexercised, or no longer qualifies for hedge accounting. The adjustment tothe carrying amount of the hedged item arising from the hedged risk isamortised to profit or loss from that date.

Cash Flow Hedge:The effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges are deferred in equity. The gain orloss relating to the ineffective portion is recognised immediately in profit or loss.

Amounts deferred in equity are recycled in profit or loss in the periodswhen the hedged item is recognised in profit or loss, in the same line of theincome statement as the recognised hedged item. However, when theforecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previouslydeferred in equity are transferred from equity and included in the initialmeasurement of the cost of the asset or liability.

Hedge accounting is discontinued when the Group revokes the hedgingrelationship, the hedging instrument expires or is sold, terminated, orexercised, or no longer qualifies for hedge accounting. Any cumulative gain orloss deferred in equity at that time remains in equity and is recognised whenthe forecast transaction is ultimately recognised in profit or loss. When aforecast transaction is no longer expected to occur, the cumulative gain or lossthat was deferred in equity is recognised immediately in profit or loss.

Hedges of net investments in foreign operations:Hedges of net investments in foreign operations are accounted for similarlyto cash flow hedges. Any gain or loss on the hedging instrument relating to


90


y e a r 2 0 0 7

the effective portion of the hedge is recognized in equity in the foreigncurrency translation reserve. The gain or loss relating to the ineffectiveportion is recognized immediately in profit or loss.

Gains and losses deferred in the foreign currency translation reserve arerecognized in profit or loss on disposal of the foreign operation.

L. INVESTMENTS IN ASSOCIATESAn associate is an entity over which the Group has significant influence andthat is neither a subsidiary nor an interest in a joint venture. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates, except where the Grouphas control over the associates’ financial and operating policies, areincorporated in the consolidated financial statements using the equitymethod of accounting, except when the investment is classified as held forsale, in which case it is accounted for under IFRS 5 Non current Assets Heldfor Sale and Discontinued Operations. Under the equity method,investments in associates are carried in the consolidated balance sheet atcost as adjusted for post acquisition changes in the Group's share of the netassets of the associate, less any impairment in the value of individualinvestments. Losses of an associate in excess of the Group's interest in thatassociate (which includes any long-term interests that, in substance, formpart of the Group's net investment in the associate) are not recognized.

Any excess of the cost of acquisition over the Group's share of the net fairvalue of the identifiable assets, liabilities and contingent liabilities of theassociate recognized at the date of acquisition is recognized as goodwill.The goodwill is included within the carrying amount of the investment andis assessed for impairment as part of the investment. Any excess of theGroup's share of the net fair value of the identifiable assets, liabilities andcontingent liabilities over the cost of acquisition, after reassessment, isrecognized immediately in the income statement.

Temporary investments in non-consolidated subsidiaries, which themanagement intends to dispose of within one year from the consolidatedbalance sheet date, are reflected in the consolidated balance sheet at fairvalue that is equivalent to its net realizable value as determined on the dateof the consolidated financial statements.

M. NON-CURRENT ASSETS HELD FOR SALENon-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than




91

through continuing use. This condition is regarded as met only when thesale is highly probable and the asset (or disposal group) is available forimmediate sale in its present condition. Management must be committedto the sale, which should be expected to qualify for recognition as acompleted sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held for sale aremeasured at the lower of the assets' previous carrying amount and fairvalue less costs to sell.

N. PROPERTY AND EQUIPMENTProperty and equipment except for buildings acquired prior to 1993 arestated at historical cost, less accumulated depreciation and anyimpairment loss. Buildings acquired prior to 1993 are stated at theirrevalued amounts, based on market prices prevailing during 1996 lessaccumulated depreciation and impairment loss, if any. Resultingrevaluation surplus is reflected under “Equity”.

Depreciation of property and equipment, other than land and advancepayments on capital expenditures, is calculated systematically using thestraight-line method over the estimated useful lives of the related assetsusing the following annual rates:

Buildings 2%Office improvements and installations 12.5 % - 20%Furniture 8% - 20%Equipment and machines 7% - 25%Computer equipment 20% - 33.33%Vehicles 10% - 20%

O. INTANGIBLE ASSETS OTHER THAN GOODWILLIntangible assets consisting of computer software are amortized over aperiod of three years and are subject to impairment testing. Subsequentexpenditure on software assets is capitalized only when it increases thefuture economic benefits embodied in the specific asset to which it relates.All other expenditure is expensed as incurred.

P. GOODWILLGoodwill arising on the acquisition of a subsidiary or a jointly controlledentity represents the excess of the cost of acquisition over the Group'sinterest in the net fair value of the identifiable assets, liabilities andcontingent liabilities of the subsidiary or jointly controlled entityrecognized at the date of acquisition. Goodwill is initially recognized as an


92


y e a r 2 0 0 7

asset at cost and is subsequently measured at cost less any accumulatedimpairment losses.

On disposal of a subsidiary or a jointly controlled entity, the attributableamount of goodwill is included in the determination of the profit or losson disposal.

The Group's policy for goodwill arising on the acquisition of an associate isdescribed under “Investments in Associates”.

For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocatedare tested for impairment annually, or more frequently when there is anindication that the unit may be impaired. If the recoverable amount of thecash-generating unit is less than the carrying amount of the unit, theimpairment loss is allocated first to reduce the carrying amount of anygoodwill allocated to the unit and then to the other assets of the unit pro-rataon the basis of the carrying amount of each asset in the unit. An impairmentloss recognized for goodwill is not reversed in a subsequent period.

Q. INVESTMENT PROPERTIESInvestment properties, which consist of properties held to earn rentalsand/or for capital appreciation, are stated at amounts that approximatetheir fair value at the balance sheet date. Gains or losses arising fromchanges in the fair value of investment properties are included in theincome statement in the period in which they arise.

R. ASSETS ACQUIRED IN SATISFACTION OF LOANS Real estate property has been acquired through the enforcement ofsecurity over loans and advances. These assets are measured at cost lessany accumulated impairment losses. The acquisition of such assets isregulated by the local banking authorities who require the liquidation ofthese assets within 2 years from acquisition. In case of default ofliquidation the Group’s lead regulator requires an appropriation of a specialreserve from the yearly net income that is reflected under equity.

S. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETSAt each balance sheet date, the carrying amounts of tangible andintangible assets are reviewed to determine whether there is anyindication that these assets have suffered an impairment loss. If any suchindication exists, the recoverable amount is estimated in order todetermine the extent of impairment provision required, if any.




93

Recoverable amount is defined as the higher of:

• Fair value that reflects market conditions at the balance sheet date, lesscost to sell, if any. To determine fair value the Group adopts the marketcomparability approach using as indicators the current prices for similarassets in the same location and condition.

• Value in use: the present value of estimated future cash flows expected toarise from the continuing use of the asset and from its disposal at the endof its useful life, only applicable to assets with cash generation units.

In this connection, the recoverable amount of the Group’s owned propertiesand of properties acquired in satisfaction of debts, is the estimated marketvalue, as determined by real estate appraisers on the basis of marketcompatibility by comparing with similar transactions in the samegeographical area and on the basis of the expected value of a current salebetween a willing buyer and a willing seller, that is, other than in a forcedor liquidation sale.

The impairment loss is charged to income.

T. EMPLOYEES' BENEFITSObligations for contributions to defined employees’ benefits are recognizedas an expense on a current basis.

Employees' End-of-Service Indemnities: (Under the Lebanese Jurisdiction)The provision for staff termination indemnities is based on the liabilitythat would arise if the employment of all the staff were terminated at thebalance sheet date. This provision is calculated in accordance with thedirectives of the Lebanese Social Security Fund and Labor laws based on thenumber of years of service multiplied by the monthly average of the last 12months remunerations and less contributions paid to the Lebanese SocialSecurity National Fund and interest accrued by the Fund.

Defined benefit plans: (Under other jurisdictions)Obligations in respect of defined benefit pension plans is calculated separatelyfor each plan by estimating the amount of future benefit that employees haveearned in return for their service in the current and prior periods; that benefitis discounted to determine its present value, and any unrecognized pastservice costs and the fair value of any plan assets are deducted.

U. PROVISIONSProvisions are recognized when the Group has a present obligation as aresult of a past event, and it is probable that the Group will be required tosettle that obligation. Provision is measured at the best estimate of theconsideration required to settle the obligation at the balance sheet date.


94


y e a r 2 0 0 7

Where a provision is measured using the cash flows estimated to settle thepresent obligation, its carrying amount is the present value of those cashflows determined at by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value ofmoney and, where appropriate, the risks specific to the liability.

When some or all of the economic benefits required to settle a provision areexpected to be recovered from a third party, the receivable is recognized asan asset if it is virtually certain that reimbursement will be received andthe amount of the receivable can be measured reliably.

V. REVENUE AND EXPENSE RECOGNITIONInterest income and expense are recognized on an accrual basis, takingaccount of the principal outstanding and the rate applicable, except fornon-performing loans and advances for which interest income is onlyrecognized upon realization. Interest income and expense include theamortization discount or premium.

Interest income and expense presented in the income statement include:

• Interest on financial assets and liabilities at amortized cost.• Interest on available-for-sale investment securities.• Fair value changes in qualifying derivatives and related hedged items

when interest rate risk is the hedged risk.

Net trading income presented in the income statement includes:

• Interest income and expense on the trading portfolio.• Dividend income on the trading equities.• Realized and unrealized gains and losses on the trading portfolio.

Interest income and expense on financial portfolio designated at fair valuethrough profit or loss upon initial recognition is recognized under netincome from other financial instruments carried at fair value.

Fees and commission income and expense that are integral to the effectiveinterest rate on a financial asset or liability (i.e. commissions and feesearned on the loan book) are included under interest income and expense.

Other fees and commission income are recognized as the related servicesare performed.

Dividend income is recognized when the right to receive payment is established.




95

W. INCOME TAXIncome tax expense represents the sum of the tax currently payable anddeferred tax. Income tax is recognized in the income statement except tothe extent that it relates to items recognized directly in equity, in whichcase it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year,using rates enacted at the balance sheet date. Income tax payable isreflected in the consolidated balance sheet net of taxes previously settledin the form of withholding tax.

Deferred tax is recognized on differences between the carrying amountsof assets and liabilities in the financial statements and the correspondingtax base used in the computation of taxable profit, and are accounted forusing the balance sheet liability method. Deferred tax liabilities aregenerally recognized for all taxable temporary differences and deferredtax assets are recognized to the extent that it is probable that taxableprofits will be available against which deductible temporary differencescan be utilized.

X. FIDUCIARY DEPOSITSAll fiduciary deposits are held on a non-discretionary basis and related risksand rewards belong to the account holders. Accordingly, they are reflectedas off-balance sheet accounts.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OFESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which aredescribed in note 3, the directors are required to make judgements,estimates and assumptions about the carrying amounts of assets andliabilities that are not readily apparent from other sources. Theestimates and associated assumptions are based on historicalexperience and other factors that are considered to be relevant. Actualresults may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoingbasis. Revisions to accounting estimates are recognised in the period inwhich the estimate is revised if the revision affects only that period or inthe period of the revision and future periods if the revision affects bothcurrent and future periods.


96


y e a r 2 0 0 7

A. CRITICAL ACCOUNTING JUDGMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIES

Classification of Financial Assets:The Group’s accounting policies provide scope for investment securities to bedesignated on inception into different categories in certain circumstancesbased on specific conditions. In classifying investment securities as held-to-maturity, the Group has determined that it has both the positive intent andability to hold these assets until their maturity as required by in accountingpolicy under Note 3G. The carrying amount of the held-to-maturity financialassets is LBP 1,667.35 billion at 2007 year end. If the Group fails to keep theseinvestments until maturity other than for the specific circumstances, it willrequire reclassifying the entire category as available for sale that will bemeasured at fair value with the corresponding cumulative negative changein fair value of LBP 77.47 billion at December 31, 2007 booked in equity.

In designating financial assets or liabilities at fair value through profit orloss, the Group has determined that it has met one of the criteria for thisdesignation set out in accounting policy 3(F).

Qualifying hedge relationships:In designating financial instruments as qualifying hedge relationships, theGroup has determined that it expects the hedge to be highly effective overthe life of the hedging instrument.

In accounting for derivatives as cash flow hedges, the Group hasdetermined that the hedged cash flow exposure relates to highly probablefuture cash flows.

B. KEY SOURCES OF ESTIMATION UNCERTAINTYThe following are the key assumptions concerning the future, and otherkey sources of estimation uncertainty at the balance sheet date, that havea significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year.

Allowances for Credit Losses:Specific impairment for credit losses is determined by assessing each caseindividually. This method applies to classified loans and advances and thefactors taken into consideration when estimating the allowance for creditlosses include the counterparty’s credit limit, the counterparty’s ability togenerate cash flows sufficient to settle his advances and the value ofcollateral and potential repossession. Loans collectively assessed forimpairment are determined based on losses incurred by loans portfolioswith similar characteristics.




97

Determining Fair Values:The determination of fair value for financial assets for which there is noobservable market price requires the use of valuation techniques asdescribed in Note 3F. For financial instruments that trade infrequently andhave little price transparency, fair value is less objective, and requiresvarying degrees of judgment depending on liquidity, concentration,uncertainly of market factors, pricing assumptions and other risksaffecting the specific instrument.

Impairment of goodwill:Determining whether goodwill is impaired requires an estimation of thevalue in use of the cash-generating units to which goodwill has beenallocated. The value in use calculation requires the directors to estimate thefuture cash flows expected to arise from the cash-generating unit and asuitable discount rate in order to calculate present value.

Impairment of available for-sale equity investments:The Group determines that available for sale equity investments areimpaired when there has been a significant or prolonged decline in the fairvalue below its cost. This determination requires judgment. In making thisjudgment the Group evaluates among other factors, the normal volatilityin share price. In addition, the Group considers impairment to beappropriate when there is evidence of deterioration in the financial healthof the investee, industry and sector performance, changes in technology,and operational and financing cash flows.

5. CASH, COMPULSORY RESERVES AND DEPOSITS AT CENTRAL BANKS

Compulsory deposits with central banks are not available for use in theGroup’s day-to-day operations and are reflected at amortized cost.

Cash on hand 51,320,789 39,123,005

Compulsory reserves with the Central Bank of Lebanon 156,909,350 171,743,654

Current accounts with the Central Bank of Lebanon 9,386,868 10,866,316

Current accounts with other central banks 1,505,136 829,481

Term placements with the Central Bank of Lebanon 1,126,705,500 942,036,750

Term placements with other central banks 88,645,861 -

Accrued interest receivable 5,822,332 3,741,671

1,440,295,836 1,168,340,877

December 31,

2007 2006

LBP'000 LBP'000


98


y e a r 2 0 0 7

Non-interest earning cash compulsory reserves with Central Bank ofLebanon represent deposits in Lebanese Pounds computed on the basis of25% and 15% of the average weekly sight and term customers’ deposits inLebanese Pounds in accordance with the local banking regulations.

Term placements with Central Bank of Lebanon include the equivalent inforeign currencies of LBP 1,126.7 billion as at December 31, 2007 (LBP 942.04billion as at December 31, 2006) deposited in accordance with local bankingregulations which require banks to maintain interest earning placementsin foreign currency to the extent of 15% of customers’ deposits in foreigncurrencies, certificates of deposits and loans acquired from non-residentfinancial institutions.

Term placements with other central banks include the equivalent inTurkish Lira and foreign currencies of LBP 49.33 billion as at December 31,2007 deposited in accordance with banking laws and regulations in Turkeywhich require banks to maintain at the Central Bank of Turkey mandatoryinterest earning deposits to the extent of 6% of their liabilities in TurkishLira and 11% of their liabilities in foreign currencies.

Term placements with other central banks also include the equivalent inEuro of LBP 39.31 billion as at December 31, 2007 deposited in accordancewith banking laws and regulations in Cyprus which require banks tomaintain at the Central Bank of Cyprus mandatory interest earningdeposits in Euro to the extent of 2% of banks’ and customers’ depositsmaturing in less than two years, after deducting a fixed amount of Euro 100,000.

Term placements with the Central Bank of Lebanon bear the followingmaturities:



1st quarter 2008 486,470,250 4.11

2nd half of 2008 2,562,750 5.98

Year 2009 54,270,000 5.21

Year 2010 78,390,000 5.69

Year 2012 505,012,500 5.76

1,126,705,500

December 31, 2007

Maturity

F/Cy Base Accounts

Amount LBP’000 Average Interest Rate %


99

Term placements with other central banks bear the following maturities:

6. DEPOSITS WITH BANKS AND FINANCIAL INSTITUTIONS

1st quarter 2007 653,501,250 4.982nd quarter 2007 114,570,000 6.622nd half 2007 101,304,000 6.64Year 2008 7,839,000 6.34Year 2009 54,270,000 5.37Year 2010 10,552,500 6.23

942,036,750

December 31, 2006

Maturity

F/Cy Base AccountsAmount LBP’000 Average Interest Rate %

1st quarter 2008 88,645,861 4.41

88,645,861

December 31, 2007

Maturity

F/Cy Base Accounts


Checks in course of collection 33,988,702 24,271,923

Current accounts 208,547,415 20,593,070

Current accounts - related parties 1,011,757 206,593

Call placements 6,783,750 -

Overnight placements 630,127,500 224,316,000

Overnight placements - related parties 19,691,784 62,812,396

Term placements 1,546,623,735 578,750,028

Term placements - related parties 457,635,711 10,065,907

Loans to banks 15,528,000 7,500,000

Accrued interest receivable 1,473,959 2,575,148

2,921,412,313 931,091,065

December 31,

2007 2006

LBP'000 LBP'000


100


y e a r 2 0 0 7

Term placements, overnight placement and call placements bear thefollowing maturities:

Deposits with banks and financial institutions include time deposits in theamount of LBP 9.8 billion and current accounts in the amount of LBP 739million as at December 31, 2007 (LBP 47.48 billion and LBP6 5.87 million as atDecember 31, 2006, respectively) with right of set-off, against currentdeposits of banks and financial institutions amounting to LBP 3.77 billion,acceptances payable amounting to LBP 2.05 billion, letters of guaranteesamounting to LBP 16.16 billion, letters of credit amounting to LBP 9.96billion and forward contracts amounting to LBP 23.96 billion (LBP 1.99billion, LBP 5.53 billion, LBP 14.48 billion, LBP 2.2 billion and LBP 49.36 billionas at December 31, 2006 respectively).

Loans to banks bear the following maturities:

On October 15, 2004, the Group contracted a 12 year financing loan of LBP 3billion with a resident housing bank. The loan is subject to an interest rateequivalent to 40% of the 3 years treasury bills yield plus 1.75%. The rate



1st quarter of 2007 875,944,331 4.98

875,944,331

December 31, 2006

Maturity

Accounts in F/Cy


1st quarter of 2008 1,500,000 4.25 2,659,362,480 5.45

1,500,000 2,659,362,480

December 31, 2007

Maturity

Accounts in LBP Accounts in F/Cy

AmountLBP’000

AverageInterest Rate %

AmountLBP’000


Year 2016 2,700,000 5.49 3,000,000 5.22

Year 2017 4,500,000 5.49 4,500,000 5.49

Year 2019 8,328,000 5.49 - -

15,528,000 7,500,000

December 31, 2007 December 31, 2006

Maturity

Accounts in LBP Accounts in F/Cy

AmountLBP’000


AmountLBP’000



101

applied for the first 3 years was set at 5.22%. On October 15, 2007 interestwas reset for 3 years at 5.49%. Interest is paid semi-annually. The loan ispayable after a grace period of 2 years in 10 equal annual installmentsstarting October 15, 2006. As a guarantee for this loan, the borrower haspledged in favor of the Group bills related to the housing loans granted toits customers. The balance of these housing loans subject to the pledgeshould be maintained at a minimum of 125% of the loan.

On August 4, 2005, the Group contracted another 12 year financing loan withthe same bank in the amount of LBP 3 billion subject to an interest rateequivalent to 40% of the 3 years treasury bills yield plus 1.75%. The rate appliedwas set at 5.49%. The loan is payable after a grace period of 2 years in 10 equalannual installments starting August 4, 2008. The balance of the housing loanssubject to the pledge should be maintained at a minimum of 125%.

On December 26, 2005, the Group also contracted a 12 year financing loanof LBP 1.5 billion with the above mentioned resident housing bank subjectto the same conditions applied to the loan granted on August 4, 2005. Theloan is payable after a grace period of 2 years in 10 equal annualinstallments starting December 28, 2008. The balance of the housing loanssubject to the pledge should also be maintained at a minimum of 125%.

On October 23, 2007 the Group contracted another 12 year financing loanwith the same bank in the amount of LBP 8.33 billion subject to the sameconditions of the previous loan. As a guarantee for this loan, the borrowerhas pledged in favor of the Group bills related to the housing loans grantedto its customers. The balance of the housing loans subject to the pledgeshould be maintained at a minimum of 110% of the loan balance. The loanis payable after a grace period of 2 years in 10 equal annual installmentsstarting October 12, 2010.

Accrued interest receivable is segregated as follows as at December 31, 2007and 2006:

Current accounts 194 - - -

Overnight Placement 349 - 66,342 18,471

Call Placements 128,609 - - -

Term placements andloans to banks 1,337,887 6,920 2,466,963 23,372

1,467,039 6,920 2,533,305 41,843

December 31,

2007 2006

Non-relatedLBP’000

Related PartiesLBP’000

Non-relatedLBP’000

Related PartiesLBP’000


102


y e a r 2 0 0 7

7. TRADING ASSETS

This caption consists of the following:

Foreign government bonds as at December 31, 2007 include bonds issued bythe Turkish Government in the amount of LBP 158.7 billion.

Equity securities as at December 31, 2007 represent quoted securities ofLebanese banks and companies held by the Group for trading purposes andare stated at the fair value prevailing at year-end.

Dividends received during the years 2007 and 2006 in the amount of LBP128 million and LBP 40 million, respectively are reflected under “Net interestand gains and losses on trading portfolio” in the consolidated incomestatement (Note 35).



Lebanese Government bonds - 1,480,895 1,480,895

Foreign Government bonds - 163,601,163 163,601,163

Certificates of deposit issued by banks - - -

Quoted equity securities 720,101 5,483,075 6,203,176

Accrued interest receivable - 67,735 67,735

720,101 170,632,868 171,352,969

December 31,

2007

LBPLBP’000

C/V of F/CyLBP’000

TotalLBP’000

Lebanese Government bonds - 1,366,049 1,366,049

Foreign Government bonds - - -

Certificates of deposit issued by banks - 1,507,500 1,507,500

Quoted equity securities 589,765 1,521,881 2,111,646

Accrued interest receivable - 60,699 60,699

589,765 4,456,129 5,045,894

December 31,

2006

LBPLBP’000


TotalLBP’000


103

Fixed income trading debt securities are segregated by remaining periodsto maturity as follows:

The movement of trading assets for the year ended December 31, 2007,exclusive of the accrued interest, is as follows:

1 year to 3 years 1,480,895 9.02

1,480,895

Up to 1 year 65,380,694 15.71

1 year to 3 years 84,305,593 17.13

3 years to 5 years 1,738,060 15.85

5 years to 10 years 7,316,127 20.50

Beyond 10 years 4,860,689 6.82

163,601,163

165,082,058

December 31, 2007

Lebanese Government bonds

Foreign Government bonds

Amount LBP’000 Yield %

1 year to 3 years 1,366,049 6.30

1,366,049

Up to 1 year 1,507,500 6.88

1,507,500

2,873,549

December 31, 2006

Lebanese Government bonds

Certificates of deposit issued by banks

Amount LBP’000 Yield %

Balance beginning of year 2,111,646 1,366,049 - 1,507,500 4,985,195

Effect of subsidiary acquisition 368,338 - 93,649,685 - 94,018,023

Additions 4,558,378 - 415,473,594 - 420,031,972

Sales (980,241) - (377,116,299) - (378,096,540)

Redemption - - - (1,507,500) (1,507,500)

Positive change in fair value(unrealized profit) 459,564 - 10,668,016 - 11,127,580

Negative change in fair value(unrealized loss) (383,153) (41,361) (63,858) - (488,372)

Effect of exchange difference 68,645 156,207 20,990,024 - 21,214,876

Balance end of year 6,203,177 1,480,895 163,601,162 - 171,285,234

2007

Quoted EquitySecuritiesLBP’000

GovernmentBonds

LBP’000

ForeignGovernment

BondsLBP’000

Certificates ofdeposit issued

by banksLBP’000

Total


104


y e a r 2 0 0 7

8. LOANS AND ADVANCES TO CUSTOMERS

Loans and advances to customers are reflected at amortized cost andconsist of the following:



Regular Retail customers• Mortgage loans 19,520,877 - - 19,520,877• Personal loans 142,964,713 - - 142,964,713• Credit cards 6,195,744 - - 6,195,744• Overdrafts 31,869,498 - - 31,869,498• Other 121,370,809 - - 121,370,809Classified Retail Customers• Substandard 2,118,730 (176,514) - 1,942,216• Bad and doubtful 25,899,353 (14,418,012) (10,037,772) 1,443,569• Collective provision - - (453,984) (453,984)Regular Corporate customers• Rescheduled 36,252,570 - - 36,252,570• Corporate 2,048,281,826 - (2,885,028) 2,045,396,798• Small and medium enterprises 269,656,823 - (353,873) 269,302,950Classified Corporate Customers• Rescheduled substandard 16,093,335 (4,051,543) - 12,041,792• Substandard 30,391,662 (6,517,097) - 23,874,565• Rescheduled bad and doubtful 173,973,011 (124,719,396) (34,896,544) 14,357,071• Bad and doubtful 218,811,026 (114,288,355) (81,891,876) 22,630,795Collective provision - - (47,500,935) (47,500,935)Deferred penalties charged on excess over limit (11,440,043) - - (11,440,043)Accrued interest receivable 20,139,876 - - 20,139,876

3,152,099,810 (264,170,917) (178,020,012) 2,709,908,881

December 31, 2007

Gross AmountLBP’000

UnrealizedInterestLBP’000

ImpairmentAllowance

LBP’000

CarryingAmountLBP’000

December 31, 2006

Regular Retail customers• Mortgage loans 9,077,595 - - 9,077,595• Personal loans 74,647,185 - - 74,647,185• Credit cards 2,987,073 - - 2,987,073• Overdrafts 35,965,137 - - 35,965,137• Other 125,054,012 - - 125,054,012Classified Retail Customers• Substandard 1,590,930 (267,569) - 1,323,361• Bad and doubtful 30,593,395 (13,180,445) (13,136,089) 4,276,861• Collective provision - - - -Regular Corporate customers• Rescheduled 55,667,992 (17,877,173) - 37,790,819• Corporate 1,311,528,013 - - 1,311,528,013• Small and medium enterprises 14,807,543 - - 14,807,543Classified Corporate Customers• Rescheduled substandard 10,927,522 (3,543,976) - 7,383,546• Substandard 26,318,707 (4,883,885) - 21,434,822• Rescheduled bad and doubtful 167,799,028 (53,299,706) (49,944,751) 64,554,571• Bad and doubtful 361,239,367 (236,756,012) (101,218,108) 23,265,247Collective provision - - (12,373,560) (12,373,560)Deferred penalties charged on excess over limit (11,621,650) - - (11,621,650)Accrued interest receivable 5,143,621 - - 5,143,621

2,221,725,470 (329,808,766) (176,672,508) 1,715,244,196


105

The carrying value of loans and advances to customers includesaccidentally debtors’ balances with carrying value amounting to LBP 11.25billion as at December 31, 2007 (LBP 11.37 billion in 2006).

