2018 - Credit Libanais€¦ · On March 27, 2019, Visa International recognized Dr. Joseph Torbey Chairman General Manager of Credit Libanais Group with the prestigious “Lifetime

B a n k i n g G r o u p

ANNUALREPORT

2018

2018

2018Annual Report

CONTENTS

01

04

02

05

03

CL Milestones226

229

234

235

23684

86

202

214

Financial Statements

CL Group Financial Results

CLIB Financial Results

CLA Financial Results

Branch Network and Correspondent Banks

CL Network in Lebanon

CL Network Worldwide

Correspondent Banks Network

Statement of the Chairman General Manager

Financial Highlights

International and Local Awards

CL Group Medium-Term Strategy

Credit Libanais' Identity

Facts and Figures

Corporate Governance

Macroeconomic Operating Environment

Overview of Credit Libanais Group

04

06

08

10

11

12

13

28

31

32

34

36

38

40

41

46

50

51

Business Segments Activities and Analysis

Retail Banking Activities

Marketing and Business Development

Electronic Banking

Corporate Banking

Corporate Responsibility

Affiliated Companies

Treasury, Global Markets, Asset Management

and Private Banking

Investment Banking (CLIB)

54

56

68

72

76

Control Functions Activities and Analysis

Risk Management and Strategy

Internal Audit

Compliance and AML/CFT

Consumer Financial Protection

78

80

82

Support Functions Activities and Analysis

Banking Information Technologies

Human Resources

Annual Report 2018 Credit Libanais Group

Statement of theCHAIRMAN GENERAL MANAGER

Annual Report 2018 Credit Libanais Group 0405

Despite the difficult environment in 2018, Lebanon accomplished several positive steps in the first half of the year, such as the successful completion of the parliamentary elections, the official inking of the petroleum contract between the government, and the consortium of Total, ENI and Novatek for the exploration and production of oil and gas from two offshore blocks. Furthermore, the passing of several key laws to ensure more transparency, accountability and security related to e-government, combatting cybercrime, decentralized solid waste management and the protection of whistleblowers shall reinforce the process of combating corruption.

In this context, Credit Libanais recorded an enhanced overall performance across all business lines in 2018 despite the surrounding turmoil. In fact, the quality of the Bank’s balance sheet improved with consolidated assets reaching USD 12.45 billion revealing a y-o-y increase of 7.77%. Customer and related parties deposits neared USD 9.34 billion, posting a y-o-y increase of 0.41%; assets under management increased to USD 380.33 million in 2018, compared to USD 345.88 million in 2017, representing a 10% yearly growth. This advancement clearly reflects the reliance and trustworthiness granted by our customers to the Bank in general, and to private banking in particular.

In parallel, net loans reached USD 3.30 billion demonstrating a y-o-y decrease of 4.49%, while loans-to-deposits ratio firmed at 35.38%. This slight decrease is due to the economic downturn in 2018 as witnessed by all sectors of the Lebanese economy.

Group CL maintained its strong financial situation in terms of liquidity, financial flexibility, and capital adequacy, allowing for sound risk coverage in a challenging operating environment. With regards to liquidity, the Bank enjoys sound liquidity ratio of 93.21%. As for financial flexibility, the Bank’s core equity Tier 1 ratio (CET1) as per Basel III stood at 12.51% as at end-December 2018, compared to 11.27% as at end-December 2017 and 10% minimum regulatory ratio, while the Capital Adequacy Ratio reached 16.60%, compared to BDL threshold of 15.00 % at year-end 2018. The shareholders’ equity (including profits of the year) neared USD 994 million at year-end 2018, compared to USD 924 million in 2017.

On the level of asset quality, consolidated gross non-performing loans represented 7.23% of gross loans. As of beginning of 2018, the Bank embarked on the implementation of the second phase of IFRS9 which establishes a new approach for impairment - an “expected credit loss” model - that focuses on the risk that a loan will default as opposed to the previous incurred loss model which only recognizes the losses after a credit loss event has occurred. As a result, allowance for ECL on stage 1 and 2 amounted to USD 71.08 million, of which USD 46.35 million is related to loans constituting 1.45% of the total loan portfolio. Coverage ratio of credit impaired loans on the other hand stood at 53.68% in 2018, reaching 120.06% when including real guarantees.

On the profitability front, net profits rose to USD 83.36 million, while net interest income stood at USD 182.40 million, with net fees and commission income expanding to USD 42.82 million, increasing net operating income to USD 234.18 million.

With regards to return ratios, pre-tax return on average equity (ROaE) stood at 12.02% and pre-tax return on average assets (ROaA) reached 0.81%.

On the corporate banking level, Credit Libanais has been a major contributor in the development of Lebanon’s highly resilient private sector. In this context, the year ended with around 800 group files for total net facilities of USD 2.0 billion as at end-December 2018. In addition, our Bank entered into another loan agreement with the International Finance Corporation (IFC), which will make some USD 50 million with a hedged fixed interest rate, to boost the social and economic growth of the private sector in Lebanon. New agreements with the European Bank for Reconstruction and Development (EBRD), and the development financial institution PROPARCO will also follow in the short-term period.

On the retail banking level, our propensity modelling analysis proposed timely appropriate solutions to clients managed according to risk profiles and changing market conditions.

Moreover, in 2018, retail commercial lending provided quality customer experience by further simplifying a large number of business processes thus increasing quality, speed, and efficiency of service. In addition, by leveraging on our extensive correspondent network, Credit Libanais also continuously supports customers’ businesses in overseas markets.

As part of CL digital transformation strategy, our Bank continued to dedicate ongoing efforts to adapt to today’s customers’ changing lifestyles, while anticipating their needs. In this perspective, Credit Libanais launched an updated version of CL e-bank Mobile app on the stores (Android, Apple, etc.), by adding new biometric access for added security in addition to advanced features on the Online Banking service. The latest NFC contactless payment technology was also introduced, the one-time passcode (OTP) on our 3D secure authentication service and upgraded the POS infrastructure.

While digital technology has radically changed people’s lives and offered countless benefits, it has also brought cybercrime. At Credit Libanais, we embedded the preventive compliance culture across all entities, locally and abroad, to ensure application of sound banking practices within a safe financial environment, while abiding by highly recognized ethics and code of conduct.

In addition, the Bank sustained its strategy of adopting a firm risk management and compliance culture, combined with the best corporate governance and transparency practices. In 2018, the compliance function continued to embed and spread the compliance culture across all entities of the group, to ensure application of sound banking practices, while abiding by highly recognized ethics, laws, rules and regulatory requirements, in view of supporting the board of directors and executive senior management in managing and mitigating compliance risks in a timely manner. Early in 2019, the Compliance division advanced the Financial Crimes Investigation in a separate section, which main role consists of conducting investigations on bribery, corruption, fraud and other financial crimes resulting from misconduct and unethical behaviors. In addition, the culture of transparency, equitability, suitability and fairness in conducting banking operations with customers continues to be actively promoted by the Bank’s Consumer Financial Protection function to ensure a valuable customer experience across all lines of business.

Year after year we reaffirm our commitment to conducting business with high ethical standards and sustainability in mind. In fact, since Credit Libanais officially joined the United Nations Global Network locally and internationally back in 2015, the Bank annually publishes the Communication on Progress (COP) Report, a key component of our commitment to the UN global compact Sustainable Development Goals (SDGs), the world’s largest corporate responsibility initiative.

On the national level, in 2018, the Bank also took part in the Public Communication and Public Consultation with stakeholders related to the National Strategy for Preventing Violent Extremism (PVE), an initiative led by the Office of the Prime Minister of Lebanon and aims at regaining social trust, promoting citizenship, achieving social justice and monitoring social transformations.

Noteworthy that the heart of our business relies on the dedication of our strongest assets, our people. To develop their skills and knowledge, the Bank continues to provide trainings to boost staff skills and adaptability in a fast changing environment.

Lastly, a genuine word of gratitude goes to our shareholders and customers for their trust and above all our great people for their utmost commitment to our values in this period of significant turbulence in the macroeconomic environment.

Dr. Joseph TorbeyChairman General Manager

As at 31 December

16,066,394 13,427,483 1,310,549 4,836,811

245,704 320,666 106,035 0.81%11.46%

7.27%5.95%14.75%8.09%36.02%57.41%

14,978,191 12,673,778 1,260,677 4,474,881

228,808 292,859 100,418 0.81%11.18%

8.44%8.64%15.47%3.94%35.31%58.01%

Financial Highlights

17,419,164 14,021,735 1,393,439 5,215,165

279,363 352,347 122,700 0.89%12.96%

8.42%4.43%15.20%7.82%37.19%52.07%

5,215,165

18,773,294 14,079,683 1,499,149 4,981,190

274,965 353,043 125,667 0.81%12.02%

7.77%0.41%16.60%-4.49%35.38%57.55%

4,981,190

Growth in Total Assets

7.77%

(millions LBP)

Balance Sheet

Total assets

Customer and related parties deposits

Shareholders’ equity

Loans & advances to customers and related parties

Income Statement

Net interest income

Net financial income

Net profit for the year

Return on Average Assets (ROA)

Return on Average Equity (ROE)

Growth

Total Assets

Customer and related parties deposits

Solvency ratio (As per Basel III)

Loans and advances to customers and related parties

Loans to deposits

Cost to income

2017 2016 2015


Total Customer Deposits Loans & Advances to CustomersTotal Assets

PRE-TAXReturn On average Equity (ROaE)

Assets, Customer and Related Parties Deposits, Shareholders’ Equity and Net Profits

(Assets and Customer and Related Parties Deposits in Billions USD)(Shareholders’ Equity and Net Profits in Millions USD)

Assets

Customer and Related Parties Deposits

Shareholders’ Equity

Net Profits

Capital Adequacy Ratio(as per Basel III)

Growth in Total Assets12.02%

16.60%7.77%

Sustainable Profitabilityand Value Creation

Net Financial Income

20182018

2018 2018 2018

20172017

2017 2017 2017

20162016

2016 2016 2016

20152015

1,260,677

1,310,549

1,393,439

1,499,149

353,043

320,666

352,347

2015

2015 2016 2017 2018

2015 2015

Strong Capital Base

(millions LBP)

Shareholders’ Equity

Growth Trend in the Banking Activity Growth Trend in the Banking Activity Growth Trend in the Banking Activity

0607

14,978,191

9.93

8.41

836.27

66.61

10.66

8.91

869.35

70.34

11.56

9.30

924.34

81.39

12.45

9.34

994.46

83.36

17,419,164

18,773,29416,066,394 13,427,483

12,673,778 14,021,735

14,079,683

292,859

4,836,811

4,474,881

2018

International and Local Awards

F O R E X C E L L E N C E

The Prestigious “Lifetime Achievement Award”


On March 27, 2019, Visa International recognized Dr. Joseph Torbey Chairman General Manager of Credit Libanais

Group with the prestigious “Lifetime Achievement Award”, which is defined as:

“A recognition for Dr. Torbey for his long and historical contribution in setting up and growing Visa business in

Lebanon, electronic payments industry, and the banking sector in general. This is a unique award that hasn’t been

given to anyone else in Lebanon and to very top few executives in the MENA region.” VISA Inc.

The Award Ceremony was held in the presence of Mr. Andrew Torre, Visa Inc. CEMEA Regional President who

oversees more than ninety countries in the region, along with a high delegation of Visa officials, Credit Libanais

board members and senior executives and staff.

Correspondent Banks Awards to Credit Libanais JP Morgan recognizes Credit Libanais with the STP Excellence Award. (2017-2013-2015)

Citibank recognizes Credit Libanais with the STP Excellence Award. (2016-2014-2015)

Deutsche Bank recognizes Credit Libanais with the Euro STP Excellence Award. (2017-2014)

Standard Chartered grants Credit Libanais the STP USD Clearing Excellence Award. (2014-2013)

National And International Stakeholders’ Awards to Credit LibanaisSignature of the “Investors for Governance and Integrity - IGI Declaration”. (2019)

Union of Arab Banks (UAB) recognizes Credit Libanais with the Reconstruction and Development Award. (2017)

World Union of Arab Bankers (WUAB) grants Credit Libanais the Safest Bank Award. (2017)

The Middle East Security Awards (MESA) Conference grants Credit Libanais the CISO (Chief Information Security Officer) 100 Award.

(2018-2017-2016)

Cross Knowledge E-learning Iquad Solutions recognizes Credit Libanais with the Best E-learning Roll-out Academy Award. (2014)

The Social Economic Award (SEA) grants Credit Libanais the National and Social Impact Award (2014), and the Housing loans Category

Award for financing stability in the lives of Lebanese families (2012).

World Finance Banking Awards names Credit Libanais the Best Commercial Bank in Lebanon. (2013)

The World Confederation of Businesses grants Credit Libanais the Peak of Success Award. (2013)

AWARDSto Dr. Joseph Torbey by Visa International Inc.


Optimize Human Capital, linking reward to long-term risk based performance.

Maintain Sound Profitability Management improving Fee Income and Follow Responsible Cost Efficiency Management encompassing Conventional Banking, Investment Banking, Islamic Banking and Leasing Activities.

Maintain a Strategic Marketing vision based on Resources Optimization and engage in a Transversal Corporate Social Responsibility Strategy.

Optimize capital allocation and preserve Sound Capital and Liquidity Management.

Maintain embedded prudent Risk Management, Compliance, Culture and Corporate Governance Strategy.

Drive Growth, Expansion and Business Diversification locally and abroad (West Africa and Middle East).

Focus on Sustainable Technological Growth and Engage in Digital Customer Journey.

CL Group Medium-Term Strategy

We at Credit Libanais are committed to maintaining our aim towards excellence and value creation to all our

stakeholders. Therefore, in Strategy 2021, we will

strengthen and redirect our focus onto the seven major

strategic pillars.

For the medium term strategy 2021, Credit Libanais reaffirms its commitment to remain a leading global universal Bank, in its home market and in selected captive markets, in the Middle East and West Africa. The Bank will prioritize the plans of expanding its digital presence and services in line with the changing nature of the banking services. The Bank will maintain its plans for further capital enhancements, organic growth and acquisitions, operational excellence and cultural changes, in view of differentiating and repositioning itself against local peers. The strategy and goals of the Bank are based on a number of key assumptions reviewed at least annually.

Over the past year, a new government has been formed on January 31, 2019, ending months of deadlock over the make-up of the cabinet. Political disputes have prevented the formation of a government since an election in May, undermining plans for needed fiscal and structural reforms that would unlock USD 11 billion in grants and loans. The new government is expected to introduce reforms that Lebanon committed itself to, including reducing the deficit by a percentage point annually for the next five years, addressing corruption and fixing the ailing electricity sector.

Strategy 2021 is based on assumptions of the Lebanese Pound exchange rate stability, mainly supported by the significant foreign currency and gold reserves held by BDL.

The Bank will sustain its strategy of firm risk management and compliance culture, combined with the best corporate governance and transparency practices, and shall continue to closely and conservatively manage and optimize the return on its liquidity resources on selective financial instruments and placements, including some exposure to the sovereign and Central Bank of Lebanon debt.

The Bank believes that its business pillars are well established to balance its earnings mix and to satisfy increasingly complex and global customer needs. Strategy 2021 defines a framework; i) to build a stronger image for a digital Bank and reinforce the Bank’s position in the E-banking and Business online services in an increasingly digital competitive world; ii) to consolidate further its Treasury and Capital Markets activities improving its fee income base; iii) to grow its Investment Banking Business and revenues through enhancing the activities of Credit Libanais Investment Bank (CLIB); iv) to further develop the Corporate and Correspondent Banking Division controlling additional market share, with improved pricing locally and in the countries of presence; v) to sustain its leading position in the local market in the Retail business, including financing SMEs and the Public sector; vi) to strengthen its position in the Private Banking and Wealth Management locally and through its foreign branches and subsidiaries; and vii) to improve the diversity and profitability of its products and services with increased contribution to the Bank’s bottom line.

Credit Libanais’ Identity

Credit Libanais’ Business Principles

Credit Libanais’ core values are customer focus, innovation, teamwork, ethics, transparency and integrity as well as reward for performance.

Credit Libanais is the preferred bank in Lebanon for customers and employees.

Credit Libanais is primarily a retail bank and serves selected corporate customers.

Credit Libanais’ purpose is to enhance shareholder, customer and employee value.

We

Vision

Core Values

Mission

We are open. We encourage continual dialogue across all units and levels.

Communicate

We are action-oriented and encourage personal initiative. Can Do and Will Do are basic attitudes of all employees.

ActWe embrace change. We continuously seek better solutions to problems for the Customer and the Bank.

Improve

We increase productivity each year. Ethics and Profit per employee are key measures for Bank performance.

Perform

We continuously upgrade our skills. Commitment to self-development and training are the cornerstones of our competitive advantage.

Build

We deliver superior customer service. We gain customer satisfaction with service that exceeds customers’ expectations.

Serve

We function as a team. Cooperation among individuals and units is fundamental in delivering the whole Bank to the customers.

Cooperate

We emphasize delegation. Acceptance of personal accountability permeates our corporate culture.

EmpowerWe value each others’ ideas. We treat colleagues fairly, sincerely and courteously regardless of differences in background.

Respect

Facts and Figures

www.creditlibanais.com Lebanon:1518 International: +961 1 607 100

. 8th largest network in Lebanon. 79 total branches

Large Network Extensive E-Outreach

. 10,500 electronic POS

. 160,000 banking cards distributed. 97 ATMs. A state-of-the-art customer service. 24/7 online banking services

6 Countries of Geographical Outreach

. Lebanon

. Bahrain

. Canada

. Cyprus

. Iraq

. Senegal

Credit Libanaisd’Assurances et de Reassurances (CLA) sal

Cedars Real Estate sal

. Credit Card Management sal

. International Payment Network sal

. Net Commerce sal

. Soft Management sal

Four Banks. Credit Libanais sal. Credit Libanais Investment Bank sal. Lebanese Islamic Bank sal. Credit International S.A. Senegal

Credilease salOne Financial Institution

Real Estate CompanyOne Insurance Company

IT, E-Bankingand E-Commerce Companies

Credit Libanais Group


Corporate Governance

CL Group Corporate Governance Framework

Credit Libanais Group is committed to safeguarding the interests of all stakeholders and recognizes the importance of good Corporate Governance for its sustainable success. In this respect, CL Group continuously reviews its Code of Corporate Governance in accordance with changing local and international standards. The Code is circulated to all staff and made available on the Bank’s website.

The Board of Directors oversees the implementation of the Bank’s governance framework and periodically reviews its relevance in the light of any material changes occurring to the Bank’s size, complexity, geographical footprint, business strategy, markets and regulatory requirements.

Board of Directors’ Own Structure and Practices

The Board defines appropriate governance structures and practices for its own work, and puts in place the means for such practices to be followed and periodically reviewed for ongoing effectiveness. The Board structures itself in terms of leadership, size, frequency of meetings and the use of its committees to effectively carry out its oversight role and other responsibilities. The Board performs a yearly Self-Assessment through a structured Self-Assessment Questionnaire that is facilitated by the Corporate Governance, Nominations, Human Resources and Remuneration (CGNHRR) Committee.

Remuneration Policy and System

1. The Board established a Board Remuneration Committee as an integral part of its governance structure and organization, to recommend and oversee the Remuneration System’s design and operation.

2. CL has developed a remuneration policy and system, approved by the Board upon the recommendation of the CGNHRR committee. It is a coherent and transparent system, translating the Bank’s objectives for good corporate governance, and is consistent with the Banks’ culture, business strategy, objectives, values, control and performance environments, as well as the long-term interests of the Bank, taking into account the legal and regulatory requirements. The performance management process aims at creating opportunities to motivate and engage people by linking reward to performance on a fair, suitable and equitable manner. Open communication is the cornerstone of the performance appraisal, where managers discuss with their employees’ future aspirations. It is a future oriented feedback system, focused on building careers, retaining and developing talent while observing the rules of compliance,

business ethics and values, as well as the size of business to ensure the promotion of the long-term strategy of the Bank in a competitive market.No deferrals or clawbacks arrangements are being made for the moment, except for legally required matters.

3. Remuneration is based on measurable performance as well as goal achievements and results, translated into various schemes and incentive programs, taking into account all matters associated with the Bank financial status and interests. Linking reward to performance has a direct impact on the overall results of the Bank, and plays an important role in motivating employees. In fact, staff participation rate in the e-appraisal system process is increasing on a yearly basis, and has reached 85% in 2018.

4. Total amount of remuneration is based on a combination of factors: assessment of the employee performance and the business unit concerned, the employee’ professional experience and academic qualifications as well as their organizational responsibility, and the overall results of the Bank. This process contributes to motivating, developing and retaining talent within the Bank, despite the fierce competition. Noteworthy that remuneration is governed by the principles of non-discrimination and equitable treatment.

5. Remuneration comprises the fixed and variable elements such as the basic salary and the performance-based bonuses in addition to the legal benefits and allocations, taking into account the suitability standards with regards to employees selling products and services to customers. Employees performing internal control functions are remunerated in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.

6. As reported in the Bank’s Financial Statements, Key management personnel compensation for the year 2018 consisting of short-term benefits amounted to LBP 9.8 billion. More details are further elaborated in the “Financial Results” section of this Report.

Assets and Liabilities Management (ALM)

ALM function supports the capital and liquidity management process, governed by the Group Asset and Liability Committee (ALCO). ALM is responsible for the development of the Group’s investment policies, market risk, interest rate risk and liquidity risk, in addition to the hedging of foreign exchange exposures of capital investments abroad, managing capital ratios, and the Group-wide capital requirements.

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Capital and Liquidity Adequacy as per Basel III requirements

CL Group abides by national and international requirements in terms of capital adequacy regulatory framework, internal capital adequacy assessment process, Basel III, liquidity coverage ratio, loan impairment, related specific and collective provisions as well as general reserve for the loan portfolio. CL Group abides by the quantitative and qualitative requirements of the third pillar of the Basel accord and its subsequent updates.

Audit, Risk Management, Compliance and other Internal Controls

The Bank’s Audit, Risk Management, Compliance and other Internal Control functions have the necessary authority, stature, independence, resources and access to the Board to carry out their duties, in an independent and transparent manner. Those functions keep pace with changes related to the Bank’s risk profile, including its organic and international growth. An open and timely internal communication within the Bank concerning risk, audit and compliance is ensured, both across the organization and through reporting to the Board and SEM. Three Board committees: Audit Committee, Risk Committee and AML/CFT Committee are constituted at level of each CL entity with at least quarterly meetings and reports issued / reviewed and sent to the Board.

Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT)

On November 24, 2015, the Lebanese Parliament ratified the Law 42 on the declaration of amounts of carried cash at the border, Law 43 on the exchange of tax information, Law 53 on the International Convention for the Suppression of the Financing of Terrorism, Law 44 on AML/CFT, and consequently the BDL issued BDL Basic Circular No. 136 related to the implementation of FATF Recommendation 6 concerning UN Security Council Resolutions 1267 (1999), 1988 (2011), 1989 (2011), and any related successor resolutions.In the increasing interconnected and risky business world, CL banking group provides particular attention to AML/CFT and complies with all the national and international laws and regulations issued, across all entities of the group, financial institutions, correspondents and customers, especially those seeking to engage in cross-border transactions or to utilize correspondent banks. For this purpose, CL Group created at the level of the Parent Bank and each of the Banking and Financial Institution Subsidiaries, Board AML/CFT Committees, to ensure adequate AML/CFT practices throughout the Group.