Loans and advances to customers as at December 31, 2007 and 2006 arestated net of third parties’ participation to the extent of LBP 4.32 billion andLBP 8.91 billion, respectively.

Loans and advances to customers also include net multicurrency tradingexposures amounting to LBP 19.75 million at 2007 year end (Nil at 2006 year end).

The Group has deferred penalty interest in the amount of LBP 11.44 billionas at December 31, 2007, charged to customers’ accounts with balances inexcess of facilities’ limits (LBP 11.62 billion as at December 31, 2006).

As at December 31, 2007, special mention regular corporate loans in thegross notional amount of LBP 36.25 billion were reported underrestructured loans. In addition, substandard corporate loans in the grossnotional amount of LBP 16.09 billion net of unrealized interest amountingto LBP 2.69 billion were reported under restructured loans net of waivedloans in the amount of LBP 1.36 billion which was offset against unrealizedinterest on substandard loans. Moreover, bad and doubtful loans in thegross notional amount of LBP 173.97 billion net of unrealized interest andprovisions for credit losses amounting to LBP 51.24 billion and LBP 0.5billion, respectively, were reported under restructured debts net of waivedloans in the amount of LBP 107.88 billion which was off-set againstunrealized interest and provision on bad and doubtful loans in theamounts of LBP 73.48 billion and LBP 34.4 billion, respectively.

The movement of unrealized interest on substandard loans during 2007and 2006 is summarized as follows:

Balance January 1 8,695,430 15,267,278

Additions from entities acquired by merger in 2006 - 11,311

Additions 3,746,417 4,462,761

Write-back to income statement (603,085) (4,369,830)

Write-off (1,010,217) (1,950,602)

Transfer to off-balance sheet (231,362) (1,291,708)

Transfer from/to doubtful and bad loans 159,523 (3,435,510)

Effect of exchange rate changes - 1,730

Other (11,552) -

Balance December 31 10,745,154 8,695,430

Contractual write-off on restructured debts (1,358,897) (3,487,517)

Net balance, end of year 9,386,257 5,207,913

2007 2006LBP'000 LBP'000


106


y e a r 2 0 0 7

The movement of allowance for impairment on substandard loans during2007 is summarized as follows:

The movement of unrealized interest on doubtful and bad loans during2007 and 2006 is summarized as follows:

The movement of allowance for impairment on doubtful and bad loansduring 2007 and 2006 is summarized as follows:



Balance January 1 -

Additions 3,233,852

Write-back to income statement (2,340)

Transfer to/from doubtful and bad loans (3,551,596)

Effect of exchange rate changes 320,084

Balance December 31 -

2007

LBP'000

Balance January 1 321,113,336 372,781,271

Additions 45,698,503 54,304,585

Write-off (34,303,951) (35,734,055)

Write-back to income statement (2,624,658) (12,586,237)

Transfer to/from substandard loans (159,523) 3,219,321

Transfer to off-balance sheet (75,220,843) (59,206,316)

Transfer to unrealized interest for non-consolidated subsidiary (1,111,972) (1,934,987)

Effect of exchange rate changes (76,681) 283,283

Other 111,552 (13,529)


Contractual write-off on restructured debts (73,480,011) (71,424,023)


2007 2006

LBP'000 LBP'000

Balance January 1 154,348,513 182,201,840

Additions from acquisition of a new subsidiary 5,660,435 -

Additions 3,696,387 26,355,981

Write-off (23,744,004) (20,204,696)

Write-back to income statement (7,828,714) (8,094,911)

Transfer from substandard loans 3,551,596 -

Transfer to off-balance sheet (19,386,870) (29,984,194)

Transfer to provision for non-consolidated subsidiary (222,300) 4,005,669

Effect of exchange rate changes 1,301,250 68,824


Contractual write-off on restructured debts(including regular restructured loans) (34,399,620) (49,944,751)


Escrow funds 9,449,899 9,950,435

Balance end of year, (net) 92,426,572 114,354,197

2007 2006

LBP'000 LBP'000


107

The movement of the escrow funds is summarized as follows:

Escrow funds in the amount of USD 6,268,590 as at December 31, 2007, arepartially funded by the Group to the extent of USD 2 million and thebalance is funded by the previous shareholders of Allied Bank S.A.L., amerged subsidiary, for the purpose of covering any shortfall in theprovision for doubtful accounts. An amount of USD 4,105,859 out of theescrow funds as at December 31, 2007, became the irrevocable right of theGroup as of the year 2002.

The movement of the allowance for collective impairment during 2007 and2006 is as follows:

9. LOANS AND ADVANCES TO RELATED PARTIES

Balance, beginning of year 9,950,435 12,353,755

Write-backs - (98,650)

Transfer to off-balance sheet (500,536) (2,304,670)

Balance, end of year 9,449,899 9,950,435

December 31,

2007 2006

LBP'000 LBP'000

Regular Retail Accounts:

Mortgage loans 2,858,494 -

Other 100,055 103,959

Regular Corporate Accounts:

Overdrafts 200,681,185 206,094,968

Medium and long term loans 190,008,954 41,601,966

Accidentally debtors 11,138 204,336,333

Accrued interest receivable 4,689 4,374

393,664,515 452,141,600

December 31,

2007 2006

LBP'000 LBP'000

Balance January 1 12,373,560 -

Additions 36,788,790 12,373,560

Additions due to acquisition of subsidiary 1,787,785 -

Write-back to income statement (233,998) -

Effect of exchange rate changes 477,683 -


2007 2006

LBP'000 LBP'000


108


y e a r 2 0 0 7

10. INVESTMENT SECURITIES



Quoted equity securities 2,667,732 601,771,773 604,439,505

Unquoted equity securities 6,238,680 7,262,852 13,501,532

Lebanese treasury bills 803,658,621 - 803,658,621

Lebanese government bonds - 1,366,484,034 1,366,484,034

Certificates of deposit issued bythe Central Bank of Lebanon 58,700,883 508,604,710 567,305,593


Corporate debt securities - 154,830,953 154,830,953

Cumulative preferred shares issuedby a Lebanese Bank - 6,030,000 6,030,000

Convertible preferred shares issuedby a Lebanese bank - 4,543,228 4,543,228

Non-cumulative preferred sharesissued by a Lebanese bank - 31,783,678 31,783,678

Accrued interest receivable 24,798,407 45,365,517 70,163,924

896,064,323 2,726,676,745 3,622,741,068

December 31, 2007

Available-for-Sale

LBPLBP’000


TotalLBP’000

Quoted equity securities - - -

Unquoted equity securities - - -






Cumulative preferred shares issuedby a Lebanese Bank - - -

Convertible preferred shares issuedby a Lebanese bank - - -

Non-cumulative preferred sharesissued by a Lebanese bank - - -


368,878,326 1,332,161,352 1,701,039,678

Held-to-Maturity

LBPLBP’000


TotalLBP’000


109

Quoted equity securities 2,656,377 392,642,372 395,298,749

Unquoted equity securities 6,238,680 2,336,625 8,575,305





Corporate debt securities - - -

Cumulative preferred shares issuedby a Lebanese Bank - 6,030,000 6,030,000

Convertible preferred shares issuedby a Lebanese bank - 4,543,228 4,543,228

Non-cumulative preferred sharesissued by a Lebanese bank - 31,783,678 31,783,678


789,359,498 2,134,446,034 2,923,805,532

December 31, 2006

Available-for-Sale

LBPLBP’000


TotalLBP’000

Quoted equity securities - - -

Unquoted equity securities - - -






Cumulative preferred shares issuedby a Lebanese bank - - -

Convertible preferred shares issuedby a Lebanese bank - - -

Non-cumulative preferred sharesissued by a Lebanese bank - - -


404,129,736 1,564,310,809 1,968,440,545

Held-to-Maturity

LBPLBP’000


TotalLBP’000


110


y e a r 2 0 0 7

A. AVAILABLE-FOR-SALE INVESTMENT SECURITIES



Quoted equity securities 1,542,754 2,667,732 1,124,978 -Unquoted equity securities at cost 6,238,680 6,238,680 - -Lebanese treasury bills 793,766,984 803,658,621 9,891,637 17,319,428Lebanese Government bonds - - - -Certificates of deposit issued by CentralBank of Lebanon 57,219,266 58,700,883 1,481,617 7,478,979Corporate debt securities - - - -Cumulative preferred shares issued bya Lebanese Bank - - - -Convertible preferred shares issued bya Lebanese bank - - - -Non-cumulative preferred shares issued bya Lebanese bank - - - -

858,767,684 871,265,916 12,498,232 24,798,407Less: Deferred tax (1,874,735)

10,623,497

LBP Base Accounts

December 31, 2007

Amortized CostLBP’000

Fair ValueLBP’000

F/Cy Base Accounts

Quoted equity securities 199,468,416 601,771,773 402,303,357 -Unquoted equity securities at cost 7,262,852 7,262,852 - -Lebanese treasury bills - - - -Lebanese Government bonds 1,472,222,457 1,366,484,034 (105,738,423) 35,196,079Certificates of deposit issued by CentralBank of Lebanon 527,934,453 508,604,710 (19,329,743) 5,858,397Corporate debt securities 153,569,025 154,830,953 1,261,928 4,311,041Cumulative preferred shares issued bya Lebanese Bank 6,030,000 6,030,000 - -Convertible preferred shares issued bya Lebanese bank 4,543,228 4,543,228 - -Non-cumulative preferred shares issued bya Lebanese bank 31,783,678 31,783,678 - -

2,402,814,109 2,681,311,228 278,497,119 45,365,517Less: Deferred tax (42,265,167)

236,231,952


Fair ValueLBP’000

CumulativeChange inFair ValueLBP’000


AccruedInterest

ReceivableLBP’000

AccruedInterest

ReceivableLBP’000


111

Quoted equity securities 1,542,754 2,656,377 1,113,623 -Unquoted equity securities at cost 6,238,680 6,238,680 - -Lebanese treasury bills 732,748,835 733,260,433 511,598 15,482,149Certificates of deposit issued by CentralBank of Lebanon 28,960,772 28,963,899 3,127 2,757,960

769,491,041 771,119,389 1,628,348 18,240,109Less: Deferred tax (244,252)

1,384,096

LBP Base Accounts

December 31, 2006


Fair ValueLBP’000


AccruedInterest

ReceivableLBP’000

F/Cy Base Accounts

Quoted equity securities 129,135,649 392,642,372 263,506,723 -Unquoted equity securities at cost 2,336,625 2,336,625 - -Lebanese treasury bills - - - -Lebanese Government bonds 1,485,529,985 1,393,995,916 (91,534,069) 34,924,957Certificates of deposit issued by CentralBank of Lebanon 272,044,018 264,046,126 (7,997,892) 4,143,132Cumulative preferred shares issued bya Lebanese Bank 6,030,000 6,030,000 - -Convertible preferred shares issued bya Lebanese bank 4,543,228 4,543,228 - -Non-cumulative preferred shares issued bya Lebanese bank 31,783,678 31,783,678 - -

1,931,403,183 2,095,377,945 163,974,762 39,068,089Less: Deferred tax (24,166,642)

139,808,120


Fair ValueLBP’000


AccruedInterest

ReceivableLBP’000


Available-for-sale investments are segregated over remaining periods tomaturity as follows:

h i g h l i g h t s o f t h ei n d e p e n d e n t


Lebanese treasury billsUp to one year 146,634,480 146,660,926 148,124,054 6.4431 year to 3 years 641,144,450 642,010,975 650,751,787 8.6093 years to 5 years 5,100,000 5,095,083 4,782,780 11.719

792,878,930 793,766,984 803,658,621Certificates of deposit issued bythe Central Bank of Lebanon:Up to one year 9,000,000 9,119,985 9,287,661 7.5421 year to 3 years 47,000,000 48,099,281 49,413,222 9.032

56,000,000 57,219,266 58,700,883Total Lebanese Pounds Base Account 2007 848,878,930 850,986,250 862,359,504

December 31, 2007

Lebanese Pounds Base Accounts

NominalValue

LBP’000Contractual Maturity

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006


732,363,613 732,748,835 733,260,433Certificates of deposit issued bythe Central Bank of Lebanon:Up to one year - - - -1 year to 3 years 28,000,000 28,960,772 28,963,899 9.830


Lebanese Government bondsUp to one year 253,502,708 256,852,249 251,712,860 9.0891 year to 3 years 309,883,994 314,036,295 298,893,176 9.4923 years to 5 years 111,245,555 111,301,024 103,078,317 8.4395 years to 10 years 380,830,680 400,182,694 361,385,790 9.551Beyond 10 years 390,113,111 389,850,195 351,413,891 9.583

1,445,576,048 1,472,222,457 1,366,484,034

December 31, 2007

Foreign Currency Base Accounts

NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006


1,448,772,028 1,485,529,984 1,393,995,916

112

Contractual MaturityNominal

ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%


113

Certificates of deposit issued by theCentral Bank of Lebanon:1 year to 3 years 32,411,250 32,411,250 31,097,523 9.6913 years to 5 years 261,177,390 261,177,390 257,020,584 9.4075 years to 10 years 218,195,550 234,345,813 220,486,603 9.790

511,784,190 527,934,453 508,604,710

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006

Certificates of deposit issued by theCentral Bank of Lebanon:1 year to 3 years 94,972,500 94,972,500 93,833,745 8.5013 years to 5 years - - -5 years to 10 years 161,242,200 177,071,518 170,212,381 9.055

256,214,700 272,044,018 264,046,126

Corporate Debt securitiesUp to one year 128,137,500 128,137,500 129,776,906 8.3061 year to 3 years 15,075,000 15,075,000 14,547,375 10.0183 years to 5 years 10,356,525 10,356,525 10,506,672 6.998

153,569,025 153,569,025 154,830,953

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006

Corporate Debt securitiesUp to one year - - -1 year to 3 years - - -3 years to 5 years - - -

- - -

Cumulative preferred shares issuedby a Lebanese bank3 years to 5 years 6,030,000 6,030,000 6,030,000 7.500

6,030,000 6,030,000 6,030,000

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006

Cumulative preferred shares issuedby a Lebanese bank3 years to 5 years 6,030,000 6,030,000 6,030,000 7.500

6,030,000 6,030,000 6,030,000


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

Annual Report 08-08-2008 dergh (70-200).qxd7:Layout 1 8/12/08 11:55 AM


y e a r 2 0 0 7



114

Convertible preferred shares issuedby a Lebanese bankUp to one year - - - 1 year to 3 years 1,516,922 1,516,922 1,516,922 7.0003 years to 5 years 3,026,306 3,026,306 3,026,306 9.000

4,543,228 4,543,228 4,543,228

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006

Certificates of deposit issued by theCentral Bank of Lebanon:Up to one year 3,026,306 3,026,306 3,026,306 8.0001 year to 3 years - - -3 years to 5 years 1,516,922 1,516,922 1,516,922 7.000

4,543,228 4,543,228 4,543,228

Non-cumulative preferred shares issuedby a Lebanese bank1 year to 3 years 6,156,178 6,156,178 6,156,178 8.5003 years to 5 years 25,627,500 25,627,500 25,627,500 8.618

31,783,678 31,783,678 31,783,678 Total Foreign Currency Base Accounts 2007 2,153,286,169 2,196,082,841 2,072,276,603

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%


ValueLBP’000

AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

Non-cumulative preferred shares issuedby a Lebanese bank1 year to 3 years - - -3 years to 5 years 31,783,678 31,783,678 31,783,678 8.595

31,783,678 31,783,678 31,783,678Total Foreign Currency Base Accounts 2006 1,747,343,634 1,799,930,908 1,700,398,948


115

The available-for-sale certificates of deposit issued by the Central Bank ofLebanon include certificates of deposit maturing on April 25, 2015 which areputtable at a price of 91.63 in year 2012. The Group is providing over timefor the difference between the par value and the redemption value in year2012 by recognizing the effective yield applicable for the period until 2012.This cost which is expected to increase year by year, is reflected as anadjustment to the carrying book value.

During 2007, the Group entered into an agreement with a foreign bankwhereby the Group bought credit linked notes issued by that bank with anominal amount of USD 10,000,000, and earning interest at the rate of six-months Libor plus a margin, and classified as available-for-sale corporatedebt securities, partly financed by a loan from the same non-resident banksecured by transfer of debt securities classified as held-to-maturitycorporate debt securities. The loan maturity coincides with the maturity ofthe debt securities. The underlying assets of the credit linked notes consistof Lebanese Government bonds and certificates of deposit issued by theCentral Bank of Lebanon.

Furthermore, the Group entered into another agreement with the sameforeign bank in 2007, whereby the Group bought credit linked notes issuedby that bank with a nominal amount of USD 25,000,000, and earninginterest at the rate of six-months Libor plus a margin, and classified asavailable-for-sale corporate debt securities. The notes mature on February20, 2008. The underlying assets consist of Lebanese Government bondsand certificates of deposit issued by the Central Bank.

The Group also entered during 2007 into an agreement with anotherforeign bank whereby the Group acquired credit linked notes issued bythat non-resident bank with a nominal value of USD 10,000,000 earninginterest at a rate of three-months Libor plus a margin, and maturing onNovember 20, 2008. The underlying assets consist of LebaneseGovernment bonds.

The Group entered during 2007 into an agreement with a third foreignbank whereby the Group acquired Lebanese Republic credit linked noteswith a nominal amount of USD 25,000,000 and earning interest at a rate ofsix-months Libor plus a margin. The notes mature on February 9, 2008.

Furthermore, the Group entered during 2007 into another agreement withthe same bank whereby the Group acquired fixed income USD Leveragedcredit-linked unsecured notes with a nominal amount of USD 25,000,000.The notes mature on August 20, 2008. The underlying assets are eitherLebanese Government bonds or certificates of deposit issued by the CentralBank of Lebanon.


The movement during the year 2007 of available-for-sale investmentsecurities denominated in LBP and in foreign currencies is summarizedas follows:

The Group entered into a total return swap transaction with a non-residentrelated financial institution established under the Swiss law and operatingout of Geneva.

Coupled with a promissory note that pays a pre-agreed fixed interest rate,the transaction is composed of a spot and a forward contract to sell and buyback the economic benefits of a portfolio of Lebanese traded equitysecurities classified as available-for-sale. The transaction originated andmatured in 2007.

Interest income in the amount of LBP 24.32 billion on the promissory notewas recorded under “Interest Income on note receivable” net of transactioncost in the amount of LBP 361.8 million in the interim consolidated income statement.

Dividends received during year 2007 and 2006 on available-for-salesecurities in the amount of LBP 27.61 billion and LBP 16.45 billionrespectively, are reflected under “Other operating income” in theconsolidated income statement (Note 37).


y e a r 2 0 0 7



116

Balance January 1, 2007 2,656,377 6,238,680 733,260,433 28,963,899 771,119,389

Additions - - 326,738,921 27,903,197 354,642,118

Sale - - (87,710,775) - (87,710,775)

Redemptions - - (162,318,060) - (162,318,060)

Unrealized gain/(loss) fromchange in fair value 11,355 - (7,105,777) 1,492,617 (5,601,805)

Effect of amortization ofpremium /discount - - 793,879 341,170 1,135,049

Balance December 31, 2007 2,667,732 6,238,680 803,658,621 58,700,883 871,265,916

LBP Base Accounts

Quoted EquitySecuritiesLBP’000

UnquotedEquity

SecuritiesLBP’000

LebaneseTreasury

BillsLBP’000


by BDLLBP’000

TotalLBP’000


117

Bala

nce

Janu

ary

1, 2

007

392,

642,

372

2,33

6,62

5 1,

393,

995,

916

264,

046,

126

-42

,356

,906

-2,

095,

377,

945

Addi

tions

due

to a

cqui

sitio

nof

a s

ubsi

diar

y-

102,

152

--

--

2,90

4,33

03,

006,

482

Addi

tions

46

,007

,819

4,82

4,07

5 20

7,12

1,88

490

,874

,195

153,

794,

547

3,02

6,30

6-

505,

648,

826

Effe

ct o

f Tot

al R

etur

n Sw

ap24

,324

,947

--

--

--

24,3

24,9

47

Sale

s-

-(1

21,2

46,0

68)

(1,2

78,8

73)

--

(2,9

04,3

30)

(125

,429

,271

)

Rede

mpt

ions

--

(69,

699,

263)

--

(3,0

26,3

06)

-(7

2,72

5,56

9)

Addi

tion

from

sw

ap

--

-26

1,17

7,39

0-

--

261,

177,

390

Dis

posa

l due

to S

wap

-

--

(94,

972,

500)

--

-(9

4,97

2,50

0)

Unr

ealiz

ed g

ain

/ (lo

ss) f

rom

chan

ge in

fair

valu

e 13

8,79

6,63

5-

(29,

421,

401)

(11,

272,

497)

1,03

6,40

6-

-99

,139

,143

Effe

ct o

f am

ortiz

atio

n of

prem

ium

/dis

coun

t -

-(1

4,26

7,03

4)30

,869

--

-(1

4,23

6,16

5)

Bala

nce

Dec

embe

r 31,

200

760

1,77

1,77

37,

262,

852

1,36

6,48

4,03

4 50

8,60

4,71

0 15

4,83

0,95

3 42

,356

,906

-

2,68

1,31

1,22

8

F/Cy

Bas

e A

ccou

nts

Quo

ted

Equi

tySe

curi

ties

LBP’

000

Unq

uote

dEq

uity

Secu

ritie

sLB

P’00

0

Leba

nese

Gov

ernm

ent

Bond

sLB

P’00

0

Cert

ifica

tes

ofde

posi

t iss

ued

by C

BLLB

P’00

0

Corp

orat

eBo

nds

LBP’

000

Pref

erre

dSh

ares

LBP’

000

Fore

ign

Gov

ernm

ent

Bond

sLB

P’00

0

Tota

lLB

P’00

0


118


y e a r 2 0 0 7

B. HELD-TO-MATURITY INVESTMENT SECURITIES



Lebanese treasury bills 351,553,038 6,804,320 356,767,032

Lebanese Government bonds - - -

Certificates of deposit issued by theCentral Bank of Lebanon 10,240,796 280,172 10,513,737



361,793,834 7,084,492 367,280,769

December 31, 2007

LBP Base AccountsAccrued Interest

ReceivableLBP’000

AmortizedCost

LBP’000Fair ValueLBP’000

Lebanese treasury bills - - -

Lebanese Government bonds 1,209,434,796 24,181,729 1,127,159,727

Certificates of deposit issued by theCentral Bank of Lebanon 90,850,922 2,075,076 90,201,522

Certificates of deposit issued by banks 1,507,500 31,021 1,470,114

Corporate debt securities 3,768,750 311,558 3,771,675

1,305,561,968 26,599,384 1,222,603,038

December 31, 2007

F/Cy Base AccountsAccrued Interest

ReceivableLBP’000

AmortizedCost


Lebanese treasury bills 385,743,738 7,759,800 387,534,792

Lebanese Government bonds - - -

Certificates of deposit issued by theCentral Bank of Lebanon 10,348,975 277,223 10,320,701



396,092,713 8,037,023 397,855,493

December 31, 2006

LBP Base AccountsAccrued Interest

ReceivableLBP’000

AmortizedCost


Lebanese treasury bills - - -

Lebanese Government bonds 1,272,870,042 24,897,377 1,203,651,560

Certificates of deposit issued by theCentral Bank of Lebanon 253,166,529 5,573,441 252,381,269

Certificates of deposit issued by banks 1,507,500 74,234 1,456,999

Corporate debt securities 6,026,400 195,286 6,030,000

1,533,570,471 30,740,338 1,463,519,828

December 31, 2006

F/Cy Base AccountsAccrued Interest

ReceivableLBP’000

AmortizedCost



119

Held-to-maturity Lebanese Government bonds include securitiesamounting to LBP 291 billion (USD 193,160,000) pledged against a long termborrowing in the amount of LBP 143.2 billion (USD 143,212,500) granted tothe Group and reflected under “Other borrowings” in the consolidatedbalance sheet (Refer to Note 22).