The Foreign Account Tax Compliance Act (FATCA) and CRS Compliance

FATCA was enacted into United States (US) law on March 18, 2010 and the related regulations were issued on January 17, 2013. FATCA requires Foreign Financial Institutions (FFIs) to report to the US Internal Revenue Services (IRS) information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Lebanese banks like all FFIs worldwide comply with FATCA since July 1, 2014. Therefore, CL Group has the responsibility of identifying US tax payers among its clients and for reporting to the US Internal Revenue Services (IRS) names and accounts’ information and CL Group only undertakes business relations with FATCA compliant FFIs.The Bank is also in compliance with the Decree no. 1022 which outlined the Common Reporting Standard’s (CRS) implementation requirements. It is related to point 3 of Article 6 of Law No. 55 dated 27 October 2016 related to the automatic exchange of information and the commitment of Lebanon to join the Common Reporting Standard.

CL Group Reporting

CL Group reporting is made in accordance with International Financial Reporting Standards (IFRS), providing for a high degree of transparency and facilitating comparability with international peers. Complying with regulatory requirements, CL Group’s Annual Report has become richer in terms of disclosures and information.

Internal Communications

To optimize top-down and bottom-up channels of communication between staff and management the internal communication platform informs, educates and encourages CL staff to share views across the Group, sister companies and entities abroad. This plethora of information is communicated via various internal and external e-channels.

a. CL on the Internet and social media channels

The Bank’s website discloses all CL activities, services, latest news as well as products and their related key facts statements, in a very transparent and clear manner. The corporate website is continuously updated with pertinent information relevant to all stakeholders. In parallel, CL social media platforms rapidly gained ground among various segments of customers and cater to their ever evolving needs and requests.

b. Periodic Economic and Sector-Specific Publications

A considerable number of internal publications reach our staff on a daily, weekly and monthly basis. Those aim at delivering macro and micro economic updates, latest market news, ratios and indicators. Sector-Specific publications by Credit Libanais’ Corporate Finance and Economic Research Department include: Real Estate, Gold, Oil and Gas, Remittances, Public Debt, Beirut Stock Exchange, Arab Spring Economic Cost, Capital Investment Program, Country Report on Lebanon, Public Private Partnership, to name but a few.

c. Private Banking and Wealth Management News

Daily publications are disseminated to CL Group staff members and encompass updates on local and international market conditions, economic indicators, currencies, commodities, securities, indices and much more.

d. CL Group Employee Handbook

The handbook elaborates on the rights and duties of employees. It also incorporates CL Code of Conduct for Directors and Employees and CL code of Conduct and Ethics for the Treasury and Capital Markets Division, business ethics and requirements to ensure that activities are conducted with integrity and honesty and is made available to all staff on the Bank’s intranet portal. In case of breaches to CL core principles and values, a disciplinary council takes corrective action to ensure that CL culture of trust is well preserved and respected by all staff.

Credit Libanais Group, a Corporate and Responsible Citizen

Cognizant of its important role in society CL Group has embarked on a strategic Corporate Responsibility (CR) Project to ensure that sustainability is embedded in all aspects of our business. CR initiatives are reported in the internal newsletter as well as in the Annual Report publication.

Composition of the Board of Directors

CL Group is governed by a board consisting of twelve members, who are leading bankers and businessmen enjoying wide and diverse expertise in Lebanon and the region. Board Members are elected by the General Assembly of shareholders for a term of three years. The Board is of an appropriate size to oversee the Group’s businesses, with a suitable diversity of backgrounds and a mix of experience and expertise to maximize efficiency. * During 2018, the General Assembly re-elected with no changes the members of the Board of Directors for a term of 3 years, ending upon the convening of the General Assembly in 2021 that examines the accounts of the financial year 2020. ** In May, 2019, Mr. Efstratios Georgios Arapoglou moved from his membership at the Board of Directors of Credit Libanais sal following his appointment as Chairman of the Bank of Cyprus during the latter Annual General Assembly Meeting held on Tuesday, May 14, 2019.

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Biographies of the Board of Directors

Chairman General Manager

Members

Mr. Talal Shair is the Chairman and CEO of Dar Al-Handasah Consultants (Shair and Partners) and of the Dar Group. Under Mr. Shair’s

leadership, Dar has grown into a multinational corporation that provides world-class services on equal footing with the best international

consultancy firms. Dar Al-Handasah Consultants has built a tradition of excellence in offering high-performance planning and providing

customers with innovative designs transforming customers’ ambition into reality. The Group has become today one of the world’s top

international professional services firms, with over 18,000+ staff in 200 offices spanning the Americas, Europe, Australasia, the Middle

East, Africa and Asia. In October 2018, Hyperloop Transportation Technologies (HyperloopTT) announced Dar Al-Handasah Consultants

(Shair and Partners) as the design lead on a project that will forever redefine the transportation sector in the Middle East region and

beyond. With this achievement, Dar al-Handasah forever cements its place as the Middle East’s go-to company for any visionary and

transformational project.

Mr. Shair is a member of the Board of Trustees of the American University of Beirut since 2010, International College, and the King’s

Academy in Jordan; a member of the MIT SA+P Dean’s Advisory Council, USA; a founding member of the Young Presidents’ Organization,

Cairo Chapter; and a board member of the Queen Rania Foundation and the Chief Executives Organization, Jordan. Mr. Shair is also a

founding member of the BADER Young Entrepreneurs Program, and Chairman of the Building Block Fund.

In recognition of his unwavering commitment and dedication, Mr. Shair received in 2018 the “Lifetime Achievement Award” by René

Moawad Foundation and was selected among the Top 35 Influential Lebanese Business Personalities by Forbes Middle East.

Mr. Abdulla Alsaudi, a world-renowned and respected international banker. Founder of the Libyan Arab Foreign Bank, where he served

as Executive Chairman establishing branches of the Bank worldwide. Founder of the Arab Banking Corporation, Bahrain where he served

as President and Chief Executive. In November 2018, Mr. Abdulla Alsaudi was awarded the prestigious “Arab Banker of the Year” Award

by the Union of Arab Banks for his outstanding achievement in the banking industry.

In addition to being voted as one of the most Innovative Bankers by the representatives of governments and international commercial

bankers attending the IMF and World Bank meetings in 1980, Mr. Saudi has won many international accolades, including an Award at

Georgetown University and the Award of Best Banker from the Association of Arab American Banks in New York in 1991. He was also the

first to receive the Arab Banker of the Year Award in 1993 from the Union of Arab Banks. In recognition of his role in the development of

banking relationships between Arab and European countries, Mr. Alsaudi received several awards, amongst which are those awarded in

1977 by the King of Spain and the President of Italy and the Award given to him by the President of Tunisia in 1996. He is currently the

Executive Chairman of ASA Consultants W.L.L., Bahrain.

CIH Bahrain International Holding sal Represented by Mr. Abdulla Alsaudi

Dar Al-Handasah Consultants Shair and Partners Holdings Ltd Represented by Mr. Talal Shair

1617

H.E. Mr. Marwan Hamade currently serves as Member of Parliament. He previously held various public responsibilities under numerous

cabinets and served as Minister of Education, Minister of Telecommunications, Minister of Economy and Trade, Minister of Tourism, Minister

of Health and Minister of the Displaced. He started his career as an economic and political columnist in an-Nahar and L’Orient-Le-Jour daily

newspapers before serving as an-Nahar Group President and Director. He also served as member of the Higher Council of the Lebanese Press;

Consultant for the World Organization of Health for the Middle East; member of the International Committee of Bioethics at UNESCO and is

currently member of the Strategic Council at St Joseph University in Beirut.

Mr. Efstratios Georgios Arapoglou** is a Corporate Advisor with a long international executive career in Corporate and Investment

banking, International Capital Markets and in managing, restructuring and advising Financial Institutions. He has been the CEO of

Commercial Banking at EFG Hermes Holding SAE Group, operating in the Middle East and Africa, and served as Chairman and CEO of

the National Bank of Greece Group, Chairman of the Hellenic Banks Association and Managing Director and Global Head of the Banks

and Securities Industry for Citigroup. Mr. Arapoglou served on several Boards of publicly listed companies in Europe, the Middle East and

Africa, as well as on Boards of Educational Foundations, including the Institute of Corporate Culture affairs in Frankfurt as Chairman. He is

the Chairman of the International Advisory Board of Tufts University in Boston, Ma. and member of the Business Advisory Council for the

International MBA program of Athens University of Economics and Business.

Mr. Mohamad Wajih El-Bizri is an influential Lebanese businessman. He is the President of SIPES Group, one of the largest paint

manufacturers in the Middle East, having production facilities in six Arab countries. Mr. El-Bizri serves as the Honorary Consul of the

Republic of South Africa in Lebanon. He is also President of the International Chamber of Commerce in Lebanon, Vice President of

the Association of Lebanese Industrialists and Vice President of Business in the Community Association in Lebanon.

Mr. Sarkis Demerdjian is a civil engineer and a prominent Lebanese businessman. He is the Chairman of Demco Group, Lebanon’s leading

steel supplier, trading and servicing company established in 1922, which has also ventured in the real estate industry, engaging various

construction projects while preserving and respecting the environment. Mr. Demerdjian is member of the Council of Trustees of AGBU

(Armenian General Benevolent Union) established in 1906 and present in many countries around the world.

Mr. Rabah Idriss is a well-known Lebanese businessman enjoying a wide expertise in the fields of finance, trade and manufacture of food

products, and is very active in professional organizations, such as the Chamber of Commerce and Agriculture of Beirut, among many

others.

Dr. Joseph Torbey is the Chairman General Manager of Credit Libanais Group since 1988. After graduating from university, he held numerous

public functions, including Controller at the Lebanese Audit Court and the Ministry of Finance, where he headed the Income Tax Department.

Very active on the professional level, he serves as Chairman of the World Union of Arab Bankers (WUAB) since 2006, which is the premier Arab

professional organization for Arab bankers and finance professionals. He is also Chairman of the Executive Committee of the Union of Arab Banks

(UAB) since 2007, a Union which Board he chaired for two consecutive mandates from 2001-2007, and which is the regional organization that

comprises more than 320 Arab financial and banking institutions.

Dr. Torbey served as Chairman of the Association of Banks in Lebanon (ABL) for many mandates (2001-2003; 2009-2013 and 2015-2019). He is also

a founding Member of the Union Bancaire Francophone (UBF) through his position at the UAB and ABL. He served as Chairman of Credit Card

Management (1994 -2009) and Chairman of the International Payment Network (1997- 2008).

On the Academic front he is Member of the Executive Committee and Member of the Board of Trustees of the Arab Academy for Banking and

Financial Sciences (Jordan) since 2001. He is the co-founder and first Chairman of the Institut Supérieur d’Etudes Bancaires (ISEB) at St Joseph

University (Beirut); Member of the Board of Trustees of the Arab Centre for the Development of the Rule of Law and Integrity (ACRLI) and Member

of the Board of Trustees at Louaizeh University, Lebanon. He was awarded the Honorary Professor at the University of Vienna, and has lectured at

major universities in Lebanon.

Dr. Torbey is very active in developing strategies at the national and Arab levels through the ABL, UAB and WUAB. Seminars and conferences

organized with the participation of leading private and public international institutions and regulators aim at spreading the banking best practices

across the Arab Banking communities operating in a very complex global market.

He published numerous publications on various banking, financial and taxation issues. He has won many regional and international accolades for

his accomplishments in the banking industry; the latest being the “Lifetime Achievement Award” in March 2019 awarded by Visa International Inc.,

“In appreciation for his long and historical contribution in setting up and growing Visa business in Lebanon, electronic payments industry and the

banking sector in general”.


Me. Joe Issa El-Khoury is a renowned Lebanese lawyer enjoying a wide expertise in different areas of legal advisory, corporate governance,

litigation, banking and insurance laws among other fields. Me. Joe Issa El-Khoury is member of the Beirut Bar Association and served on many

international committees, among which the Committee for the modernization of laws established by the Central Bank of Lebanon and the

Committee of the Lebanese Center of Arbitration. He also served as an editorialist at the Lebanese daily, L’Orient.

Mr. Rabah Jaber is an influential Lebanese businessman. A prominent investor in Lebanon and overseas, he is active in various sectors

encompassing real estate development and investment, industry, construction as well as hotels and tourism.

Me. Adel Macaron currently serves as the Head of the Legal Department at Credit Libanais sal. He is member of the Beirut Bar Association since

1973 and serves as Credit Libanais sal Secretary of the Board of Directors.

Mr. Abdulelah Abdu Mukred Ali is a world-renowned and respected international banker. He currently serves as Director for different

companies, namely: Arab Asian Holding Company (Bahrain); Capital International Holding Company (Bahrain); LPC Government securities

Trading Company (USA) and Ceravision Limited (U.K). He also holds the position of Head of Treasury & Investments at Al Murjan Group (Saudi

Arabia). He previously served as General Manager and Investment Division Head at Samba (Saudi Arabia) and as CEO of Al Murjan Trading

and Industry Group (Saudi Arabia). Mr. Abdulelah Abdu Mukred Ali was also the Chairman of Board and Audit Committee of Prime Commercial

Bank (Pakistan) and Chairman of Audit Committee and member of the board of Credit Libanais (2001-2009) and currently serves as CL board

member and Audit Committee member.

Dr. Michel Khadige is a prominent and well-known Lebanese banker, who has been serving Credit Libanais since 1988. He currently heads

the Corporate Banking and Financial Institutions Division and sits on a number of Senior Executive Committees at the Bank. Dr. Khadige is a

member of the General Rules and Banking Regulations Committee at the Association of Banks in Lebanon.

Secretary of the Board of Directors

Shareholding structure

The following table sets out the composition of the holders of the Common Shares, as at June 29, 2019.

(1) Percentage ownership figures represent both Common Shares owned by the named Shareholders and are expressed as a

percentage of the total number of Common Shares issued and outstanding.

(2) CIH Bahrain International Holding sal is the major shareholder, 35.06% majority owned by “C.I.H – CAPITAL

INTERNATIONAL HOLDING COMPANY”

(3) EFG Hermes CL Holding sal, (8.81%) owned by EFG Hermes CB Holding LTD

(4) No shareholder among this percentage holds more than 5% of the capital of the Bank.

Shareholders /Group of Shareholders

Country Percentage Ownership(1)

CIH Bahrain International Holding sal(2)

EFG Hermes CL Holding sal(3)

Others(4)

Total Shareholding

35.06%

8.81%

56.13%

100%

Lebanon

Lebanon

Majority Lebanese

Dividend Policy

Upon recommendation of the Board and approval of the General Assembly, Credit Libanais Group has enjoyed a constant track record of dividend payments on Common Shares for the past 21 years, demonstrating the Bank’s sustainability and value creation to shareholders.

Board Committees

The Board is supported by the Corporate Governance, Nominations, Human Resources and Remuneration Committee (CGNHRR Committee), the Audit Committee, the Risk Committee, the Anti-Money Laundering and Combatting the Financing of Terrorism Committee (AML/CFT Committee) and the Credit Policy Committee. Each Committee has an approved charter that sets out its mandate, scope and working procedures in order to support the Board in its duties.

Corporate Governance, Nominations, Human Resources and Remuneration Committee

The CGNHRR Committee is composed of one Non-Executive Director and two Independent Directors, one of whom acts as its Chairman. The CGNHRR Committee’s main mission is to: (i) oversee Senior Executive Management’s implementation of the Bank’s Corporate Governance Framework, principles

and corporate values, including the Code of Conduct; (ii) provide recommendations to the Board for the nomination of new Directors and members of Senior Executive Management; (iii) oversee the Human Resource Policies; (iv) prepare and review periodically the Bank’s Remuneration Policy and System ensuring their alignment with the Bank’s strategy and the development of its operations; (v) set a Performance Evaluation System to evaluate the performance of all-level employees in an objective and transparent manner; and (vi) ensure that the compensation is effectively aligned with prudent risk-taking, consistent with the Bank’s long-term strategy adjusted for all types of risk. The CGNHRR Committee Charter complies with the BDL Basic Circular No.106 and BDL Basic Circular No. 133. It meets at least twice a year, or more frequently as needed.

Audit Committee The Audit Committee is composed of two Non-Executive Directors and two Independent Directors, one of whom acts as its Chairman. The Audit Committee’s main mission is to assist the Board in its responsibilities, in terms of: adequacy of accounting, financial reporting policies, internal control and compliance system. The Audit Committee also recommends the appointment, compensation, effectiveness and dismissal of external auditors; ensures the independence and effectiveness of the internal audit function; reviews and approves the scope and frequency of audits; and ensures that


Management Committee The Management Committee regularly reviews the growth and performance of the Bank and ensures the execution of the

Bank’s medium-term strategy, policies and procedures as approved by the Board. The Management Committee plays a key

role in ensuring the participation of key employees in managerial decision-making through regular communication and liaison

with all regional managers. This Committee meets at least quarterly or more frequently as needed.

CL Management Committee

Mrs. Nina Elhajj Srour

Dr. Joseph Torbey

Dr. Michel Khadige

Mr. Michele Cherenti

Mr. Georges Gerios

Mr. Elie Abimrad

Mr. Alexandre Salem

Mrs. Nada Awad Rizkallah

Mr. Georges Karkabi

Mrs. Randa Bdeir

Mr. Johnny Torbey

H.E. Dr. Alain Hakim

Mr. Badih Azzi

Mr. Nagib Ghanem

Mr. Charbel Mourad

Mr. Ghassan Mouzawak

Chairman

Secretary

BOD Member and Deputy General Manager -

Corporate Banking and Financial Institutions

Deputy General Manager - Retail Banking and Branches

Deputy General Manager - Operations and Support Services

General Controller - Internal Audit

Deputy General Manager - Treasury, Global Markets and Wealth Management

Deputy General Manager - Risk Management and Strategy

Deputy General Manager - Investment Banking

Deputy General Manager - E-Payment Solutions and Cards Technology

Deputy General Manager - Electronic Banking

Assistant General Manager - Marketing and Business Development

Assistant General Manager - Human Resources

Assistant General Manager - Information Technology

Assistant General Manager – Finance

Head of Group Compliance


Central Manager - Consumer Financial Protection

and Corporate Publishing - CEO Office

SENIOR COMMITTEES AT MANAGEMENT LEVEL

Management Committee

Foreign Entities Committee

Human Resources and Training Committee

Sales and Business Development Committee

Information Technology Steering Committee

Business Continuity Planning Committee

Asset and Liability Committee

Credit Committees

Financial Institutions and Country Credit Committee

Anti-Money Laundering and Counter-Financing of Terrorism Committee

Information Security Committee

The Bank’s various committees are established with clear missions, authorities and responsibilities.

Recommendations made by any committees that require the Board of Directors’ approval are submitted through the Chairman General Manager for review, decision-making or ratification.

detailed in Law No. 44 dated November 24, 2015, and all the circulars and regulations issued or to be issued by the Central Bank of Lebanon, the Banking Control Commission of Lebanon, the Special Investigation Commission and the Capital Markets Authority, and all International Regulations related to AML and CFT. This Committee meets on semiannual basis or as deemed necessary.

Credit Policy Committee The Credit Policy Committee is headed by the Chairman General Manager, and includes one Non-Executive Director, one Executive Director - the Group Head of Corporate Banking and Financial Institutions Division, the Group Head of Retail Banking and Branches Division, the Group Head of Risk Management and Strategy Division and the Group Head of Finance Division. The General Controller - Group Head of Internal Audit Division participates as an observer.

The Credit Policy Committee’s main mission is to set the Bank’s lending policies at the level of Group CL, in line with the Board’s objectives. The Credit Policy Committee defines credit risk strategies, policies and limits for the efficient management of the various counterparty risk exposures, industries, aggregate exposures by product, segment of activity and country exposure on a stand-alone and consolidated basis. The Committee meets at least once a year, or more frequently as needed.

CL Committees at Management levelEach Committee has an approved charter that sets out its mandate, scope and working procedures in order to support the Chairman General Manager in its duties. The Committees’ respective authorities are of decisive and consultative nature, where all recommendations that require Board approval are submitted through the Chairman - General Manager for review, decision-making or ratification. The Board is kept informed of all the major decisions governing the Bank’s overall activities as submitted and recommended by the various committees.

Senior Executive Management is taking the necessary corrective actions in a timely manner to address control weaknesses, non-compliance with policies, laws and regulations and other problems identified by internal and external auditors. In addition, the Audit Committee oversees the establishment of accounting policies and practices by the Bank. The Audit Committee Charter complies with BDL Basic Circular No. 118 dated July 21, 2008. External auditors are appointed for a renewable period of three years, with the partner rotation principle applying for a maximum period of five years in line with BDL Basic Circular No. 122 dated August 13, 2009. The Audit Committee meets at least once quarterly, or more frequently as needed.

Risk Committee The Risk Committee is composed of two Non-Executive Directors and two Independent Directors, one of whom acts as its Chairman. The Risk Committee’s main mission is to advise the Board on the Bank’s overall current and future risk tolerance/appetite and strategy, and provides oversight of Senior Executive Management’s activities in implementing group-wide risk management policies for capital and liquidity management, as well as credit, market, operational, compliance, reputational and other risks of Group CL. The effectiveness of the Risk Committee is further enhanced by receiving formal and informal communication from the Bank’s Risk Management and Chief Risk Officer (CRO). The Risk Committee Charter complies with the BDL Basic Circular N°118. The Risk Committee meets at least once quarterly, or more frequently as needed.

AML/CFT Board CommitteeThe Committee has to remain abreast of the new related laws and regulations in effect, and provide the Board periodically with the latest developments and propose any needed amendments to the policies and procedures applied in the Bank in line with such changes. Moreover, the Committee oversees the development of AML and CFT policies and the proper implementation of the AML and CFT principles, as

Members


Foreign Entities Committee The Foreign Entities Committee approves the medium-term strategy and annual business plans of foreign entities, reviews their business performance and evaluates their risk exposure. The Foreign Entities Committee also ensures the compliance of foreign entities with applicable laws and regulations. The Committee places emphasis on the ongoing monitoring of regulatory compliance in the hosting country, risk management, anti-money laundering & terrorism financing, fraudulent activities and information security in foreign entities, and convenes at least quarterly or more frequently as needed.

Human Resources and Training Committee The Human Resources (HR) and Training Committee is responsible for establishing the policies and procedures pertaining to human resources management and overseeing the execution of HR plans. The Committee also supervises orientation and training programs to existing and new staff. It reviews the Remuneration Policy and System, the Performance Evaluation System and the annual budget for training and development then submit them for the CGNHRR Committee approval. This Committee convenes quarterly or more frequently as needed.

Sales and Business Development Committee The Sales and Business Development Committee ensures the introduction, maintenance and promotion of the Bank’s various products and services to the market. Moreover, it introduces new and profitable products and services and ensures adequate funding and analysis of the risk-adjusted-return on capital of such products and services. The Committee coordinates and implements the Bank’s overall advertising strategy, and monitors results and feedback. The Sales and Business Development Committee meets quarterly or more frequently as needed.

Information Technology Steering Committee The banking Group Information Technology Steering Committee sets the general strategies and policies for developments relating to banking information technology, in accordance with the Bank’s master strategic plan. The Committee’s main objectives are to ensure the adequate functioning and development of information technology systems in line with the continuous development of systems, applications and services to support the Bank’s expansion plans. This Committee convenes quarterly or more frequently as needed.

Business Continuity Planning Committee The Business Continuity Planning (BCP) Committee ensures

continuity of service to the Bank’s customers and stakeholders

in an efficient and timely manner in case of an eventual event

that might disrupt the Bank’s regular activities. The BCP

Committee proposes policies, recommend priorities, and

establishes plans to meet business continuity requirements

and ensures adequate communication and training is

maintained at Bank. The BCP Committee meets at least

quarterly or more frequently as needed.

Asset and Liability Committee The Group Asset and Liability Committee (ALCO) is

responsible for managing and controlling the Bank’s balance

sheet and income statements, and formulating the general

financial strategy of each business unit. ALCO reviews all

activities of the Bank which impact balance sheet and income

statement items. It focuses on risks and strategic issues

related to interest rate monitoring, liquidity management

and market risks, as well as their control and mitigation.

The ALCO reviews and validates all relevant policies and

procedures and ensures their compliance with regulatory

guidelines pertaining to liquidity risks, investment portfolio

risks, interest rate and foreign exchange risks, market risks, political and country risks, risks relating to the pricing of loans and deposits, profitability risks, and risks of unrealized gains and losses resulting from long-term positions, prior to submitting such policies and procedures to the Risk Committee and the Board for final approval. This committee meets weekly.

Credit Committees The Bank has a number of Credit Committees with different

levels of lending authority, depending on the business

segments concerned and the exposure. Credit Committees

are responsible for ensuring the adequacy of the Bank’s

lending policies and compliance of lending activities with

the Bank’s credit policy and applicable laws and regulations.

The Credit Committees meet regularly and ensure the

implementation and monitoring of their decisions by the

business owners under the supervision and control of the

Credit Administration and Control departments that report

to the Credit Risk Management Department. The presence

of a member of the Risk Management Division is an integral

part of the credit approval process and the monitoring of the

Credit Committees’ decisions.

Financial Institutions and Country Credit Committee The Financial Institutions and Country Credit Committee approves the banks and financial institutions whom the Bank deals with or intends to deal with. The Committee defines the credit lines to be granted for each banking and financial institution counterparty in compliance with applicable laws and regulations, and in line with the Board’s strategic objectives and the Group’s financial institutions credit policy. Risk Management is an integral part of the approval process of the banks and financial institutions, and the monitoring of the Committee’s decisions. This Committee meets on a

monthly basis or more frequently as need be.

Anti-Money Laundering and Counter-Financing of Terrorism Committee The role of the Group Anti-Money Laundering and Counter-Financing of Terrorism Committee (AMLC) is to provide an opinion on the various issues related to the fight against

money laundering and the financing of terrorism. It also

provides advice to the AML/CFT department on the

control measures to be adopted in order to combat money

laundering and the financing of terrorism. This committee meets on monthly basis, or as deemed necessary.

Information Security Committee CL Group Information Security Committee reviews and

approves CL Group’s information security strategy, sets

security policies and procedures and submits them for

the approval of the Risk Committee and the Board. This

Committee also reviews and approves the scope of security

programs and related budgets; oversees the implementation

of the security programs and the compliance of Payment

Card Industry Data Security Standard (PCI-DSS) for the Bank

and its affiliates; and provides solutions on how to deal with

security breaches or control overrides. This Committee also

recommends security-training programs for the Bank’s staff

and convenes at least once quarterly.

Organizational Structure

Internal Audit Risk Management and Strategy Compliance

- Branch Audit

- Head Office Audit

- Back Office Audit

- IT Audit

- Credit and E-Banking Audit

- Subsidiaries Audit (LIB&CLIB)

- Affiliated Companies Audit

- Overseas Audit

- Quality Assurance and Improvement

- Strategy & Risk Analytics

- Risk Mgt Project Office / Credit Portfolio

Mgt / Credit Risk Models

- Credit Risk Management

- Operational Risk Management

- Information Security Risk Management

- Business Continuity Planning

- AML / CFT / FATCA /CRS Dept

- Correspondent Banking

- Financial Crimes Investigation

- Regulatory Compliance

Legal

Consumer Financial Protection and Corporate Publishing

Bancassurance Advisor

Government & Public Institutions Relations Coordinator

Board of Directors Chairman General Manager

Corporate Governance, Nominations, HR & Remuneration

Committee

Risk Committee

Audit Committee

Credit Policy Committee

AML/CFT Committee


Control Functions

Retail Banking and Branches Corporate Banking and Financial Institutions

- Regional Branch Management:- Riad EL Solh- Hamra- Kaslik- Chtaura- North

- Consumer Banking and Retail Products- Marketing and Business Development- Commercial Retail Lending and Kafalat- Information Department- Insurance Services

- Corporate and Medium Business Unit:- Adlieh- Haret Sakher- Financial Institutions and Correspondent Banking- Domestic Business Development- Global Business Development- Recovery- Public Relations

Treasury, Global Marketsand Asset Management

and Private Banking- Treasury Management- Foreign Exchange Management- Global Markets- Private Banking and Asset Management- Middle Office Treasury and Global Markets

Electronic Banking E-Payment Solutions & Cards Technology

Foreign Entities

- Cyprus- Bahrain- Senegal- Iraq- Canada

- E-Banking Card Systems, Applications and Development- Card Acquiring and Operations- Card Issuing Operations- Fraud Management and Control- E-Channels and Customer Service- Merchant Relationship- Cards and Payment Business Development- Customer Relationship Management (CRM)

- Cards Business Technology- Operations (CL & Member Banks)- Product & Marketing- Sales & Relationship Management- Merchant Relationship- Business Development

Finance Human Resources

Operations and Support Services

Information Technology- Financial Control

- Financial Management

- Reconciliation

- BDL Subsidies

- Performance and Budget Control

- Cards Business Accounting

- Central Accounting

- Recruitment and Evaluation

- Compensation and Benefits

- Training and Development

- Administration and Support Services

- Engineering

- Trade Finance

- Central Operations

- Methods and Procedures

- Branch System Implementation and Support

- Operations Internal Control

- Project Developments and Loans Central Processing

- Quality Management

- Treasury and Global Markets Back Office

- Head Office and Management

- Control Room

- IT infrastructure & Operation

- Application Administration & Support

- Software Development

- MIS & Regulatory Reporting

- Projects

Support Functions

Business Lines

2425


Management Committee

Foreign Entities Committee

Human Resources and Training Committee

Sales and Business Development Committee

Information Technology Steering Committee

Business Continuity Planning Committee

Asset and Liability Committee

Credit Committees

Financial Institutions and Country Credit Committee

Anti-Money Laundering and Counter-Financing of

Terrorism Committee

Information Security Committee

Senior Committees at Management Level

High Level Structure

Legal

Consumer Financial Protection and Corporate Publishing

Bancassurance Advisor

Government & Public Institutions Relations Coordinator

Shareholders

External Auditors


2627

Group Entities

Credit Libanais Investment Bank sal 99.86%Lebanese Islamic Bank sal 99.84%Credit International sa - Senegal 89.13%Cedar’s Real Estate sal 99.92%

Societe Hermes Tourism and Travel sal 99.99%

Collect sal 44.94%

Soft Management sal 47.00%

Credilease sal

98.62%

Credit Libanais d’Assurances et de Réassurances sal

99.00%

99.26%

Business Development Center sarl

Capital Real Estate sal

66.97%

Geographical Presence

Credit Libanais sal

Credit Libanais Investment Bank sal

Credilease sal

Lebanese Islamic Bank sal

Credit Libanais d’Assurances et de Réassurances sal CYPRUS

Credit Libanais sal (Limassol Branch)

SENEGAL

Credit International sa - CISA (2 branches in Dakar)

BAHRAIN

Credit Libanais sal (Manama Branch)

CANADA

Representative Office (Montreal)

Credit Libanais sal(Baghdad and Erbil Branches)

IRAQ

Credit Libanais Group

Banking

Banking

Banking

Real Estate

Tourism and Ticketing

IT Solutions

Real Estate

Leasing Services

Insurance

Advertising

Collection Services of Receivables

LEBANON

Control Functions

Business Lines

CGNHRR* Committee

Audit Committee

Risk Committee

Credit Policy Committee

AML / CFT Committee

Internal Audit


Compliance

* Corporate Governance, Nominations, Human Resources and Remuneration Committee

Retail Banking and Branches

Treasury, Global Markets, Asset Management

and Private Banking

Electronic Banking

Corporate Banking and Financial Institutions

E-Payment Solutions and Cards Technology

Foreign Entities

Finance

Human Resources

Banking Information Technology

Operations and Support Services

Support Functions

Board of Directors


Macroeconomic Operating Environment

In Lebanon

The year 2018 has been dithering between periods of encouraging prospects and episodes of worrisome lethargy, with the first half of the year adorned with accomplishments such as the successful completion of the Parliamentary elections, the passing of the proposed budget law for 2018, the official inking of the petroleum contract between the government and the consortium of Total, ENI, and Novatek for the exploration and production of oil and gas from two offshore blocks, and other breakthroughs in the electricity and telecommunications sectors. In parallel, the CEDRE conference held in Paris succeeded in raising more than $11 billion in support for Lebanon, and mainly tackles the Capital Investment Program (CIP) recently adopted by the Lebanese government, which focuses on the development and rehabilitation of major infrastructure projects in the country. Nonetheless, these positive events were later overshadowed by the delayed formation of a new government, which is vital for the country’s decision-making processes, the proper functioning of its institutions, the restoration of consumer and investor confidence, and the implementation of the necessary reform measures, many of which are tightly related to the disbursement of the pledged funds during the CEDRE conference. Lebanon remained as well plagued by the spillover of the sustained regional political instabilities, especially in neighboring Syria, in addition to the large number of Syrian refugees on its territories. However, the year 2018 witnessed the start of a slow yet steady voluntary return of Syrian refugees to their mother country. The Lebanese Parliament also passed several key laws notwithstanding the aforementioned delay in the formation of a new government, including laws related to e-government, the combatting of cybercrime, decentralized solid waste management, transparency in the oil and gas sector, and the protection of whistleblowers that will aid in combatting corruption. In this vein, the Lebanese economy continued to wade through a plethora of challenges, with the IMF estimating a modest growth of 0.2% for the country in 2018, compared to 0.6% in 2017.

In the midst of such a pale economic situation, real estate activity significantly watered down and was further clawed by recent challenges after the funds injected by BDL under the umbrella of its stimulus package for 2018 were fully consumed earlier throughout the year and the Public Corporation for Housing halted its acceptance of new application forms. More specifically, the number of real estate transactions plunged by 17.44% in 2018, with the value of said transactions sinking by 18.28% to $8.13 billion.

Concurrently, the surface area of construction permits in Lebanon dwindled by 23.49% during that same year, while cement deliveries fell by 8.67%. From another standpoint, tourism activity limped during the year 2018, with the number of tourists visiting Lebanon increasing by just 5.77%, compared to double-digit growth rates in the past years. On the public finance front, Lebanon’s fiscal deficit (budgetary & treasury) widened to around $5.81 billion during the first eleven months of 2018, on the back of some 21.41% annual hike in government expenditures (including debt service) to just over $16.55 billion, which outweighed the 4.74% y-o-y uptick in government revenues to nearly $10.75 billion. This hike in government expenditures was mainly triggered by some 41.44% yearly expansion in transfers to EDL by November as oil prices sustained their upturn, coupled with a 25.33% annual surge in public sector personnel costs by September in light of the newly enacted salary scale bill. Consequently, Lebanon’s gross public debt continued to pile up, adding $5.60 billion in 2018 to attain $85.13 billion. This has further swelled the country’s debt-to-GDP ratio to about 151% according to IMF estimations, up from around 149% in 2017. Lebanon’s ballooning public debt burden remains nonetheless tamed by BDL’s solid foreign assets and gold reserves, which ended the year at $39.67 billion and $11.77 billion respectively. It is worth noting that the Central Bank resorted to additional rounds of financial engineering and swap operations to boost its foreign assets and improve the country’s balance of payments. Nevertheless, the impact of these schemes on the balance of payments quickly wore off, with the latter registering a $4.82 billion deficit at end of 2018, compared to a $156 million deficit a year before. On the current account side of the balance of payments, Lebanon’s balance of trade deficit also widened by $289.01 million in 2018 to $17.03 billion, triggered by a $397.30 million annual hike in imports to $19.98 billion, which outweighed the $108.29 million expansion in exports to just over $2.95 billion. This bleak picture prompted Moody’s Investors Service and Fitch Ratings to downwardly revise Lebanon’s sovereign outlook from “Stable” to “Negative” while affirming the country’s rating at “B3” and “B-” on a respective basis. Later in early 2019, Moody’s downgraded Lebanon’s rating to “Caa1” while revising its outlook to “Stable” before the formation of the new government. S&P also opted in early 2019 to keep Lebanon’s long-term and short-term foreign and local currency ratings at “B-” and “B” respectively, yet changed its outlook from “Stable” to “Negative”.

2829

As far as the banking sector is concerned, the latter prolonged its historically acclaimed performance despite the swelling local uncertainties, registering a healthy 13.48% annual expansion in the combined balance sheet of resident commercial banks to over $249 billion by December notwithstanding the 0.50% drop in loans to the private sector to $59 billion. Customer deposits also grew by 3.23% in 2018 to around $179 billion, with the deposit dollarization rate increasing to 70.62%, from 68.72% in 2017. It is worth highlighting that Lebanon has been witnessing an upward trend in its interest rate environment dating back to the short-lived resignation of PM Hariri in November 2017, which prompted banks to introduce term saving plans at attractive interest rates to continue growing their deposit base and benefit from the swap transactions with BDL, not to mention the successive interest rate hikes in the United States. In figures, the Beirut Reference Rate on lending in Lebanese Pound was sequentially raised to reach 11.50% in December 2018, from 8.68% in October 2017 before the rescinded resignation of PM Hariri, with that on lending in U.S. Dollar also increasing to 8.20% from 6.82%.

Source: IMF, CAS, BDL, ABL, MOF, Higher Customs Council, Credit Libanais Economic Research Unit

Recap of Lebanon’s Major Economic and Banking Sector Indicators

(USD Billion)

Key Macroeconomic IndicatorsReal GDP Growth Rate

Annual Inflation Rate

Trade Balance

Current Account Deficit/GDP

Balance of Payments

Foreign Assets at BDL

Gold Reserves

Foreign Assets & Gold Reserves/Gross Public Debt

Total Primary Surplus/(Deficit) (Nov. 2018)

Budget Deficit (Nov. 2018)

General Gov. Structural Balance/GDP

Gross Public Debt

Gross Public Debt/GDP

Resident Banking Sector IndicatorsTotal Assets

Loans to the Private Sector

Customer Deposits (Public & Private Sector)

Private Sector Loans/Deposits

Deposit Dollarization Rate

0.25%

3.98%

(17.03)

27.01%

(4.82)

39.67

11.77

60.42%

(0.49)

(5.81)

-10.54%

85.13

150.92%

249.48

59.39

178.56

33.26%

70.62%

0.55%

5.01%

(16.74)

25.68%

(0.16)

41.99

11.96

67.83%

1.43

(3.76)

-12.82%

79.53

148.96%

219.86

59.69

172.97

34.51%

68.72%

2018 2017


In International Markets where Credit Libanais has a foothold

Cyprus Branch

In 2018, the European Commission expected the Cypriot economy to maintain its sturdy growth rates in the next couple of years (estimated between 3.6% and 4% by the IMF). This is likely to support sustained budget surpluses and a decline in public debt from 2018 onwards. Economic activity is forecasted to remain strong, driven by domestic demand. Unemployment is expected to continue its rapid decline, while headline inflation is projected to pick up only moderately. Credit Libanais Cyprus branch continues to work in accordance with the Central Bank of Cyprus and the European Central Bank requirements, where many new AML, liquidity and many other regulations are constantly issued to ensure a healthier and less risky banking environment on the island. The Bank’s long-term presence on the island remains focused on a defined strategy: to identify and serve Lebanese and Arab communities primarily to provide them with prime operational banking services.

Bahrain Branch

Credit Libanais remains the only Lebanese bank in the Kingdom of Bahrain through its full-fledged branch which has become a reference over the years to most Lebanese expats in the Kingdom or those living or working across in AlKhobar and Dammam regions in the KSA. The personalized customer service culture that prevails at the branch helped to cultivate a sense of belonging amongst the majority of customers and corporations, resulting in strong banking relationships. The branch will soon be offering new retail loan products which will further boost lending portfolio in the local market across more economic sectors.Noteworthy that Bahrain maintains a stable sovereign credit outlook. Its financial sector continues to observe the highest standards of banking practices in the region. In 2018, the regulatory authority began implementing more stringent measures, to ensure full compliance by the banks of rules and directives, in what seems to be an attempt by the government to improve Bahrain standing.

Iraq Branches (Cities of Baghdad and Erbil)

CL branches in Iraq (Baghdad and Erbil) remain well positioned in the market with stronger capital resources that allow for engagement in various banking activities. Looking forward, we see further opportunities in the market in vital sectors of the economy, with expected GDP growth rates of over 6% in 2019 that will bring along lucrative banking prospects.

Credit International SA – CISA Senegal

Crédit International SA (CISA) the only Lebanese bank currently present in the West African Monetary Union (“WAMU”) inaugurated its first branch in Dakar in 2011 and opened its second branch in 2015 in the industrial zone in the capital as well. The subsidiary Bank mainly targets commercial customers as well as SMEs that currently account for some 80 to 90% of the economic fabric and represent around 30% of jobs in Senegal. In 2018, overall banking activity continued to grow in Senegal in an environment characterized by increased competition with the launch of new banks. At the current growth rate in the sector, Senegal is estimated to become the banking crossroad of the West African Economic and Monetary Union (UEMOA).

Representative Office in Montreal, Canada

Our Representative Office promotes Credit Libanais’ products and services in Lebanon and provides information related to investment processes for companies interested in doing business with Lebanon. Our staff also provides needed information for companies wishing to export to the Middle East and/or set up business in the region.

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Credit Libanais is one of the top ten banks in Lebanon that remains deeply rooted in the country. With a landmark reference Head Office Tower in the banking sector, the Bank has a network outreach of 79 branches including local and international presence in Cyprus, Bahrain and Iraq, a representative office in Canada and a subsidiary bank in Senegal. The latter, Credit International sa (CISA) is the only Lebanese bank currently present in the West African Monetary Union (“WAMU”) which inaugurated its first branch in Dakar in 2011 and opened its second branch in 2015. CL Group encompasses an investment bank, an Islamic bank, a financial institution, a leasing company, an insurance company, and a real estate company and a travel and tourism company, and reaps the benefits of a large network of international correspondents around the globe.

Credit Libanais SAL was established in 1961 as a Lebanese joint stock company; it is registered on the Lebanese list of banks under number 53 and in the Beirut Commercial Registry under number 10742. Credit Libanais’ head office address is at Corniche El Nahr, Adlieh Roundabout, P.O Box: 16-6729, Beirut, Lebanon.

Leveraging on the extensive branch network outreach, the Bank’s principal activities include retail banking services (consumer lending, credit cards and lending to small businesses and sole proprietorships), corporate banking services (including various forms of credit facilities, loans and overdrafts to medium-size and large corporations), trade finance services (letters of credit and letters of guarantee), capital markets services (trading and sales of various types of financial instruments and products) and private banking and asset management services (covering portfolio management, securities trading, mutual funds, alternative investments and structured products). The Bank also holds a dominant position in e-banking and e-commerce through several of its affiliates. The Bank provides systems, logistics and marketing for ATM and POS networks and payment gateway solutions for e-commerce. Through its majority owned subsidiary, Credit Libanais Investment Bank SAL, the Bank offers its customers medium and long-term financing and investment banking services (including funding for project finance, housing loans and direct equity participation) and other complementary services (including equipment leasing and bancassurance products through its subsidiaries). Through its seat on the Beirut Stock Exchange, the Bank offers its customers trading in local stocks.

In addition, CL e-outreach on the national scale includes 10,500 electronic point-of-sale, 97 ATMs, 160,000 banking cards distributed backed by an innovative loyalty program, 24/7 secure online banking services, a sophisticated customer service center and CL e-bank applications, to name but a few.

The discussion and analysis that follows covers the consolidated performance of Credit Libanais Group in 2018. It was prepared based on the audited consolidated financial statements of the Group as at and for the year ended 31 December 2018. The consolidated financial statements are prepared in accordance with the International Financial Reporting System (IFRS). KPMG and DFK Fiduciaire du Moyen-Orient have jointly audited the annual financial accounts.

Main development pillars mentioned in the discussion and analysis refer to the following: Credit Libanais SAL together with its wholly owned subsidiaries, Credit Libanais Investment Bank SAL (CLIB), Lebanese Islamic Bank SAL (LIB) and Credit International SA – Senegal (CISA) and other companies directly or indirectly owned by Credit Libanais SAL.

Overview of Credit Libanais Group

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We provide an improved customer experience across online touchpoints and digital channels, allowing customers to transact more safely and securely online.

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Retail Banking Activities

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Retail Commercial LendingThe year 2018 was characterized by a thin economic growth

of 0.25%. Most businesses, especially those that rely on the

local market, reported a drop in turnover and thus limited

business expansion opportunities. The performance of the

real estate sector had a spillover impact on most other related

businesses, while the tourism activity grew but at a slower

pace than previous years. Faced with these challenges,

coupled by an increasing interest rate environment, lower

eligible lending opportunities were identified, leading to less

appetite to match the repayment of previous loans by new

ones, in a political period of “wait and see”.

In this environment, outstanding Retail Commercial facilities

dropped by roughly 5% in 2018. Commercial Lending focused

on unfunded business activity, which saw an impressive

growth of 38.4% in 2018, focusing on supporting the trading

activities of customers relying not just on the local market for

expansion but on regional markets as well, whereby Credit

Libanais leveraged on its extensive correspondent banking

network to successfully intermediate these foreign trade

transactions.

In parallel, Credit Libanais continued to promote financial

inclusion through its several products designed for this

segment. In the last quarter of 2018, the Bank launched

a new product in partnership with the Economic Social

and Development Fund (ESFD) to provide loans to micro

businesses in unbanked areas at affordable interest rates.

In 2018, Credit Libanais continued to deliver high quality retail services and products throughout its network of 79 branches in Lebanon and abroad, as well as through its network of 97 ATMs that operate 24/7 and provide multicurrency cash withdrawal options, as well as cash and check deposits capabilities. Over the elapsed year, in line with the Bank’s financial inclusion strategy, a selective number of ATMs were upgraded to cater to service customers with special needs as well.