The movement during the year 2007 of held-to-maturity investmentsecurities denominated in LBP and foreign currencies is summarized asfollows:

Balance January 1, 2007 385,743,738 10,348,975 396,092,713

Redemptions (34,112,500) - (34,112,500)

Effect of discount/premium amortization (78,200) (108,179) (186,379)

Balance December 31, 2007 351,553,038 10,240,796 361,793,834

LBP Base Accounts

LebaneseTreasury

BillsLBP’000

Certificates ofDeposit Issuedby the Bank of

LebanonLBP’000

TotalLBP’000

Balance January 1, 2007 1,272,870,042 253,166,529 1,507,500 6,026,400 1,533,570,471

Additions 7,511,764 - - 753,750 8,265,514

Redemptions (65,279,273) - - (3,015,000) (68,294,273)

Swaps - (161,035,672) - - (161,035,672)

Effect of discount /

premium amortization (5,667,737) (1,279,935) - 3,600 (6,944,072)

Balance December 31, 2007 1,209,434,796 90,850,922 1,507,500 3,768,750 1,305,561,968

F/Cy Base Accounts

LebaneseGovernment

BondsLBP’000

Certificates ofDeposit Issuedby the Bank of

LebanonLBP’000


by banksLBP’000

CorporateDebt Securities

LBP’000

TotalLBP’000


120


y e a r 2 0 0 7

Held-to-maturity investments denominated in LBP are segregated overremaining period to maturity as follows:

Held-to-maturity investments denominated in foreign currencies aresegregated over remaining period to maturity as follows:




351,500,000 351,553,038 356,767,032Certificates of deposit issued bythe Central Bank of Lebanon:1 year to 3 years 10,000,000 10,240,796 10,513,737 8.7103 years to 5 years - - -


December 31, 2007

Lebanese Pounds Base Accounts

RedemptionValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006Lebanese treasury billsUp to one year 34,112,500 34,109,375 34,228,352 4.7391 year to 3 years 345,500,000 345,639,463 347,636,440 8.6663 years to 5 years 6,000,000 5,994,900 5,670,000 10.460

385,612,500 385,743,738 387,534,792Certificates of deposit issued bythe Central Bank of Lebanon:1 year to 3 years - - -3 years to 5 years 10,000,000 10,348,975 10,320,701 9.550



1,184,636,788 1,209,434,796 1,127,159,727

December 31, 2007


RedemptionValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006


1,241,874,809 1,272,870,042 1,203,651,561


121

Certificates of deposit issued by theCentral Bank of Lebanon:1 year to 3 years 27,888,750 27,888,750 26,983,379 9.7985 years to 10 years 62,561,250 62,962,172 63,218,143 9.790

90,450,000 90,850,922 90,201,522

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006Certificates of deposit issued by theCentral Bank of Lebanon:1 year to 3 years 188,924,423 188,924,423 186,339,628 8.4025 years to 10 years 62,561,250 64,242,106 66,041,641 9.055

251,485,673 253,166,529 252,381,269

Certificates of deposit issued by banksUp to one year 1,507,500 1,507,500 1,470,114 10.6721 year to 3 years - - -

1,507,500 1,507,500 1,470,114

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006Certificates of deposit issued by banksUp to one year - - -1 year to 3 years 1,507,500 1,507,500 1,456,999 9.481

1,507,500 1,507,500 1,456,999

Corporate debt securitiesUp to one year 753,750 753,750 753,750 6.2101 year to 3 years 3,015,000 3,015,000 3,017,925 6.000

3,768,750 3,768,750 3,771,675Total Foreign Currency Base Account 2007 1,280,363,038 1,305,561,968 1,222,603,038

December 31, 2007


NominalValue


AmortizedCost

LBP’000

Fair ValueLBP’000

Yield%

December 31, 2006Corporate debt securitiesUp to one year - - -1 year to 3 years 6,026,400 6,026,400 6,030,000 5.50

6,026,400 6,026,400 6,030,000Total Foreign Currency Base Account 2006 1,500,894,382 1,533,570,471 1,463,519,829


122


y e a r 2 0 0 7

The option on the held-to-maturity certificates of deposit maturing onApril 25, 2015 to redeem in year 2012, is treated in the same manner asdescribed under available-for-sale certificates of deposit above.

During the year 2006, the Group entered into a repurchase agreement witha non-resident financial institution whereby it sold under a repurchaseagreement Lebanese Government Eurobonds classified as held-to-maturityin the aggregate amount of USD 142 million for a total value of USD 120million. The fair value of the bonds as at the agreement date aggregatedUSD 132,060,000. The original margin between the sale price and the fairvalue of the underlying securities should be compensated by the Groupeither by cash compensation or by temporary transfer of additionalsecurities in the amount of the deficit. The final maturity of this agreementwas June 2008 but the Group terminated the deal in September 2007.

11. CUSTOMERS’ ACCEPTANCE LIABILITY

Acceptances represent documentary credits which the Group hascommitted to settle on behalf of its customers against commitments bythose customers (acceptances). The commitments resulting from theseacceptances are stated as a liability in the balance sheet for the sameamount.

12. INVESTMENTS IN ASSOCIATES AND INVESTMENTS HELD FOR SALE




Investments in Associates

CreditCard Services Company Lebanon 40.00 13,236,191

Ciment de Sibline S.A.L. Lebanon 19.36 27,096,403

Light Metal Products S.A.L. Lebanon 60.83 6,633,000

Long-term loan to Light Metal Lebanonproducts S.A.L. Lebanon 3,869,719

50,835,313

Investments held for sale

Berkely Hotel Lebanon 48.00 1,153,539

Beverly Hotel Lebanon 99.00 2,810,652

Le Gabriel Hotel Lebanon 32.00 4,168,238

Sidem S.A.L. Lebanon 20.00 13,296,053

21,428,482

72,263,795

December 31, 2007


NameInterest

HeldCarrying

Value


During the first half of 2007, the Group sold shares of Ciment de Siblinewhich resulted in a gain in the amount of LBP 11.3 billion recorded under“Other operating income” in the consolidated income statement (Note 37).This sale brought down the equity stake of the Group to 19.36%.

The investment in CreditCard Services Company S.A.L. is reflected as atDecember 31, 2007 and 2006 using the equity method whereby the Groupaccounts for its share in the net income of the associate net of deferreddividend tax, the change in fair value of the associate's portfolio ofavailable-for-sale securities, and net of dividends received. In thisconnection, the Group recorded its share in the net income of the associatein the amount of LBP 3.88 billion for the year 2007 (LBP 2.28 billion for theyear 2006) net of deferred tax liability in the amount of LBP 388 million asat December 31, 2007 (LBP 228 million as at December 31, 2006), under“Other operating income” (Note 37).

During the first half of the year 2006, the Group sold its investment in“Idarat Investment S.A.L. (Holding)” of net book value of LBP 13.82 billion asat December 31, 2005 for a consideration of USD 8,700,000 recorded under“Other assets” and payable over a ten year period. An amount of USD348,000 was collected up to December 31, 2007 (an amount of USD 250,000up to December 31, 2006). Refer to Note 16.

123

Investments in Associates

CreditCard Services Company Lebanon 40.00 9,613,479

Medfinance Holding Ltd. British Virgin Islands 100.00 1,432,125

Ciment de Sibline S.A.L. Lebanon 22.00 40,289,689

Light Metal Products S.A.L. Lebanon 60.83 6,633,000

Long-term loan to Light MetalProducts S.A.L. Lebanon 3,321,855

61,290,148

Investments held for sale

Berkely Hotel Lebanon 48.00 979,875

Beverly Hotel Lebanon 99.00 2,442,150

Le Gabriel Hotel Lebanon 32.00 4,168,238

Sidem S.A.L. Lebanon 20.00 14,167,695

21,757,958

83,048,106

December 31, 2006


NameInterest

HeldCarrying Value


124


y e a r 2 0 0 7

13. ASSETS ACQUIRED IN SATISFACTION OF LOANS

Assets acquired in satisfaction of loans have been acquired throughenforcement of security over loans and advances.

The movement of assets acquired in satisfaction of loans during 2007 and2006 was as follows:



Gross amount

Balance January 1, 2006 308,622,165

Additions due to settlement of loans 9,724,640

Additional fees/charges paid 27,872

Disposals (221,028,946)

Effect of subsidiary acquisition 3,742,331

Effect of exchange rate 114,048

Balance December 31, 2006 101,202,110

Effect of subsidiary acquisition 377,716

Additions due to settlement of loans 15,042,195

Additional fees/charges paid 613,286

Disposal (19,954,252)

Effect of exchange rate 191,565


Impairment allowance

Balance January 1, 2006 (10,045,275)

Additions (7,653,353)

Write-back 3,228,536

Balance December 31, 2006 (14,470,092)

Additions (3,739,387)

Write-back 2,304,450

Effect of exchange rate changes (1,752)


Carrying amount

December 31, 2007 81,565,839

December 31, 2006 86,732,018

LBP'000


During the year 2007, the Group sold assets acquired in satisfaction of loansof aggregate net book value LBP 17.65 billion (LBP 217.8 billion in 2006) for atotal consideration of LBP 20.58 billion (LBP 222.14 billion in 2006), thusresulting in net gain on sale in the amount of LBP 634 million recordedunder “Other operating income” and write-back of impairment provision inthe amount of LBP 2.3 billion recorded under “provision for impairment ofassets acquired in satisfaction of loans” in the accompanying consolidatedincome statement (LBP 1.15 billion and LBP 3.23 billion, respectively in 2006).The Group collected LBP 18.27 billion (LBP 76 billion in 2006) during 2007and LBP 2.35 billion remains outstanding as at December 31, 2007 and isrecorded under “Other assets” (LBP 146 billion in 2006).

Included in the sales of the year 2006, are sales in the aggregate amount ofUSD 124.95 million to affiliated companies for a total consideration of USD125.03 million. The Group collected 25% of the selling price at the date of thecontract and the remaining balance of USD 93.77 million (LBP 141.36 billion)was recorded under “Other assets” to be collected over three equal annualinstallments starting December 30, 2007. This receivable earns interest atan annual rate of three-months LIBOR + one basis point. No collectionswere made up to the date of issuance of the financial statements.

Provision for impairment in the amount of LBP 1.42 billion for the year 2007is reflected under “provision for impairment of assets acquired insatisfaction of debts” in the consolidated income statement (LBP 4.42 billionfor year 2006).

The acquisition of assets in settlement of loans requires the approval of thebanking regulatory authorities and these should be liquidated within 2years. In case of default of liquidation, a regulatory reserve should beappropriated from the yearly net profits over a period of 5 years. However,the intermediary circular No.41 has allowed banks to extend yearlyappropriation over a period of 20 years with respect to those assetsacquired through loans’ restructurings approved by Central Bank ofLebanon or with respect to the entirety of those assets acquired insettlement of loans provided that banks restructure before 2007 year end,at least 50% of the balance of non-performing loans outstanding at June 30,2003. This condition was satisfied by the Group during 2007.

125


126


y e a r 2 0 0 7

14. GOODWILL

The goodwill balance outstanding as of the balance sheet date consists ofthe following:

The transactions giving rise to goodwill include the purchase of 90% ofAllied Bank S.A.L. with an effective date of November 30, 2001. The Group’sacquisition during 2003 of the remaining 10% equity stake in Allied BankS.A.L. resulted in an addition to goodwill of LBP 2.8 billion. In addition, anddue to a court resolution dated March 4, 2004, the Group paid an amount ofUSD 2,653,657 to the previous owners of Allied Bank S.A.L. This resulted ina further addition to goodwill in the amount of LBP 3 billion.

On May 31, 2006, the Group acquired the assets and liabilities of thesubsidiary bank, Allied Business Bank S.A.L., as at that date in a businesscombination approved by the Group’s General Assembly in its meeting onMay 13, 2006 in addition to the approval of the Central Bank of Lebanondated May 17, 2006. As a result of the business combination, the relatedaccumulated amortization in the amount of LBP 4.68 billion was offsetagainst goodwill.



Goodwill from Subsidiaries:

BankMed (Suisse) S.A. 100 86,653,140 56,240,341 - 30,412,799 30,412,799

Saudi Lebanese Bank S.A.L. 25 76,882,500 34,160,882 10,956,160 31,765,458 31,765,458

Turkland Bank A.S.(formerly MNG Bank A.S.) 41 125,405,579 48,542,956 - 76,862,623 -

Med Finance Holding Ltd. 100 1,356,750 740,183 - 616,568 -

139,657,448 62,178,257

Cumulative effect of exchange rateschanges up to balance sheet date 14,658,742 11,361,955

Less: Accumulated amortization up to December 31, 2003 (10,516,708) (9,747,457)

143,799,482 63,792,755

Goodwill from Business Combination:

Allied Bank S.A.L. 23,068,898 23,068,898

Goodwill (net) 166,868,380 86,861,653

December 31,Percentageof acquiredownership

%

TransactionValue

LBP’000

Net AssetsValue

LBP’000

Allocation toassets

revaluationLBP’000

2007LBP’000

2006LBP’000


Furthermore, the acquisition of 100% equity stake in BankMed (Suisse) S.A.effective August 31, 2001 resulted in goodwill in the amount of CHF33,868,768 as at acquisition date.

On May 11, 2006, the Group purchased the minority interest of 25% in SaudiLebanese Bank S.A.L. in accordance with the resolution of the GeneralAssembly dated November 28, 2005 for a total consideration of USD 51million (LBP 76.88 billlion) of which USD 38.25 million were settled up toDecember 2006. The remaining balance of USD 12.75 million (LBP 19.22billion) reflected under “Notes payable” under “Other liabilities” as atDecember 31, 2006 was paid in February 2007 (Note 24). The excess of thepurchase price over the net asset value of the acquired interest in theamount of LBP 42 billion was allocated to property and equipment andassets acquired in satisfaction of debts in the amount of LBP 7.21 billion andLBP 3.74 billion, respectively, to recognize these assets at their fair values atthe date of acquisition. The residual unallocated excess in the amount ofLBP 31.77 billion was recognized as goodwill.

On January 28, 2007, the Group acquired an equity stake of 41% in TurklandBank A.S. (formerly MNG Bank A.S.) in accordance with the resolution of theBoard of Directors dated June 26, 2006 for a total consideration of USD71,852,867 (LBP 108.32 billion). The excess of the purchase price over the netasset value of the acquired interest in the amount of LBP 76.86 billion wasrecognized as goodwill.

The remaining change in accumulated amortization is due to exchangerate fluctuation.

The Group tests goodwill annually for impairment or more frequently ifthere are indications that goodwill might be impaired. Goodwill isconsidered to be impaired when the carrying value exceeds the recoverableamounts of the merged business which are determined from value in usecalculations. The value in use is determined as a multiple of thecontribution generated by the business units and customers’ accountsacquired by the parent bank.

127


Cost

Bala

nce

Janu

ary

1, 2

006

163,

387,

279

75,2

12,6

5636

,831

,709

1,06

2,18

030

1,35

820

2,19

94,

002,

823

-(1

,400

,000

)27

9,60

0,20

4

Effe

ct o

f sal

e of

a s

ubsi

diar

y(1

4,00

9,27

7)-

--

(75,

845)

--

--

(14,

085,

122)

Addi

tions

-3,

185,

544

3,68

5,60

636

6,22

1-

-46

7,58

2-

-7,

704,

953

Dis

posa

ls /

retir

emen

ts(6

8,44

0)-

(2,1

44,7

28)

(91,

870)

--

(3,5

84)

--

(2,3

08,6

22)

Reva

luat

ion

upon

acq

uisi

tion

of a

sub

sidi

ary

7,21

3,82

9-

--

--

--

-7,

213,

829

Tran

sfer

s-

274,

165

288,

595

--

-(5

62,7

60)

--

-

Effe

ct o

f exc

hang

e ra

te c

hang

es-

28,5

9027

,831

--

--

--

56,4

21

Bala

nce

Dec

embe

r 31,

200

615

6,52

3,39

178

,700

,955

38,6

89,0

131,

336,

531

225,

513

202,

199

3,90

4,06

1-

(1,4

00,0

00)

278,

181,

663

Acqu

isiti

on o

f sub

sidi

ary

5,52

4,62

74,

221,

719

5,99

2,52

850

9,28

0-

--

3,21

9,07

4-

19,4

67,2

28

Addi

tions

150,

680

6,22

3,72

85,

449,

875

193,

536

--

3,05

6,38

9 62

6,66

6-

15,7

00,8

74

Dis

posa

ls /

retir

emen

ts(9

,792

,423

)(4

16,6

04)

(1,9

54,0

82)

(536

,500

)(1

9,11

1)-

-(2

,120

,662

)-

(14,

839,

382)

Tran

sfer

s1,

352,

411

76,6

1136

8,58

0-

--

(1,7

97,6

02)

--

-

Effe

ct o

f exc

hang

e ra

te c

hang

es1,

175,

793

932,

367

1,30

9,69

610

8,38

9-

--

2,59

2,16

0-

6,11

8,40

5

Bala

nce

Dec

embe

r 31,

200

715

4,93

4,47

989

,738

,776

49,8

55,6

101,

611,

236

206,

402

202,

199

5,16

2,84

84,

317,

238

(1,4

00,0

00)

304,

628,

788

Acc

umul

ated

dep

reci

atio

n

Bala

nce

Janu

ary

1, 2

006

(15,

273,

817)

(48,

687,

758)

(24,

959,

464)

(622

,010

)(3

01,3

58)

(202

,199

)-

--

(90,

046,

606)

Effe

ct o

f sal

e of

a s

ubsi

diar

y2,

801,

203

--

-75

,845

--

--

2,87

7,04

8

Addi

tions

(1,5

32,2

39)

(7,1

21,8

91)

(3,7

08,3

05)

(141

,881

)-

--

--

(12,

504,

316)

Writ

e-of

f on

disp

osal

15,4

16-

1,98

5,32

589

,665

--

--

-2,

090,

406

Effe

ct o

f exc

hang

e ra

te c

hang

es-

(7,0

69)

(10,

085)

--

--

--

(17,

154)

Bala

nce

Dec

embe

r 31,

200

6(1

3,98

9,43

7)(5

5,81

6,71

8)(2

6,69

2,52

9)(6

74,2

26)

(225

,513

)(2

02,1

99)

--

-(9

7,60

0,62

2)

Acqu

isiti

on o

f sub

sidi

ary

(594

,160

)(4

,058

,325

)(4

,779

,805

)(4

82,7

55)

--

-(2

,928

,360

)-

(12,

843,

405)

Addi

tions

(1,5

05,5

74)

(7,4

57,4

00)

(4,4

09,3

64)

(174

,591

)-

--

(260

,908

)-

(13,

807,

837)

Writ

e-of

f on

disp

osal

1,37

6,95

512

6,62

81,

872,

731

530,

490

19,1

11-

-16

8,57

2-

4,09

4,48

7

Effe

ct o

f exc

hang

e ra

te c

hang

es(1

30,5

42)

(909

,887

)(1

,094

,797

)(1

04,3

78)

--

-(6

49,2

86)

-(2

,888

,890

)

Bala

nce

Dec

embe

r 31,

200

7(1

4,84

2,75

8)(6

8,11

5,70

2)(3

5,10

3,76

4)(9

05,4

60)

(206

,402

)(2

02,1

99)

-(3

,669

,982

)-

(123

,046

,267

)

Net

boo

k va

lue

Dec

embe

r 31,

200

714

0,09

1,72

121

,623

,074

14,7

51,8

4670

5,77

6-

-5,

162,

848

647,

256

(1,4

00,0

00)

181,

582,

521

Dec

embe

r 31,

200

614

2,53

3,95

422

,884

,237

11,9

96,4

8466

2,30

5-

-3,

904,

061

-(1

,400

,000

)18

0,58

1,04

1

Real

Est

ate

Prop

ertie

sLB

P’00

0

Impr

ovem

ents

and

Inst

alla

tions

LBP’

000

Furn

iture

and

Equi

pmen

tLB

P’00

0

Vehi

cles

LBP’

000

Esta

blis

hmen

tCo

sts

LBP’

000

Key

Mon

eyLB

P’00

0

Adv

ance

paym

ents

on

capi

tal

expe

nditu

reLB

P’00

0

Oth

erLB

P’00

0

Allo

wan

ce fo

rim

pairm

ent l

oss

on p

rope

rty

&eq

uipm

ent

LBP’

000

Tota

lLB

P’00

0

128


y e a r 2 0 0 7



15. P

ROPE

RTY

AN

D E

QU

IPM

ENT

As d

iscu

ssed

und

er N

ote

3(C)

, the

Gro

up so

ld d

urin

g 20

06 it

s equ

ity st

ake

in A

l-Shu

a’a

S.A

.L., a

who

lly o

wne

d su

bsid

iary

, whi

ch is

a re

al e

stat

e co

mpa

nyth

at o

wns

pro

pert

y us

ed in

the

oper

atio

ns o

f the

Gro

up. A

s a re

sult,

real

est

ate

prop

ertie

s dec

reas

ed d

urin

g 20

06 b

y an

am

ount

of L

BP 14

bill

ion.


129

16. OTHER ASSETS

The receivables on properties sold with deferred payment are mainly duefrom related parties and are payable over a period of 3 years with interestto be accrued annually.

The movement of intangible asset which represents computer softwareconsists of the following:

The regulatory blocked deposit represents a non-interest earningcompulsory deposit placed with the Lebanese Treasury upon the inceptionof banks according to Article 132 of the Lebanese Code of Money and Credit,and is refundable in case of cease of operations.