We continued to operate in line with the Group’s conservative lending strategy amidst the regulatory developments and the absence of stimulus for consumption in the prevailing banking conditions. Nevertheless, we persistently focused on customer-centricity and personalized banking relations to ensure a great customer experience. Asset quality and efficiency were key indicators to allow us achieve good return on equity and capital adequacy ratios.

Deposit volume in 2018 reached LBP 14.079.683 million showing a y-o-y growth of 0.41 %. To note that the Bank’s appropriate deposit composition is attributed to the individual customer deposits in the 71 domestic branches, a factor that diversifies risk and provides the Bank with flexibility in funding its lending activities and provides room for maneuvering in efficient utilization of resources.

As for the Housing loans portfolio, a decrease of 1.40% was recorded at year end 2018. Housing loans make up 33% of the consolidated retail loan portfolio, while SMEs amount to 16%, retail commercial stands at 16% and personal loans at 7%. Total retail lending represents 42% of the Bank lending portfolio.

In 2018, the Bank continued to offer flexible products that facilitate customer savings plans and encourage them to acquire the discipline of savings and term investments, in the currency and maturity of their own choices. Savings plans covered child education, retirement, travel, and a variety of plans depending on the customers’ choices. In view of complementing the Bank’s array of products and services, CL Group includes Bancassurance products and services to customers through an easy access via the 24/7 call center and the revamped Direct Internet and alternative distribution channels all based on state-of-the-art sound and secure technology infrastructure. In 2018, a large number of insurance products and services were made available in every segment covering retirement, educational plans, safe home savings plan, personal accident, life insurance, car insurance, fire insurance and trade related services. New products on “Retirement Plan”, “Education Plan”, “Safehome” and “Personal Accident” continued to give the robust results.

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2018 in Review

In the journey of delivering a great customer experience based on excellence in sales, services and solutions, Marketing and

Development consistently and predictably supports the corporate and retail sales and profit goals through efficient sales and

servicing efforts to provide the highest degree of customer satisfaction.

Each staff member holds himself to the highest standards of integrity, focus and professionalism under our core values built on team

unity and quality, thus guiding the decisions we make and how we interact with our customers. We preserve a business environment

that leads to pride in the organization, confirm the value of long-term relationships, and give each individual the opportunity to

better reach their professional goals.

The Marketing Intelligence UnitThe Marketing Intelligence Unit prepares informative

communications and revised reports to support management

decisions. In 2018, numerous advanced tools and processes were

adopted to accomplish this mission. Business communications

and reports included: Daily Media Monitoring, Marketing

Intelligence Quarterly Reports, Mystery Shopper, Loan to Deposit

Ratio, Equipment Ratio, Cross Selling Ratio, in addition to the

MI quarterly reports and Ad-hoc reports on latest marketing

campaigns, KPIs, industry innovation and technology (bank

marketing, cybersecurity, payment instruments, etc.).

Communication StrategyIn 2018, the Bank’s brand image and communication

strategy played an important role in advancing the Bank’s

business performance. In this context, we continued to

market the Bank’s products and services through various

online channels including social media networks, the

corporate website, mobile applications, newsletters, SMS

and e-mails, and other above and below the line channels.

The Public SectorIn 2018, amid stagnation in the economy and a competitive

market, the sales force team continued to domicile public

entities’ salaries. Over the elapsed year, Credit Libanais

proudly contributed to the renovation and refurbishment of

two Internal Security Forces buildings in Aramoun dedicated

to the ISF sports rooms in addition to sponsoring the ISF

annual Marathon for the fourth consecutive year.

Throughout 2018, the e-survey tool Net Promoter

Score (NPS) used to evaluate customer satisfaction

levels across business units, covered all CL online

banking and mobile application platforms and

shed light on the Bank’s strengths and weaknesses

allowing us to better address customer suggestions

and complaints.

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These cards targeted a large segment of customers among whom

were depositors, retail customers, public sector employees and

much more.

The Mystery Shopper ProgramFor the twelfth consecutive year, this program was successfully

carried out in coordination with IPSOS-Lebanon. The program

has been a valuable and effective tool for evaluating CL

staff and touch points in terms of quality service, product

knowledge, and overall performance. In 2018, the updated

MS program became more user friendly, as its features and

benefits were better defined and recognized. This “Smart

Mystery” program mainly based on updated technologies and

supported by an interactive online platform “ShopMetrics”,

integrates top-notch quality control and clear processes.

Results provide competitive scoring and feedback regarding

the Bank’s customer service and satisfaction levels. It also

supports our effort to increase customer loyalty and retention.

The Sales Force TeamIn 2018, the sales force team implemented a new sales

structure at the branches level, with dedicated Team Leaders

in various regions. In addition, special focus was given to

product knowledge seminars and sales orientation training in

order to evaluate and appraise the selected customer sales

officers who were then rewarded on a quarterly basis according

to their productivity and sales results. Over the elapsed year,

Customer Sales Officers and Sales Team leaders increased

sales by means of a more dynamic interaction with customers.

Customer Relation Management (CRM)The continuous marketing campaigns initiated through the

CRM/CMS system contributed to the increase of sales of all

the Bank’s products and services. For the credit cards portfolio

for instance, more than 1000 cards of various types ranging

from classic to gold, platinum, infinite, titanium, co-branded

titanium and vantage were issued.

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Electronic Banking

Keen on making digital transactions more secure and easier to handle, namely for e-commerce and mobile-commerce experiences,

Credit Libanais dedicates ongoing efforts to adapt to today’s customers’ lifestyles and provide them with convenient and secure

payment solutions. Customer centricity remains a top priority for the Bank.

Compliance with (PCI DSS) Payment Card Industry Data Security Standard Certification Requirements In 2018, Credit Libanais once again met all the requirements of the Payment Card Industry Data Security Standard as defined in the applicable scope of its documented Attestation of Compliance and achieved certification together with all its affiliate companies (Credit Card Management sal, International

Payment Network sal, Netcommerce sal).

E-Channels and Customer ServiceDuring 2018, the Bank further enhanced the Customer digital experience, in line with the Digital Transformation Strategy to provide a distinctive customer experience across all digital channels. In this respect, Credit Libanais’ state-of-the-art Contact Center continued to provide interactive means of communicating with customers and prospects. Our multi-skilled agents provided professional customer services, with the emphasis on improving the first call and touchpoint with the Bank. On the other hand, the collection team exerted more efforts to decrease the unpaid amounts of total loans granted. In 2018, 85% of branches were equipped with queuing and digital signage solutions to ensure an ultimate customer

experience at the counter.

Introducing the Latest Contactless Payment Technology on CL CardsIn 2018, Credit Libanais launched the NFC contactless

payment technology on debit cards, as a first step before it is

rolled over to all other cards by Q2 2019. Customers will be

able to pay for their daily purchases with a simple tap on the

contactless-enabled POS terminal instead of inserting their

cards. In parallel, the Bank is upgrading all CCM POS machines

to accept the latest NFC contactless payment technology for a

faster, more secure and convenient way to pay.

Introducing OTP One-time Passcode on CL 3D Secure Authentication ServiceIn 2018, the Bank further enhanced the current 3D secure

authentication service (by adding an extra layer of security

using a static passcode) with the use of a one-time passcode

(OTP) instantly received by the cardholder via SMS to complete

every online transaction.

Enhancing the Bank’s Loyalty ProgramIn view of rewarding Credit Libanais customers for their

loyalty, the Bank continuously improves the loyalty program by

introducing better services. Redemption requests increased

from 41% in 2017 to 45% in 2018. In addition, the Bank took

part in a series of tactical campaigns granting cardholders the

opportunity to win rewards and accumulate more points.

Launching of Several Tactical CampaignsSeveral tactical campaigns were offered to CL cardholders,

whereby they had the opportunity to benefit from special

offers and rewards. These were launched on special occasions

such as Valentine’s Day, Mother’s Day, 2018 FIFA World Cup

and much more. In addition, CL introduced SMS card alert

services for Iraq branch cardholders to provide additional card

usage security.

In addition, Credit Libanais further optimized the online

banking service to better serve customers on the go. An

updated version of CL e-bank Mobile App on the stores

(Android, Apple, etc.) was reinforced by a new biometric

access (facial recognition) for safer and more secure

e-banking services.

A new hosted email application with advanced features

was implemented for a more secure interaction with

customers in Lebanon and across the Bank’s entities.

Moreover, considerable efforts were deployed on social

media platforms through designed posts, videos and ads

and yielded high engagement levels with our growing

digital community. The new designs implemented on

social media platforms all aim at keeping Credit Libanais

top of mind and maintaining hype on the social channels.

Pioneering Initiatives towards the Modernization of Lebanon and the E-government

CL continues to undertake a number of initiatives leading to the country’s modernization, by pioneering the launching of

the e-payment services related to the following bodies:

Beirut Bar Association: for the online settlement of lawyers’ annual subscription fees on www.bba.org.lbOrder of Engineers and Architects in Beirut: for the online settlement of annual subscription and insurance fees on

www.oea.org.lbOrder of Pharmacists in Lebanon: for the online settlement of annual subscription fees on www.opl.org.lbEstablishment of the Water of Beirut and Mount Lebanon: for the online settlement of water bills on www.ebml.gov.lbGeneral Directorate of Land Registry and Cadaster: for viewing and printing the title register and paying related fees

on www.lrc.gov.lb Ministry of Finance: for the online settlement of built property taxes on www.finance.gov.lb

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In 2018, we also added to Credit Libanais’ extensive

qualifications as a trusted partner for multilateral financial

institutions, signing a new agreement that will help us provide

further support for Lebanese companies. In November,

the Bank entered into another Loan Agreement with the International Finance Corporation (IFC), which will make available some USD 50 million with a hedged fixed interest rate, to boost the social and economic growth of the private

sector in Lebanon, while also seeking new agreements with

the European Bank for Reconstruction and Development

(EBRD), and the development financial institution PROPARCO.

While in the midst of the hunt to maintain the highest quality

portfolio and increase profitability and market value, we

did not lose sight of the social responsibility initiatives and of the full compliance to AML regulations and to corporate

governance guidelines.

The validity of our conservative approach was proven yet

again in 2018, and even though we follow the best practices

that protect our market share and preserve our asset quality,

we remain adamant about further supporting our customers in coping with new challenges to help them plan for more

favorable times ahead.

2018 was the year of high potential yet less realizations on

the local scene. Amidst difficult circumstances, Credit Libanais

continued to be a major contributor to the development of

Lebanon’s highly resilient private sector, which always finds

a way to emerge from a crisis stronger than before. The

corporate banking division leveraged the strength of its core

values directed towards maintaining key strategic relationships

with top tier corporates and supporting local businesses, thus

reinforcing customer loyalty while maintaining the highest

portfolio quality and maximizing shareholders’ value. We

differentiated ourselves with the design of several financing

solutions to secure long-term business relationships with

customers and ensure they have the needed tools to handle

adverse circumstances. We back our services with teams of

specialized professionals whose long experience in particular

areas – including key sectors such as manufacturing, trade,

real estate, construction, and project finance – makes them

very valuable for our business.

During this delicate period, we strived to stay close to

our customers to respond to their needs while proactively

conducting due diligence on national and international

compliance covenants, as well as on cash flows. Our activities

centered on securing proper sources of repayment from

customers, while staying close to them in the difficult times.

Moreover, efforts were also put towards enhancing the quality

of guarantees and collateral in line with the Bank’s Risk Based

Pricing methodology that responds to the requirements

of Basel III capital adequacy ratios and IFRS9 international

standards.

Corporate Banking customized a tailor-made lending strategy reflecting the Bank’s strategy within the current market dynamics. In this context, the year ended with around 800

group files for total net facilities of USD 2.0 billion as at end-

December 2018, with a slight contraction largely driven by a tightening of the real estate industry, while keeping thorough control over the overall portfolio to detect early warning signs

and mitigate them with appropriate measures.

Corporate Responsibility

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Corporate Responsibility, an Integral Part of Credit Libanais’ Strategy At Credit Libanais, we are committed to our Corporate Responsibility towards customers, employees, communities and

the environment, and aim to remain one of the best corporate accountable citizens and a source of major wealth creation

wherever we operate. Our Core Values are defined by high standards of ethics and integrity, respect of human and labor

rights, as well as national and international banking regulations and best practices.

On the national level, in 2018, the Bank took part in the Public Communication and Public Consultation with stakeholders

related to the National Strategy for Preventing Violent Extremism (PVE), an initiative lead by the Office of the Prime Minister

of Lebanon. The PVE Strategy was established in 2016 in collaboration with the UN and the Embassy of Switzerland, which

aims at regaining social trust, promoting citizenship, achieving social justice and monitoring social transformations. Its main

purpose of the Public Consultation is to engage in a two-way communication process between citizens and the Government

to increase the Awareness of Citizens’ Rights and Duties towards the Government and vice-versa, and ensure that Lebanon

officially adheres to a National Strategy to Fight Terrorism and Prevent Violent Extremism, according to acknowledged

international standards. The main strategic pillars are:

• Dialogue and Conflict Prevention.

• The Promotion of Good Governance.

• Justice, Human Rights and the Rule of Law.

• Urban, Rural Development and Engaging Local Communities.

• Gender Equality and Empowering Women.

• Education, Training and Skill Development.

• Economic Development and Job Creation.

• Strategic Communications.

• Empowering Youth.

In parallel on the international level and based on the

Bank’s determination to create sustainable business,

Credit Libanais Group officially joined in 2015 the United

Nations Global Compact (UNGC), the world’s largest

corporate responsibility initiative with over 9000 business

and 3000 non-business participants in 161 countries.

During that year, all 193 member states of the United

Nations adopted 17 new Sustainable Development

Goals (SDGs) as a plan to tackle the economic, social,

environmental and governance-related challenges by

2030.

CL Group also became a member of the Global Compact

Network in Lebanon. The United Nations Global

Compact is a strategic policy initiative for businesses that

are committed to aligning their operations and strategies

with ten universally accepted principles in the areas of

human rights, labor, environment and anti-corruption.

By joining the United Nations Global Compact, CL

committed to incorporate the ten principles in its daily

operations and all its strategic decisions and is annually

publishing the Communication on Progress (COP) Report

according to international guidelines.

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CL and Corporate GovernanceCredit Libanais complies with all applicable laws and

regulations and expects all its members (i.e. Board members,

Senior Executive members and Staff) to conduct business

in accordance with all relevant laws and to refrain from any

illegal, dishonest or unethical conduct.

Furthermore, our most fundamental contribution to society

is the robust business model and the sustainable revenues

the Bank generates. Transparency and accountability ensure

sustainability and growth across all layers of our organization.

The Bank recognizes the paramount importance of corporate

governance for its functioning and exercises its duties and

authorities through Board committees. The Board places

high importance on the corporate impact on the communities

where the Bank operates.

Transparency and Ethics permeate all our activities.

Our Principles of Conducting Business with Customers,

Recruitment Policies, Purchases, Procurement, etc. are

conducted based on transparent policies and procedures

that allow for responsibility and accountability.

Early in 2019, Credit Libanais became a signatory of the

“Investors for Governance & Integrity - IGI” Declaration, a declaration signed by a considerable number of alpha

banks and large corporations in Lebanon, as a commitment

to maintaining and continuously improving corporate

governance practices to mitigate financial risks and protect

the Group’s internal and external stakeholders’ rights - SDG8

CL and Community DevelopmentCredit Libanais believes in its fundamental role in creating

long-term value for all stakeholders. Safeguarding our

culture and protecting our heritage and family values is

vital to maintaining our unique identity. In this perspective,

Credit Libanais further reached out to an increasing number

of Lebanese in towns and remote areas across Lebanon.

In 2018, our areas for socially responsible investments covered the following activities and initiatives:

Educational and Academic Events: we constantly

contribute to university and school events that aim at

offering professional guidance and presenting different

employers to students. CL was present this year at major

events held at various Lebanese universities such as job

fairs and forums – SDG 4.

Professional Conferences: to encourage the exchange

of new developments among peer professionals and

reinforce channels of communication in various industries,

we sponsored a considerable number of conferences and

professional seminars over the course of the year – SDG 4.

Sports and Recreational events: we contributed to

marathons, rallies, as well as basketball and football

tournaments – SDG 11.

Cultural and Heritage Festivals: CL supports music and

cultural festivals organized all over Lebanese cities and

towns throughout the seasons, in view of encouraging

arts, reviving traditions and preserving our unique heritage

– SDG 11.

Supporting financial inclusion for all customers: the

Bank undertook special measures and procedures to

make the branches and ATMs more easily accessible

to customers with special needs including the visually

impaired – SDG 8.

To materialize our sustainability strategy, we support:

• Economic growth in communities where we do business.

• Initiatives that help build well-being, wealth and capacity.

• Promoting economic self-sufficiency.

CL Sustainable Development Goals (SDGs) At Credit Libanais, we are committed to safeguarding the interests of all stakeholders and thus have corporate responsibility

and sustainability embedded in the greater part of our work, ever since the beginning of operations back in 1961. As for the

SDGs, we have adopted the following four goals to focus on in the coming three years.

Goal 4

Quality Education

Goal 8

Decent Work and Economic Growth

Goal 11

Sustainable Cities and Communities

Goal 13

Climate Action

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CL and Responsible Inclusive Financing Credit Libanais Group always seeks sustainable investments

in view of maximizing financial returns while achieving social

and environmental good. We remain committed to regularly

reviewing our credit facilities granting processes in view of

securing profitable incentives for the Bank while alleviating

our footprint and that of our customers and/or communities.

Credit Libanais continues to strongly support the

public sector and further build on the financial inclusion

endeavors in this respect. In 2018, the number of salary

domiciliations continued to increase despite the adverse

economic conjuncture. Credit Libanais mainly targeted the

ISF, Lebanese Army, General Security and other military

Institutions all across the Lebanese territory.

Throughout the years, we launched many CR initiatives, as

part of our commitment to SDG 11 targeting the Lebanese

Army and Special Forces; these included:

Restoration of two buildings in Bchamoun dedicated to

sports events at the Institute of Internal Security Forces

Acquisition of motorcycles for the Internal Security Forces

Sponsoring the ISF Annual Marathon

Sponsoring of ISF anti-drugs campaigns

Co-funding a fire-fighting helicopter

Funding a dental clinic for the Lebanese Army

Funding a training center for the ISF women recruits

In view of supporting the families of the Army and the

ISF martyrs of Lebanon, special co-branded cards were

designed, whereby a profit sharing scheme funds the Army

Martyrs Families Foundation, the ISF Martyrs Families and

the ISF anti-drugs operations respectively.

CL and People Capital OptimizationThe HR department periodically reviews the Code of conduct

and the latest version is communicated to all employees

joining the Bank and made available on the intranet. Credit

Libanais makes sure that the Human Resources Committee

follows up on the implementation of all the policies governing

human rights.

CL’s commitment to SDG 8 consists of improving the

capability and commitment of our strongest assets, our

employees, to drive sustainable high performance, while

helping them thrive and achieve their goals as well.

A culture of transparency, responsibility, accountability and

fairness is implemented across all functions of the Bank. CL

fully abides by the Lebanese Labor Law, which prohibits child

labor and employment before the age of 18. We strive to

support diversity at the banking Group and ensure equal

opportunities for all staff. This policy governs all aspects

of employment and career advancement: selection, job

assignment, compensation, discipline, termination, and

access to benefits and training. In line with this strategy,

we further built on the performance management system

as well as the learning and development programs to help

our employees acquire new competencies to proactively

address customers’ needs for solutions and advice. In fact,

Credit Libanais was the first bank in Lebanon to apply years

back, the e-learning Mobile App known as Mobile Learning

(M-Learning). All CL staff can install the mobile app on

Android or IOS and start learning and watching videos from

their devices at their own pace.

In the same scope, maintaining a healthy working

environment is an important part of our efforts to create a

performance culture. The Bank has set the good example

by making the premises smoke-free. The safety of our staff

is also of paramount importance to us. Therefore, regular

fire drill simulations are conducted for staff and extensive

training in safety and injury prevention is disseminated across

the Bank, in close coordination with a specialized accredited

company. Similarly, this year our Bank organized a first aid

training course for its employees in cooperation with the

Lebanese Red Cross. In addition, all our employees also

benefit from health insurance coverage and tuition allowance

for their children.

Our community projects give employees opportunities to

engage in volunteer work. For the fifth year in a row, Credit

Libanais hosted a Blood Drive in partnership with “Donner

Sang Compter”, a non-governmental Lebanese organization

and the Lebanese Red Cross. This campaign took place

at the Bank’s Headquarters and involved its staff from all

branches, departments and sister companies and aimed at

encouraging employees to give blood and join forces for

a good cause. In one day, 47 liters were collected and 150

lives were saved. Similarly, to encourage staff participation in

sports events, CL sponsors many events including marathons,

triathlons, rallies, as well as a variety of tournaments in various

Lebanese regions.

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In 2018, CL staff ran for the NGO “Rouh Zouron Bi Bayton”

during the “BDL Beirut Marathon“. This NGO was initially

founded by CL staff members who believe in fighting poverty

and alleviating the sorrows of the elderly and children by

visiting them in their homes and providing them with food,

clothing and care.

CL and the EnvironmentCredit Libanais weighs the importance of regularly reviewing

and updating its lending strategies to align them with industry

standards in terms of Social and Responsible Investment

(SRI).

In conformity with the SDG 13 calling for climate action, our

strategy centers around three priorities:

Reducing the intensity of our environmental footprint.

Promoting environmentally responsible business activities.

Offering environmental products and services.

In this context, the Bank developed the Social and

Environmental Management System (SEMS) with the basic

objective of ensuring that the environmental and social

implications of a potential customer are identified and

assessed early in the Bank’s planning and decision-making

process and that these environmental considerations are

incorporated into the preparation and approval of facilities.

Moreover, the Bank is directed by its agreement with IFC

to adhere to sound banking principles and promote the full

range of activities in environmentally and socially reliable

developments.

In parallel, our landmark 32-story Head Office Tower in

Adlieh complies with the latest trends in construction and

utilization sustainability. At CL Group Head Office Tower,

special attention has been given to using environmentally

friendly construction materials, taking into account the use

of renewable energy sources for future daily utilization.

Considerations such as efficiently using energy, water, and

other natural resources, reducing waste, pollution and

environmental degradation were also given broad attention

in all the phases of the project, from design to commissioning.

Likewise, CL Group’s main data center is about 450 m2 with

120 kW of net IT load and is designed to handle all the

functions of the Bank.

An additional 350-m2 space hosts the sister company Credit

Card Management (CCM), which has a dedicated server room

within CL data center. The main data center environment is

water cooled at relatively high temperatures, which greatly

increases efficiency and reduces cost. Internally, Credit

Libanais also implemented a plan to reduce the Bank’s carbon

footprint. In fact, CL departments and branches became

greener with reduced paper consumption and responsible

recycling of electronic consumables and others.

Additionally, the monthly “E-statement” for cards was

implemented this year in line with our mission of being

environmental friendly by moving toward paperless and

digital processing. Special care is also given to eliminate

the printing of unnecessary e-mails exchanged among

various parties. In addition, the majority of the printers have

been upgraded to print on both sides to reduce paper

consumption, and therefore CL’s carbon footprint.

Last year, some 55 tons of papers were sent to a local recycling

factory. In this perspective, Credit Libanais is extending

support to local NGOs who benefit from the recycled material

to finance awareness campaigns or acquire medical support

equipment for patients across Lebanon. These initiatives

contribute towards cultivating a greener culture throughout

CL Group. Moreover, some 416 IT equipment (PCs, Screens,

Scanners, Printers, and Servers) were sent to a local NGO

that uses them to finance awareness campaigns on road

safety programs.

Year after year, our Bank reaffirms its commitment to

contributing towards a sustainable future for all stakeholders

in the markets where it operates.

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Soft Management Website: www.softmanagement.com

Soft Management General Inquiries: + 961 1 429 462

E-mail: [email protected]

Credit Card Management sal (CCM)www.ccm.com.lb

Founded in 1994, CCM is a dynamic leader in the payment card industry in Lebanon. Throughout the years, CCM has built

strong partnerships with banks and other institutions to drive mutual revenues and profitability.

CCM offers a holistic card solution including the acceptance of international contact/contactless chip cards for Visa, MasterCard

and American Express, continuous upgrade of its POS terminals and also the development of gift, loyalty and petroleum card

programs. Our Business partners include a large number of merchants segmented among multiple industries and sectors.

In addition, and through its advanced card personalization services, CCM continues to offer card contact/contactless chip

personalization, card encoding, embossing and indenting and is fully certified by Visa and MasterCard corporations for

issuing secure EMV cards.

In line with the market strategy set by the banks in 2017, CCM continued to grow and signed 14 Memorandums of

Understanding (MOU) with banks with the mutual objective to better serve merchants and ensure their satisfaction. Through

these MOUs, both banks and merchants received mutual benefits: the banks continued promoting their POS services and the

merchants were granted advantages such as improved transaction processing. Furthermore, said MOUs improved merchant

relations with both the banks and the card payment processor (CCM).

In 2018, CCM had:Number of customers: 13,000

Number of active POS: 10,500

Number of Banks: 36

In 2018, CCM further enhanced its service to its customers by implementing new initiatives:1. A new solution to further automate the card production process was acquired by CCM so the existing system will

continue delivering quality service to banks and institutions in addition to having more flexibility in processing multiple

types of chip dual interface cards.

2. A new loyalty redemption project was developed where banks can grant their customers an added value from the POS

terminal to redeem their points for goods at the designed point of sales.

3. A technician tracking Android mobile application was developed; its main objective is to manage missions and monitor

technicians’ daily tasks, visits and assignments. Each technician uses his tablet to communicate efficiently with the back-

office team thus instantly reporting cases and providing prompt support and assistance to customers until the case is

satisfactorily closed. Also among its benefits are its GPS, imaging and e-signature capabilities.

4. Developing a solution that fully integrates CCM Points of Sale with cash register systems thus facilitating the payment

process.

CCM Website: www.ccm.com.lb

CCM Help Desk: + 961 1 61 19 61

CCM General Inquiries: + 961 1 608 600


Soft Management salwww.softmanagement.com

Established in 1983, Soft Management is specialized in Information Technology business solutions and delivers tailor made

systems to its customers in the financial and corporate sector.

Through its various products and services and its professional team, Soft Management continues to implement innovative

solutions and to grow steadily in the market.

Some of the projects completed by Soft Management in 2018:

1. An online payment system for the settlement of Mechanic fees for Credit Libanais customers throughout its branches.

The system is fully integrated with the TTVMA’s (Traffic, Truck and Vehicle Management Authority) online server through a

secure connection.

2. A Campaign Management and Incentive System (CMIS) to reward Credit Libanais employees in the branches and in the

marketing and sales departments for cross selling and up selling Credit Libanais products and services.

3. A new service for the settlement of Port of Beirut invoices to the Ministry of Finance (MOF) through Credit Libanais

branches and also through Credit Libanais mobile application.

4. A new tax payment service for the Ministry of Finance (MOF) to handle payments online through Credit Libanais branches

and also Credit Libanais mobile application. Integration was established with the MOF through a secure connection.

5. A new Human Resources portal for Credit Libanais employees providing two layers of security with a new model design.

The HR portal centralizes all available employee services among which: employee attendance, appraisal forms, online

leave requests with approval process, training course assessments, Pin codes update / reset, consolidation of employee

profiles and also salary services.

6. A Stock management system that has new features to further manage the existing terminals in the market and provide

detailed tracking of the stock movement. It is embedded with a workflow covering the full stock cycle. This system assists

in the warehouse organization and provides comprehensive insight of all stock items.

7. Enhanced functionalities to the CCM help desk phone system for detailed logging, prompt assistance to the caller and

optimization of the phone call duration.

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NetCommerce General Inquiries: + 961 1 879 709

Website: www.netcommercepay.com

Help desk: + 961 1 879 709 (ext: 11)


The International Payment Network SAL (IPN)

Established in 1996 at the initiative of Credit Libanais and with the participation of 5 other major Lebanese banks, International

Payment Network sal (IPN) grew to become Lebanon’s leading ATM Network Switch. Currently owned by 5 leading banks, it

manages the most extensive network in the country with 1070 ATMs and services 15 member banks.

To ensure an excellent service to customers in terms of Automated Teller Machines, IPN continuously reinvests in state of the

art technology and has finalized the main part of its software solution from Base 24 to Base 24 EPS, known to be the most

innovative finance services solution worldwide, which currently runs under the Non-Stop High Availability System NS series.

From the security perspective, following the EMV compliance rightfully acquired several years ago, IPN has been certified

since 2011 as PCI compliant according to the norms of Visa and MasterCard international.

IPN services in terms of ATM Services include Cash Withdrawal, Balance Inquiry, Mini Statement, Mobile Recharge, Account

Transfers, Pin Change, BNA (band and envelop deposit), Bill Payments and much more.

IPN services in terms of ATM Solutions include: Installation of ATMs, Choice of ATM supplier, Customized Screens and Receipts,

Management of ATM Cash Positions, Control of Consumables, Control of Captured Cards, Encryption Key Management,

24/7 Service Desk Support, Anti-Skimming Detector System, Assistance in Applying for all Visa/MasterCard/Amex Mandate

Certifications, and Host-to-Host connections.

Credilease SAL

Credilease is a financial institution affiliated to Credit Libanais sal. Financial solutions brought are efficient, confidential and

competitive and are specifically designed to meet the individual and corporate needs of each customer.

Credilease specializes in the following financial services:

Leasing operations such as rent to own: machinery, transport equipment, industrial equipment, hospital equipment, etc.

Credit facilities such as car loans, personal loans, housing loans, subsidized loans.

Consumer finance loans as well as credit facilities to household and consumer appliances sectors.

Credilease is also ready to extend investment and private banking activities including equity and wealth management

services.

To ensure transparency, fairness, equitability and suitability, a Consumer Protection Unit was established and a subpage on

the corporate website was launched. CPU periodically reports to the Chairman GM, the Board of Directors and the Banking

Control Commission of Lebanon (BCCL) on matters related to the implementation of the Policy, Charter and Action Plan.

Credilease’s trained and skilled team develops the best personalized services needed. Employees are knowledgeable and

equipped with the latest technological tools to provide a fast, reliable and confidential service.

NetCommerce SALThe Payment Service Provider for Internet Credit Card Processing

www.netcommercepay.com

NetCommerce SAL has been a leading provider of internet payment services and e-business solutions since 1999, enabling

Lebanese merchants to access worldwide markets and sell their products and services online in real-time, using Visa and

MasterCard card types.

A Reputation of TrustWith a growing portfolio of 1370 merchants who trust NetCommerce to process their payment transactions securely and

reliably, NetCommerce has become the largest payment service provider in Lebanon, processing hundreds of thousands of

transactions each year from various operating industries.

The Most Secure and Reliable Solution for Payment OnlineNetCommerce adopts the latest world technology and security implementations to deliver innovative, reliable, and secure

payment processing solutions, and allows both merchants and cardholders to trade and purchase online with confidence.

- NetCommerce uses VeriSign Authentication Services and solutions that allow companies and consumers to engage in

e-commerce transactions securely.

- NetCommerce is PCI-DSS (Payment Card Industry Data Security Standard) compliant since March 2010. This program

applies the latest security implementations derived from Visa and MasterCard for the protection of cardholder data and

payment services.

- NetCommerce also implements the Verified by Visa and MasterCard Secure Code protocols. These protocols provide

3D-Secure payment authentication between the merchant, cardholder, issuing bank, and the acquiring bank on each

transaction to better authenticate each payment online.

Ease of IntegrationNetCommerce has self-developed its payment platform to respond to the different needs of the Lebanese market, with the

ability to develop custom and vertical solutions that are tailored for both market and customer needs. NetCommerce has

facilitated the integration into its payment interface, with different options that best suit the different merchants’ needs.

NetCommerce’s forecast and expectations for the years to come is to continue gaining a significant market share by acquiring

new markets, remaining in line with technology and providing payment solutions for high tech emerging businesses,

E-Government projects, and mobile technologies. In this respect and in addition to the previous success in governmental

projects, NetCommerce continues to address new governmental services, ministries, and syndicates to further move the

online payment services in Lebanon towards a successful e-government.

IPN General inquiries: + 961 1 871 248

Help desk: + 961 1 878470


Credilease General Inquiries: +961 1 425760/1/2/3/4

Website: www.creditlibanais.com


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Treasury, Global Markets, Asset Management and Private Banking

As the trusted advisor of customers in Lebanon and the region, CL Group grew on the solid values of excellence, integrity and creativity. Ethics and deontology principles are highly respected by our team of experts who contribute towards building a strong and reputable image for the Treasury, Global Markets, Asset Management and Private Banking Division with the objective of becoming a leading player in local and regional markets.

We aim to be viewed as the team of choice in terms of customer satisfaction, employee engagement, profitability and growth.

The Bank Division offers a broad range of investment and portfolio management solutions, as well as trading and brokerage services on major asset classes, including equities, fixed income, and foreign exchange. We also offer access to a large universe of multi-asset class investment funds, exchange traded funds (ETFs), hedge funds, structured products with various underlying instruments, capital protected products and Sharia’a-compliant investment products. The Division caters for custody services and safekeeping of various types of financial instruments.

Treasury and Foreign ExchangeThe Group Treasury continues to further build its capabilities by diversifying funding sources and effectively managing risks. The synergies throughout the Banking Group enable us to closely select investment opportunities in various markets and optimize our Asset/Liability management model.

The Treasury and Foreign Exchange desk supports various activities of our growing branch network, subsidiaries and affiliates both domestically and internationally. It continues to serve the Bank’s broad customer base through a well-diversified product range by offering a variety of services related to interest rates and foreign exchange markets. Our activities encompass plain Foreign Exchange and Money Markets activities, as well as tailored FX and Interest Rates hedging solutions and structured products. Our professional trading desk offers a combination of praised financial services supported by efficient channels of execution.At the Bank’s level FX and IRR exposures are proactively managed through ongoing market analysis and book simulations and by conducting all sorts of financial tests in order to mitigate risks inherent from balance sheet market positioning.

Global Markets CL Group’s Global Markets arm comprises the sales, trading and structuring of a wide range of financial products including bonds, equities, equity-linked products, commodities and securitized instruments.

Fixed Income MarketsTrading activity focuses on fixed income trading where Credit Libanais acts as a Market-Marker in Lebanese domestic and international securities, which increases our capacity to satisfy both institutional and private customers’ transaction needs at competitive terms and conditions.In addition, Credit Libanais extensively covers major international fixed income markets with the objective of further developing our securities and brokerage services.

Equity MarketsIn 2018, CL Group’s experienced teams were able to identify several appealing market opportunities that attracted new customers and further developed existing business relationships. We succeeded in branching out our coverage and developing our offering terms to increase our market share. Locally, Credit Libanais holds a member seat at the Beirut Stock Exchange (BSE) through its subsidiary Credit Libanais Investment Bank.

Private Banking Our Private Banking team offers tailor-made products and innovative solutions to help customers achieve optimized asset allocation and adequate diversification. Our approach is based on customers’ risk profile, liquidity objectives and return expectations. In 2018, our staff supported the Bank’s general strategy of bolstering client assets on and off-balance sheet, by reaching out to new markets in the region and acquiring new customers and relationships. The team also worked hard to improve internal processes and systems to stay at the helm of the best practices of regulatory compliance and customer management.

Credit Libanais’ Treasury, Global Markets, Asset Management and Private Banking Division covers a wide range of global financial services in in the areas treasury and cash management, foreign exchange, capital markets, structured finance and brokerage. Moreover, our Bank offers a broad range of personalized advisory services to its high net-worth customers.Credit Libanais aims to support and participate in the development and expansion of quality capital markets activities in Lebanon.The Division’s performance is driven by the Bank’s leading position in an array of treasury and capital market services and products, and by full adherence to risk management practices.

5051

Investment Banking (CLIB)

Legal


RemunerationCommittee

RiskCommittee

AML/CFTCommittee Audit Committee

Group Chief Risk Officer Group Head of Internal Audit

Board of Directors CLIB Chairman General Manager

Services Level Agreement with Credit Libanais Group

Deputy General Manager

Treasury, Global Markets Asset Management and Private Banking

Human Resources

Compliance

Finance

Internal Audit

- Operations and Support Services (CPD)

- Administration and Support Services

- Treasury and Global Markets Back Office


Information Technology

Risk Managementand Strategy

Finance and Accounting

Securitization and Structured Finance

Corporate Finance, Advisory and Research

Information Technologies

Credit

Legal

Credit Administration and Control

Internal Audit

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Credit Libanais Investment Bank (CLIB), a fully owned (99.86%) subsidiary of Credit Libanais, was established in 1996 as the investment banking arm of the Bank. Throughout its operating history, Credit Libanais Investment Bank has constantly strived to cater for the ever-changing needs and preferences of customers through the continuous launching of innovative products and services in accordance with legislative decree number 50, dated July 1983.

CLIB is also on a relentless quest for new business ventures, grasping inorganic growth opportunities for the Group and for its local, regional, and international private and institutional clientele. In fact, CLIB always has an eye to improve its strong market standing among domestic peers.

StrategyCLIB’s strategy mainly revolves around reinforcing its position in equity project financing and advisory services while still offering an extensive selection of investment banking services, of which:

A comprehensive bouquet of medium and long-term investment plansMedium and long-term loans Financial advisory services to the Group as well as to institutional clientsCorporate advisory servicesAsset management

Credit Libanais Investment Bank provides its customers with a wide panoply of financing and advisory solutions ranging from term lending to highly structured and specialized products across the investment banking spectrum. During the year 2018, CLIB studied and participated in several local and regional investment opportunities, of which asset backed securitizations and private equity investments in venture capital funds in Lebanon operating in the knowledge economy sector.

Concurrently, CLIB has advised corporate clients on several M&A transactions in different economic sectors. In this context, net profits stemming from investment banking activities constituted around 6.03% of the Group’s consolidated 2018

net profits.

2018 at a GlanceThe Lebanese economy stumbled during the year 2018, mainly affected by the long governmental void following the parliamentary elections, casting its shadows on an already fragile market activity. In light of such a mixed context, CLIB’s operations were affected by the prevailing economic woes, with its conservative approach to lending being reflected by a 1.78 % increase in commercial loans (SME & Corporate) and a 1.06% decrease in housing loans.

The year 2018 was marked by several accomplishments for the Corporate Finance and Advisory arm of Credit Libanais Investment Bank despite the various surrounding geopolitical

and economic challenges.

The department maintained its role as investment advisor to the Credit Libanais Group, screening for and studying new business ventures, and evaluating lucrative investment

opportunities in the country and around the globe.

Moreover, the department assessed and engaged in numerous

structured finance transactions, in addition to contemplating

various acquisition opportunities in the banking sector and

executing intensive due diligence for that purpose.

More on the advisory front, the Corporate Finance and

Advisory function inked a number of advisory mandates for

renowned corporate customers.

Mergers and AcquisitionsThis includes offering in-depth assistance to clients with an eye to merging with or acquiring other private or public business units. CLIB’s assistance covers every step of the transaction, including:

Preparation of the sale transaction documentsDetermination of the strategyCompany valuationSearch for potential business units to acquire/merge with Determination of the best financing structureNegotiation of the contractDue diligence…

Recapitalization and Strategic AdvisoryThis service mainly consists of reshuffling a company’s capital structure in a way that improves the related company’s debt/equity mix to make it more sustainable.

Moreover, CLIB expanded its ties with the knowledge economy for yet another year, venturing into Lebanese private equity funds that are BDL compliant and that invest in

Lebanese startup companies.

ServicesThe Corporate Finance and Advisory Department is well equipped to provide private and institutional customers in Lebanon, the region, and the world with an inclusive set of financial services and solutions that are specifically conceived

to satisfy their needs. These services include:

Financial AdvisoryThis entails the engineering of financial solutions that are tailored to respond to the strategic and organizational needs of institutional clients. This includes financial assistance to

clients seeking to:

Evaluate the financial performance of their businessAssess the viability of an expansion / investment alternativeUndergo a financial reengineering / turnaroundOpen their capital to prospective investorsMerge with / acquire another business unitBenefit from strategic alliances and partnering transactions

Debt and Equity PlacementsCL actively provides advisory services to customers who wish to make a better-informed decision regarding their choice of capital structure, financing means and sources, and the positioning of their business.

5253

InceptionDate

InceptionValue

Value onJanuary1, 2018

CLASICLFICLCI

Oct-06Oct-06Oct-06

1,0001,0001,000

1,091.631,493.14464.57

930.971,251.68427.52

-14.72%-16.17%-7.97%

-6.90%25.17%-57.25%

1,133.981,549.87505.85

907.481,233.59365.66

1,801.011,666.641,948.82

836.11864.82365.66

Value onDecember31, 2018

% Change in 2018

% Changesince

InceptionYear High Year Low All Time

LowAll Time

High

Indices Performance

Index Value

450

600

700

800

900

1,000

1,100

1,200

1,300

500

01-J

an-1

8

01-J

an-1

8

15-A

pr-1

8

15-A

pr-1

8

28-J

ul-1

8

28-J

ul-1

8

09-N

ov-1

8

09-N

ov-1

8

22-F

eb-1

8

22-F

eb-1

8

06-J

un-1

8

06-J

un-1

8

18-S

ep-1

8

18-S

ep-1

8

31-D

ec-1

8

31-D

ec-1

8

500

700

900

1,100

1,300

1,500

1,700

350

400

500

550

300

01-J

an-1

8

15-A

pr-1

8

28-J

ul-1

8

09-N

ov-1

8

22-F

eb-1

8

06-J

un-1

8

18-S

ep-1

8

31-D

ec-1

8

Credit Libanais Aggregate Stock IndexYearly Performance

CLASI

Credit Libanais Financial Sector Stock IndexYearly Performance

CLFI

Credit Libanais Construction Sector Stock IndexYearly Performance

CLCI

CLASI 14.72% CLFI 16.17% CLCI 7.97%

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We embrace change.We continuously seek better solutions to problems for the

Customer and the Bank.

Con

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SEM and Business Lines; (3) an independent and effective

compliance function, which routinely monitors compliance

with laws, corporate governance rules, regulations, codes

and policies to which the Bank is subject. (4) a financial

consumer function that ensures that banking and operations

with customers are conducted according to regulations in

vigor.

The third line of defense consists of an independent and

effective Internal Audit Function which conducts risk-based

and general audits and reviews

Risk Appetite FrameworkCL Group applies the following six overarching principles in the

risk identification, monitoring and management throughout the

organization:

balancing risk and reward;

management of risk is shared at all levels of the organization;

effective decision-making is based on a strong understanding

of risk;

all business activities are conducted with a view of not risking

the Bank’s reputation;

ensuring that provided services are suitable for and

understood by the Bank’s customers; and

applying appropriate judgment as a mandate throughout the

organization for the management of risk.



Chief Risk Officer


Strategy & Risk AnalyticsRisk Management Project Office/ Credit Portfolio Management / Credit Risk Models Credit Risk ManagementOperational Risk ManagementInformation Security Risk ManagementBusiness Continuity Planning

Risk Management and StrategyThe Risk Management and Strategy function is fully

independent from the commercial lines of business reporting

to the Chairman General Manager and the Board through

the Board Risk Committee. In addition to Credit Libanais

SAL, its scope covers local and foreign banking and financial

institutions subsidiaries of CL Group. Duties are carried out

through an integrated strategic risk planning and process

review, supported by sound risk management practices and

effective framework. The cornerstone of this function is a

strong risk management culture supported by a robust set of

policies, procedures and limits, managed by professionals and

other functional teams.

Risk Governance Framework The Bank’s risk governance framework includes well defined

organizational responsibilities for risk management, typically

referred to as the three lines of defense:

The first line of defense is the Business Lines, which take

risks and are responsible and accountable for the ongoing

management of such risks.

The second line of defense includes: (1) an independent Risk

Management Function, which complements the Business

Lines’ risk activities through its monitoring and reporting

responsibilities; (2) the Finance Function plays a critical role

in ensuring that business performance and profit and loss

results are accurately captured and reported to the Board,

a.

b.

c.

Risk Committee

Board of Directors


Enterprise-wide Risk Management Framework (ERM)The Bank follows a comprehensive ERM Framework, appropriately scaled to its size, complexity and risk profile. Under ERM,

the Board is responsible for confirming the risk appetite, and monitoring compliance to risk management

processes. Management is responsible for identifying, evaluating, mitigating and reporting on risk exposures.

Capital and liquidity requirements issued and reviewed by the Basel Committee on Banking Supervision (BCBS), covering

capital adequacy, capital buffers, and liquidity risk management are applied on a cross-border level across local and foreign

subsidiaries. Moreover, CL Group fully complies with home (i.e. BDL and BCC) and host regulatory requirements to comply

with the Basel II/III framework.

The Central Bank of Lebanon previously adopted an accelerated implementation timetable for Basel III, where more stringent

ratios have been required.

Lebanese Banks apply a Capital Conservation Buffer made up of Common Equity Tier One Capital amounting to a minimum of

4.5% of Risk Weighted Assets starting Year-End 2018. This is an Increase from the previous minimum ratio of 2.5%.

The Capital Conservation Buffer* will be phased in and the minimum capital adequacy ratios will be as follows:

* All ratios include the Capital Conservation buffer equal to 4.5% of Risk Weighted Assets.

8.5%

11%

14%

9%

12%

14.5%

10%

13%

15%

31/12/2016 31/12/201831/12/2017

Common Equity Tier 1 Ratio

Tier 1 Ratio

Total Capital Ratio

5657

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The Bank started preparations to abide by the newly issued Basel

III post crisis reforms in December 2017 due for implementation

beginning year 2022. The new framework is a central element

of the Basel Committee’s response to the global financial crisis.