Receivables on properties sold with deferred payment 157,281,987 146,133,538

Change in fair value of derivatives 515,755 1,221,232

Deferred tax asset 2,053,749 17,943

Deferred charges 18,631 48,104

Accrued income 790,477 -

Prepayments 10,203,466 7,859,517

Due from personnel 1,813,667 422,134

Regulatory blocked deposit 1,507,500 1,507,500

Sundry accounts receivable 2,607,722 1,403,737

Positive fair value of derivatives 6,264,944 -

Intangible asset 1,055,184 -

Other – Note 12 54,283,304 23,779,440

238,396,386 182,393,145

December 31,

2007 2006

LBP'000 LBP'000

Cost

Balance January 1, 2007 -

Effect of subsidiary acquisition 4,717,206

Acquisitions 486,414

Effect of exchange rate changes 1,003,951


Amortization

Balance January 1, 2007 -

Effect of subsidiary acquisition (3,967,079)

Amortization for the period (308,759)

Effect of exchange rate changes (876,549)


Carrying amount

December 31, 2007 1,055,184

Purchased Software

LBP'000


130


y e a r 2 0 0 7

17. DEPOSITS AND BORROWINGS FROM BANKS AND FINANCIALINSTITUTIONS

Deposits and borrowings from banks and financial institutions arereflected at amortized cost and consist of the following:

The maturities of money market, overnight and call deposits are as follows:



Current deposits of banks and financial institutions 953,841 16,523,266 17,477,107

Money market deposits 88,500,000 562,846,791 651,346,791

Money market deposits – related parties 4,500,000 15,075,000 19,575,000

Borrowings under sale and repurchaseagreements (Repos) - 30,943,090 30,943,090

Accrued interest payable 53,751 9,493,370 9,547,121

94,007,592 634,881,517 728,889,109

December 31, 2007

LBPLBP’000


TotalLBP’000

Current deposits of banks andfinancial institutions 1,284,971 17,785,017 19,069,988

Current deposits – related parties - 10,353,325 10,353,325

Overnight deposits 82,092,934 - 82,092,934

Overnight deposits – related parties 4,000,000 - 4,000,000

Call deposits - 15,470,671 15,470,671

Money market deposits 7,275,000 363,882,650 371,157,650

Money market deposits – related parties - 30,150,000 30,150,000

Borrowings under sale and repurchaseagreements - 180,900,000 180,900,000

Accrued interest payable 59,472 11,763,767 11,823,239

94,712,377 630,305,430 725,017,807

December 31, 2006

LBPLBP’000


TotalLBP’000

1st quarter of 2008 93,000,000 4.53 201,046,791 5.55

2nd Half of 2008 - 15,075,000 5.72

Year 2009 - 361,800,000 7.41

93,000,000 577,921,791

December 31, 2007

Maturity

LBP Base Accounts F/Cy Base Accounts

AmountLBP’000

AverageInterest Rate

%AmountLBP’000


%


Borrowings under sale and repurchase agreements (Repos) arose from thefollowing:

The maturities of borrowings under sale and repurchase agreements(Repos) are as follows:

131

1st quarter of 2007 93,367,934 4.00 80,868,321 6.13

2nd quarter of 2007 - 12,060,000 5.88

2nd half of 2007 - 150,750,000 6.75

Year 2008 - 165,825,000 7.17

93,367,934 409,503,321

December 31, 2006

Maturity


AmountLBP’000


%AmountLBP’000


%

Held for trading foreign government bonds 31,090,616 31,090,616 28,338,130

Held-to-maturity corporate bonds 3,015,000 3,015,000 2,604,960

34,105,616 34,105,616 30,943,090

December 31, 2007

GrossAmountLBP’000

Balance Subjectto Repurchase

AgreementLBP’000

Balance ofAssociated

LiabilityLBP’000

Held-to-maturity LebaneseGovernment bonds 282,030,638 214,065,000 180,900,000

282,030,638 214,065,000 180,900,000

December 31, 2006

GrossAmountLBP’000

Balance Subjectto Repurchase

AgreementLBP’000

Balance ofAssociated

LiabilityLBP’000

1st quarter of year 2008 28,338,130 16.72 180,900,000 6.350

Year 2009 2,604,960 5.54 -

30,943,090 180,900,000


Maturity

F/Cy Base Accounts F/Cy Base Accounts

AmountLBP’000


AmountLBP’000



132


y e a r 2 0 0 7

Accrued interest payable is segregated between the different categories asfollows:

18. CUSTOMERS’ DEPOSITS DESIGNATED AT FAIR VALUE THROUGHPROFIT OR LOSS

This section consists of the following:

Deposits from customers matched with an embedded derivative have beendesignated at fair value through profit or loss. The underlying assets varyfrom product to product. An accounting mismatch would arise ifcustomers’ deposits were accounted for at amortized cost, because therelated derivative is measured at fair value with movements in the fairvalue taken through the income statement. By designating those depositsfrom customers at fair value, the movements in the fair value of thesedeposits are recorded in the income statement.

The Group has deposits where the underlying consists of baskets ofcurrencies hedged through an effective over-the-counter call option.

The Group also has deposits where the underlying consists of global indiceshedged through an effective over-the-counter option.



Current deposits 1,583 - 2,318 -

Overnight Deposits - - 27,734 1,233

Money market deposits 9,450,132 68,908 10,622,184 531,283

Borrowings under sale and repurchaseagreements 26,498 - 638,487 -

9,478,213 68,908 11,290,723 532,516


Nonrelated

LBP’000

RelatedParties

LBP’000

Nonrelated

LBP’000

RelatedParties

LBP’000

Customers' deposits

designated at FVTPL 153,200,828 153,200,828 3,031,875 27,263,703 30,295,578

Accrued interest Payable 2,596,199 2,596,199 120,051 796,876 916,927

155,797,027 155,797,027 3,151,926 28,060,579 31,212,505



TotalLBP’000

LBPLBP’000


TotalLBP’000


The changes in the fair value recognized on these deposits and the relatedderivative acquired for hedging is broken down as follows:

The net effect on profit or loss represents the amortization of the deferredoption premium and is recorded as a yield adjustment under “Net interestand gains and losses on financial instruments designated at fair valuethrough profit or loss” (Note 36).

19. CUSTOMERS’ ACCOUNTS AT AMORTIZED COST

133

Customers’ deposits atfair value throughprofit or loss 151,810,043 153,200,827 1,390,784 1,390,784

Related derivative contracts(held for hedging) (5,517,273) (5,842,844) (325,571) (325,571)

Net effect of profit or loss (1,065,213) (1,065,213)

December 31, 2007 Change in Fair Value

InitialValue

LBP’000

Fair ValueLBP’000

For theyear 2007 LBP’000

Cumulative2007

LBP’000

Current/demanddeposits 37,563,356 61,810,858 99,374,214 50,792,241 454,495,884 505,288,125 604,662,339

Term deposits 959,266,705 - 959,266,705 5,365,951,816 - 5,365,951,816 6,325,218,521

Collateral againstloans & advances 10,966,135 - 10,966,135 593,702,013 - 593,702,013 604,668,148

Margins for irrevocableimport letters of credit - - - 5,152,220 1,781,540 6,933,760 6,933,760

Margins on lettersof guarantee 2,068,346 485,527 2,553,873 5,427,545 2,226,462 7,654,007 10,207,880

Other margins 26,386 98,722 125,108 3,632,207 26,589,096 30,221,303 30,346,411

Accrued interestpayable 8,143,544 - 8,143,544 79,693,465 - 79,693,465 87,837,009

1,018,034,472 62,395,107 1,080,429,579 6,104,351,507 485,092,982 6,589,444,489 7,669,874,068

December 31, 2007


InterestBearingLBP’000

Non-InterestBearingLBP’000

TotalLBP’000



TotalLBP’000

TotalCutomers’AccountsLBP’000


134


y e a r 2 0 0 7

Deposits from customers at amortized cost are allocated by brackets ofdeposits as follows:



Current/demanddeposits 88,039,577 4,179,086 92,218,663 276,211,022 80,124,309 356,335,331 448,553,994

Term deposits 964,994,445 - 964,994,445 3,806,428,242 - 3,806,428,242 4,771,422,687

Collateral againstloans & advances 10,583,204 - 10,583,204 583,815,130 - 583,815,130 594,398,334

Margins for irrevocableimport letters of credit - - - 6,063,522 1,993,170 8,056,692 8,056,692

Margins on lettersof guarantee 2,209,089 2,015,566 4,224,655 6,276,336 1,748,453 8,024,789 12,249,444

Other margins 40,556 409,701 450,257 6,954,401 3,225,472 10,179,873 10,630,130

Accrued interestpayable 9,400,754 - 9,400,754 36,046,073 - 36,046,073 45,446,827

1,075,267,625 6,604,353 1,081,871,978 4,721,794,726 87,091,404 4,808,886,130 5,890,758,108

December 31, 2006




TotalLBP’000



TotalLBP’000

TotalCutomers’AccountsLBP’000

Less than LBP 50 million 234,859,536 21.74 40,136 294,498,797 4.47 42,990

From LBP 50 million to LBP 100 million 145,282,319 13.45 3,305 277,880,662 4.22 4,635



From LBP 500 million to LBP 1.5 billion 137,942,664 12.77 659 958,070,511 14.54 1,314

Over LBP 1.5 billion 207,092,867 19.17 221 3,913,916,711 59.39 534

1,080,429,579 100.00 48,166 6,589,444,489 100.00 55,787

December 31, 2007

TotalDepositsLBP’000

% to TotalDeposits

%

No. ofcustomers


% to TotalDeposits

%

No. ofcustomers




From LBP 200 million to LBP 500 million 165,156,586 15.27 544 649,705,959 13.51 1,835

From LBP 500 million to LBP 1.5 billion 110,726,691 10.23 137 831,540,703 17.29 878

Over LBP 1.5 billion 184,924,709 17.09 34 2,369,196,580 49.27 420

1,081,871,978 100.00 43,885 4,808,886,130 100.00 46,602

December 31, 2006


% to TotalDeposits

%

No. ofcustomers


% to TotalDeposits

%

No. ofcustomers


Deposits from customers at amortized cost include at December 31, 2007coded deposit accounts in the aggregate of LBP 26.09 billion (LBP 36.1 billionin 2006). These accounts are subject to the provisions of Article 3 of theBanking Secrecy Law dated September 3, 1956 which provides that theBank’s management, in the normal course of business, cannot reveal theidentities of these depositors to third parties, including its independentpublic accountants.

Deposits from customers at amortized cost include at December 31, 2007fiduciary deposits received from non-resident banks and financialinstitution for a total amount of LBP 245.38 million (LBP 133.38 billion in2006) out of which LBP 70.47 billion from a related company and asubsidiary bank (LBP 72 billion in 2006).

The average balance of deposits at amortized cost and related cost of fundsover the last 2 years were as follows:

135

2007 1,063,778,063 7.30 6,142,531,475 5.68 427,190,391

2006 1,209,646,486 7.10 4,917,169,615 4.98 330,451,904


Average Balanceof Deposits

LBP’000Year

AverageInterest

Rate%

AverageBalance ofDepositsLBP’000

AverageInterest

Rate%

Cost ofFunds

LBP’000


136


y e a r 2 0 0 7

20. RELATED PARTIES’ ACCOUNTS AT FAIR VALUE THROUGH PROFIT ORLOSS

This section consists of the following:

The changes in the fair value recognized on these deposits and the relatedderivative acquired for hedging is broken down as follows:

21. RELATED PARTIES’ ACCOUNTS AT AMORTIZED COST



Related parties’ deposits at fairvalue through profit or loss 3,005,829 3,009,435 3,606 3,606

Related derivative contracts(held for hedging) 431,145 422,100 (9,045) (9,045)

Net effect of profit or loss (5,439) (5,439)

December 31, 2007 Change in Fair Value

Initial ValueLBP’000

Fair ValueLBP’000

For theyear 2007 LBP’000

Cumulative2007

LBP’000

Related parties' deposits designated at FVTPL 3,009,435

Accrued interest Payable 198,247

3,207,682

C/V of F/Cy LBP’000

December 31, 2007

Current and demanddeposits 3,681,496 754,393 4,435,889 34,289,521 4,002,654 38,292,175 42,728,064

Term deposits 2,105,775 - 2,105,775 1,981,157,570 - 1,981,157,570 1,983,263,345

Collateral againstloans and advances 11,165,231 - 11,165,231 665,121,900 - 665,121,900 676,287,131

Margins on lettersof guarantee 220,025 - 220,025 2,346 7,538 9,884 229,909

Other margins - - - - 5,223 5,223 5,223

Accrued interestpayable 54,725 - 54,725 6,932,066 - 6,932,066 6,986,791

17,227,252 754,393 17,981,645 2,687,503,403 4,015,415 2,691,518,818 2,709,500,463

December 31, 2007




TotalLBP’000



TotalLBP’000

Total RelatedParties’

AccountsLBP’000


Deposits from related parties at amortized cost are allocated by brackets ofdeposits as follows:

137

Current and demanddeposits 729,656 - 729,656 327,655,956 - 327,655,956 328,385,612

Term deposits 23,188 - 23,188 685,509,832 - 685,509,832 685,533,020

Collateral against loansand advances 14,897,432 - 14,897,432 168,952,313 - 168,952,313 183,849,745

Margins for lettersof credit - - - 63,034 25,065 88,099 88,099

Margins on lettersof guarantee 219,557 - 219,557 - 9,799 9,799 229,356

Other margins - 50,000 50,000 - 8,593 8,593 58,593

Accrued interestpayable 59,885 - 59,885 6,427,806 - 6,427,806 6,487,691

15,929,718 50,000 15,979,718 1,188,608,941 43,457 1,188,652,398 1,204,632,116

December 31, 2006




TotalLBP’000



TotalLBP’000

Total RelatedParties’

AccountsLBP’000

Less than LBP 50 million 122,040 0.68 152,051 0.01

From LBP 50 million

to LBP 100 million 151,793 0.84 81,514 0.01

From LBP 100 millionto LBP 200 million 347,617 1.93 544,181 0.02

From LBP 200 millionto LBP 500 million - - 1,368,530 0.05

From LBP 500 millionto LBP 1.5 billion 1,964,684 10.93 6,248,811 0.23

From LBP 1.5 billionto LBP 5 billion 4,759,178 26.47 28,546,794 1.06

Over LBP 5 billion 10,636,333 59.15 2,654,576,937 98.62

17,981,645 100.00 2,691,518,818 100.00

December 31, 2007

LBP Base Accounts F/Cy Base AccountsTotal

DepositsLBP’000

% to TotalDeposits %




138


y e a r 2 0 0 7

XX. R E L A T E DPARTIES’ ACCOUNTS AT FAIR VALUE THROUGH PROFIT OR LOSS

The average balance of deposits at amortized cost and related cost of fundsover the last 2 years were as follows:

22. OTHER BORROWINGS

Long term borrowings are reflected at amortized cost and consist of thefollowing:



Less than LBP 50 million 560,820 3.5 93,169 0.008

From LBP 50 million

to LBP 100 million 267,340 1.7 322,667 0.027

From LBP 100 millionto LBP 200 million 360,196 2.3 561,952 0.047

From LBP 200 millionto LBP 500 million 495,955 3.1 2,253,046 0.190

From LBP 500 millionto LBP 1.5 billion 2,952,182 18.5 7,087,854 0.596

From LBP 1.5 billionto LBP 5 billion 1,925,157 12.0 13,323,535 1.121

Over LBP 5 billion 9,418,068 58.9 1,165,010,175 98.011

15,979,718 100.00 1,188,652,398 100.00

December 31, 2006

LBP Base Accounts F/Cy Base AccountsTotal

DepositsLBP’000




2007 33,934,180 7.00 1,528,005,608 5.75 89,721,959

2006 30,245,646 7.20 745,533,789 6.02 45,873,779


Average Balanceof Deposits LBP’000Year

AverageInterestRate %

AverageBalance ofDepositsLBP’000

AverageInterest

Rate%

Cost of FundsLBP’000

Borrowings from a non-resident investment bank 6,777,893 7,629,355Short term borrowings 184,012,543 -Long term borrowings 218,587,500 -Accrued interest payable 7,974,132 64,679

417,352,068 7,694,034

December 31,2007 2006




“Long term borrowings” includes as at December 31, 2007, LBP 143.2 billiongranted to the Group against the pledge of held-to-maturity LebaneseGovernment bonds in the amount of LBP 291.2 billion (Refer to Note 10).

The remaining contractual maturities of the above borrowings are asfollows:

The Group has not had any defaults of principal, interest or other breacheswith respect to its borrowings during 2007 and 2006.

23. CERTIFICATES OF DEPOSIT

Certificates of deposit consist of the following as at December 31, 2007and 2006:

Certificates of deposit are reflected at amortized cost.

139

Less than 1 year 187,063,436 5.85 -

1 to 3 years 12,203,571 7.30 -

3 to 5 years 49,131,464 6.96 -

5 to 10 years 102,994,554 7.31 7,629,355 4.92

Beyond 10 years 57,984,911 7.22 -

409,377,936 7,629,355

December 31,

Maturity

2007F/Cy Base Accounts F/Cy Base Accounts

2006

AmountLBP’000


%

AmountLBP’000


%

Global certificates of deposit 708,525,000 934,650,000

Discount on issuance of global certificates of deposit (3,477,742) (4,440,740)

Accrued interest payable 10,562,384 16,333,095

715,609,642 946,542,355

December 31,

2007 2006




140


y e a r 2 0 0 7

A. GLOBAL CERTIFICATES OF DEPOSIT

During 1996, the Group set up a USD 500 million Euro Deposit Program tobe issued in series through international financial institutions. Elevenseries had been issued under this program up to December 2005, of whichthe first eight series were redeemed. During 2006, the Group redeemedseries Nº. 9 in the amount of USD 100 million at its maturity on October 6,2006. During 2007, the Group redeemed series Nº. 10 in the amount of USD100 million at its maturity on August 6, 2007.

During 2005, the Group augmented the above mentioned program by USD500,000,000 to become USD 1 billion to be issued in series throughinternational financial institutions. In this respect, the Group issued seriesNo.12 in the amount of USD 300 million representing the first series of theabove mentioned program after its increase.

The outstanding series are summarized as follows:

B. LOCAL CERTIFICATES OF DEPOSIT

The balance of local certificates of deposit in the amount of USD 2.3 millionas at December 31, 2005 bearing interest of 4.5% per annum was redeemedupon maturity during the year 2006.

Certificates of deposit mature as follows with related average coupon rate:

The Group has not had any defaults of principal, interest or other breacheswith respect to its certificates of deposit during 2007 and 2006.



Nominal amount of certificates USD 170,000,000 USD 300,000,000

Issue price USD 168,218,400 USD 298,005,000

Issue date July 19, 2005 December 15, 2005

Maturity July 19, 2010 December 14, 2012

Fixed rate of interest 7.625% 7.625%

Interest payment date July & January 19 December & June 15

Series 11 Series 12

2007 - 226,125,000 6.250

2010 256,275,000 7.625 256,275,000 7.625

2012 452,250,000 7.625 452,250,000 7.625

708,525,000 934,650,000

December 31,

Maturity

2007F/Cy Base Accounts F/Cy Base Accounts

2006

AmountLBP’000


%

AmountLBP’000


%


24. OTHER LIABILITIES

During 2007, the tax authorities reviewed the tax returns for the years2003, 2004 and 2005 of BankMed S.A.L. and its subsidiary Saudi LebaneseBank S.A.L. which resulted in additional taxes in the aggregate amount ofLBP 1.54 billion reflected in the income statement. The tax returns for theyears 2006 and 2007 of the Group entities remain subject to examinationand final tax assessment by the tax authorities. Management does notexpect any material additional tax liability as a result of the expectedtax review.

Deferred tax liability consists of the following:

141

Accrued income tax and other 6,127,240 3,495,812

Withheld taxes on staff benefits and paymentsto non-residents 2,280,804 1,098,847

Withheld tax on interest 2,770,069 3,601,756

Deferred tax liability 51,079,747 24,932,568

Due to the Social Security National Fund 1,663,460 1,221,250

Checks and incoming payment orders in courseof settlement 22,576,395 1,912,757

Blocked capital subscriptions for companiesunder incorporation 15,512,218 41,071

Accrued expenses 19,443,712 7,609,518

Derivative liabilities held for risk management 513,437 -

Financial guarantee contracts issued 1,190,180 1,038,207

Negative fair value of derivatives 3,294,963 -

Payable to personnel and directors 694,662 -

Unearned revenues 5,699,076 3,385,098

Sundry accounts payable 46,588,884 38,976,624

Notes payable – Note 14 - 19,984,043

179,434,847 107,297,551

December 31,

2007 2006

LBP'000 LBP'000

Deferred tax liability on available-for-sale securities 44,139,902 24,410,892

Deferred tax liability on undistributed income of subsidiaries 6,030,000 -

Deferred tax liability on income from associates 909,845 521,676

51,079,747 24,932,568

December 31,

2007 2006

LBP'000 LBP'000


142


y e a r 2 0 0 7

25. PROVISIONS

Provisions consist of the following:

The movement of provision for staff end-of-service indemnity is as follows:

The movement of the provision for contingencies was as follows:



Balance January 1 12,346,192 9,636,461Acquisition of subsidiary 1,106,623 -Additions 640,630 3,341,746Settlements (930,797) (632,015)Write-back (42,628) -Effect of exchange rate charges 274,304 -Balance December 31 13,394,324 12,346,192

December 31,

2007 2006LBP'000 LBP'000

Provision for staff end of service indemnity 13,394,324 12,346,192

Provision for contingencies 7,273,668 5,948,305

Provision for loss on foreign currency position 412,227 132,930

Other 465,824 -

21,546,043 18,427,427

December 31,

2007 2006

LBP'000 LBP'000

Balance January 1 5,948,305 3,383,911

Acquisition of subsidiary 1,112,989 -

Additions 1,716,503 3,800,000

Settlements (1,743,432) (1,235,606)

Write-back (16,380) -

Effect of exchange rate charges 255,683 -


December 31,

2007 2006

LBP'000 LBP'000


144


y e a r 2 0 0 7

28. CUMULATIVE CHANGE IN FAIR VALUE OF AVAILABLE-FOR-SALESECURITIES


As a result of the acquisition in 2006 of the 25% minority equity stake inSaudi Lebanese Bank S.A.L., a consolidated subsidiary, cumulative change infair value equivalent to the minority’s share as at the purchase date iseliminated from the consolidated cumulative change in fair value ofavailable-for-sale securities.

29. MINORITY INTEREST



Unrealized gain/(loss) onLebanese treasury bills 9,870,708 (1,480,607) 8,390,101 (431,942) 64,792 (367,150)

Unrealized gain/(loss) onLebanese Government Bonds (106,134,544) 14,783,839 (91,350,705) (91,007,581) 13,651,137 (77,356,444)

Unrealized gain/(loss) on certificates ofdeposit issued by BDL (18,365,779) 2,754,867 (15,610,912) (8,512,421) 1,276,863 (7,235,558)

Unrealized gain/(loss)on corporate bonds 1,261,928 56,622 1,318,550 - - -

Unrealized gain/(loss)on equity securities 403,183,679 (60,077,719) 343,105,960 264,375,687 (39,226,780) 225,148,907

Unrealized gain/(loss) from associates 5,513,993 - 5,513,993 6,644,611 - 6,644,611

295,329,985 (43,962,998) 251,366,987 171,068,354 (24,233,988) 146,834,366



Deferred TaxLBP’000

NetLBP’000

CumulativeChange in Fair

ValueLBP’000

Deferred TaxLBP’000

NetLBP’000

Capital 139,927,990 680,000

Reserves and retained earnings (69,044,683) 272,396


(Loss)/profit for the year (538,623) 76,416

81,961,860 1,028,812

December 31,

2007 2006

LBP'000 LBP'000


30. INCOME FOR THE YEAR

The consolidated income is allocated as follows between the Bank and itssubsidiaries:

31. INTEREST INCOME

Interest income realized on impaired loans and advances to customersrepresent recoveries of interest. Accrued interest on impaired loans andadvances is not recognized until recovery or a rescheduling agreement issigned with customers.

Interest income on trading portfolio is included under “Net interest andgains and losses on trading portfolio” (Note 35).

145

Income of the Bank 26,478,111 - 26,478,111 (19,138,380) - (19,138,380)

Net results of foreign branches,subsidiaries and associates 34,706,522 (538,623) 34,167,899 23,917,083 76,416 23,993,499

61,184,633 (538,623) 60,646,010 4,778,703 76,416 4,855,119


Bank’s ShareLBP’000

Minority ShareLBP’000

TotalLBP’000

Bank’s ShareLBP’000

MinorityShare

LBP’000

TotalLBP’000

Deposits with the central banks 67,487,020 48,741,105

Deposits with banks and financial institutions 61,137,415 34,825,771

Deposits with related party banks and financial institutions 9,272,360 1,971,200

Notes receivable - Note 10 24,324,946 -

Available-for-sale investment securities 225,198,412 211,824,763

Held to maturity investment securities 141,040,387 127,108,119

Loans and advances to customers 209,765,031 125,654,908

Loans and advances to related parties 43,989,222 31,737,797

Receivable from properties sold with deferred

payment Note 16 10,229,027 -

Interest recognized on impaired loans and advancesto customers 3,227,743 16,956,067

795,671,563 598,819,730


2007 2006

LBP'000 LBP'000


146


y e a r 2 0 0 7

32. INTEREST EXPENSE

Interest expense on customers’ and related parties’ accounts designated atfair value through profit or loss is included under “Net interest and gainsand losses on financial instruments designated at fair value through profitor loss” (Note 36).