It addresses a number of shortcomings with the pre-crisis

regulatory framework and provides a regulatory foundation for

a resilient banking system that supports the real economy.

Strategy & Risk AnalyticsCapital Management

Capital Management’s fundamental elements include the

implementation of a policy that addresses the quantity,

quality and composition of capital needed; the distribution

of dividends and redemptions of capital instruments to

shareholders; and monitoring and reporting requirements.

Market Risk Management

Market Risk Management’s fundamental parts include

implementing a policy that addresses the authorized types,

limits and concentration of investments, other financial

instruments, and assets; the defined and prudent levels of

decision-making authority; identifying, measuring, providing

for and recording market impairments; and monitoring and

Board reporting requirements.

Asset and Liability Risk Management

CL Group Asset and Liability Risk Management’s fundamental

basics include implementing a policy that addresses the limits

on the balance sheet mix and maturities of capital, deposits,

loans and investments; criteria for pricing of deposits and

loans; limits on the exposure to Foreign Currency Risk;

limits on the exposure to changes in interest rates; use of

appropriate techniques for measuring the Bank’s Asset and

Liability Risk and evaluating the potential impact under

current and reasonably foreseeable scenarios.

Internal Capital Adequacy Assessment Process

The Bank operates with capital positions well above the

minimum regulatory capital ratios, with an amount of capital

that is commensurate with its risk profile on stand-alone and

consolidated basis. In addition, the Bank has robust, forward-

looking capital planning processes and governance, which

account for its inherent risks and that permit continued

operations during times of economic and financial stress.

Regulatory Capital Structure

5859

2018 2017C/V millions of LBP

Common Equity Tier 1 Capital resources

Share capital

Share premium account

Legal reserves

General & unspecified banking risks Reserves

Other reserves

Reserves for Assets under Liquidation

Reserves for irrecoverable bad debts as per BDL Circular No. 73

Retained earnings

Profit and loss account (taking into account interim net losses)

Minority Interest

Revaluation of fixed assets

Net unrealized Profit / Loss on Financial Assets held at FVOCI

Foreign Currency Position

Common Equity Tier 1

257,400

135,651

154,566

234,319

20,004

3,867

318,624

125,531

1,682

65,584

356

(414)

1,317,170

257,400

120,551

133,875

266,471

18,293

3,867

205,195

122,682

1,447

65,584

52,411

(368)

1,247,408

As per regulatory requirements, CL Group refined its risk

methodologies and included more sensitive risk measures for

the evaluation of the Internal Capital Adequacy Assessment

Processes (ICAAP), to ensure that the Bank holds adequate

capital to maintain ready access to funding, continue operations

and meet its obligations to creditors and counterparties, and

continues to serve as credit intermediaries, even under adverse

conditions.

Recovery Plan

The Bank established a Recovery Plan that is based on the

“Key Attributes of Effective Resolution Regimes for Financial

Institutions” issued by the Financial Stability Board. The

Recovery Plan was already approved by the ALCO and by

the Board of Directors in order to restore the Bank’s financial

strength and viability in times of severe stress and is subject

to annual review and regular monitoring. The plan takes into

account the specific circumstances of the Bank and reflect its

nature, complexity, interconnectedness, foreign operations

and size.

Risk Profile Based on the detailed analysis of the different types of the

Bank’s risks, the Bank considers that there is a low risk of the

Bank encountering difficulties in the future, considering its

overall medium-low inherent risk, its good internal governance,

adequate risk management and control that are appropriate to

its activities. Based on the review of all types of risk, the Bank’s

overall risk profile is ranked medium-low with some increasing

trend, due to the economic challenges despite the improving

operating environment as a result of the presidential elections

and the unity government formation. Noting that, the quality

of capital, the approved capital targets including the buffers

and the capital planning, reflect appropriate levels. Therefore,

the assessment of the capital adequacy is ranked well.

Capital Structure and Regulatory Capital RatiosCL Group maintains an actively managed capital base to cover

risks inherent to the business. The adequacy of the Bank’s

capital is monitored using, amongst other measures, the rules

and ratios established by the BDL and the BCC amongst other

measures.

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61Annual Report 2018 Credit Libanais Group 60

2018 2017C/V millions of LBP

Common Equity Tier 1 Regulatory Adjustments

Profit and loss account

Gross unrealized Profit on Financial Assets held at FVOCI

Revaluation of fixed assets

Reserves for Assets under Liquidation

Reserves for irrecoverable bad debts as per BDL Circular No. 73

Intangible assets including goodwill

Foreign Currency Position

Excess over limits of articles 152 and 153 of the Code of Money and Credit

Other Common Equity Deductions

Common Equity Tier 1 After Deductions

Share Capital - Non-cumulative perpetual preferred shares

Share premium - Non-cumulative preferred shares

Minority Interest

Additional Tier 1 Capital

Additional Tier 1 Capital Regulatory Adjustments

Total Tier 1 Capital

Tier 2 Capital Resources

Medium to long-term subordinated debt instruments

Minority Interest

Real estate revaluation approved by the BDL and qualifying under Tier 2 Capital

50% of the Foreign Currency Position

50% of the gross unrealized profit on Financial Assets held at FVOCI

(Other Tier 2 Capital Deductions)

Total Tier 2 Capital

Total Capital

Total Risk Weighted Assets

Net Common Equity Tier 1 Ratio

Net Tier 1 Capital Ratio

Total Capital Ratio

(125,531)

(9,133)

(65,584)

(20,004)

(3,867)

(9,288)

-

-

-

1,083,763

11,000

139,750

505

151,255

1,235,018

150,750

336

7,828

-

4,567

-

202,115

1,437,132

8,663,294

12.51%

14.26%

16.59%

(122,682)

(55,556)

(65,584)

(18,293)

(3,867)

(10,760)

-

-

-

970,666

11,000

139,750

482

151,232

1,121,898

150,750

402

7,828

-

27,778

(113,063)

186,758

1,308,656

8,618,250

11.27%

13.02%

15.18%

The above three ratios are higher than Basel Ill regulatory requirements, so the Bank is considered as well capitalized.

Credit Risk: Standardized Approach by Exposure Class Disclosure of the amount of exposures subject to the Standardized Approach of Credit Risk and their related risk

weighted assets and capital requirements.

Pillar 1 Capital Requirements The tables below set out Pillar 1 Capital Requirements and associated risk weighted assets for CL Group with separate disclosures

for the credit risk, market risk and operational risk requirements.

2018 2017

2017

C/V millions of LBP

C/V millions of LBP

Pillar 1 Capital Requirements for:

Credit risk

Market risk

Operational risk

Total Pillar 1 Capital Requirements

634,665

4,627

53,772

689,461

621,342

16,319

51,800

689,461

2018

Central governments and central banks

Public Sector Entities (PSEs)

Banks

Corporates

Small and Medium Enterprises (SMEs)

Retail

Residential Mortgage Loan

Claims secured by Commercial Real Estate

Securitization positions standardized approach

Non-performing loans

Other Assets

Total for Credit Risk

10,179,571

6,086

966,414

1,870,316

1,165,473

428,645

1,651,412

229,163

4,231

164,032

719,925

17,385,268

11,997,343

15,979

897,404

1,726,976

1,115,351

415,394

1,612,181

196,863

3,965

172,104

645,197

18,798,757

3,543,550

-

222,324

1,756,866

760,152

328,851

562,124

196,916

2,974

115,977

443,588

7,933,322

283,484

-

17,786

140,549

60,812

26,308

44,970

15,753

238

9,278

35,487

634,665

3,125,621

-

238,166

1,868,993

767,692

337,500

575,855

228,731

3,173

112,945

508,092

7,766,769

250,050

-

19,053

149,519

61,415

27,000

46,068

18,298

254

9,036

40,647

621,342

Exposure value

Exposure value

Risk Weighted Assets

Risk Weighted Assets

CapitalRequirements

CapitalRequirements

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Market risk: Standardized Approach Disclosure of the level of Market Risk in terms of capital requirements and risk weighted assets as per the Standardized Approach,

which is detailed in the BCC Circular No. 256 dated September 26, 2007.

Operational Risk: Basic Indicator Approach Disclosure of the level of Operational Risk in terms of capital requirements and risk weighted assets as per the Basic Indicator

Approach, which is detailed in the BCC Circular No. 257 dated October 08, 2007.

Capital PlanningIn light of the Basel III requirements and CL Group’s expansion plans locally and abroad, a semi-annual 5-year capital planning

exercise is prepared, on a stand-alone and consolidated basis, which is presented to the Board after being approved by the

ALCO and the Board Risk Committee.

Market Risk ManagementThe overall objective of managing market risk is to avoid unexpected losses due to changes in market prices and to optimize the

use of market risk capital.

Interest Rate Risk The interest rate risk the Bank is exposed to in its banking book is assessed from both, the net interest income (NII) and the

economic value of equity (EVE) perspectives using interest rate re-pricing gap analysis.

Foreign Exchange Risk (Currency Risk)Credit Libanais does not maintain material non-trading open

currency positions, other than the structural foreign currency

translation exposures arising from its investments in foreign

subsidiaries and associated undertakings and their related

currency funding.

Credit Libanais applies various hedging strategies to manage

and minimize adverse effects arising from these exposures.

Equity Position RiskThe Bank has established a comprehensive transaction

and position based limits framework against which regular

monitoring is performed.

Liquidity Risk and Funding ManagementThe Bank’s Liquidity Risk Management Policy establishes

specific liquidity gap limits and includes cash flow projections

and emergency funding mechanisms. The monitoring and

control of liquidity risk is established on an ongoing basis and

involves balance sheet ratio analysis and the measurement

of the cash flow gaps and stress positions. In addition, the

Bank is abiding with the Liquidity Coverage Ratio (LCR) and

Net Stable Funding Ratio (NSFR) as required by the Basel III

framework. As per BCC Circular no. 295 dated April 26, 2018,

the Bank reports to the BCC monthly LCR ratios for all CL

Group entities. Monitoring and management is performed

through a state-of-the-art ALM solution acquired at Group

level allowing static and dynamic ALM management and

functional reporting.

Financial Institutions Risk ManagementThe Bank defined a framework and an action plan for activities

with Banks and Financial Institutions in which credit risk is

inherent and has set the criteria for risk acceptance and the

guidelines followed in the FI Risk Management process.

The Financial Institutions & Country Risk Management Unit

has the responsibility of following-up and monitoring the

relationships of the Bank with its financial counterparties.

This is being implemented through an automated workflow

recently acquired alongside a modern internal FI risk rating

system based on which limits are being assigned and

exposures monitored. Exposures to the Financial Sector and

Exposures to Financial Instruments issued by non-sovereign

counterparties whether domestic or abroad are loaded in the

IFRS9 calculation tool for ECL Calculation purposes.

Country Risk ManagementTo effectively control the level of risk associated with

international activities, CL Group has a Risk Management

process that focuses on the broadly defined concept of Country

and Cross border risks. A sound Country Risk Management

process includes oversight by ALCO and Country exposure

limits. Limits reflect several considerations, including the

country’s risk rating and the Bank’s appetite for risk. The

Financial Institutions & Country Risk Management Unit has

the responsibility of proposing and controlling country risk

limits and monitoring the exposure of CL Group in different

countries. Sovereign Exposures that include all Sovereign

debt instruments issued by the Lebanese Government or any

other foreign government in addition to all exposures to the

BDL as well as other foreign Central Banks are loaded in the

IFRS9 calculation tool for ECL Calculation purposes.

Credit Portfolio ManagementThe Bank’s approach to controlling various risks begins

with optimizing the diversification of its commitments.

The management criteria set out in its internal policies

include measures designed to maintain a healthy degree of

diversification of credit risk in its portfolios.

The criteria established for portfolio diversification and related

limits, which are set by type of business segments, products,

entities, credit risk mitigants, economic sector, regional and

country exposures, are based on the findings of sector-based

studies and analyses conducted by the Risk Management and

Strategy Division at Group level, and are approved by the

Credit Policy Committee and by the Board Risk Committee.

Continuous portfolio analyses are performed to anticipate

problems with any sector or borrower before they materialize

as defaulted payments.

2018

2018

2017

2017

C/V millions of LBP

C/V millions of LBP

Equity Position Risk

Interest Rate Risk (FVTP&L):

Specific Risk

General Market Risk

Equities Risk (FVTP&L):

Specific Risk

General Market Risk

Foreign Exchange Risk

Total Capital Requirements for Market Risk

Total Risk Weighted Assets for Market Risk

Capital Requirements for Operational Risk

Risk Weighted Assets for Operational Risk

-

570

196

605

605

2,650

4,627

57,827

53,772

672,145

-

1,371

1,864

304

304

12,476

16,319

203,981

51,800

647,499

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Credit Risk ManagementOur credit risk management principles are guided by the

following six overall risk management principles:

ensuring that credit quality is not compromised for growth;

diversifying credit risks in transactions, relationships and

portfolios;

using our credit risk rating and scoring systems, policies

and tools;

appropriate pricing of the credit risks taken; applying

consistent credit risk exposure measurements; and

mitigating credit risk through prevention and early

detection and warning signals’ controls.

our business activities are conducted in such a way as

to avoid any reputational risks. The Bank has selective

lending criteria in this respect approved at level of the Risk

Committee and Board of Directors.

Credit Risk Rating SystemThe corporate and SME Credit Risk Rating System is designed

to measure and identify the risks inherent in our credit

activities in an accurate and consistent manner. Each obligor

is assigned a borrower rating (BR), reflecting the probability

of default (PD), after an assessment of the credit quality of

the obligor. Generally, the key risk factors assessed include

industry, markets, firm competitiveness, company’s qualitative

assessment, management quality and financial performance

indicators.

Credit Risk Monitoring and Control Credit risk monitoring refers to continuous monitoring of

individual credits inclusive of off-balance sheet exposures to

obligors, as well as the overall credit portfolio of the Bank.

The Bank enunciates a system that enables it monitor the

quality of the credit portfolio on a day-to-day basis and takes

remedial measures as and when any deterioration occurs.

Delegation of AuthorityThe Bank establishes responsibility for credit sanctions and

delegates authority to approve credits or changes in credit

terms in line with the Bank’s lending policies and procedures.

The Board approves the overall lending authority structure,

and explicitly delegates credit sanctioning authority to

Senior Executive Management and the Credit Committees.

Lending authority assigned to officers is commensurate with

the experience, ability and personal character. The Bank

develops risk-based authority structures where lending power

is tied to the risk ratings of the obligor and the type of the

lending product and collateral types in line with the bank

lending policy.

Managing Collection of Delinquent LoansA loan is delinquent if any of its scheduled payments are

in arrears for a period greater than three days. Retail loans

which are in arrears are actively managed by the Collection

Department and the Regional Management with the intent of

avoiding losses, or mitigating it to the greatest extent possible.

Management makes general provisions for delinquent loans

on a monthly basis.

For commercial facilities, delinquent loans or excesses

over limits are regularly communicated to the Senior

Executive Management and pertinent credit committees

for close monitoring and decisions accordingly. Decisions

of downgrade and classification of the Borrowers are taken

at the level of the respective Credit Committee including an

impairment study.

Managing Problem CreditsThe Bank establishes strict systems and policies to identify

and follow up on problem loans. Once the loan is identified

as problematic, it is managed under a dedicated remedial

function independent of the originating Business Lines.

Policy and Tools for the Monitoring and Recovery of Impaired AssetsThe BDL Basic Circular No. 58 requires, inter alias, banks to

classify loans into six regulatory categories as follows:

1. “Normal”; 2. “Follow Up”; 3. “Watch and Settlement”;

4. “Substandard”; 5. “Doubtful”; and 6. “Loss”.

Consequently, the Bank believes that it has satisfied all the

related regulatory requirements.

As per IFRS 9 guidelines and local regulatory requirements, in

line with BDL Basic Circulars No. 81 revised December 24, 2014

and No. 143 issued in November 7, 2017, and BCC Circular

No. 293 dated December 28, 2017, the Bank successfully

migrated from the IAS 39 incurred loss methodology into the

IFRS 9 expected credit loss (ECL) methodology in accounting

for credit losses and assigning ECL provisions against loans,

based on specific staging criteria.

IFRS 9 RequirementsIn line with the Central Bank of Lebanon Basic Circular no. 143

dated November 7, 2017 and its applied BCC Circular no. 293

issued by the Banking Control Commission of Lebanon dated

December 28, 2017, the regulatory authorities in Lebanon

have implemented a comprehensive framework for the IFRS9

implementation to be adopted by all Banks operating in

the country including their local and foreign branches and

subsidiaries. As such, CL Group is fully compliant with all

requirements of the IFRS9 standards effective January 1, 2018.

In addition, the Bank has successfully implemented a

comprehensive and integrated IFRS 9 solution offered by a

prominent international vendor, which provides the Bank with

a solid framework to; manage credit events and transactions /

facilities, IFRS9 calculations and accounting generation.

The successful implementation of the IFRS9 tool is part of

the Bank’s strategy and commitment to comply with all local

and international regulatory requirements and other financial

reporting obligations.

The final version of the International Financial Reporting

Standard (IFRS9) was issued by the International Accounting

Standards Board (IASB) during July 2014, and includes the

following three main phases:

Phase I: A single classification and measurement approach

for financial assets that reflects the business model in which

they are managed and the cash flow characteristics of those

assets. Financial Assets are classified as either Amortized

cost, Fair value through profit or loss, or Fair Value through

other comprehensive income.

CL Group completed the reclassification of its Financial

Assets which are now being reported in compliance with

the Standard.

Phase II: A forward-looking expected credit loss (ECL)

model that will result in more timely recognition of loan

losses. Deadline for completion of Phase II is January 1,

2018, and CL Group confirms its readiness to implement

the second Phase of the IFRS9 Standard at Group level,

including all its domestic and foreign branches and

subsidiaries.

Phase III: Improved hedge accounting model to better

link the economics of risk management with its accounting

treatment.

In order to address the delayed recognition of credit losses

on loans which until there is evidence of a trigger event, the

IFRS9 requirements put in place a forward looking impairment

model which ensures more useful information about an entity’s

expected credit losses on financial instruments. The model

requires an entity to recognize expected credit losses at all

times and to update the amount of expected credit losses

recognized at each reporting date to reflect changes in the

credit risk of financial instruments. IFRS9 requires an entity to

base its measurement of expected credit losses on reasonable

and supportable information that is available without undue

cost or effort, and that includes historical, current and

forecast information. Moreover, banks are required to provide

information that explains the basis for their expected credit

loss (ECL) calculations and how they measure ECLs and assess

changes in credit risk.

Environmental and Social RisksThe Bank continuously endeavors to ensure effective Social

and Environmental Management practices in all its lending

activities and seeks to effectively manage and mitigate

environmental and social risks in the projects they finance.

International Finance Corporation (IFC)CL Group is directed by its agreement with the IFC, which

was signed in September 2018 to adhere to sound banking

principles and promote the full range of its activities in

environmentally and socially reliable developments.


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The Operational Risk Framework encompasses the

identification and assessment of operational risks inherent

in all the Bank’s products, activities, processes and systems,

implementing a process to regularly monitor operational

risk profiles and material exposures to losses, control and

mitigation of Operational Risk, and appropriate disclosures.

In line with the BCC Circular No.252 dated September

14, 2006, the Bank developed procedures, under which it

launched the collection process on operational loss events

/ probable events / near misses and provided the Business

Lines with supporting guidance and a standardised

template to ensure a consistent approach.

RCSA is a structured approach that helps line management

to identify and assess inherent risks in their existing or

new products, processes, activities or systems and take

mitigating actions for identified risks. RCSA missions

planned on a Risk-Based Approach, consisting of

questionnaires and workshop sessions, typically evaluate

inherent risks (the risks before controls are considered), the

effectiveness of the control environment and residual risks

(the risk exposure after controls are considered). Scorecards

build on RCSAs by weighting residual risks to provide a

means of translating the RCSA output into metrics that give

a relative ranking of the control environment. The ORMF

identifies and develops appropriate Key Risk Indicators

(KRIs) that provide management with early warning signals

of Operational Risk issues.

As per the BDL Basic Circular No.104 and the BCC

Circular No.257, the capital charge required to cover

the Operational Risk is calculated using the Basel II Basic

Indicator Approach (BIA).

Information Security RisksData Protection standards are becoming increasingly high

and companies are facing more and more complex task to

evaluate whether their data processing activities are legally

compliant. In 2018, the European Union (EU) “General

Data Protection Regulation” (GDPR) entered into force and

brought with it several challenges to organizations including

Group CL.

Social and Environmental Management System (SEMS)The Credit Risk Management has developed the SEMS with

the basic objective of ensuring that the environmental and

social implications of a potential customer are identified and

assessed early in the Bank’s planning and decision-making

process and that these environmental considerations are

incorporated into the preparation and approval of facilities.

In this context, the Bank trained concerned staff to identify

and focus on green lending opportunities.

Operational Risk Management

Operational Risk Governance FrameworkThe Bank has established the roles and responsibilities of the

below three lines of defense:

The first line of defence is Business Line management,

responsible for identifying and managing the risks inherent

in the products, activities, processes and systems for which

it is accountable.

The second line of defence consists of a Group Internal

Control Functions comprising of the Group Risk

Management, Group Compliance, Group Finance and

other Internal Control Units, responsible for managing

the Operational Risk in their own areas and providing

support to other parties within the governance structure

for Operational Risk Management.

The third line of defence is Group Audit, responsible for

independently assessing the adequacy and effectiveness

of the Operational Risk Management Function (ORMF)

and ensuring compliance with CL Group policies and

procedures.

Operational Risk Management FunctionThe ORMF has a reporting structure independent of

the risk generating Business Lines and is responsible for

the design, maintenance and on-going development of

the Operational Risk Framework within the Bank. This

function includes the operational risk measurement and

reporting processes, risk committees and responsibility

for Board reporting.

With this respect, the Information Security Team devised a

roadmap to comply with the new regulation and initiated

promptly the needed activities with the concerned Divisions/

Departments. Furthermore, during the course of the year, the

security team maintained the continuous security program and

enhanced Group CL security posture by adding processes,

knowledge and security tools. This continuous monitoring

program provided better visibility into Group CL information

assets, awareness of threats and vulnerabilities, and visibility

into the effectiveness of deployed security controls. In fact,

the continuous monitoring helped the Information Security

Team to protect the Bank from numerous cyber-attacks

such as ransomware, phishing attacks, social engineering

and others type of malicious activities or codes. Moreover,

Credit Libanais achieved PCI-DSS compliance since 2016

and continued to maintain its certificate as the sole Bank in

Lebanon with the PCI-DSS certification.

Business Continuity Planning Our business continuity program is committed to safeguard

the Bank’s assets and all stakeholders’ interests, to protect

employees, and to instill a culture of preparedness and action

for whenever a drastic event occurs. At Credit Libanais,

business continuity is an ongoing process submitted to

regular evaluation, revision and practice.

Our business continuity plan is updated based on changes in

business processes, technological advancements that allow

faster and more efficient processing, audit recommendations

and lessons learned from testing. During 2018, the Bank

has expended significant additional resources to improve its

business continuity planning accordingly.