33. FEE AND COMMISSION INCOME


34. FEE AND COMMISSION EXPENSE



Deposits and borrowings from banks andfinancial institutions 43,579,402 36,072,143

Deposits and borrowings from related party banks andfinancial institutions 2,909,841 -

Securities lent and repurchase agreements 12,082,385 638,487

Customers’ accounts at amortized cost 427,190,391 330,451,904

Related parties’ accounts at amortized cost 89,721,959 45,873,779

Other borrowings 9,298,248 37,449

Certificates of deposit 63,734,070 77,616,680

648,516,296 490,690,442

Year ended December 31,

2007 2006

LBP'000 LBP'000

Commission on documentary credits 3,256,340 1,951,347

Commission on acceptances 902,293 693,810

Commission on letters of guarantee 6,773,723 3,431,524

Service fees on customers’ transactions 18,529,009 11,065,946

Brokerage fees 4,063,662 2,873,892

Commission on transactions with banks 712,590 -

Asset management fees 6,329,454 1,308,442

Commissions on fiduciary activities 3,336,854 4,056,103

Other 1,573,356 1,502,687

45,477,281 26,883,751


2007 2006

LBP'000 LBP'000



35. NET INTEREST AND GAINS AND LOSSES ON TRADING PORTFOLIO


147

Commission on transactions with banks andfinancial institutions 1,548,454 708,674

Safe custody charges 411,540 315,066

Other 3,075,754 1,232,288

5,035,748 2,256,028


2007 2006

LBP'000 LBP'000

Interest income on Lebanese and other Governmentbonds held for trading 13,434,219 98,006

Interest income on certificates of deposit inforeign currencies - 42,969

Dividends received on trading securities 128,408 40,497

Change in fair value of trading portfolio (net) 10,639,208 (481,722)

Gain on sale of trading assets 520,445 241,622

Loss on sale of trading assets (101,939) -

24,620,341 (58,628)


2007 2006

LBP'000 LBP'000


148


y e a r 2 0 0 7

36. NET INTEREST AND GAINS AND LOSSES ON FINANCIALINSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT ORLOSS


37. OTHER OPERATING INCOME




Interest expense on customers’ accounts at fairvalue through profit or loss (5,254,181) (916,926)

Fee income on customers’ accounts at fair valuethrough profit or loss 788,338 488,194

Interest expense on related parties' accounts at fair

value through profit or loss (198,247) -

Fee expense on related parties’ accounts at fair valuethrough profit or loss (248) -

(4,664,338) (428,732)

December 31,

2007 2006

LBP'000 LBP'000

Gain on sale of available-for-sale securities:

Equities 4,980,384 12,488,462

Lebanese and Turkish Government bonds 922,044 1,362,419

Certificates of deposit issued by Central Bank 56,320 840,485

Gain on sale of an associate – Note 12 11,314,651 -

Income from equity investment securities – Note 10 27,613,882 17,282,977

Income from associates at equity method – Note 12 3,493,520 2,051,181

Rent revenues 1,504,262 -

(Loss)/gain on disposal of property and equipment (78,436) 43,979

Foreign exchange gain 31,052,850 17,365,512

Income earned on derivatives 474,484 450,288

Gain on sale of assets acquired in satisfactionof loans – Note 13 634,202 1,115,719

Other 4,004,733 2,842,955

85,972,896 55,843,977

December 31,

2007 2006

LBP'000 LBP'000


38. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS

The guarantees and standby letters of credit and the documentary andcommercial letters of credit represent financial instruments withcontractual amounts representing credit risk. The guarantees and standbyletters of credit represent irrevocable assurances that the Group will makepayments in the event that a customer cannot meet its obligations to thirdparties and are not different from loans and advances on the balance sheet.However, documentary and commercial letters of credit, which representwritten undertakings by the Group on behalf of a customer authorizing athird party to draw drafts on the Group up to a stipulated amount underspecific terms and conditions, are collateralized by the underlyingshipments documents of goods to which they relate and, therefore, havesignificantly less risks.

Forward exchange contracts outstanding as of December 31, 2007 and 2006represent positions held for customers' accounts and at their risk. TheGroup entered into such instruments to serve the needs of customers, andthese contracts are fully hedged by the Group. The forward exchangecontracts outstanding as at December 31, 2007 include a forwardtransaction for the purchase of USD 75.61 million versus CHF 87.10 million(USD 80.08 million versus CHF 96.5 million as at December 31, 2006). Thistransaction was effected to hedge an investment referred to in Note 14.

39. FIDUCIARY ACCOUNTS

Fiduciary accounts consist of the following:

149

Fiduciary deposits invested in depositswith other non-resident banks - 843,377,005 843,377,005

Fiduciary deposits invested in portfoliosecurities (non-resident) - 688,032,044 688,032,044

Fiduciary deposits invested in back toback lending 402,119,079 24,981,676 427,100,755

402,119,079 1,556,390,725 1,958,509,804

December 31, 2007

ResidentLBP’000

Non-ResidentLBP’000

TotalLBP’000


150


y e a r 2 0 0 7

40. BALANCES / TRANSACTIONS WITH RELATED PARTIES

In the ordinary course of its activities, the Bank conducts transactions withrelated parties including shareholders, directors, subsidiaries andassociates. Balances with related parties consist of the following:



Fiduciary deposits invested in depositswith non-resident banks - 1,010,781,830 1,010,781,830

Fiduciary deposits invested in portfoliosecurities (non-resident) - 585,448,783 585,448,783

Fiduciary deposits invested inback-to-back lending 58,055,081 29,179,842 87,234,923

58,055,081 1,625,410,455 1,683,465,536

December 31, 2006

Customers’ Base Accounts


ResidentLBP’000

TotalLBP’000

Discretionary - 20,186,204 - 10,583,170

Non-Discretionary 402,119,079 1,536,204,521 58,055,081 1,614,827,285

402,119,079 1,556,390,725 58,055,081 1,625,410,455


ResidentLBP’000


ResidentLBP’000


Shareholders, directors and other key managementpersonnel and close family members

Direct facilities and credit balances

Secured loans and advances 157,358,472 124,191,493

Unsecured loans and advances - 291

Deposits 2,295,596,877 2,448,199

Associated companies:

Direct facilities and credit balances

Secured loans and advances 92,800,802 258,213,865

Unsecured loans and advances 143,500,552 69,731,577

Deposits 409,926,229 1,195,696,226

Year End Balance

2007 2006

LBP'000 LBP'000


Interest rates charged on balances outstanding are the same rates thatwould be charged in an arm’s transaction.

The financial statements include balances with banks and related partiesthat are reflected under deposits with banks and financial institutions,loans and advances to related parties, deposits from related parties, otherassets, other liabilities and off balance sheet accounts. Refer to the balancesheet and notes thereto.

Related party transactions not disclosed elsewhere in the notes to theconsolidated financial information are as follows:

• General operating expenses include approximately LBP 32.59 billion forthe year ended December 31, 2007 (LBP 17.95 billion for the year endedDecember 31, 2006) representing charges transacted with affiliatedcompanies for services rendered to the Group.

• Acceptances payable include acceptances payable to a related bank in theamount of LBP 162.16 million as at December 31, 2007 (LBP 713 million as atDecember 31, 2006).

• Acceptances receivable include acceptances receivables from relatedparties in the amount of LBP 20.76 billion as at December 31, 2007 (LBP11.94 billion as at December 31, 2006).

• Guarantees, and standby letters of credit include guarantees issued onbehalf of related parties in favor of third parties in the amount of LBP90.07 billion as at December 31, 2007 (LBP 79.88 billion as at December 31,2006).

• Guarantees, and standby letters of credit include guarantees issued to thebenefit of related parties on behalf of third parties in the amount of LBP7.67 billion as at December 31, 2007 (LBP 69.42 billion as at December 31,2006).

• Documentary and commercial letters of credit include letters of creditissued on behalf of related parties in favor of third parties in the amountof LBP 62.86 billion as at December 31, 2007 (LBP 17.45 billion as atDecember 31, 2006).

• Documentary and commercial letters of credit include letters of creditissued to the benefit of related parties on behalf of third parties in theamount of LBP 1.1 billion as at December 31, 2007 (LBP 480 million as atDecember 31, 2006).

151


152


y e a r 2 0 0 7

• Forward contracts include currencies to be received from a related partyin the amount of LBP 332.5 million as at December 31, 2007 (none in 2006)and currencies to be delivered to the same related party in the amount ofLBP 331.9 million as at December 31, 2007 (none in 2006).

• Other liabilities includes an amount of LBP 6 billion due to related parties(none in 2006) representing accrued charges for services received.

On December 24, 2004, the Group signed a contract with Allemby 171 RealEstate Co. S.A.L., a company owned by the previous Chairman and GeneralManager of the Group, whereby it renounced its right to own 2,400 shares inpart 6 of plot # 171 in Marfaa district for a total consideration of USD 3,400,000paid upon the registration of the plot in the name of the Company. In addition,it was agreed that the Group renounces its leasing rights in the buildingerected on the plot mentioned above and evacuate the leased property anddeliver it to the Company against receiving USD 800,000 representing cost ofdecorations incurred by the Group and USD 800,000 representing key money.Moreover, it was agreed that the Company pays the total consideration due tothe Group that resulted from the above mentioned agreement in the amountof USD 5,000,000 plus interest at the rate of 5% per annum in annualinstallments due on December 31 of each year starting December 31, 2005 andending December 31, 2009, provided that the Company provides the Groupwith a first degree real estate mortgage on the above mentioned plot. Duringthe second half of 2007, the outstanding balance was fully settled.

41. ACQUISITIONS

On January 28, 2007, the Group acquired 41% of the share capital ofTurkland Bank A.S. (formerly MNG Bank A.S.). At acquisition date thedetails of the fair value of the assets and liabilities acquired and goodwillarising are as follows:



Cash and cash equivalents 21,661,375

Securities 94,119,188

Loans and advances to customers 312,193,945

Investments 14,286,365

Other assets 3,597,851

Property and equipment 7,749,544

Customer’s deposits (367,589,816)

Other liabilities (6,838,145)

Provision for losses and contingencies (2,459,398)

Fair value of net assets of subsidiary bank 76,720,909

Less: Minority interest in net assets (45,265,336)

Fair value of the Group’s equity stake 31,455,573

Goodwill 76,862,624

Total purchase price 108,318,197

Less: Net cash of subsidiary bank at acquisition (21,661,375)

Net cash flow on acquisition of investmentin subsidiary bank 86,656,822

LBP'000


42. NOTES TO THE CASH FLOW STATEMENT

Cash and cash equivalents for the purpose of the cash flow statementconsist of the following:

Time deposits with and from Central Banks and banks and financialinstitutions represent inter-bank placements and borrowings with anoriginal term of 90 day or less.

The following operating, investing and financing activities, whichrepresent non-cash items were excluded from the consolidated cash flowstatement as follows:

(a) Net increase in change in fair value of available-for-sale securities anddeferred liability in the amounts of LBP 124.9 billion and LBP 19.73 billion,respectively, against investment securities for the year ended December31, 2007 (Net decrease of LBP 135.32 billion and LBP 23.78 billion,respectively, against investment securities for the year ended December31, 2006).

(b) Assets acquired in satisfaction of debts in the amount of LBP 15.04billion against loans and advances to customers for the year endedDecember 31, 2007 (LBP 9.7 billion for the year ended December 31, 2006).

(c) Increase in deferred liability on income from associates and decrease inchange in fair value on available-for-sale securities in the amount of LBP258.98 million and LBP 388.17 million, respectively, against investmentsin associates and investments held for sale for the year ended December31, 2007 (Increase of LBP 228 million and LBP 60 million, respectively, forthe year ended December 31, 2006).

(d) Increase in deferred liability on undistributed income from subsidiariesagainst income for the year in the amount LBP 6 billion for the yearended December 31, 2007.

153

Cash 51,320,789 39,123,005

Checks for collection 33,988,702 24,271,923

Current accounts with central banks 10,892,004 11,695,797

Time deposits with central banks 569,839,861 644,456,250

Current accounts with banks and financial institutions 209,559,172 20,799,663

Time deposits with banks and financial institutions 2,554,966,230 838,256,834

Demand deposits from banks (17,477,106) (29,371,761)

Time deposits from banks (152,037,420) (126,710,106)

3,261,052,232 1,422,521,605

December 31,

2007 2006

LBP'000 LBP'000


154


y e a r 2 0 0 7

(e) Increase in notes payable in the amount of LBP 19.22 billion againstgoodwill for the year ended December 31, 2006.

(f) Increase in other assets in the amount of LBP 141.36 billion against adecrease in assets acquired in satisfaction of debts for the year endedDecember 31, 2006.

(g) Increase in other assets in the amount of LBP 14.32 billion against adecrease in investments in associates and investments held for sale forthe year ended December 31, 2006.

(h) Decrease in property and equipment and prepaid expenses andincrease in accounts payable and other liabilities in the amount of LBP11.21 billion, LBP 1.3 million and LBP 743 million against a decrease inrelated parties’ deposits in the amount of LBP 10.47 billion for the yearended December 31, 2006.

43. COLLATERAL GIVEN

The carrying values of financial assets given as collateral are as follows atDecember 31, 2007:



Held to maturity corporate bonds Borrowing undersale and repurchase

3,015,000 agreements 2,604,960 - -

Held for trading foreign government bonds Borrowing under

sale and repurchase Transaction88,605,876 agreements 28,338,130 guarantee 57,515,260

Held to maturityLebanese government bonds Long term

291,188,700 borrowing 143,212,500 - -

Pledged deposits with banks &financial institutions 301,500 Letter of guarantee 904,500 - -

Corresponding FacilitiesPledgedAmountLBP’000

Nature of Facility Amount of

Facility LBP’000Nature of Facility Amount of

Facility LBP’000


The carrying values of financial assets given as collateral are as follows atDecember 31, 2006:

Over and above, the Group had contractual right of setoff arrangementswith correspondent banks, details of which are disclosed under Note 6.

44. CAPITAL MANAGEMENT

The Group’s objectives when managing capital are to comply with thecapital requirements set by Central Bank of Lebanon, the Group’s mainregulator, to safeguard the Group’s ability to continue as a going concernand to maintain a strong capital base.

Risk weighted assets and capital are monitored periodically to assess thequantum of capital available to support growth and optimally deploycapital to achieve targeted returns.

The Central Bank of Lebanon requires each bank or banking group to holda minimum level of regulatory capital of LBP 10 billion for the head officeand LBP 250 million for each local branch and LBP 750 million for eachbranch abroad. In addition, the bank is required to observe the minimumcapital adequacy ratio set by the regulator which is 12% (Basle Ratio).

The Group monitors the adequacy of its capital using the methodology andratios established by Central Bank of Lebanon. These ratios measure capitaladequacy by comparing the Group’s eligible capital with its balance sheetassets, commitments and contingencies, and notional amount ofderivatives at a weighted amount to reflect their relative risk.

155

Held to maturity corporate bonds Borrowing undersale and repurchase

214,065,000 agreements 180,900,000

Pledged deposits with banks &financial institutions 749,502 Letter of credit 224,985

Corresponding FacilitiesPledgedAmountLBP’000

Nature of Facility Amount of

Facility LBP’000


156


y e a r 2 0 0 7

The Group’s capital is split as follows:

Tier I capital: Comprises share capital after deduction of treasury shares,shareholders’ cash contribution to capital, non-cumulative perpetualpreferred shares, share premium, reserves from appropriation of profitsand retained earnings. Goodwill and cumulative unfavorable change infair value of available-for-sale securities are deducted from Tier I Capital.

Tier II capital: Comprises qualifying subordinated liabilities, collectiveimpairment allowance, cumulative favorable change in fair value ofavailable-for-sale securities and revaluation surplus of owned properties.

Investments in associates are deducted from Tier I and Tier II capital.

Also, various limits are applied to the elements of capital base: QualifyingTier II capital cannot exceed Tier I capital and qualifying short termsubordinated loan capital may not exceed 50% of Tier I capital.

The Group has complied with the regulatory capital requirementthroughout the period.

The Group’s consolidated risk based capital ratio as at December 31, 2007and 2006 amounted to 16.6% and 21.1% respectively, and is determined asfollows:

Tier I and Tier II capital are composed of the



Consolidated assets and off-balance sheet weighted risk 4,820,131 3,381,935

Tier I and Tier II capital (including income for the year) 800,888 713,804

Risk based capital ratio 16.6% 21.1%

December 31,

2007 2006

LBP Millions LBP Millions


following:

157

Attributable to Equity holders of the Group

Share capital 530,000,000 530,000,000

Legal reserves 25,212,282 23,458,080

Reserve for general banking risks 41,168,527 40,271,533

Retained earnings 109,862,157 107,734,650

706,242,966 701,464,263

Minority Interest 70,883,307 952,396

Less: Goodwill (166,868,380) (86,861,653)

Total Tier I capital 610,257,893 615,555,006

Balances December 31,

2007 2006

LBP'000 LBP'000

Attributable to Equity holders of the Group

Property revaluation surplus 3,213,000 3,213,000

Cumulative translation adjustment 7,976,435 -

Cumulative change in fair value of

available-for-sale securities 125,683,494 146,834,366

Profit for the year 61,184,633 4,778,703

198,057,562 154,826,069

Minority interest 11,078,553 76,416

Total Tier II capital 209,136,115 154,902,485

Less: Ineligible investments (18,506,000) (56,653,491)

Total Tier I and Tier II capital 800,888,008 713,804,000

Balances December 31,

2007 2006

LBP'000 LBP'000TIER II:


158


y e a r 2 0 0 7

45. FINANCIAL RISK MANAGEMENT

The Group’s activities are principally related to the use of financialinstruments including derivatives. It accepts deposits from customers atboth fixed and floating rates and for various periods and seeks to earninterest margins by investing these funds in high quality assets. It alsoseeks to increase these margins by consolidating short-term funds andlending for longer periods at higher rates while maintaining sufficientliquidity to meet all claims that may fall due.

The Group also seeks to raise interest margins through lending tocommercial and retail borrowers with a range of credit standing. Suchexposures include guarantees and other commitments such as letters ofcredit and performance and other bonds.

With the exception of specific hedging arrangements, foreign exchangeand interest rate exposures associated with derivatives are normally offsetby entering into counter balancing positions, thereby controlling thevariability in the net cash amounts required to liquidate market positions.

Risk management is a systematic process of identifying and assessing theGroup risks and taking actions to protect the Group against these risks.

The use of financial instruments also brings with it associated inherentrisks. The Group recognizes the relationship between returns and risksassociated with the use of financial instruments and the management ofrisks forms an integral part of the Group’s strategic objectives.

The strategy of the Group is to maintain a strong risk management cultureand manage the risk/reward relationship within and across each of theGroup’s major risk-based lines of business. The Group continuously reviewsits risk management policies and practices to reflect changes in markets,products and emerging best practice.

The Group has exposure to the following risks from its use of financialinstruments:

• Credit risk• Liquidity risk• Market risk• Operational risk




A – CREDIT RISK

Credit risk is the risk of financial loss to the Group if counterparty to afinancial instrument fails to discharge an obligation. Financial assets thatare mainly exposed to credit risk are deposits with banks, loans andadvances to customers and other banks and investment securities. Creditrisk also arises from off-balance sheet financial instruments such as lettersof credit and letters of guarantee.

Concentration of credit risk arises when a number of counterparties areengaged in similar business activities, or activities in the same geographicregion, or have similar economic features that would cause their ability tomeet contractual obligations to be similarly affected by changes ineconomic, political or other conditions. Concentrations of credit riskindicate the relative sensitivity of the Group’s performance affecting aparticular industry or geographical location.

Concentrations of credit risk indicate the relative sensitivity of the Group’sperformance to developments affecting a particular industry orgeographical location. The Group limits the impact of concentration risk inexposure by setting progressively lower limits for longer tenors and takingsecurity, where considered appropriate, to mitigate such risks.

1- Management of credit risk

The Group attempts to control credit risk by monitoring credit exposures,limiting transactions with specific counterparties, and continuallyassessing the creditworthiness of counterparties. The Group’s riskmanagement policies are designed to identify and to set appropriate risklimits and to monitor the risks and adherence to limits. Actual exposuresagainst limits are monitored daily. In certain cases the Group may alsoclose out transactions or assign them to other counterparties to mitigatecredit risk. The Group’s credit risk for derivatives represents the potentialcost to replace the derivative contracts if counterparties fail to fulfill theirobligation, and to control the level of credit risk taken, the Group assessescounterparties using the same techniques as for its lending activities.

The Group seeks to manage its credit risk exposure also throughdiversification of lending activities to ensure that there is no undueconcentration of risks with individuals or groups of customers in specificlocations or business. It also takes security when appropriate. The Group alsoseeks additional collateral from the counterparty as soon as impairmentindicators are noticed for the relevant individual loans and advances.

159


160


y e a r 2 0 0 7

Management monitors the market value of collateral, requests additionalcollateral in accordance with the underlying agreement and monitors themarket value of collateral obtained during its review of the adequacy of theallowance for impairment losses.

The Group regularly reviews its risk management policies and systems toreflect changes in markets products and emerging best practice.

2- Measurement of credit risk

a) Loans and advancesThe Group assesses the probability of default of individual counterpartiesusing internal rating tools. The Group’s rating scale reflects the range ofdefault probabilities defined for each rating class as explained below:

•Watch List: Loans and advances rated Watch List are loans that are notimpaired but for which the Group determines that they require specialmonitoring.

•Past due but not impaired: Loans past due but not impaired are loanswhere contractual interest or principal are past due but the Group’smanagement believes that impairment is not appropriate on the basis ofthe level of collateral available and the stage of collection of amounts owedto the Group.

•Substandard loans: Substandard loans are loans that are inadequatelyprotected by current sound worth and paying capacity of the obligor or byany collateral pledged in favor of the group. Exposures where an indicationof the possibility that the Group will sustain a loss if certain irregularitiesand deficiencies are not addressed exists are classified under this category.

•Doubtful loans: Doubtful loans have, in addition to the weaknessesexisting in substandard loans, characteristics indicating that currentexisting facts and figures make the collection in full highly improbable.The probability of loss is high but certain reasonable and specific pendingfactors which if addressed could strengthen the probability of collection,result in the deferral of the exposure as an estimated loss until a more exactstatus is determined.

•Loss: Loans classified as loss are considered as uncollectible and of suchminimal value that their classification as assets is not warranted. This doesnot mean that the loan is absolutely unrecoverable or has no salvage value.However, the amount of loss is difficult to measure and the Group does notwish to defer the writing of the loan even partial recovery might occur inthe future. Loans are charged off in the period in which they are deemeduncollectible and therefore classified as loss.




The Group establishes an allowance for impairment that represents itsestimate of incurred losses in its loan portfolio. The main component of itsallowance are specific loss component that relate to individually significantexposures, and a minor part of a collective loan loss allowance establishedfor retail and Small and Medium Enterprises (SME's) where there isobjective evidence that unidentified losses exist at the reporting date. Thisprovision is estimated based on various factors including credit ratingsallocated to a borrower or group of borrowers, the current economicconditions, the experience the Group has had in dealing with a borrower orgroup of borrowers and available historical default information.

The Group writes off a loan/security balance (and any related allowancesfor impairment losses) when it determines that the loans/securities areuncollectible. This determination is reached after considering informationsuch as the occurrence of significant changes in the borrower / issuer'sfinancial position such as the borrower / issuer can no longer pay theobligation, or that proceeds from collateral will not be sufficient to pay backthe entire exposure.

b) Government Debt SecuritiesSubsequent to the balance sheet date, the Lebanese Government sovereigncredit risk rating and therefore the Government debt securities credit riskwas downgraded to CCC+ by an international rating agency. However, noimpairment loss was recognized against Government debt securities sincethe downgrading is the result of circumstantial and temporary events, andrecovery of debt at maturity is probable as the Government has had nohistory of default.

3- Risk mitigation policies

Collateral:The Group mainly employs collateral to mitigate credit risk. The principalcollateral types for loans and advances are:

• Pledged deposits • Mortgages over real estate properties (land, commercial and residential

properties)• Bank guarantees• Financial instruments (equities and debt securities)• Business other assets (such as inventories and accounts receivable)

Collateral generally is not held over loans and advances to banks, exceptwhen securities are held as part of reverse repurchase and securitiesborrowing activity. Collateral usually is not held against investmentsecurities.

161


162


y e a r 2 0 0 7

Other specific risk mitigation policies include:

Netting arrangements:The Group further restricts its exposure to credit losses by entering intonetting arrangements with counterparties. Netting arrangements reducecredit risk associated with favorable contracts to the extent that if a defaultoccurs, all amounts with the counterparty are terminated and settled on anet basis.

4-Financial assets with credit risk exposure and related concentrations

a) Exposure to credit risk and concentration by counterpartyThe tables below reflect the Group’s exposure to credit risk by counterpartysegregated between the categories of financial assets:

a.1) Compulsory reserves and central banks:



Less than LBP 30 billion - - - 895,608 0.07 1

From LBP 30 billion to LBP 50 billion - - - 39,760,611 3.23 1


From LBP 100 billion to LBP 350 billion 158,387,115 100 1 - - -

Over LBP 350 billion - - - 1,139,341,072 92.59 1

158,387,115 100 1 1,230,587,932 100 4

LBP Base Account F/Cy Base Account

December 31,2007

TotalAmount

(Net)LBP’000

% to totaldeposits

%

No. of counterparties

Total Amount(Net)

LBP’000

% to totaldeposits

%


Less than LBP 100 billion - - - 829,481 0.09 1

From LBP 100 billion to LBP 3500 billion 172,170,357 100 1 - - -

Over LBP 350 billion - - - 956,218,034 99.91 1

172,170,357 100 1 957,047,515 100 2


December 31,2006

TotalAmount

(Net)LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%



a.2) Loans and advances to customers:

163


From LBP 50 million to LBP 100 million 11,726,636 7.34 166 28,466,512 1.04 407




From LBP 1.5 billion to LBP 5 billion 13,951,876 8.74 4 471,908,657 17.22 173

From LBP 5 billion to LBP 10 billion 29,282,461 18.34 4 279,060,696 10.19 42


Above LBP 15 billion 39,313,908 24.62 1 1,268,478,909 46.30 24

159,683,841 100 5,790 2,739,685,095 100 18,095


December 31,2007

TotalAmount

(Net)LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%










Above LBP 15 billion 91,322,470 47.40 3 916,983,071 53.60 26

192,669,245 100 6,701 1,710,869,109 100 11,103


December 31,2006

TotalAmount

(Net)LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%



164


y e a r 2 0 0 7

a.3) Loans and advances to related parties:

a.4) Available-for-sale investment securities:



Less than LBP 100 million 68 - 2 40,100 0.02 4

From LBP 100 millionto LBP 500 million - - - 100,053 0.04 1

From LBP 500 millionto LBP 1.5 billion - - - 854,705 0.35 1

From LBP 1.5 billionto LBP 5 billion - - - 2,858,494 1.18 1




152,361,194 100 9 241,303,321 100 16


December 31,2007

TotalAmount

(Net)LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%


Less than LBP 5 billion 3,878,428 0.43 15 16,864,899 0.62 9





Over LBP 350 billion 820,978,046 91.62 1 2,459,918,204 90.22 3

896,064,320 100 18 2,726,676,748 100 22


December 31,2007

Total Amount(Net)

LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%


Less than LBP 100 million 3,615 - 1 69,459 0.02 5

From LBP 100 million to LBP 200 million - - - 100,053 0.03 1

From LBP 200 million to LBP 1.5 billion - - - 441,735 0.13 1





106,963,068 100 8 345,178,532 100 13


December 31,2006

TotalAmount

(Net)LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%



a.5) Held-to-maturity investment securities:

165

Less than LBP 5 billion 3,867,073 0.49 17 8,242,539 0.39 5



From LBP 30 billion to LBP 200 billion 31,721,859 4.02 1 - - -


Over LBP 350 billion 748,742,583 94.85 1 1,811,935,668 84.89 2

789,359,499 100 20 2,134,446,033 100 12


December 31,2006

Total Amount(Net)

LBP’000

% to totaldeposits

%


Total Amount(Net)

LBP’000

% to totaldeposits

%


Less than LBP 5 billion - - - 5,618,827 0.42 3

From LBP 5 billion to LBP 50 billion 10,520,968 2.85 1 - - -


Over LBP 100 billion 358,357,360 97.15 1 1,233,616,525 92.60 1

368,878,328 100 2 1,332,161,350 100 5


December 31,2007

Total Amount(Net)

LBP’000

% to total held-to-

maturitysecurities %


Total Amount(Net)

LBP’000

% to totalheld-to-maturity

securities %


Less than LBP 5 billion - - - 1,581,734 0.10 1



Over LBP 350 billion 393,503,538 97.37 1 1,297,767,419 82.96 1

404,129,736 100 2 1,564,310,809 100 4


December 31,2006

Total Amount(Net)

LBP’000

% to total held-to-

maturitysecurities %


Total Amount(Net)

LBP’000

% to totalheld-to-maturity

securities %



166


y e a r 2 0 0 7

Belo

w a

re th

e de

tails

of t

he G

roup

’s ex

posu

re to

cre

dit r

isk

with

res

pect

to lo

ans

and

adva

nces

to cu

stom

ers (

excl

udin

g de

ferr

ed p

enal

ties a

nd co

llect

ive

prov

isio

n):



Regu

lar l

oans

and

adv

ance

s2,

696,

252,

737

(3,2

38,9

01)

2,69

3,01

3,83

648

6,98

3,33

336

9,23

2,45

338

2,67

1,25

463

,974

,125

52,0

65,6

591,

354,

926,

824

Subs

tand

ard

37,8

58,5

72-

37,8

58,5

7214

1,54

91,

319,

063

--

368,

028

1,82

8,64

0

Bad

and

doub

tful

165,

257,

627

(127

,280

,176

)37

,977

,451

23,1

6314

7,08

7,09

61,

636,

124

-31

9,12

814

9,06

5,51

1

2,89

9,36

8,93

6(1

30,5

19,0

77)

2,76

8,84

9,85

948

7,14

8,04

551

7,63

8,61

238

4,30

7,37

863

,974

,125

52,7

52,8

151,

505,

820,

975

Dec

embe

r 31,

200

7 Fair

Val

ue o

f Col

late

ral R

ecei

ved

Gro

ss E

xpos

ure

Net

of u

nrea

lized

inte

rest

LBP

’000

Allo

wan

ce fo

rIm

pair

men

tLB

P’00

0

Net

exp

osur

eLB

P’00

0

Pled

ged

Fund

sLB

P’00

0

Prop

erty

LBP’

000

Equi

tySe

curi

ties

LBP’

000

Deb

tSe

curi

ties

LBP’

000

Oth

erLB

P’00

0To

tal

LBP’

000


167

b) C

once

ntra

tion

of f

inan

cial

ass

ets

by in

dust

ry:

Bala

nce

Shee

t Exp

osur

e:

Cash

, com

puls

ory

rese

rves

and

Cent

ral B

anks

(exc

ludi

ng c

ash

on h

and)

1,38

8,97

5,04

7 -

--

--

--

-1,

388,

975,

047

Dep

osits

with

ban

ks a

nd

finan

cial

inst

itutio

ns-

2,92

1,41

2,31

3-

--

--

--

2,92

1,41

2,31

3

Trad

ing

asse

ts16

5,14

9,79

3 3,

126,

266

3,07

6,91

0-

--

--

-17

1,35

2,96

9

Loan

s an

d ad

vanc

es to

cus

tom

ers

-40

,820

,187

682,

511,

009

320,

313,

197

373,

503,

219

142,

470,

200

528,

399,

683

327,

660,

209

294,

231,

177

2,70

9,90

8,88

1

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-10

0,05

352

,583

,373

854,

705

--

168,

783,

713

157,

280,

571

14,0

62,1

0039

3,66

4,51

5

Avai

labl

e-fo

r-sa

le in

vest

men

t

secu

ritie

s2,

474,

493,

872

578,

907,

755

554,

048,

758

10,3

65,4

86-

-1,

910,

197

-3,

015,

000

3,62

2,74

1,06

8

Hel

d-to

-mat

urity

inve

stm

ent

secu

ritie

s1,

695,

420,

849

5,61

8,82

9-

--

--

--

1,70

1,03

9,67

8

Cust

omer

s’ ac

cept

ance

liab

ility

--

198,

820

5,78

4,26

014

,274

,396

-4,

576,

170

-37

,470

,502

62,3

04,1

48

Oth

er a

sset

s 74

,172

--

--

-15

7,66

0,47

137

6,87

551

5,75

515

8,62

7,27

3

5,72

4,11

3,73

33,

549,

985,

403

1,29

2,41

8,87

033

7,31

7,64

838

7,77

7,61

514

2,47

0,20

086

1,33

0,23

448

5,31

7,65

534

9,29

4,53

413

,130

,025

,892

Fina

ncia

l Ins

trum

ents

with

Off

-Bal

ance

She

et R

isk

Doc

umen

tary

and

com

mer

cial

lett

ers

of c

redi

t -

511,

719,

633

-13

,174

,705

20,6

95,5

12-

2,89

4,71

17,

703,

828

84,2

40,9

5664

0,42

9,34

5

Gua

rant

ees

and

stan

dby

lett

ers

of

cred

it-

17,2

20,3

6214

,243

,923

18,2

26,6

7154

,118

,428

-94

,109

,623

25,6

60,1

2010

5,30

4,08

532

8,88

3,21

2

Forw

ard

exch

ange

con

trac

ts-

338,

033,

642

-11

0,62

810

,149

,749

--

4,24

9,43

61,

973,

854

354,

517,

309

Sove

reig

nLB

P’00

0

Dec

embe

r 31,

200

7

Fina

ncia

lSe

rvic

esLB

P’00

0

Real

Est

ate

Dev

elop

men

tLB

P’00

0

Man

ufac

turin

gLB

P’00

0

Cons

umer

Goo

ds T

radi

ngLB

P’00

0

Real

Est

ate

Trad

ing

LBP’

000

Serv

ices

LBP’

000

Priv

ate

Indi

vidu

als

LBP’

000

Oth

erLB

P’00

0To

tal

LBP’

000


168


y e a r 2 0 0 7



Bala

nce

Shee

t Exp

osur

e:

Cash

, com

puls

ory

rese

rves

and

Cent

ral B

anks

(exc

ludi

ng c

ash

on h

and)

1,12

9,21

7,87

2-

--

--

--

-1,

129,

217,

872

Dep

osits

with

ban

ks

and

finan

cial

inst

itutio

ns-

931,

091,

065

--

--

--

-93

1,09

1,06

5

Trad

ing

asse

ts1,

426,

750

3,61

9,14

4-

--

--

--

5,04

5,89

4

Loan

s an

d ad

vanc

es to

cus

tom

ers

--

484,

584,

133

150,

826,

976

303,

652,

917

142,

204,

950

280,

182,

851

266,

345,

867

87,4

46,5

021,

715,

244,

196

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-10

0,05

321

1,74

4,24

644

1,73

5-

-11

5,65

8,51

712

4,19

3,14

33,

906

452,

141,

600

Avai

labl

e-fo

r-sa

le in

vest

men

t

secu

ritie

s2,

477,

574,

573

49,9

03,1

8638

3,81

6,06

110

,601

,515

--

1,91

0,19

7-

-2,

923,

805,

532

Hel

d-to

-mat

urity

inve

stm

ent

secu

ritie

s1,

960,

637,

125

7,80

3,42

0-

--

--

--

1,96

8,44

0,54

5

Cust

omer

s’ ac

cept

ance

liab

ility

--

13,0

66,8

209,

712,

765

11,2

86,6

34-

3,46

9,35

4-

8,80

3,04

846

,338

,621

Oth

er a

sset

s38

,790

1,17

3,25

9-

--

-14

6,37

6,10

7-

47,9

7314

7,63

6,12

9

5,56

8,89

5,11

099

3,69

0,12

71,

093,

211,

260

171,

582,

991

314,

939,

551

142,

204,

950

547,

597,

026

390,

539,

010

96,3

01,4

299,

318,

961,

454

Fina

ncia

l Ins

trum

ents

with

Off

-Bal

ance

She

et R

isk

Doc

umen

tary

and

com

mer

cial

lett

ers

of c

redi

t -

29,7

34,0

442,

586,

772

5,94

5,06

319

,399

,140

-1,

997,

863

710,

174

27,5

65,0

9287

,938

,148

Gua

rant

ees

and

stan

dby

lett

ers

of

cred

it-

19,4

35,6

4642

,090

,592

40,3

54,1

5736

,190

,372

-10

5,91

0,02

624

,444

,889

60,8

75,8

6332

9,30

1,54

5

Forw

ard

exch

ange

con

trac

ts-

657,

121,

888

76,1

40,0

00-

28,3

19,7

91-

38,7

42,8

6961

5,20

7-

800,

939,

755

Sove

reig

nLB

P’00

0

Dec

embe

r 31,

200

6

Fina

ncia

lSe

rvic

esLB

P’00

0

Real

Est

ate

Dev

elop

men

tLB

P’00

0

Man

ufac

turin

gLB

P’00

0

Cons

umer

Goo

ds T

radi

ngLB

P’00

0

Real

Est

ate

Trad

ing

LBP’

000

Serv

ices

LBP’

000

Priv

ate

Indi

vidu

als

LBP’

000

Oth

erLB

P’00

0To

tal

LBP’

000


c) Concentration of assets and liabilities by geographical area:

169

ASSETS

Cash, Compulsory Reservesand Central Banks 1,341,603,412 - - 98,692,424 - 1,440,295,836

Deposits with banks and financial institutions 1,087,464,934 687,204,639 24,727,281 1,086,545,740 35,469,719 2,921,412,313

Trading assets 7,751,806 - - 163,601,163 - 171,352,969

Loans and advances to customers 1,990,616,192 110,831,947 20,881,451 580,311,602 7,267,689 2,709,908,881

Loans and advances to related parties 245,162,606 52,683,426 - 95,818,483 - 393,664,515

Available for sale investmentsecurities 3,413,935,357 60,285,575 - 148,520,136 - 3,622,741,068

Held-to-maturity investmentsecurities 1,697,723,002 - - 3,316,676 - 1,701,039,678

Customers' acceptance liability 44,144,033 18,160,115 - - - 62,304,148

Investments in associates andinvestments held for sale 72,263,795 - - - - 72,263,795

Investment properties 6,034,649 - - - - 6,034,649

Assets acquired in satisfactionof loans 80,111,744 - - 1,454,095 - 81,565,839

Goodwill 166,868,380 - - - - 166,868,380

Property and equipment 173,729,057 - - 7,853,464 - 181,582,521

Other assets 209,397,813 - - 28,998,573 - 238,396,386

Total Assets 10,536,806,780 929,165,702 45,608,732 2,215,112,356 42,737,408 13,769,430,978

LIABILITIES

Deposits and borrowings from banks 599,571,655 77,510,148 2,331,680 49,449,309 26,317 728,889,109

Customers deposits designated atfair value through profit or loss 139,410,962 11,251,787 2,528,400 2,260,871 345,007 155,797,027

Customers' accounts at amortized cost 5,706,320,825 806,075,879 208,734,217 938,926,815 9,816,332 7,669,874,068

Related parties' accounts at fairvalue through profit or loss 3,207,682 - - - - 3,207,682

Related parties' accounts atamortized cost 150,704,559 2,148,428,863 331,781,038 78,579,816 6,187 2,709,500,463

Acceptances payable 8,710,217 10,821,647 22,516,490 19,794,209 461,585 62,304,148

Other borrowings 6,837,822 - 21,054,785 388,719,545 739,916 417,352,068

Certificates of deposit - - - 715,609,642 - 715,609,642

Other liabilities 139,007,991 1,912,009 - 38,311,530 203,317 179,434,847

Provisions 16,290,491 - - 5,255,552 - 21,546,043

Total liabilities 6,770,062,204 3,056,000,333 588,946,610 2,236,907,289 11,598,661 12,663,515,097

December 31, 2007

LebanonLBP’000

Middle East& AfricaLBP’000

North AmericaLBP’000

EuropeLBP’000

OtherLBP’000

TotalLBP’000


170


y e a r 2 0 0 7



ASSETS

Cash, Compulsory Reservesand Central Banks 1,167,006,742 - - 1,334,135 - 1,168,340,877

Deposits with banks andfinancial institutions 61,078,321 10,833,858 16,518,442 839,848,670 2,811,774 931,091,065

Trading assets 5,045,894 - - - - 5,045,894

Loans and advances to customers 1,559,248,256 94,999,035 16,501,171 43,598,594 897,140 1,715,244,196

Loans and advances to related parties 399,668,646 37,951,368 - 14,521,586 - 452,141,600

Available for saleinvestment securities 2,923,805,532 - - - - 2,923,805,532

Held-to-maturityinvestment securities 1,962,218,863 - - 6,221,682 - 1,968,440,545

Customers' acceptance liability 35,226,829 9,402,969 - 1,708,823 - 46,338,621

Investments in associates andinvestments held for sale 83,048,106 - - - - 83,048,106

Investment property 5,175,375 - - - - 5,175,375

Assets acquired in satisfaction of loans 86,732,018 - - - - 86,732,018

Goodwill 86,861,653 - - - - 86,861,653

Property and equipment 180,144,128 - - 436,913 - 180,581,041

Other assets 180,756,293 - - 1,636,852 - 182,393,145

Total Assets 8,736,016,656 153,187,230 33,019,613 909,307,255 3,708,914 9,835,239,668

LIABILITIES

Deposits and borrowings from banks 492,695,184 209,006,585 4,536,081 18,779,957 - 725,017,807

Customers’ deposits designatedat fair value through profit or loss 22,433,645 7,386,693 328,591 508,115 555,461 31,212,505

Customers' accounts atamortized cost 4,060,842,623 1,111,671,248 55,349,832 593,277,043 69,617,362 5,890,758,108

Related parties' accounts atamortized cost 169,990,028 965,785,716 57,615,031 264,220 10,977,121 1,204,632,116

Acceptances payable 5,252,192 494,600 12,520,236 24,333,655 3,737,938 46,338,621

Other borrowings 7,694,034 - - - - 7,694,034

Certificates of deposit - - - 946,542,355 - 946,542,355

Other liabilities 97,788,129 4,221,768 - 5,287,654 - 107,297,551

Provisions 18,321,330 - - 106,097 - 18,427,427

Total liabilities 4,875,017,165 2,298,566,610 130,349,771 1,589,099,096 84,887,882 8,977,920,524

December 31, 2006

LebanonLBP’000

Middle East& AfricaLBP’000

North AmericaLBP’000

EuropeLBP’000

OtherLBP’000

TotalLBP’000


171

B – LIQUIDITY RISK

Liquidity risk is the risk that the Group will be unable to meet its netfunding requirements. Liquidity risk can be caused by market disruptionsor credit downgrades, which may cause certain sources of funding to dryup immediately.

1- Management of liquidity riskTo mitigate this risk, management has diversified funding sources,manages assets with liquidity in mind, maintaining an adequate balanceof cash, cash equivalents and readily marketable securities and monitorsfuture cash flows and liquidity on a daily basis. The Group also hascommitted lines of credit that it can access to meet liquidity needs.

Liquidity risk is the Group’s ability to ensure the availability of funding tomeet commitments, both on-balance and off-balance sheet commitments,at a reasonable cost on time. The management of liquidity should not leadto threats to the Group’s solvency.

Liquidity risk arises when in case of crisis, refinancing may only be raised athigher market rates (funding risk), or assets may only be liquidated at a discountto market rates (market liquidity risk). Liquidity risk is also caused bymismatches in the maturities of assets and liabilities (uses and sources of funds).

In accordance with banking regulations issued by Central Bank of Lebanon,the Group maintains compulsory reserves with Central Bank of Lebanon of25% and 15% of the weekly average demand and term customers’ depositsin Lebanese Pounds. The Group has the ability to raise additional fundsthrough repurchase facilities available with Central Bank of Lebanonagainst Government debt securities.

The Group sets policies and procedures to ensure that its individual entitiesare in compliance with liquidity ratios imposed by the regulators in thecountries in which each of these entities operates in addition to otherinternal limits and thresholds.

2- Exposure to liquidity riskThe tables below summarize the maturity profile of the Group’s assets,liabilities and equity. The contractual maturities of assets and liabilitieshave been determined on the basis of the remaining period at the balancesheet date to the contractual maturity date, and do not take account of theeffective maturities as indicated by the Group’s deposit retention historyand the availability of liquid funds. Management monitors the maturityprofile to ensure that adequate liquidity is maintained.


172


y e a r 2 0 0 7

Residual contractual maturities of financial assets and liabilities:The tables below show the Bank’s assets and liabilities in Lebanese Poundsand foreign currencies base accounts segregated by maturity:



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

173,

199,

945

--

--

--

173,

199,

945

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

5,

079,

381

189,

614

1,23

5-

-7,

301,

016

8,41

3,09

120

,984

,337

Loan

s and

adv

ance

s to

cust

omer

s(6

4,70

8,59

2)23

,916

,668

8,76

2,84

18,

127,

830

2,10

2,49

65,

188,

392

10,2

65,3

85(6

,344

,980

)

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-93

,319

,568

--

--

-93

,319

,568

Hel

d fo

r tra

ding

, ava

ilabl

e fo

r sal

ean

d he

ld to

mat

urity

secu

ritie

s 8,

906,

413

38,4

55,0

1636

0,28

3,71

484

6,98

6,08

211

,031

,526

--

1,26

5,66

2,75

1

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

13,2

36,1

91-

--

--

-13

,236

,191

Ass

ets

acqu

ired

in s

atis

fact

ion

of lo

ans

(11,

368,

117)

--

--

--

(11,

368,

117)

Goo

dwill

54

,834

,356

--

--

--

54,8

34,3

56

Prop

erty

and

equ

ipm

ent

168,

734,

693

--

--

--

168,

734,

693

Oth

er a

sset

s 8,

809,

892

--

--

--

8,80

9,89

2

Tota

l Ass

ets

356,

724,

162

155,

880,

866

369,

047,

790

855,

113,

912

13,1

34,0

2212

,489

,408

18,6

78,4

761,

781,

068,

636

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks50

,627

93,9

56,9

70-

--

--

94,0

07,5

97

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

62,6

53,1

0698

9,61

5,55

628

,113

,869

47,0

41-

--

1,08

0,42

9,57

2

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 75

4,39

317

,227

,010

244

--

--

17,9

81,6

47

Oth

er li

abili

ties

24,0

83,1

27-

--

--

-24

,083

,127

Prov

isio

ns

16,1

87,7

80-

--

--

-16

,187

,780

Tota

l Lia

bilit

ies

103,

729,

033

1,10

0,79

9,53

628

,114

,113

47,0

41-

--

1,23

2,68

9,72

3

Mat

urity

Gap

25

2,99

5,12

9(9

44,9

18,6

70)

340,

933,

677

855,

066,

871

13,1

34,0

2212

,489

,408

18,6

78,4

7654

8,37

8,91

3

LBP

Base

Acc

ount

s

Dec

embe

r 31,

200

7

Acc

ount

s w

ithN

o m

atur

ity

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


173

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

89,9

87,3

2251

9,94

2,81

515

,636

,637

133,

746,

656

507,

782,

461

--

1,26

7,09

5,89

1

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

13

2,90

6,21

02,

762,

087,

499

5,43

4,26

7-

--

-2,

900,

427,

976

Loan

s an

d ad

vanc

es to

cus

tom

ers

146,

601,

635

1,84

5,40

0,93

426

8,94

9,44

618

4,96

2,54

811

6,00

6,22

415

0,18

5,28

54,

147,

789

2,71

6,25

3,86

1

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

2,95

8,54

721

6,29

5,10

57,

888,

415

33,7

61,3

26-

39,4

41,5

54-

300,

344,

947

Hel

d fo

r tra

ding

, ava

ilabl

e fo

r sal

ean

d he

ld to

mat

urity

sec

uriti

es

613,

794,

344

763,

632

573,

978,

076

753,

700,

439

595,

097,

844

1,01

8,58

3,74

167

3,55

2,88

84,

229,

470,

964

Cust

omer

s' ac

cept

ance

s lia

bilit

y2,

370,

116

48,3

02,1

9510

,824

,104

807,

733

---

-62

,304

,148

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

59,0

27,6

04-

--

--

-59

,027

,604

Inve

stm

ent p

rope

rtie

s 6,

034,

649

--

--

--

6,03

4,64

9

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s 92

,933

,956

--

--

--

92,9

33,9

56

Goo

dwill

11

2,03

4,02

4-

--

--

-11

2,03

4,02

4

Prop

erty

and

equ

ipm

ent

12,8

47,8

28-

--

--

-12

,847

,828

Oth

er a

sset

s 20

6,97

1,03

522

,615

,459

--

--

-22

9,58

6,49

4

Tota

l Ass

ets

1,47

8,46

7,27

05,

415,

407,

639

882,

710,

945

1,10

6,97

8,70

21,

218,

886,

529

1,20

8,21

0,58

067

7,70

0,67

711

,988

,362

,342

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

7,77

4,39

123

9,18

7,85

715

,538

,745

372,

380,

519

--

-63

4,88

1,51

2

Cust

omer

s' de

posi

ts a

t fai

r val

ueth

roug

h pr

ofit

or lo

ss

-13

,907

,877

1,20

6,00

014

0,68

3,15

0-

--

155,

797,

027

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

485,

983,

494

4,06

4,66

6,31

71,

459,

066,

297

530,

375,

426

39,9

75,0

929,

377,

870

-6,

589,

444,

496

Rela

ted

part

ies'

acco

unts

at F

VTPL

-

--

--

-3,

207,

682

3,20

7,68

2

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 3,

955,

389

1,82

4,38

9,96

332

,476

,184

830,

697,

280

--

-2,

691,

518,

816

Acce

ptan

ces

paya

ble

2,37

0,11

648

,302

,195

10,8

24,1

0480

7,73

3-

--

62,3

04,1

48

Oth

er b

orro

win

gs

-16

,368

,223

174,

659,

515

12,5

88,1

7550

,579

,749

104,

286,

750

58,8

69,6

5641

7,35

2,06

8

Cert

ifica

tes

of d

epos

it -

--

263,

973,

370

451,

636,

272

--

715,

609,

642

Oth

er li

abili

ties

122,

202,

208

31,6

99,2

7845

1,66

999

8,56

5-

--

155,

351,

720

Prov

isio

ns

5,35

8,26

3-

--

--

-5,

358,

263

Tota

l Lia

bilit

ies

627,

643,

861

6,23

8,52

1,71

01,

694,

222,

514

2,15

2,50

4,21

854

2,19

1,11

311

3,66

4,62

062

,077

,338

11,4

30,8

25,3

74

Mat

urity

Gap

85

0,82

3,40

9(8

23,1

14,0

71)