Many comprehensive business continuity testing involving

many critical activities of the Bank were performed this year;

they enabled us determining the reliability and compatibility

of our backup facilities, verifying the completeness and

accuracy of our plans, identifying the areas that need

enhancement, training our teams and preparing them for any

eventuality. As part of the Bank business continuity program,

emergency evacuation drills were also conducted to assure

that staff understands how the evacuation is to occur. All the

previous was done under the close oversight of the Bank

Senior Executive Management to ensure the Bank business

continuity program a) stays in compliance with regulatory

requirements increasingly extensive; b) is able to face the wide

variety of new emerging risks and threats on the business;

and c) is maintained aligned with the corporate strategy.


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Internal Audit


Head of Group Internal Audit

Quality Assurance and Improvement

Performance Measurement

Overseas Audit

Board of Directors

Audit Committee

Branch Audit Back Office Audit Credit AuditHead Office Audit IT AuditE-Banking Audit CLIB AuditLIB Audit

IAD Main ObjectivesAlign the audit activities with the Bank’s strategy.

Address risky activities and processes by providing tailored

recommendations and implementing best practices.

Add value to the business risk control environment.

Ensure adequate implementation of risk management

procedures and methodologies and the efficient

functioning of the internal control framework.

Complete a full coverage of the audit areas mentioned in

the audit year plan.

Assign a risk control grade for each business unit and

monitor its improvement over time.

IAD Other ObjectivesProvide consultancy services regarding the improvement

of the risk control framework.

Stimulate objectivity, uniformity, comparability,

confidentiality and transparency.

Accelerate and promote improvements in the control

environment.

Fulfill and properly handle all management requests and

special assignments in a timely manner.

Conduct independent and objective audit reviews and

evaluations, while meeting the auditees’ expectations.

Conduct adequate tests and reviews of information

systems and applications.

Maintain quality services and audit documentation

according to standards.

They report hierarchically to the Head of IAD (Chief Audit

Executive) who in turn reports to the Board of Directors,

through the Audit Committee.

IAD Knowledge ManagementThe IAD is adequately structured and staffed with qualified

internal auditors to carry out their duties and responsibilities

in a professional manner. They have full knowledge and

expertise over the business areas they examine, and are

considered experts in their field of specialization, capable of

delivering high quality services to auditees, whether the latter

are branches, centralized activities or affiliated companies.

IAD Audit Methodology and ApproachThe division follows a risk-based approach when auditing

business units. This consists of identifying and assessing the

inherent risks to the business, the effectiveness of controls

that mitigate those risks, and the residual risks remaining

after these controls are in place. Based on this approach and

related risk assessment, emphasis and priority are placed on

the business areas where the highest risks are identified.

IAD Continuous Enhancement of Staff Skills Sufficient technical and on-the-job training is delivered to

allow our audit team to excel in their missions. Personal

development plans are performed for every auditor and

include training and education in order to maintain proficiency.

Auditors are encouraged to enroll for the CIA (Certified

Internal Auditors) certification to enhance their professional

knowledge and skills. In that respect, some members have

already started attending the CIA courses, in addition to

the E-learning courses that were made available to all audit

staff to enhance their technical knowledge and continuously

improve their professional skills and capabilities.

Branch Audit All branches are assigned an overall audit rating according to the level of internal controls exercised by branch management and to residual operational risks inherent to their activities. Based on the overall audit rating, corrective measures are taken in branches to enhance their risk profiles and to address the observations and deficiencies raised in the audit reports.

Mission StatementThe Internal Audit Division (IAD) is responsible for

strengthening Credit Libanais’ business risk/control

environment by providing comprehensive and independent

professional audit and consulting services to all divisions

and entities operating within the Group, and by assisting

management in maintaining proper controls over the assets

and operations, thus adding value to the overall business

performance. The mission of the internal audit function is

to ensure that management establishes and consistently

maintains a sound internal control and governance framework

within the Bank.

The Internal Audit Division strives to provide best quality

internal audit services with the highest standards of

governance and professional excellence, while adding

value to all business units, based on the values of integrity,

objectivity, confidentiality and competency. The ultimate

goal of the internal audit function is to independently serve

the bank and its key stakeholders by contributing to the

achievement of the Bank’s strategic goals and objectives in a

changing business environment.

IAD RoleThe Internal Audit Division provides assurance to the Board

through its Audit Committee that:

The tone of control set by the Board is properly applied by

management throughout the Bank.

The deployed internal controls are adequate to mitigate

risks.

The governance processes are effective and efficient.

The organizational goals and objectives are met.

Appraise management actions regarding:

Effectiveness of measures taken to assess and manage

risks.

Reliability, consistency and integrity of data.

Measures taken to safeguard assets, documents and

records.

Compliance with policies, laws and regulations.

Respect of code of conduct and the Bank’s values.

The internal audit function strives to increase the value added

to Credit Libanais Group structures, systems and processes

and to improve operational effectiveness and efficiency by:

Establishing robust risk assessment methodology and

annual planning process to focus on existing and emerging

risky areas such as strategic, technology and business risks.

Aligning the audit work plans and other oversight activities

with the Bank’s strategic goals, objectives and plans.

Coordinating oversight activities between internal audit

function as a third line of defense and other assurance

providers within the group, including risk management,

compliance and information security functions.

Regularly reviewing and improving the quality of audit

reports by increasing the use of available information

technology tools to gather, analyze and present factual

data to further enhance the accuracy, completeness and

timeliness of audit reports.

Attracting and retaining internal audit staff with the

right balance of education, technical experience and

professional skills and competencies.

IAD Organizational StructureThe IAD is business-centric, and is composed of specialized

audit departments that have gained sufficient experience in

the business and can provide quality services and pertinent

recommendations to improve the activities of business

units. These departments include Branch Audit, Centralized

Activities Audit, Credit Audit, E-banking & Cards Audit, IT

Audit, Continuous Control Audit, Overseas Audit (Limassol,

Bahrain, Senegal, Iraq), other affiliated banks (Credit Libanais

Investment Bank and Lebanese Islamic Bank) and subsidiaries

(Credilease, CLA, etc.). Audit department heads enjoy

sufficient expertise to manage a team composed of senior

and junior auditors, and to deliver high quality audit and

consulting services.

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IT AuditSeveral audit assignments were performed on the IT functions

which covered various systems, applications and processes

applied at the Bank level. An IT General Control review was

also conducted to enhance physical and logical security of

the IT environment.

Special AssignmentsSpecial assignments were conducted by the IA Division at the

request of the General Management and different issues that

needed additional investigation and proper follow-up were

tackled.

Affiliated Banks/SubsidiariesResident auditors are assigned to review the operations

and activities of the affiliated banks (CLIB and LIB). Internal

audit reports issued based on an approved year plan for

2018 were duly submitted to their respective Board Audit

Committees. Furthermore, an audit field visit was performed

at Credit International SA (Senegal) covering all activities and

operations of this affiliated bank.

This department also covered the non-banking subsidiaries

during 2018, in which the parent bank Credit Libanais

maintains controlling interest, in accordance with regulatory

requirements.

Quality Assurance & ImprovementThe Quality Assurance and Improvement Department within

the IAD covers all aspects of internal audit activities and

continuously monitors its effectiveness through developing

quality assurance techniques. It helps the Head of IAD in

adding value through improving the Bank’s operations and

providing assurance to the Board that the internal audit

function is in conformity with the set standards and the Code

of Ethics.

A timely follow-up is being conducted by this department on

all audited businesses to ensure that all observations raised

in the internal audit reports are well implemented within the

timeframe agreed-upon, which was reflected in a significant

improvement in the control framework during the year 2018.

In 2018, Branch Audit Department contributed to the

issuance of several new procedural notes that improved

the internal control framework and enhanced management

oversight

over branch operations and activities. Moreover, Branch

Audit performed regular follow-ups with branches to ensure

that reported audit deficiencies were properly addressed

and timely regularized. Audit assignments in branches were

conducted according to the annual audit plan approved by

the Board Audit Committee for the year under review.

Centralized Activities Audit This department covered all centralized (non-credit related)

activities as scheduled in the year plan of 2018 and conducted

on-site missions among the different business divisions and

support functions.

Credit Audit Periodic risk-based audits over credit processes and

portfolios are undertaken by the Credit Audit Dept. and

include consideration of the adequacy and clarity of credit

policies and procedures, and in-depth analysis of selection

of loan accounts for commercial facilities and retail products.

The department conducts regular reviews of the adequacy

of provisions to cover any potential impairment of the loan

portfolio.

This department covered credit assignments as scheduled

in the year plan of 2018 which encompassed retail products,

retail and corporate commercial facilities and credit risk

management processes.

Overseas Audit This department covered the audit of operations and activities

pertaining to foreign branches and entities (Limassol, Bahrain,

Baghdad and Erbil branches, and the affiliated bank (Credit

International S.A. in Senegal) during 2018. Reports issued

were discussed with local management and communicated

to the regulatory authorities.

Continuous Control This unit exercises an off-site control over specific MIS and

exception reports issued for branches, and initiates inquiries

with branch management for particular deficiencies, while

maintaining close coordination with the branch audit team

in charge of performing on-site visits to branches, thus

complementing the oversight function exercised by the IA

Division over branch operations and activities in such a way

as to improve the role of internal audit function.

Review reports are being submitted to management and to

the Board Audit Committee on a quarterly basis showing

the major audit findings that were identified and that might

affect the realization of the Bank’s objectives, in addition to a

briefing showing the compliance of auditees with the audit

recommendations and their current status.

Quality reviews are also conducted by this department over

the audit files and documentation to ensure that quality

services are consistently delivered throughout all the audit

assignments and in accordance with the set standards and

policies.

2018 in Review

Introduction of new tools and techniques to better manage and properly allocate the audit resources and to enhance the

internal audit function within the Group.

Transfer of knowledge and competencies through assignment of audit resources to vacant management positions.

Standardization of the audit reports, including the introduction of a systematic rating methodology of audit observations and

the assignment of an overall audit rating for all audited units.

Greater audit coverage included all branches and central departments within the last 2 years (Audit Cycle).

Several training hours were invested in our people through attending internal and external workshops and training sessions

pertaining to relevant business and banking topics. In addition, many auditors are preparing for the CIA certification (Certified

Internal Auditors).

The Board Audit Committee of the parent bank (Credit Libanais) met on a regular basis (4 meetings in 2018 attended by all

members) to discuss the major activities and findings that occurred during the internal audit assignments, out of which:

two meetings were dedicated to discuss financial reporting and accounting issues with the external auditors.

meetings with other senior management officers to discuss the major challenges facing their duties, and the way to

overcome them.

Separate meetings were also dedicated to the Audit Committees of the affiliated banks (4 meetings for each of CLIB and LIB

and 2 meetings for CISA during the year 2018), in which financial reporting and accounting issues were discussed with the

external auditors.

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Compliance and AML/CFT

AML / CFT Correspondent Banking Department Regulatory Compliance DepartmentAML / CFT / FATCA / CRS Department

Regulatory & Screening Unit

Research & Communication

Unit

AML/CFTUnit - Bekaa & South Regions

AML/CFT Unit - Kaslik & North

Regions

AML/CFT Unit - Hamra & Riad

El Solh

AML/CFT Centralized

Activities Unit

FATCA & CRS Unit

Investigations Unit

Compliance Business

Development

Regulatory Testing /

Verification Unit

Regulatory Framework Unit

AML/CFT Foreign Entities & Subsidiaries Unit

Financial Crimes InvestigationDepartment

* Early in 2019, the Compliance Division upgraded the Financial Crimes Investigation into a separate section, the main role of which

consists of conducting investigations on bribery, corruption, fraud and other financial crimes resulting from misconduct and unethical

behaviors, etc.

From a functional perspective, the 18 permanent staff members of the AML/CFT Department are supported by 71 independent

Branch Compliance Officers, designated at each branch of the Bank and reporting directly to the AML/CFT Department, following a

6 months on-the-job training period at the Compliance Division.

Reporting linesThe Chief Compliance Officer reports functionally to the

Board of Directors through the AML/CFT Board Committee

and administratively to Senior Management through the

AML Committee. He also has a direct relationship with the

local Financial Intelligence Unit (The Special Investigation

Commission of the Central Bank of Lebanon) and undertakes

to file and report Suspicious Transactions Reports (STRs) as

well as to respond to inquiries on a timely basis.

AuthorityThe Compliance Division derives its authority from the Board

of Directors. It has unrestricted access to all areas of the Bank

and to any documents and records considered necessary for

the performance of its responsibilities and has the authority

to request any data or report from any member of staff at any

level of the organization, as may be needed.

Training and DevelopmentCredit Libanais considerately promotes awareness of the

compliance culture among employees. In this respect,

AML/CFT’s ongoing staff training is given at various levels

of the organization, both in the head office and branches,

including branch compliance officers and staff at various

levels. Continuous learning includes mandatory in-house and

external training seminars, on-the-job training, e-learning

AML/CFT programs covering a broad range of topics.

The AML Training Academy The AML training academy program at Credit Libanais

provides staff with hands-on methods and skills that can be

directly applied at work.

The program covers:

General introduction and history pertaining to AML.

Risks of Money Laundering on the institution.

The Bank’s three lines of defense and their roles.

Correspondent Banking (awareness, queries, policies, etc.)

Regulatory Compliance (documentation, retention, etc.)

Anti-Bribery and Corruption (policy and healthy

implementation), KYE program.

Suspicious Transaction Reports (STRs).

Sanctions check (OFAC, EU, etc.)

Real-life money laundering schemes (cases that have

occurred at the bank or at similar institutions).

The following briefing sets out the composition of the

Compliance Division:

The Compliance Division Headdirectly assisted by the Research and Communication unit

The AML/CFT/FATCA/CRS Department comprises:

The Regulatory and Screening Unit

The AML/CFT Central Unit for the Bekaa and the South

Regions

The AML/CFT Central Unit for Kaslik and the North Regions

The AML/CFT Central Unit for Hamra and Riad El Solh Regions

The AML/CFT Central Unit for Foreign Entities and Subsidiaries

The AML/CFT Unit for Centralized Activities

The FATCA and CRS Unit

The AML/CFT Correspondent Banking Department

The Financial Crimes Investigation Department comprises: The Investigations Unit

The Compliance Business Development Unit

The Regulatory Compliance Department comprises: The Regulatory Testing/Verification Unit

The Regulatory Framework Unit

Objectives of the Compliance FunctionThe main objectives of the Compliance Division are to support

the Board of Directors and Executive Senior Management in

ensuring that CL Group acts in line with relevant laws, rules

and regulatory requirements in order to prevent, manage and

mitigate compliance risks. Therefore, CL Group has embedded

compliance culture across all entities, locally and abroad, to

ensure the application of sound banking practices in a safe

financial environment, while abiding by highly recognized ethics

and code of conduct.

AML/CFT Board CommitteeThe AML/CFT Committee supports the Board of Directors in

its functions and supervisory role with respect to the AML/CFT

function and assists it in fulfilling its oversight responsibilities

and taking the appropriate decisions with respect to reviewing,

from a risk-based approach, the reports submitted by the

AML/CFT Dept., Internal Audit Division, Special Investigation

Commission, Banking Control Commission, External Auditors

and other regulatory bodies. It also ensures that the bank’s

management understands the related risks to which the

bank may be exposed and has the appropriate policies and

procedures in place to manage/mitigate such risks.

FATCA/CRS (rules, regulations, updates, due diligence).

SIC (tasks, rules and regulations).

Awareness of International Standards (ex: FATF

recommendations).

Awareness and proper Implementation of the CTS, KYC,

and the customer Due Diligence at the branch level.

BCO’s monthly reports and monthly appraisal (procedures

AML Screening.

Risk Based Approach in action/ case studies.

Technical Implications, AML Reporter, Alerts.

Trends in AML.

Interactive Sessions hosting internal and/or external

Guest Speakers that fully engage attendees in a dynamic

learning environment to foster their AML analytical and

critical thinking.

In parallel, training seminars were conducted under the

auspices of many national and international leading

organizations and covered subjects such as:

Overview of applicable AML/CFT, FATCA laws and

regulations.

The Bank’s respective AML/CFT Policies and Procedures.

Procedures for verifying customer identity.

Guidance on how to identify suspicious activities and

unusual transactions.

Guidance on how to identify the Ultimate Beneficial

Owners.

Record keeping and reporting requirements.

Trade-based money laundering.

Customer due-diligence and enhanced due-diligence.

Monitoring of financial transactions.

Reporting of suspicious transactions.

Tipping-off

Etc.

AML/CFT Policies And ProceduresThe Compliance Division has established the required AML/

CFT Policies and Procedures for each entity of CL that are

foundational to a successful AML/CFT program. These

procedures are modified and updated, as needed, to reflect

changes in laws and regulations, products, and organizational

changes.

Head of Group Compliance

AMLC (AML/CFT Committee)

Board of Directors

AML/CFT Board Committee

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Compliance AML/CFT ProgramMain tasks performed by the Central AML/CFT Department

o Review of the “Cash Transaction Slip” (CTS)

o Review of the KYC

o Review of Wire Transfers

o Review of Checks

Numerous control and compliance tasks are also performed

by the Branch Compliance Officers (BCOs) at the branches,

according to a rigorous program.

Systems, Software and Sanctions ListsThe control and monitoring processes include:

Screening of names against Local and International Sanctions

Lists

This process is performed based on an automated filtering

tool called the Designated Name Filtering System (DNFS),

used to compare onboarding and existing customers against

blacklisted names provided locally by the Special Investigation

Commission of the Central Bank, and internationally by

the World Compliance search tools. Major International

Sanctions Lists used for screening include but are not limited

to: OFAC, EU, HMT, Interpol, FBI, etc.…

Transaction Monitoring

The “AML Reporter” is an automated system that uses a

dynamic method to calculate account activity profiles and

detect suspicious account activities. It is a powerful database

engine which manages the data flow to enhance detection

capabilities, and provides exportable reports facilitating

the documentation and verification of AML, KYC and EDD

(Enhanced Due Diligence) compliance efforts.

In addition to the reports generated, the AML Reporter

determines profiles and activity expectations to effectively

detect trend breaks and abnormal transactional behavior, by

means of automatic generation of “Alerts”.

Reporting of Suspicious Cases

Clients’ accounts are subject to continuous monitoring

through the “AML Reporter” system, which generates

“Alerts” and “Exception Reports” based on the scenarios

and frequencies set. Unusual or irregular transactions are

investigated and in case doubts persist, they are reported

to the “AML Committee” created at Executive/Senior

Management level for discussion.

FATCA Implementation

The Compliance Division follows practical measures to ensure

the timely and efficient application of FATCA procedural

requirements.

FATCA Reporting

The Compliance Division developed a FATCA Program

supported by FATCA timeline for each FATCA scheduled

requirement, while endorsing the responsibility of applying

a Compliant FATCA procedural framework and a FATCA

Action Plan abiding by the IRS requirements. The first FATCA

reporting was done on 30/6/2015.

CRS Reporting

The first Common Reporting Standard (CRS) reporting was

done during 2018 for CL according to CRS calendar, following

the signature by the Lebanese Authorities of the Multilateral

Competent Authority Agreement for the automatic exchange

of Financial Information on Financial Accounts operating in

Lebanon, in order to automatically exchange such information

with other CRS reportable jurisdictions on an annual basis.

In this respect, the Bank has developed a procedural

framework and acquired IT Software that meet the regulatory

requirements worldwide.

AML/CFT – Correspondent Banking RelationshipThe Bank has correspondent banking relations with a network

of international correspondent banks and applies global

correspondent banking requirements, policies and procedures

in each jurisdiction where it is present. As such, ongoing due

diligence of the existing and new correspondent banking

relationships is conducted to ensure that an appropriate level

of transparency between both parties is applied to protect

the Bank’s reputation.

The Bank has completed its membership in the KYC Registry

through the SWIFT platform, which allows the automatic

exchange of basic or enhanced KYC due diligence information

among banks. KYC Registry is fully aligned with the new 2018

Wolfsberg Due Diligence questionnaire.

AuditorsTwo international auditing firms - KPMG and DFK Fiduciaire

du Moyen-Orient - jointly audit the Bank’s financial accounts,

prepared in accordance with the International Financial

Reporting System (IFRS).

If the case is considered suspicious, it is reported to the

“Special Investigation Commission” (SIC) of the Central Bank

and the Bank’s “Anti Money Laundering Board Committee.”

Risk Based Approach (RBA) Methodology Credit Libanais applies the Risk Based Approach when

assessing the risks of its customers and operations from a ML/

FT perspective according to a matrix incorporating a set of

parameters mainly related to the customer and the nature

of his business, products and services as well as country of

operation. RBA is used to classify the Bank’s customers into 3

categories of risks (High, Medium and Low).

AML Model ValidationCredit Libanais conducts periodic review of each model to

determine if it is working as intended and if existent procedures

and processes are sufficient. Continuous improvement and

enhancement are always performed to maximize effectiveness

while reducing operational inefficiencies. In this respect,

models are integrated into the Bank’s broader AML program;

and based on many systems and databases in place, such as

the sophisticated CRM (Customer Relationship Management)

system of records and data warehouse, the AML reporter, the

DNFS, sanctions lists, etc. that feed business reports and are

used to make appropriate decisions.

Early in 2019, based on the continuous Model Validation, the

Bank’s Compliance Division upgraded the Financial Crimes

Investigation into a separate section, the main role of which

consists of conducting investigations on bribery, corruption,

fraud and other financial crimes resulting from misconduct

and unethical behavior, etc.

FATCA and CRSFATCA Integration

The Compliance Division has completed the Foreign Account

Taxation Compliance Act (FATCA) online registration of Credit

Libanais on 7/4/2014 and accordingly obtained the Global

Intermediary Identification Number (GIIN), in conformity with

FATCA provisions and regulatory requirements.

The Bank has acquired an IT software for FATCA

implementation (Turnkey System) aiming at identifying and

tracking US customers, monitor transactions and accounts

falling under FATCA provisions and performing FATCA

reporting processes to the Internal Revenue Service (IRS).

Partnerships with International BodiesThe Bank also maintains a considerable number of

partnerships with international bodies and benefits from

long-term financing and risk sharing schemes with institutions

such as:

The International Finance Corporation (IFC),

The European Bank for Reconstruction and Development

(EBRD),

The European Investment Bank (EIB),

The Arab Trade Financing Program (ATFP),

The Economic and Social Fund for Development (ESFD),

The Cooperative Housing and Finance International (CHF

International) and

The United States Agency for International Development

(USAID).

Those international bodies regularly exercise due

diligence practices on Credit Libanais prior to entering into

partnerships and granting facilities.

Correspondent Banks Awards in Recognition of Credit Libanais’ Excellence

JP Morgan recognizes Credit Libanais with the Elite Quality

Recognition Award for Outstanding Achievement of Best-

in-Class MT 103 Straight Through Processing (STP) Rate

99.06%”. (2017-2015-2013)

Citibank recognizes Credit Libanais with the Straight

through Processing (STP) Award, in recognition of the

Bank’s excellent quality and accuracy in delivering

commercial payments and processing transactions.