(811

,511

,569

) (

1,04

5,52

5,51

6)67

6,69

5,41

61,

094,

545,

960

615,

623,

339

557,

536,

968

F/Cy

Bas

e A

ccou

nts

Dec

embe

r 31,

200

7

Acc

ount

s w

ithN

o m

atur

ity

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


174


y e a r 2 0 0 7



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

182,

609,

067

--

--

--

182,

609,

067

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

4,

125,

931

--

--

3,03

3,93

04,

569,

311

11,7

29,1

72

Loan

s an

d ad

vanc

es to

cus

tom

ers

(22,

528,

596)

37,8

66,9

3613

,474

,930

3,10

4,46

71,

483,

060

1,12

8,09

5-

34,5

28,8

92

Loan

s and

adv

ance

s to

rela

ted

part

ies

-75

,477

,674

--

--

-75

,477

,674

Hel

d fo

r tra

ding

, ava

ilabl

e fo

r sal

ean

d he

ld to

mat

urity

sec

uriti

es

8,98

4,58

256

,949

,094

155,

410,

249

935,

321,

275

37,3

84,8

54-

-1,

194,

050,

054

Cust

omer

s' ac

cept

ance

liab

ility

--

--

--

--

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

10,2

89,2

98-

--

--

-10

,289

,298

Inve

stm

ent p

rope

rtie

s -

--

--

--

-

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s(8

,879

,896

)-

--

--

-(8

,879

,896

)

Goo

dwill

54

,834

,355

--

--

--

54,8

34,3

55

Prop

erty

and

equ

ipm

ent

176,

495,

288

--

--

--

176,

495,

288

Oth

er a

sset

s 15

,380

,701

--

--

--

15,3

80,7

01

Tota

l Ass

ets

421,

310,

730

170,

293,

704

168,

885,

179

938,

425,

742

38,8

67,9

144,

162,

025

4,56

9,31

11,

746,

514,

605

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks61

5,38

594

,043

,488

45,1

67-

--

-94

,704

,040

Cust

omer

s' de

posi

ts a

t fai

r val

ueth

roug

h pr

ofit

or lo

ss

--

3,15

1,92

6-

--

-3,

151,

926

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

13,2

94,1

0185

7,82

3,08

221

0,75

0,64

64,

150

--

-1,

081,

871,

979

Rela

ted

part

ies'

acco

unts

at f

air

valu

e th

roug

h pr

ofit

or lo

ss

--

--

--

--

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t50

,000

15,7

39,8

3518

9,89

0-

--

-15

,979

,725

Acce

ptan

ces

paya

ble

--

--

--

--

Oth

er b

orro

win

gs-

--

--

--

-

Cert

ifica

tes

of d

epos

it-

--

--

--

-

Oth

er li

abili

ties

14,7

72,8

24-

--

--

-14

,772

,824

Prov

isio

ns14

,962

,611

--

--

--

14,9

62,6

11

Tota

l Lia

bilit

ies

43,6

94,9

2196

7,60

6,40

521

4,13

7,62

94,

150

--

-1,

225,

443,

105

Mat

urity

Gap

37

7,61

5,80

9(7

97,3

12,7

01)

(45,

252,

450)

938,

421,

592

38,8

67,9

144,

162,

025

4,56

9,31

152

1,07

1,50

0

LBP

Base

Acc

ount

s

Dec

embe

r 31,

200

6

Acc

ount

s w

ithN

o m

atur

ity

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


175

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks30

,271

,175

647,

308,

640

164,

438,

263

132,

615,

215

11,0

98,5

17-

-98

5,73

1,81

0

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

20

,499

,583

892,

647,

407

6,21

4,90

3-

--

-91

9,36

1,89

3

Loan

s an

d ad

vanc

es to

cus

tom

ers

132,

825,

594

1,03

0,34

1,57

416

1,95

4,22

722

5,39

6,36

812

,940

,254

117,

257,

287

-1,

680,

715,

304

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

100,

053

335,

001,

660

-10

,072

,316

31,4

89,8

97-

-37

6,66

3,92

6

Hel

d fo

r tra

ding

, ava

ilabl

e fo

r sal

ean

d he

ld to

mat

urity

sec

uriti

es39

6,50

0,87

81,

507,

504

144,

752,

547

815,

983,

680

534,

542,

678

1,11

4,01

7,01

069

5,93

7,62

03,

703,

241,

917

Cust

omer

s' ac

cept

ance

liab

ility

896,

002

33,3

94,4

5112

,025

,022

23,1

46-

--

46,3

38,6

21

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

72,7

58,8

08-

--

--

-72

,758

,808

Inve

stm

ent p

rope

rtie

s 5,

175,

375

--

--

--

5,17

5,37

5

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s95

,611

,914

--

--

--

95,6

11,9

14

Goo

dwill

32

,027

,298

--

--

--

32,0

27,2

98

Prop

erty

and

equ

ipm

ent

4,08

5,75

3-

--

--

-4,

085,

753

Oth

er a

sset

s 16

7,01

2,44

4-

--

--

-16

7,01

2,44

4

Tota

l Ass

ets

957,

764,

877

2,94

0,20

1,23

648

9,38

4,96

21,

184,

090,

725

590,

071,

346

1,23

1,27

4,29

769

5,93

7,62

08,

088,

725,

063

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

21,5

42,6

4087

,113

,286

169,

213,

686

352,

444,

155

--

-63

0,31

3,76

7

Cust

omer

s' de

posi

ts a

t fai

r val

ueth

roug

h pr

ofit

or lo

ss-

-28

,060

,579

--

--

28,0

60,5

79

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

84,6

45,2

423,

086,

039,

429

1,18

9,89

2,94

240

3,02

2,04

533

,129

,729

12,1

56,7

42-

4,80

8,88

6,12

9

Rela

ted

part

ies'

acco

unts

at f

air

valu

e th

roug

h pr

ofit

or lo

ss-

--

--

--

-

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 43

,456

822,

747,

543

365,

861,

392

--

--

1,18

8,65

2,39

1

Acce

ptan

ces

paya

ble

896,

002

33,6

75,3

7711

,744

,097

23,1

45-

--

46,3

38,6

21

Oth

er b

orro

win

gs

--

--

-7,

694,

034

-7,

694,

034

Cert

ifica

tes

of d

epos

it -

-23

0,82

1,33

8-

264,

013,

655

451,

707,

362

-94

6,54

2,35

5

Oth

er li

abili

ties

92,5

24,7

27-

--

--

-92

,524

,727

Prov

isio

ns

3,46

4,81

6-

--

--

-3,

464,

816

Tota

l Lia

bilit

ies

203,

116,

883

4,02

9,57

5,63

51,

995,

594,

034

755,

489,

345

297,

143,

384

471,

558,

138

-7,

752,

477,

419

Mat

urity

Gap

754,

647,

994

(1

,089

,374

,399

)(1

,506

,209

,072

)42

8,60

1,38

029

2,92

7,96

275

9,71

6,15

969

5,93

7,62

033

6,24

7,64

4

F/Cy

Bas

e A

ccou

nts

Dec

embe

r 31,

200

6

Acc

ount

s w

ithN

o m

atur

ity

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


176


y e a r 2 0 0 7

Concentration of Liabilities by counterparty:Information regarding the concentration of liabilities by counterparty isdisclosed under the respective notes to the financial statements.

C – MARKET RISKS

Market Risk is the risk that the fair value or future cash flows of thefinancial instruments will fluctuate due to changes in market variablessuch as interest rates, foreign exchange rates, and equity prices.

1- Management of market risks

The Group classifies exposures to market risk into either trading or banking(non-trading) book. The market risk for the trading book is managed andmonitored using a combination of limits monitoring and VARmethodology. Market risk for non-trading book includes Price and Liquidityrisks that are managed and monitored through internal limits, gapanalysis, stress testing and sensitivity analysis.

a) Market Risk-Trading BookTrading Book contains the Group's positions in financial instrumentswhich are held intentionally for short-term resale and/or with the intent ofbenefiting from actual or expected short-term price movements or to lockin arbitrage profits.

The Board has set limits for the acceptable level of risks in managing thetrading book. The Group applies a VAR methodology to assess the marketrisk positions held and to estimate the potential economic loss based upona number of parameters and assumptions for change in market conditions.

A VAR methodology estimates the potential negative change in marketvalue of a portfolio at a given confidence level and over a specified timehorizon. The Group uses simulation models to assess the possible changesin the market value of the trading book based on historical data. VARmodels are usually designed to measure the market risk in a normal marketenvironment and therefore the use of VAR has limitations as it is based onhistorical correlations and market price volatilities and assumes that thefuture movements will follow a statistical distribution.




The VAR that the Group measures is an estimate, using a confidence levelof 95% of the potential loss that is not expected to be exceeded if thecurrent market positions were to be held unchanged for one day. The use of95% confidence level depicts that within a one-day horizon, lossesexceeding VAR figure should occur, on average, not more than once everyhundred days.

The VAR represents the risk of portfolios at the close of a business day, andit does not account for any losses that may occur beyond the definedconfidence interval. The actual trading results however, may differ from theVAR calculations and, in particular, the calculation does not provide ameaningful indication of profits and losses in stressed market conditions.

b) Market Risk – Non-Trading Or Banking BookMarket risk on non-trading or banking positions mainly arises from theinterest rate, foreign currency exposures, equity price changes andliquidity risk.

2- Exposure to Foreign Exchange risk

Foreign exchange risk is the risk that changes in foreign currency rates willaffect the Group’s income or the value of its holdings of financialinstruments. The objective of foreign currency risk management is tomanage and control foreign currency risk exposure within acceptableparameters while optimizing the return on risk.

Foreign exchange exposure arises from normal banking activities,primarily from the receipt of deposits and the placement of funds. Futureopen positions in any currency are managed by means of forward foreignexchange contracts. It is the policy of the Group that it will, at all times,adhere to the limits laid down by the Central Bank as referred to below. Itis not the Group’s intention to take open positions on its own account(proprietary trading) but rather to maintain square or near squarepositions in all currencies.

The Management sets limits on the level of exposure by currency and inthe aggregate for both overnight and intra-day positions and hedgingstrategies, which are monitored daily and are in compliance with CentralBank of Lebanon rules and regulations.

177


178


y e a r 2 0 0 7

Below is the carrying value of assets and liabilities segregated by majorcurrencies to reflect the Group’s exposure to foreign currency exchange riskat year end:



ASSETSCash, compulsory deposits and depositswith Central Banks 173,199,945 1,196,636,705 70,459,186 1,440,295,836Deposits with banks and financial institutions 20,984,337 2,709,229,497 191,198,479 2,921,412,313Loans and advances to customers (6,344,980) 2,176,856,513 539,397,348 2,709,908,881Loans and advances to related parties 93,319,568 202,233,814 98,111,133 393,664,515Held for trading, available-for-sale andheld-to-maturity securities 1,265,662,751 3,861,989,061 367,481,903 5,495,133,715Customers' acceptances liability - 39,076,302 23,227,846 62,304,148Investments in associates and investmentsheld for sale 13,236,191 55,460,626 3,566,978 72,263,795Investment properties - 6,034,649 - 6,034,649Assets acquired in satisfaction of loans (11,368,117) 91,479,861 1,454,095 81,565,839Goodwill 54,834,356 77,479,191 34,554,833 166,868,380Property and equipment 168,734,693 5,039,832 7,807,996 181,582,521Other assets 8,809,892 199,014,186 30,056,553 237,880,631Total Assets 1,781,068,636 10,620,530,237 1,367,316,350 13,768,915,223

LIABILITIESDeposits and borrowings from banks 94,007,597 591,200,457 43,681,055 728,889,109Liabilities designated at fair value throughprofit or loss - 155,797,027 - 155,797,027Customers' accounts at amortized cost 1,080,429,572 5,980,758,950 608,685,546 7,669,874,068Related parties' accounts at FVTPL - 3,207,682 - 3,207,682Related parties' accounts at amortized cost 17,981,647 2,661,649,975 29,868,841 2,709,500,463Acceptances payable - 39,076,302 23,227,846 62,304,148Other borrowings - 389,502,319 27,849,749 417,352,068Certificates of deposit - 715,609,642 - 715,609,642Other liabilities 32,327,923 105,252,209 38,559,754 176,139,886Provisions 16,187,780 14,761 5,343,502 21,546,043Total Liabilities 1,240,934,519 10,642,069,324 777,216,293 12,660,220,136

Currencies to be delivered (679,355) (13,973,235) (340,765,037) (355,417,627)Currencies to be received 8,924,151 331,322,459 14,270,699 354,517,309Discount/premium - (1,875,647) (3,241) (1,878,888)

8,244,796 315,473,577 (326,497,579) (2,779,206)

Net on-balance sheet financial position 548,378,913 293,934,490 263,602,478 1,105,915,881

December 31, 2007

LBPLBP’000

USDLBP’000

OtherLBP’000

TotalLBP’000


179

ASSETSCash, Compulsory deposits and deposits with Central Banks 182,609,067 980,188,117 5,543,693 1,168,340,877Deposits with banks and financial institutions 11,729,172 832,174,965 87,186,928 931,091,065Loans and advances to customers 34,528,892 1,511,241,770 169,473,534 1,715,244,196Loans and advances to related parties 75,477,674 285,096,286 91,567,640 452,141,600Held for trading, available-for-sale andheld-to-maturity securities 1,194,050,054 3,556,967,804 146,274,113 4,897,291,971Customers' acceptance liability - 28,124,086 18,214,535 46,338,621Investments in associates and investments held for sale 10,289,298 69,436,953 3,321,855 83,048,106Investment properties - 5,175,375 - 5,175,375Assets acquired in satisfaction of loans (8,879,896) 95,611,914 - 86,732,018Goodwill 54,834,355 - 32,027,298 86,861,653Property and equipment 176,495,288 3,699,308 386,445 180,581,041Other assets 6,809,051 172,574,066 1,640,962 181,024,079Total Assets 1,737,942,955 7,540,290,644 555,637,003 9,833,870,602

LIABILITIESDeposits and borrowings from banks 94,704,040 612,248,198 18,065,569 725,017,807Liabilities designated at fair value through profitor loss 3,151,926 28,060,579 - 31,212,505Customers' accounts at amortized cost 1,081,871,979 4,613,091,627 195,794,502 5,890,758,108Related parties' accounts at amortized cost 15,979,725 1,173,460,937 15,191,454 1,204,632,116Acceptances payable - 28,124,085 18,214,536 46,338,621Other borrowings - 4,973,936 2,720,098 7,694,034Certificates of deposit - 946,542,355 - 946,542,355Other liabilities 14,772,824 87,158,098 5,366,629 107,297,551Provisions 14,962,611 2,925,493 539,323 18,427,427Total Liabilities 1,225,443,105 7,496,585,308 255,892,111 8,977,920,524

Currencies to be delivered (4,524,450) (243,559,058) (548,512,495) (796,596,003)Currencies to be received 13,096,100 545,900,826 241,942,829 800,939,755Net Premium/ discount - (2,971,140) (3,546) (2,974,686)

8,571,650 299,370,628 (306,573,212) 1,369,066

Net on-balance sheet financial position 521,071,500 343,075,964 (6,828,320) 857,319,144

December 31, 2006

LBPLBP’000

USDLBP’000

OtherLBP’000

TotalLBP’000


180


y e a r 2 0 0 7

3- EXPOSURE TO INTEREST RATE RISK

Interest rate risk arises when there is a mismatch between positions, whichare subject to interest rate adjustment within a specified period. TheGroup’s lending, funding and investment activities give rise to interest raterisk. The immediate impact of variation in interest rate is on the Group’snet interest income, while a long term impact is on the Group’s net worthsince the economic value of the Group’s assets, liabilities and off-balancesheet exposures are affected.

The Group manages this risk by matching or hedging the repricing profileof assets and liabilities through risk management strategies.

The Board has established interest rate gap limits for stipulated periods.

The effective interest rate (effective yield) of a monetary financialinstrument is the rate that, when used in a present value calculation, resultsin the carrying amount of the instrument. The rate is a historical rate for afixed rate instrument carried at amortized cost and a current market rate fora floating rate instrument or an instrument carried at fair value.

Below is a summary of the Group’s interest rate gap position on assets andliabilities reflected at carrying amounts at year end segregated betweenfloating and fixed interest rate earning or bearing and between LebanesePound and foreign currencies base accounts:




Interest rate gap position in LBP:

181

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks17

3,19

9,94

5-

--

--

--

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

3,

538,

758

1,73

1,47

1-

--

--

1,73

1,47

1Lo

ans

and

adva

nces

to c

usto

mer

s (6

4,70

8,59

2)22

,689

,899

3,20

6,49

41,

436,

520

1,68

7,39

45,

187,

685

10,2

65,3

8544

,473

,377

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-93

,319

,568

--

--

-93

,319

,568

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity S

ecur

ities

8,90

6,41

238

,455

,016

--

--

-38

,455

,016

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

13,2

36,1

91-

--

--

--

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s(1

1,36

8,11

7)-

--

--

--

Goo

dwill

54

,834

,356

--

--

--

-Pr

oper

ty a

nd e

quip

men

t 16

8,73

4,69

3-

--

--

--

Oth

er a

sset

s 8,

809,

892

--

--

--

-To

tal A

sset

s 35

5,18

3,53

815

6,19

5,95

43,

206,

494

1,43

6,52

01,

687,

394

5,18

7,68

510

,265

,385

177,

979,

432

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

50,6

2793

,956

,970

--

--

-93

,956

,970

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

62,3

95,1

0798

9,87

3,55

51,

824,

000

--

--

991,

697,

555

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 75

4,39

317

,227

,010

--

--

-17

,227

,010

Oth

er li

abili

ties

24,0

83,1

27-

--

--

--

Prov

isio

ns

16,1

87,7

80-

--

--

--

Tota

l Lia

bilit

ies

103,

471,

034

1,10

1,05

7,53

51,

824,

000

--

--

1,10

2,88

1,53

5

Inte

rest

rate

gap

pos

ition

25

1,71

2,50

4(9

44,8

61,5

81)

1,38

2,49

41,

436,

520

1,68

7,39

45,

187,

685

10,2

65,3

85(9

24,9

02,1

03)

Floa

ting

Inte

rest

Rat

e

Dec

embe

r 31,

200

7

Non

-inte

rest

bear

ing

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


182


y e a r 2 0 0 7



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks-

--

--

-17

3,19

9,94

5D

epos

its w

ith b

anks

and

fin

anci

al in

stitu

tions

-

--

7,30

1,01

78,

413,

091

15,7

14,1

0820

,984

,337

Loan

s an

d ad

vanc

es to

cus

tom

ers

6,78

3,11

66,

691,

310

415,

102

707

-13

,890

,235

(6,3

44,9

80)

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

--

--

--

93,3

19,5

68H

eld

for t

radi

ng, a

vaila

ble-

for-

sale

and

held

-to-

mat

urity

Sec

uriti

es36

0,28

3,71

484

6,98

6,08

211

,031

,527

--

1,21

8,30

1,32

31,

265,

662,

751

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

--

--

--

13,2

36,1

91As

sets

acq

uire

d in

satis

fact

ion

of lo

ans

--

--

--

(11,

368,

117)

Goo

dwill

-

--

--

-54

,834

,356

Prop

erty

and

equ

ipm

ent

--

--

--

168,

734,

693

Oth

er a

sset

s -

--

--

-8,

809,

892

Tota

l Ass

ets

367,

066,

830

853,

677,

392

11,4

46,6

297,

301,

724

8,41

3,09

11,

247,

905,

666

1,78

1,06

8,63

6

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

--

--

--

94,0

07,5

97

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

26,2

89,8

6947

,041

--

-26

,336

,910

1,08

0,42

9,57

2

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 24

4-

--

-24

417

,981

,647

Oth

er li

abili

ties

--

--

--

24,0

83,1

27Pr

ovis

ions

-

--

--

-16

,187

,780

Tota

l Lia

bilit

ies

26,2

90,1

1347

,041

--

-26

,337

,154

1,23

2,68

9,72

3

Inte

rest

rate

gap

pos

ition

34

0,77

6,71

785

3,63

0,35

111

,446

,629

7,30

1,72

48,

413,

091

1,22

1,56

8,51

254

8,37

8,91

3

Fixe

d In

tere

st R

ate

Dec

embe

r 31,

200

7

Ove

r 3 m

onth

sle

ss th

an 1

yea

rLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0G

rand

Tot

alLB

P’00

0


Interest rate gap position in F/CY:

183

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

de

posi

ts w

ith C

entr

al B

anks

40

,006

,540

569,

923,

597

9,07

0,99

3-

--

-57

8,99

4,59

0D

epos

its w

ith b

anks

and

fina

ncia

lin

stitu

tions

35

,002

,492

2,86

0,03

0,46

6-

--

--

2,86

0,03

0,46

6Lo

ans

and

adva

nces

to c

usto

mer

s 59

,298

,373

1,93

2,70

4,19

616

7,65

9,17

012

4,68

6,06

410

4,93

0,23

214

8,51

5,10

64,

147,

789

2,48

2,64

2,55

7Lo

ans

and

adva

nces

to re

late

d pa

rtie

s 10

0,05

321

9,15

3,60

07,

888,

415

99,1

53-

25,3

79,4

53-

252,

520,

621

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity s

ecur

ities

61

3,79

4,34

476

3,63

2-

--

--

763,

632

Cust

omer

s' ac

cept

ance

liab

ility

In

vest

men

ts in

ass

ocia

tes

and

62,3

04,1

48-

--

--

--

inve

stm

ents

hel

d fo

r sal

e59

,027

,604

--

--

--

-

Inve

stm

ent p

rope

rtie

s6,

034,

649

--

--

--

-

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s92

,933

,956

--

--

--

-

Goo

dwill

11

2,03

4,02

4-

--

--

--

Prop

erty

and

equ

ipm

ent

12,8

47,8

28-

--

--

--

Oth

er a

sset

s 22

9,58

1,34

75,

147

--

--

-5,

147

Tota

l Ass

ets

1,32

2,96

5,35

85,

582,

580,

638

184,

618,

578

124,

785,

217

104,

930,

232

173,

894,

559

4,14

7,78

96,

174,

957,

013

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

72,2

0124

6,89

0,04

766

2,72

3-

--

-24

7,55

2,77

0

Liab

ilitie

s de

sign

ated

at f

air v

alue

thro

ugh

prof

it or

loss

-

13,9

07,8

77-

--

--

13,9

07,8

77

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

485,

092,

982

4,06

5,55

6,82

914

,529

,883

20,3

43,3

56-

--

4,10

0,43

0,06

8

Rela

ted

part

ies'

acco

unts

at F

VTPL

-

--

--

--

-

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 4,

015,

415

1,82

4,32

9,93

7-

264,

080,

511

--

-2,

088,

410,

448

Acce

ptan

ces

liabi

lity

62,3

04,1

48-

--

--

--

Oth

er b

orro

win

gs

-16

,368

,223

138,

719,

405

--

--

155,

087,

628

Cert

ifica

tes

of d

epos

it -

--

--

--

-O

ther

liab

ilitie

s 15

3,21

6,90

268

4,58

3-

--

--

684,

583

Prov

isio

ns

5,35

8,26

3-

--

--

--

Tota

l Lia

bilit

ies

710,

059,

911

6,16

7,73

7,49

615

3,91

2,01

128

4,42

3,86

7-

--

6,60

6,07

3,37

4

Inte

rest

rate

gap

pos

ition

61

2,90

5,44

7(5

85,1

56,8

58)

30,7

06,5

67(1

59,6

38,6

50)

104,

930,

232

173,

894,

559

4,14

7,78

9(4

31,1

16,3

61)

Floa

ting

Inte

rest

Rat

e

Dec

embe

r 31,

200

7

Non

-inte

rest

bear

ing

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


184


y e a r 2 0 0 7



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

de

posi

ts w

ith C

entr

al B

anks

6,

565,

644

133,

746,

656

507,

782,

461

--

648,

094,

761

1,26

7,09

5,89

1

Dep

osits

with

ban

ks a

nd fi

nanc

ial

inst

itutio

ns

5,39

5,01

8-

--

-5,

395,

018

2,90

0,42

7,97

6

Loan

s an

d ad

vanc

es to

cus

tom

ers

101,

510,

350

60,2

76,4

8411

,075

,992

1,45

0,10

5-

174,

312,

931

2,71

6,25

3,86

1

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-33

,662

,172

-14

,062

,101

-47

,724

,273

300,

344,

947

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity s

ecur

ities

57

3,97

8,07

675

3,70

0,43

959

5,09

7,84

41,

018,

583,

741

673,

552,

888

3,61

4,91

2,98

84,

229,

470,

964

Cust

omer

s' ac

cept

ance

liab

ility

-

--

--

-62

,304

,148

Inve

stm

ents

in a

ssoc

iate

s an

d in

vest

men

ts h

eld

for s

ale

--

--

--

59,0

27,6

04

Inve

stm

ent p

rope

rtie

s-

--

--

-6,

034,

649

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s-

--

--

-92

,933

,956

Goo

dwill

-

--

--

-11

2,03

4,02

4

Prop

erty

and

equ

ipm

ent

--

--

--

12,8

47,8

28

Oth

er a

sset

s -

--

--

-22

9,58

6,49

4

Tota

l Ass

ets

687,

449,

088

981,

385,

751

1,11

3,95

6,29

71,

034,

095,

947

673,

552,

888

4,49

0,43

9,97

111

,988

,362

,342

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

14,8

76,0

2237

2,38

0,51

9--

--

387,

256,

541

634,

881,

512

Liab

ilitie

s de

sign

ated

at f

air v

alue

th

roug

h pr

ofit

or lo

ss

1,20

6,00

014

0,68

3,15

0-

--

141,

889,

150

155,

797,

027

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

1,44

4,53

6,41

451

0,03

2,07

039

,975

,092

9,37

7,87

0-

2,00

3,92

1,44

66,

589,

444,

496

Rela

ted

part

ies'

acco

unts

at F

VTPL

-

--

-3,

207,

682

3,20

7,68

23,

207,

682

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 32

,476

,184

566,

616,

769

--

-59

9,09

2,95

32,

691,

518,

816

Acce

ptan

ces

liabi

lity

--

--

--

62,3

04,1

48

Oth

er b

orro

win

gs

35,9

40,1

1012

,588

,175

50,5

79,7

4910

4,28

6,75

058

,869

,656

262,

264,

440

417,

352,

068

Cert

ifica

tes

of d

epos

it -

263,

973,

370

451,

636,

272

--

715,

609,

642

715,

609,

642

Oth

er li

abili

ties

451,

670

998,

565

--

-1,

450,

235

155,

351,

720

Prov

isio

ns

--

--

--

5,35

8,26

3

Tota

l Lia

bilit

ies

1,52

9,48

6,40

01,

867,

272,

618

542,

191,

113

113,

664,

620

62,0

77,3

384,

114,

692,

089

11,4

30,8

25,3

74

Inte

rest

rate

gap

pos

ition

(8

42,0

37,3

12)

(885

,886

,867

)57

1,76

5,18

492

0,43

1,32

761

1,47

5,55

037

5,74

7,88

255

7,53

6,96

8

Fixe

d In

tere

st R

ate

Dec

embe

r 31,

200

7

Ove

r 3 m

onth

sle

ss th

an 1

yea

rLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0G

rand

Tot

alLB

P’00

0


Interest rate gap position in LBP:

185

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

182,

609,

067

--

--

--

-D

epos

its w

ith b

anks

and

fina

ncia

lin

stitu

tions

4,

125,

930

--

--

--

-Lo

ans

and

adva

nces

to c

usto

mer

s (2

2,52

8,59

6)37

,866

,936

11,6

88,6

642,

019,

186

1,47

6,40

51,

128,

095

-54

,179

,286

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

-75

,477

,674

--

--

-75

,477

,674

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity s

ecur

ities

8,98

4,58

256

,949

,095

--

--

-56

,949

,095

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

10,2

89,2

98-

--

--

--

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s(8

,879

,896

)-

--

--

--

Goo

dwill

54

,834

,355

--

--

--

-Pr

oper

ty a

nd e

quip

men

t 17

6,49

5,28

8-

--

--

--

Oth

er a

sset

s 15

,380

,701

--

--

--

-To

tal A

sset

s 42

1,31

0,72

917

0,29

3,70

511

,688

,664

2,01

9,18

61,

476,

405

1,12

8,09

5-

186,

606,

055

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks61

5,38

594

,043

,488

45,1

67-

--

-94

,088

,655

Liab

ilitie

s de

sign

ated

at f

air v

alue

th

roug

h pr

ofit

or lo

ss

--

560,

342

--

--

560,

342

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

6,60

4,35

386

4,51

2,83

018

1,36

4,21

34,

150

--

-1,

045,

881,

193

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 50

,000

15,7

39,8

3518

5,87

4-

--

-15

,925

,709

Oth

er li

abili

ties

14,7

72,8

24-

--

--

--

Prov

isio

ns

14,9

62,6

11-

--

--

--

Tota

l Lia

bilit

ies

37,0

05,1

7397

4,29

6,15

318

2,15

5,59

64,

150

--

-1,

156,

455,

899

Inte

rest

rate

gap

pos

ition

38

4,30

5,55

6(8

04,0

02,4

48)

(170

,466

,932

)2,

015,

036

1,47

6,40

51,

128,

095

-(9

69,8

49,8

44)

Floa

ting

Inte

rest

Rat

e

Dec

embe

r 31,

200

6

Non

-inte

rest

bear

ing

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


186


y e a r 2 0 0 7



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

--

--

--

182,

609,

067

Dep

osits

with

ban

ks a

nd fi

nanc

ial

inst

itutio

ns

--

-3,

033,

930

4,56

9,31

27,

603,

242

11,7

29,1

72

Loan

s an

d ad

vanc

es to

cus

tom

ers

1,78

6,26

61,

085,

281

6,65

5-

-2,

878,

202

34,5

28,8

92

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

--

--

--

75,4

77,6

74

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity s

ecur

ities

155,

410,

248

935,

321,

275

37,3

84,8

54-

-1,

128,

116,

377

1,19

4,05

0,05

4

Inve

stm

ents

in a

ssoc

iate

s an

d

inve

stm

ents

hel

d fo

r sal

e-

--

--

-10

,289

,298

Ass

ets

acqu

ired

in s

atis

fact

ion

of lo

ans

--

--

--

(8,8

79,8

96)

Goo

dwill

-

--

--

-54

,834

,355

Prop

erty

and

equ

ipm

ent

--

--

--

176,

495,

288

Oth

er a

sset

s -

--

--

-15

,380

,701

Tota

l Ass

ets

157,

196,

514

936,

406,

556

37,3

91,5

093,

033,

930

4,56

9,31

21,

138,

597,

821

1,74

6,51

4,60

5

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks-

--

--

-94

,704

,040

Liab

ilitie

s de

sign

ated

at f

air v

alue

th

roug

h pr

ofit

or lo

ss

2,59

1,58

4-

--

-2,

591,

584

3,15

1,92

6

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

29,3

86,4

33-

--

-29

,386

,433

1,08

1,87

1,97

9

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 4,

016

--

--

4,01

615

,979

,725

Oth

er li

abili

ties

--

--

--

14,7

72,8

24

Prov

isio

ns

--

--

--

14,9

62,6

11

Tota

l Lia

bilit

ies

31,9

82,0

33-

--

-31

,982

,033

1,22

5,44

3,10

5

Inte

rest

rate

gap

pos

ition

12

5,21

4,48

193

6,40

6,55

637

,391

,509

3,03

3,93

04,

569,

312

1,10

6,61

5,78

852

1,07

1,50

0

Fixe

d In

tere

st R

ate

Dec

embe

r 31,

200

6

Ove

r 3 m

onth

sle

ss th

an 1

yea

rLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0G

rand

Tot

alLB

P’00

0


Interest rate gap position in F/CY:

187

ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

30,2

71,1

7564

7,30

8,64

04,

522,

500

70,0

98,7

50-

--

721,

929,

890

Dep

osits

with

ban

ks a

nd fi

nanc

ial

inst

itutio

ns

20,1

60,3

9292

,986

,598

2,36

7,67

0-

--

-89

5,35

4,26

8

Loan

s an

d ad

vanc

es to

cus

tom

ers

88,8

58,9

431,

074,

308,

225

151,

306,

258

215,

551,

080

10,0

44,4

0211

3,16

4,07

0-

1,56

4,37

4,03

5

Loan

s and

adv

ance

s to

rela

ted

part

ies

100,

053

335,

001,

369

290

10,0

72,3

17-

--

345,

073,

976

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

le

and

held

-to-

mat

urity

sec

uriti

es39

6,50

0,87

81,

507,

504

--

--

-1,

507,

504

Cust

omer

s' ac

cept

ance

liab

ility

46

,338

,621

--

--

--

-

Inve

stm

ents

in a

ssoc

iate

s an

d

inve

stm

ents

hel

d fo

r sal

e72

,758

,808

--

--

--

-

Inve

stm

ent p

rope

rtie

s 5,

175,

375

--

--

--

-

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s 95

,611

,914

--

--

--

-

Goo

dwill

32

,027

,298

--

--

--

-

Prop

erty

and

equ

ipm

ent

4,08

5,75

3-

--

--

--

Oth

er a

sset

s 16

7,01

2,44

4-

--

--

--

Tota

l Ass

ets

958,

901,

654

2,95

1,11

2,33

615

8,19

6,71

829

5,72

2,14

710

,044

,402

113,

164,

070

-3,

528,

239,

673

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

505,

852

108,

150,

074

3,80

3,89

8-

--

-11

1,95

3,97

2

Cust

omer

s’ de

posi

ts d

esig

nate

d at

fair

valu

e th

roug

h pr

ofit

or lo

ss

--

3,55

4,75

6-

--

-3,

554,

756

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

87,0

91,4

043,

083,

593,

267

574,

636,

077

93,4

64-

--

3,65

8,32

2,80

8Re

late

d pa

rtie

s' ac

coun

ts a

t am

ortiz

ed c

ost

43,4

5782

2,74

7,54

2-

--

--

822,

747,

542

Acce

ptan

ces

paya

ble

46,3

38,6

21-

--

--

--

Oth

er b

orro

win

gs

--

--

--

--

Cert

ifica

tes

of d

epos

it -

--

--

--

-

Oth

er li

abili

ties

92,5

24,7

27-

--

--

--

Prov

isio

ns

3,46

4,81

6-

--

--

--

Tota

l Lia

bilit

ies

229,

968,

877

4,01

4,49

0,88

358

1,99

4,73

193

,464

--

-4,

596,

579,

078

Inte

rest

rate

gap

pos

ition

72

8,93

2,77

7(1

,063

,378

,547

)(4

23,7

98,0

13)

295,

628,

683

10,0

44,4

0211

3,16

4,07

0-

(1,0

68,3

39,4

05)

Floa

ting

Inte

rest

Rat

e

Dec

embe

r 31,

200

6

Non

-inte

rest

bear

ing

LBP’

000

Up

to 3

mon

ths

LBP’

000

3 m

onth

s to

1 ye

arLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0


188


y e a r 2 0 0 7



ASS

ETS

Cash

, Com

puls

ory

depo

sits

and

de

posi

ts w

ith C

entr

al B

anks

15

9,91

5,76

362

,516

,465

11,0

98,5

17-

-23

3,53

0,74

598

5,73

1,81

0

Dep

osits

with

ban

ks a

nd fi

nanc

ial

inst

itutio

ns

3,84

7,23

3-

--

-3,

847,

233

919,

361,

893

Loan

s an

d ad

vanc

es to

cus

tom

ers

10,6

47,9

699,

845,

288

2,89

5,85

24,

093,

217

-27

,482

,326

1,68

0,71

5,30

4

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

--

31,4

89,8

97-

-31

,489

,897

376,

663,

926

Hel

d fo

r tra

ding

, ava

ilabl

e-fo

r-sa

lean

d he

ld-t

o-m

atur

ity s

ecur

ities

144,

752,

547

815,

983,

680

534,

542,

678

1,11

4,01

7,01

069

5,93

7,62

03,

305,

233,

535

3,70

3,24

1,91

7

Cust

omer

s' ac

cept

ance

liab

ility

-

--

--

-46

,338

,621

Inve

stm

ents

in a

ssoc

iate

s an

din

vest

men

ts h

eld

for s

ale

--

--

--

72,7

58,8

08

Inve

stm

ent p

rope

rtie

s -

--

--

-5,

175,

375

Asse

ts a

cqui

red

in sa

tisfa

ctio

n of

loan

s -

--

--

-95

,611

,914

Goo

dwill

-

--

--

-32

,027

,298

Prop

erty

and

equ

ipm

ent

--

--

--

4,08

5,75

3

Oth

er a

sset

s -

--

--

-16

7,01

2,44

4

Tota

l Ass

ets

319,

163,

512

888,

345,

433

580,

026,

944

1,11

8,11

0,22

769

5,93

7,62

03,

601,

583,

736

8,08

8,72

5,06

3

LIA

BILI

TIES

Dep

osits

and

bor

row

ings

from

ban

ks

165,

409,

788

352,

444,

155

--

-51

7,85

3,94

363

0,31

3,76

7

Cust

omer

s’ de

posi

ts d

esig

nate

d at

fair

valu

e th

roug

h pr

ofit

or lo

ss

24,5

05,8

23-

--

-24

,505

,823

28,0

60,5

79

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

615,

256,

865

402,

928,

581

33,1

29,7

2912

,156

,742

-1,

063,

471,

917

4,80

8,88

6,12

9

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t 36

5,86

1,39

2-

--

-36

5,86

1,39

21,

188,

652,

391

Acce

ptan

ces

paya

ble

--

--

--

46,3

38,6

21

Oth

er b

orro

win

gs

--

-7,

694,

034

-7,

694,

034

7,69

4,03

4

Cert

ifica

tes

of d

epos

it 23

0,82

1,33

8-

264,

013,

655

451,

707,

362

-94

6,54

2,35

594

6,54

2,35

5

Oth

er li

abili

ties

--

--

--

92,5

24,7

27

Prov

isio

ns

--

--

--

3,46

4,81

6

Tota

l Lia

bilit

ies

1,40

1,85

5,20

675

5,37

2,73

629

7,14

3,38

447

1,55

8,13

8-

2,92

5,92

9,46

47,

752,

477,

419

Inte

rest

rate

gap

pos

ition

(1

,082

,691

,694

)13

2,97

2,69

728

2,88

3,56

064

6,55

2,08

969

5,93

7,62

067

5,65

4,27

233

6,24

7,64

4

Fixe

d In

tere

st R

ate

Dec

embe

r 31,

200

6

Ove

r 3 m

onth

sle

ss th

an 1

yea

rLB

P’00

0

1 to

3 y

ears

LBP’

000

3 to

5 y

ears

LBP’

000

5 to

10

year

sLB

P’00

0O

ver 1

0 ye

ars

LBP’

000

Tota

lLB

P’00

0G

rand

Tot

alLB

P’00

0


The effect of a 50 basis point change in interest rates upwards ordownwards on the earnings of the Group for the subsequent fiscal year forthe same balance sheet structure and exposure would be in the range ofLBP 9 billion, decrease/increase respectively.

The effect of a change in interest rate by 50 basis points on fair values offinancial assets and liabilities stated at fair value would be in the range ofLBP 33 billion summarized as follows:

D – OPERATIONAL RISK

Operational risk is the risk of direct or indirect loss resulting frominadequate or failed internal processes, people and systems or fromexternal events. The Group can not expect to abolish all operational risks,but the Group is able to manage the risk thought the development andimplementation of a control framework and by monitoring andresponding to potential risks. Control framework includes effectivesegregation of duties, access control, authorization and reconciliationprocedures, staff know how and assessment processes, including the use ofinternal audit division.

189

Trading assets (effect on profit or loss) 152,649

Available-for-sale investment securities (effect on equity) (33,493,289)

LBP’000

Change in Fair Value


46. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The summary of the Group’s classification of each class of financial assetsand liabilities covered by IAS 39, and their fair values are as follows:

190


y e a r 2 0 0 7



FIN

AN

CIA

L A

SSET

S

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

--

--

-1,

440,

295,

836

1,44

0,29

5,83

61,

440,

737,

961

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

-

--

--

2,92

1,41

2,31

32,

921,

412,

313

2,92

1,41

7,45

9

Trad

ing

asse

ts

171,

352,

969

--

--

-17

1,35

2,96

917

1,35

2,96

9

Loan

s an

d ad

vanc

es to

cus

tom

ers

--

--

2,70

9,90

8,88

1-

2,70

9,90

8,88

12,

712,

824,

024

Loan

s and

adv

ance

s to

rela

ted

part

ies

--

--

393,

664,

515

-39

3,66

4,51

539

4,61

5,34

2

Avai

labl

e fo

r sal

e in

vest

men

t sec

uriti

es

--

3,62

2,74

1,06

8-

--

3,62

2,74

1,06

83,

622,

741,

068

Hel

d-to

-mat

urity

inve

stm

ent s

ecur

ities

--

-1,

701,

039,

678

--

1,70

1,03

9,67

81,

589,

883,

807

Oth

er a

sset

s -

6,78

0,69

9-

-15

8,11

1,51

8-

164,

892,

217

164,

892,

217

Tota

l 17

1,35

2,96

96,

780,

699

3,62

2,74

1,06

81,

701,

039,

678

3,26

1,68

4,91

44,

361,

708,

149

13,1

25,3

07,4

7713

,018

,464

,847

FIN

AN

CIA

L L

IABI

LITI

ES

Dep

osits

and

bor

row

ings

from

ban

ks

--

--

-72

8,88

9,10

972

8,88

9,10

974

4,89

7,05

3

Cust

omer

s' de

posi

ts d

esig

nate

d at

fair

valu

e th

roug

h pr

ofit

or lo

ss

-15

5,79

7,02

7-

--

-15

5,79

7,02

715

5,79

7,02

7

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

--

--

-7,

669,

874,

068

7,66

9,87

4,06

87,

769,

291,

925

Rela

ted

part

ies'

acco

unts

at F

VTPL

-

3,20

7,68

2-

--

-3,

207,

682

3,20

7,68

2

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t -

--

--

2,70

9,50

0,46

32,

709,

500,

463

2,79

0,46

7,97

9

Liab

ility

und

er a

ccep

tanc

es

--

--

-62

,304

,148

62,3

04,1

4862

,304

,148

Oth

er b

orro

win

gs

--

--

-41

7,35

2,06

841

7,35

2,06

841

7,23

0,38

5

Cert

ifica

tes

of d

epos

it -

--

--

715,

609,

642

715,

609,

642

688,

065,

991

Oth

er li

abili

ties

-3,

294,

963

--

--

3,29

4,96

33,

294,

963

Tota

l-

162,

299,

672

--

-12

,303

,529

,498

12,4

65,8

29,1

7012

,634

,557

,153

Dec

embe

r 31,

200

7

Trad

ing

Ass

ets

LBP’

000

At F

VTP

LLB

P’00

0A

FSLB

P’00

0H

TMLB

P’00

0

Loan

s &

Rece

ivab

les

LBP’

000

Oth

er a

tA

mor

tized

cos

tLB

P’00

0

Tota

l car

ryin

gva

lue

LBP’

000

Tota

l Fai

r Val

ueLB

P’00

0


191

The basis for the determination of the estimated fair values with respect tofinancial instruments carried at amortized cost and for which quotedmarket prices are not available is summarized as follows:

FIN

AN

CIA

L A

SSET

S

Cash

, Com

puls

ory

depo

sits

and

depo

sits

with

Cen

tral

Ban

ks

--

--

-1,

168,

340,

877

1,16

8,34

0,87

71,

168,

320,

507

Dep

osits

with

ban

ks a

ndfin

anci

al in

stitu

tions

-

--

--

931,

091,

065

931,

091,

065

932,

264,

397

Trad

ing

asse

ts

5,04

5,89

4-

--

--

5,04

5,89

45,

045,

894

Loan

s an

d ad

vanc

es to

cus

tom

ers

--

--

1,71

5,24

4,19

6-

1,71

5,24

4,19

61,

716,

694,

270

Loan

s an

d ad

vanc

es to

rela

ted

part

ies

--

--

452,

141,

600

-45

2,14

1,60

045

3,34

5,01

0

Avai

labl

e fo

r sal

e in

vest

men

t sec

uriti

es

--

2,92

3,80

5,53

2-

--

2,92

3,80

5,53

22,

923,

805,

532

Hel

d-to

-mat

urity

inve

stm

ent s

ecur

ities

-

--

1,96

8,44

0,54

5-

-1,

968,

440,

545

1,85

5,34

5,32

1

Oth

er a

sset

s -

1,22

1,23

2-

-14

6,41

4,89

7-

147,

636,

129

147,

636,

129

Tota

l 5,

045,

894

1,22

1,23

22,

923,

805,

532

1,96

8,44

0,54

52,

313,

800,

693

2,09

9,43

1,94

29,

311,

745,

838

9,20

2,45

7,06

0

FIN

AN

CIA

L L

IABI

LITI

ES

Dep

osits

and

bor

row

ings

from

ban

ks

--

--

-72

5,01

7,80

772

5,01

7,80

773

7,64

7,35

1

Cust

omer

s' de

posi

ts d

esig

nate

dat

fair

valu

e th

roug

h pr

ofit

or lo

ss

-31

,212

,505

--

--

31,2

12,5

0531

,212

,505

Cust

omer

s' ac

coun

ts a

t am

ortiz

ed c

ost

--

--

-5,

890,

758,

108

5,89

0,75

8,10

85,

914,

224,

915

Rela

ted

part

ies'

acco

unts

at

amor

tized

cos

t -

--

--

1,20

4,63

2,11

61,

204,

632,

116

1,20

4,63

2,11

6

Liab

ility

und

er a

ccep

tanc

es

--

--

-46

,338

,621

46,3

38,6

2146

,338

,621

Oth

er b

orro

win

gs

--

--

-7,

694,

034

7,69

4,03

47,

434,

647

Cert

ifica

tes

of d

epos

it -

--

--

946,

542,

355

946,

542,

355

925,

496,

241

Tota

l-

31,2

12,5

05-

--

8,82

0,98

3,04

18,

852,

195,

546

8,86

6,98

6,39

6

Dec

embe

r 31,

200

6

Trad

ing

Ass

ets

LBP’

000

At F

VTP

LLB

P’00

0A

FSLB

P’00

0H

TMLB

P’00

0

Loan

s &

Rece

ivab

les

LBP’

000

Oth

er a

tA

mor

tized

cos

tLB

P’00

0

Tota

l car

ryin

gva

lue

LBP’

000

Tota

l Fai

r Val

ueLB

P’00

0


a) Deposits with Central Bank and financial institutions:

The fair value of current deposits (including non-interest earningcompulsory deposits with Central Banks), and overnight deposits is theircarrying amount. The estimated fair value of fixed interest earningdeposits with maturities or interest reset dates beyond one year from thebalance sheet date is based on the discounted cash flows using prevailingmoney-market interest rates for debts with similar credit risk andremaining maturity.

b)Loans and advances to customers and to banks:

The estimated fair value of loans and advances to customers is based on thediscounted amount of expected future cash flows determined at currentmarket rates.

c) Held-to-maturity investment securities:

The estimated fair value of held-to-maturity investment securities is basedon current yield curve appropriate for the remaining period to maturity.

192


y e a r 2 0 0 7




193

d) Deposits and borrowings from banks and customers’ deposits:

The fair value of deposits with current maturity or no stated maturity istheir carrying amount. The estimated fair value on other deposits is basedon the discounted cash flows using interest rates for new deposits withsimilar remaining maturity.

e) Other borrowings and certificates of deposit:

The estimated fair value of other borrowings and certificates of deposits isthe discounted cash flow based on a current yield curve appropriate for theremaining period to maturity.

47. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements for the year ended December 31, 2007 wereapproved by the Board of Directors in its meeting held on February 19, 2008.


C o r p o r a t e D i r e c t o r y


199199

CO U N T RY CO R R E S P O N D E N T BA N KS

AUSTRALIA Arab Bank Australia *AUSTRIA Bank Austria CreditanstaltBAHRAIN Arab Banking CorporationBELGIUM Fortis Bank *

ING Bank *CANADA Royal Bank of Canada *CHINA Bank of China LimitedCYPRUS Bank of Cyprus Public Company Limited *

Marfin Popular Bank Public Company Limited * DENMARK Danske Bank *EGYPT Arab BankFRANCE BNP Paribas *

Natixis * GERMANY Commerzbank *

Deutsche Bank *Dresdner BankBayerische Hypo-und Vereinsbank

ITALY Banca Nazionale del LavoroBanca UBAEIntesa SanPaolo *

JAPAN The Bank of Tokyo-Mitsubishi UFJ *Sumitomo Mitsui Banking Corporation

JORDAN Arab Bank *The Housing Bank for Trade & Finance *

KUWAIT Gulf Bank *National Bank of Kuwait

NORWAY DnB NOR Bank *QATAR Qatar National BankSAUDI ARABIA Banque Saudi Fransi *

Riyad Bank *Saudi Hollandi Bank *The National Commercial Bank *The Saudi Investment Bank *

SOUTH AFRICA The Standard Bank of South Africa *SPAIN Banco de Sabadell *SRI LANKA People's Bank *

Standard Chartered Bank*SWEDEN Nordea Bank

Svenska Handelsbanken AB *SWITZERLAND BankMed (Suisse) *

Credit Suisse *UBS *

TURKEY Turkland Bank *UNITED ARAB EMIRATES MashreqBank *

Standard Bank PLCUNITED KINGDOM HSBC Bank *

Wachovia Bank *UNITED STATES OF AMERICA American Express Bank *

Bank of New York Mellon *Citibank *HSBC Bank USA *JPMorgan Chase Bank *National Bank of Kuwait, New York Branch *Wachovia Bank *

* BankMed maintains Nostro account(s) with those banks.

L I S T O F C O R R E S P O N D E N T S


table of contents · gulf region. she is the first ambassador of the international osteoporosis...

Documents