(2016-2015-2014)

Deutsche Bank recognizes Credit Libanais with the Euro

Straight through Processing (STP) Excellence Award, in

recognition of the Bank’s excellent quality and accuracy

in delivering commercial payments and processing

transactions. (2017-2014)

Standard Chartered grants Credit Libanais the Straight

through Processing (STP) USD Clearing Excellence Award,

in recognition of the Bank’s excellent quality and accuracy

in delivering commercial payments and processing

transactions. (2014-2013)

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Principles of Banking and Financial Operations with Customers The National FrameworkIn February 2015 in Lebanon, Banque du Liban (BDL) issued circular No. 134 related to the Principles of Banking and Financial Operations with Customers, following which the Bank established a new Consumer Financial Protection Function directly reporting to the Chairman General Manager, independent from the operations execution.

Major Local Regulatory RequirementsBDL Basic Circular No. 134, related to the Principles of Banking and Financial Operations with Customers.BCCL (Banking Control Commission of Lebanon) Circular No. 281 complementing BDL Circular No. 134BDL Basic Circular No. 124,BCCL Circular No. 273 complementing BDL Circular 124.BDL Intermediary Circular No. 458, related to banking services offered to people with special needs in general and those with visual disability in particular.BCCL Memos no. 24-25/2015, 14/2016, 5/2018 and 1/2019 that complement previous BDL circulars issued.The CMA (Capital Markets Authority) of Lebanon regulations, namely (Series 3000) related to Business Conduct.

The International FrameworkThe global financial crisis that started in 2007 highlighted the need for more effective Consumer Financial Protection measures as consumers face more sophisticated and difficult markets. The availability of information has grown both in quantity and complexity, and the pace of change in terms of new product developments, disruptive innovations and technological advances, has increased dramatically according to the OECD.In February 2011, the G20 called on the OECD, the Financial Stability Board (FSB) and other international bodies to develop common principles on Consumer Protection in the field of financial services. These principles were endorsed at the G20 meeting on 14-15 October 2011. The Consumer Financial Protection principles set clear and transparent rules of conduct for financial institutions in the daily conduct of business. The aim of the principles is to ensure that consumers receive the transparent information required, allowing them to make informed decisions and shielding them from unfair or deceptive practices.

Reviewing advertisements, brochures, contract samples,

account statements and other documents provided to

customers; and submitting the necessary suggestions that

guarantee their clarity and transparency.

Continuously monitoring the updating of the Key Facts

Statement (KFS) related to services and products in an ever-

changing business environment, and ensuring their timely

publication on the Bank’s various communication channels

and touchpoints.

Continuously contributing to the development of customer

awareness and education programs.

Ensuring the ultimate compliance ratio of branches in

terms of obtaining all customers’ signatures on the List of

“Rights and Duties”. In this perspective, the Bank reached

a relatively high ratio of compliance that nears 70% in

obtaining the signature of existing customers on their List

of Rights and Duties.

Continuously monitoring the update and publishing of the

“List of Fees and Charges”.

Ensuring that staff who deal with customers conduct

business in a suitable and transparent manner, and protect

customers’ personal and financial information, without

prejudice to the legislation in force, particularly the Banking

Secrecy and Anti-Money Laundering Laws.

Suggesting and participating in the development of

training programs that educate employees on how to deal/

interact with customers, and how to explain to them the

features, risks and suitability of products and services with

the customer’s situation and needs.

Following-up on customer claims received electronically

or via the various communication channels implemented

in the branches, examining them and giving an opinion

in this regard. Informing the customer about the outcome

of the claim. All aforementioned claims are consolidated

and reported to BCC on a quarterly basis through the CP1

report.

Principles of Bankingand Financial Operations with Customers



The Consumer Financial Protection is a fully independent

function of the operations and business lines of the Bank. In

accordance with BDL Circular 134 and related BCC Circular 281,

Consumer Financial Protection covers all branches of the Bank

in Lebanon, directly reports to the Chairman General Manager,

and sends its reports to Senior Executive Management and the

Board of Directors in matters related to the implementation of

the Policy, Charter and Action Plan, and puts forth suggestions

for improvements of the Principles of Banking and Financial

Operations with customers as per regulatory requirements in

place, to promote a better customer experience.

Moreover, Consumer Financial Protection is entrusted with

spreading awareness among staff and customers in matters of

customer Rights and Duties, as well as standards of suitability,

transparency, fairness and equitability. To ensure direct access of

customers to the Bank in matters of suggestions or complaints.

Consumer Financial Protection established a clear complaints

handling mechanism across CL branches, website and social

media channels, and continuously ensures awareness spreading

through training, capacity building and enhancement of

professional experience including the implementation of the

provision of the Basic Circular #103 dated March 9, 2006.

In 2018, more efforts were geared towards financial inclusion

of people with special needs, by refurbishing branches and

reengineering processes.

The Consumer Financial Protection - Framework of ActionIn 2018, the Consumer Financial Protection continued to ensure

the sound principles of conducting banking operations with

customers according to the policy approved by the Chairman

General Manager and the Board of Directors on July 30, 2015.

Responsibilities covered the following tasks:

Directly reporting customer claims to the General Manager,

at least on a quarterly basis, detailing their nature, handling

and outcome as well as the measures proposed to improve

the policy relating to the Consumer Financial Protection

function.

In 2018, within the framework of the Bank’s “Financial

and Disabled Inclusion” strategy, we sustained our efforts

to make the vast majority of our branches inclusive to all

customers. Special measures were adopted at branches for

banking processes to make them more easily accessible to

people with special needs, including the visually impaired.

Infrastructure and operational preparations are underway

to install a considerable number of ITMs (Interactive Teller

Machines) at selected branches, to cater to the needs of the

visually impaired customers.

Moreover, access ramps have been made available at a

large number of our branches for the physically challenged

people in view of facilitating their access to conduct banking

transactions with the Bank.

At Credit Libanais, we support BDL efforts in spreading

financial inclusion among various categories of customers,

including those with special needs.

Principles of Banking Operations and Transparency Training to CL Group Staff MembersPursuant to BDL134, namely Article 3 (paragraph 2), which

states that Banks and financial institutions operating in Lebanon

shall spread among their employees the culture of a transparent

and fair relationship with customers, the Consumer Financial

Protection Department conducted Bank-wide training sessions

for more than 700 employees from all branches and Head

Office divisions. The training covered the main topics related

to the Principles of Banking and Financial Operations with

Customers, including background information on the concept

of consumer financial protection in the world, awareness and

education, marketing campaigns, complaints handling and

reporting, secrecy and data protection, standards of suitability,

equitability, fairness and transparency, key facts statements,

contracts, applications and statements of accounts, annual

percentage rate (APR),etc.

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Support Functions Activities and Analysis03

We value each others’ ideas.We treat colleagues fairly, sincerely

and courteously regardless of differences in background.


Corporate Banking

The Tier III Certified Data Center of CL Group is one of the best in the region. It is spread over some 450 m2 with 120 kW of net IT

load and is designed to handle all the functions of the Bank.

The main data center environment is water cooled at relatively high temperatures. Normally water-cooled systems for the building’s

supply water is at around 6°C; CL data center uses a 10°C chilled water temperature, which greatly increases the efficiency and

reduces cost. Moreover, there is no need to provide large-scale humidification because water will not condense as much as when

the chilled water temperature is lower, which substantially saves on energy. The chillers also have variable speed compressors and

variable chilled water pumps that can adjust as per the needed capacity.

CL Tier III data center features are as follows:

Chilled water-cooled white space. The chilled water system significantly increases efficiency and running costs.

The chiller compressors and pumps optimize energy consumption based on actual demand.

A special variable primary chilled water system further reduces energy expenditures.

Computer room air conditioning units reduce energy consumption.

Cold air containment enhances the overall system efficiency.

The fresh air for the data center is centrally pre-treated with an energy recovery unit.

Associated office space is air conditioned by a VRV (variable refrigerant flow) system for high efficiency and lower energy

expenditures. The system interfaces with the BMS (building management system) for scheduling and centralized parameterization

to avoid operation during unoccupied periods.

The latest VRV system technology provides cooling to the office space.

Re-circulated air from offices ventilates the UPS/battery room through transfer fans, which reduces the amount of treated fresh air.

Modular UPS systems adjust capacity to actual IT loads. The lighting is switched on by a lighting control system that includes

automatic motion sensors and centralized parameterization and scheduling to avoid operation during unoccupied periods.

The BMS (Building Management System) integrates all subsystems, either directly or via SNMP (Simple Network Management

Protocol), KNX, and data center infrastructure (DCIM) controls. The system allows an overall insight on the operations of the data

center, monitoring all energy expenditures, faults, and alerts.

DCIM optimizes operations and increases overall efficiency.

In an industry that has seen huge innovations in recent years amongst ever-evolving corporate and consumer demands for a swifter

user-experience, Credit Libanais’ information technologies division continued to deliver strategic advantages to the Bank by adopting

innovative, secure and highly reliable technology infrastructure to meet the ever-changing customer and employee needs.

During 2018, major enhancements to the IT infrastructure were undertaken and covered the following areas:

Upgrade of the Group IT systems (core, Swift and Trade Finance) to ensure on-going compliance with requirements of the Swift.

Exploration of Big Data/Analytics for improved decision-making.

Completion of the online Mechanic payment system.

Implementation of the IFRS9 system as per national and international regulatory bodies’ regulations.

Enhancements to the Omega Trading software including data warehouse integration.

Supporting the upgrade of all banking card systems.

Implementation of a middleware solution in line with the Digital transformation strategy, to integrate all existing systems and

applications at the Bank.

Integration of Digital contact center based on the middleware.

In addition to the ongoing support to all the Bank’s infrastructure, 2018 witnessed many project upgrades that led to the unification

of the core banking platform across all the entities of the Group. Those included:

o Upgrade of the Trade Finance system to the latest TI web version

o Upgrade of the GPI (Global Payments Innovation) and LAU (local authentication Unit) for SWIFT compliance requirements.

While implementing above projects, IT division closely monitored the security technology infrastructure in an increasingly hostile

cybersecurity environment and implemented the needed security equipment such as data center firewalls and sandboxing to protect

the Bank from any potential cyber-threat.

In addition, business continuity tests are regularly conducted with the business units and the BCP department to ensure proper

replication of the critical business units to the disaster site to be used in case of disaster.

Banking Information Technologies

Tier III Certified Data Center

81

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Human Resources


E-Library (a learning channel where all training material is

uploaded)

Energizing Hour Channel (a one-hour energizing session

given to HO staff. Training material made available on the

portal)

Knowledge Transfer (staff who attend external trainings

transfer the knowledge acquired to other staff members).

Schools Programs (a blended interactive approach

between instructors and staff)

3AAA Challenge (3 competition assessment tests related

to branch operations)

Learning Initiative (the blended portal of product

knowledge and teller operations is tailored to branch staff

on the e-learning portal)

Mobile Learning (the first-of-a-kind e-learning mobile app

M-Learning that allows CL staff to continue learning on

their mobiles). In 2018, 55% of CL staff were active on the

e-Learning curriculum program

“Banking Operations” totaled 321 training hours, with

emphasis on topics such as “Legal Aspects of Banking

Operations” and “Legal Aspects in Lending Procedures”,

in addition to a customized training in LC titled “LC

Applications and International Commercial Terms”. Our

programs included Induction Training, On-the-job Training

and External Training.

Training Activity per Category of Employees

Interns in Head Office and Regions

Branch VisitsContinuous branch visits allow for direct communication with staff across the network throughout Lebanon, solving of problems and recognition of talents and high performers.

Training Activity per Category of Courses

- Internal/External & Overseas Seminars: 1163 Hrs.

- Total Trainees by course session: 316

53% Others

41

33

42

28

21

28

19

33

27

32

22

26.9% Banking Operations

16.6% Leadership & Management

15.3% Auditing & Finance

13.6% Compliance

12.1% Marketing & Sales

7.5% Risk Management

3.7% Others

2.4% E-Learning Behavioral

1.8% Information Technology

Head Office

Regional Management Riad El Solh

Regional Management Kaslik

Regional Management Hamra

Regional Management Bekaa & South

Regional Management North

Regional Management Riad El Solh

Regional Management Kaslik

Regional Management Hamra

Regional Management Bekaa & South

Regional Management North

46% Middle

1% Executive

RecruitmentDigital banking had its part in changing the nature of

banking services and our search for the needed proper

talent continued in 2018. Priority was yet again given to the

internal redeployment of employees in view of retaining

and advancing the Bank’s talents. The Bank gave interested

employees the opportunity to perform jobs other than their

own, which led to more enriching experiences within a

dynamic corporate environment. The opening of two new

branches in Tannourine and in Dbayeh, and our expansion

strategy in the West Africa region also called for specific

recruitments throughout the year.

Performance AppraisalThe yearly performance appraisal exercise allows employees

to make their aspirations and concerns heard, through

dynamic, one-to-one discussions with their direct supervisors

who in turn, align employees’ objectives with the Bank’s

overall culture and values.

Banking Financial Qualifications (BFQ)In 2018, added numbers of CL staff enrolled in the Banking

Financial Qualifications courses ensuring abidance by BDL

Circulars 470 and 103 requirements, the CMA requirements

and international best practices in this field.

BFQ were also complemented by technical certifications

such as the CIA, CAMS, Combating Financial Crime, Financial

Derivatives, Global Securities, International Introduction

to Investment, Investments and Risks, and Risk in Financial

Services. Said certifications ensure that staff acquire more

technical skills to ensure better deliverables and outcomes

in their daily conduct of business.

Learning and DevelopmentIn 2018, several e-learning initiatives were undertaken such

as:

The Banking Operations Test (an e-test targeting new

recruits to increase their banking knowledge)

Career Management ProgramIn 2018, 25 qualified employees were chosen under set

criteria for enrolment in the Career Management Program.

Customized programs were prepared for each candidate

to sharpen leadership skills and professional knowledge in

preparation for their growth within the Bank.

Job-Specific-SchoolsCRA/CSO School

The purpose of this school is to shed light on the sales

approaches, understanding customer behavior, attitudes and

requirements, in view of giving CL branch staff the necessary

tools and techniques to perform their job, in a highly

competitive market characterized by more stringent and strict

regulations.

ABM/BS School

The purpose of this school is to equip CL Assistant Branch

Managers and Branch Supervisors with a concrete banking

expertise based on the latest trends in the industry.

Overseeing employees and providing higher customer

service is equally an important milestone in this School to

get the edge over competitors in a challenging market. Legal

Aspects of Banking Operations, Transparency Requirements

and AML are also important subjects in this School.

AML Training Academy

As financial crimes continue to hinder economic progress and

cause huge harm to communities, CL deploys continuous

efforts to promote awareness to staff, through its recently

established AML Training Academy which aims at educating

all members on matters related to potential money laundering

schemes. Seminars explain ways to deal with said schemes,

increase staff knowledge and skills in the mitigation of

possible money laundering risks, in view of maintaining

a healthy and solid compliance culture at the Bank. At the

end of the AML Academy, successful candidates receive a

“Certificate of Completion”.

Principles of Banking Operations and Transparency Training

Seminars

In 2018, the Consumer Financial Protection Department

conducted Bank-wide training sessions for more than 700

employees from all branches and Head Office divisions.

The training material covered the main topics related to

the Principles of Banking and Financial Operations with

Customers, including background information on the concept

of consumer financial protection in the world, awareness and

education, marketing campaigns, complaints handling and

reporting, secrecy and data protection, standards of suitability,

equitability, fairness and transparency, key facts statements,

contracts, applications and statements of accounts, annual

percentage rate (APR),etc. For more training efficiency and

clearer KPIs, pre and post-session tests were conducted.

Summer Internships for The Year 2018The Bank strives to provide a positive culture while

cultivating the ultimate learning experience for interns.

The “Intern Orientation Sessions” are regularly organized

to facilitate orientation into the banking environment for

accepted applicants.

Credit Libanais recognizes the importance of having a talented, experienced and ambitious workforce at the level of the

individual and the organization. In this perspective, the year 2018 witnessed a considerable challenge for HR to ensure jobs that

are richer in learning experiences and offer career growth and exposure to our workforce in a difficult economic environment.

53%

46%

1%

26.9%

16.6%

15.3% 7.5%

3.7%

2.4%

1.8%

12.1

%

13.6%

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones

Financial Statements04We function as a team. Cooperation among individuals and units is fundamental in delivering the whole Bank to the customers.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Credit Libanais Group

CL Group Financial Results

87

101

108

110

112

116

118

Management’s Discussion and Analysis of Financial Condition and Results of

Operations of Credit Libanais Group

Independent auditors’ report

Consolidated statement of financial position

Consolidated statement of profit or loss and other comprehensive income

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the consolidated financial statements

Annual Report 2018 Credit Libanais GroupAnnual Report 2018 Credit Libanais Group

The following discussion and analysis have been prepared based on the audited consolidated financial statements of the Group as at and for the years ended 31 December 2018 and 2017 and on selected financial information.

The consolidated financial statements of the Group as at 31 December 2018 represent the financial position of Credit Libanais Group which incorporates the activities of Credit Libanais SAL together with its wholly owned subsidiaries, Credit Libanais Investment Bank SAL (CLIB), Lebanese Islamic Bank SAL (LIB) and Credit International SA – Senegal (CISA) and other companies directly or indirectly owned by Credit Libanais SAL. All material inter-company transactions incurred during the years 2018 and 2017 were eliminated when preparing the consolidated financial statements in accordance with regulations and standards agreed upon for consolidation purposes.

Lebanese Banking Sector

Total Lebanese banking sector assets reached LBP 376,097 billion (or US$ 249.48 billion) as at 31 December 2018, compared to LBP 331,433 billion as at 31 December 2017 (or US$ 219.86 billion), reflecting an annual increase of LBP 44,664 billion or 13.48% year-on-year. Total loans to private sector made by the Lebanese banks decreased by 0.5% in 2018 to LBP 89,524 billion (or US$ 59.39 billion) as at 31 December 2018 down from LBP 89,976 billion as at 31 December 2017. Total customer deposits, including non-resident private deposits, held by the Lebanese banking sector increased by 3.23% in 2018 to LBP 269,174 billion (or US$ 178.56 billion) as at 31 December 2018 from LBP 260,746 billion as at 31 December 2017. In addition, the deposit dollarization rate increased to 68.93% as at 31 December 2018, compared to 67.01% as at year-end 2017.

Analysis of Financial Position

Total AssetsAs at 31 December 2018, the Group had total assets of LBP 18,773.29 billion, compared to LBP 17,419.16 billion as at 31 December 2017, reflecting a year-on-year increase of LBP 1,354.13 billion or 7.77%. This increase in total assets, particularly in liquid assets, was substantially matched by increases in funding, which consisted primarily of loans from Central Bank of Lebanon and financial institutions. The average growth in total assets of the Lebanese banking sector stood at 13.48% during the year 2018. The Group’s share of total assets of the Lebanese banking sector reached 4.99% at year-end 2018, compared to 5.26% at year-end 2017.

Basis of Presentation

8687

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones

Annual Report 2018 Credit Libanais GroupAnnual Report 2018 Credit Libanais Group 8889

Sources of FundingThe following table sets out a breakdown of the Group’s sources of funding as at 31 December 2018 and 2017, respectively:

Customer depositsTotal customer deposits of the Group increased by 0.41% to LBP 14,079.68 billion as at 31 December 2018 from LBP 14,021.73 billion as at 31 December 2017, while the average growth rate in total deposits of the Lebanese banking sector stood at 3.23% during the year 2018. Customer deposits represent the principal source of the Group’s funding and comprised 75.0% and 80.5% of the Group’s total assets as at 31 December 2018 and 2017, respectively.

As at 31 December 2018, savings accounts, which are mostly held by individuals and have, average maturities of approximately 3 to 6 months, represented the largest portion of the Group’s customer deposits 49.63%. Demand deposits, which earn the minimum balance rate offered by the Group, represented 10.88% of total deposits; and time deposits, which are mostly held by businesses, represented 39.49% of total deposits.

The following table sets out the compositions of the Group’s customer deposits, by currency, as at 31 December 2018 and 2017, respectively:

Year-on-year, foreign currency deposits were 5.31% higher as at 31 December 2018, compared to 31 December 2017, while LBP deposits decreased by 5.86% over the year 2018, compared to a decrease of 2.95% in LBP deposits for the Lebanese banking sector. As at 31 December 2018, customer deposits held in foreign currencies, principally US Dollars, represented 58.92% of total customer deposits as at such date, compared to 56.18% as at 31 December 2017, while the banking sector’s deposits dollarization increased to 68.93% as at year-end 2018 from 67.01% as at year-end 2017. The Group’s deposits in foreign currency were lower than the sector’s average primarily because of the Group’s retail activities in rural areas (Bekaa region) where customers traditionally use Lebanese Pound as the functional currency.

Foreign currency deposits are primarily comprised of time deposits and savings accounts.

Loans PortfolioAs at 31 December 2018, loans and advances to customers (net of provisions for doubtful debts and reserved interest) amounted to LBP 4,981.19 billion, compared to LBP 5,215.16 billion as at 31 December 2017, reflecting a year-on-year decrease of 4.49%. Over the same period, aggregate loans to private sector made by Lebanese banks decreased by 0.5%.

The ratio of the Group’s total loans to total assets was 26.53% as at 31 December 2018, compared to 29.94% as at 31 December 2017.The Group’s loans-to-deposits ratio improved to 35.38% as at 31 December 2018 compared to 37.19% as at 31 December 2017 and compared to the average of 34.07% for the Lebanese banking sector.

The table below sets out the composition of the Group’s loans portfolio, by currency, as at 31 December 2018 and 2017, respectively:

Of the Group’s total loans portfolio, LBP 2,177.98 billion or 43.72% were denominated in Lebanese Pounds, with the remaining 56.28% denominated in foreign currencies, principally in US Dollars, as at 31 December 2018. Loans in foreign currencies represented 33.79% of total foreign currency customer deposits as at 31 December 2018, compared to 37.04% of total foreign currency customer deposits as at 31 December 2017, and compared to the average of 34.86% for the Lebanese banking sector as at 31 December 2018.

During the year ended 31 December 2018, the Group has implemented International Financial Reporting Standard 9 which requires management to determine and recognise expected credit losses (ECL) as opposed to the incurred credit loss model under IAS 39.

Deposits by Currency

Loans by Currency

1,351,151

35,716

1,315,435

14,021,735

1,411,696

5,265,607

231,852

7,112,580

15,372,886

5,783.81

5,503.06

14,079.68

2,177.98

1,859.50

4,981.19

6,144.13

5,225.61

14,021.73

2,297.26

1,935.59

5,215.16

31/12/2017LBP millions

Increase/Decrease


Deposits31/12/2018

Deposits31/12/2017

Percentage change

Percentage change

Percentage change

Group Sector

2,628,606

78,593

2,550,013

14,079,683

1,307,884

5,559,755

223,956

6,988,088

16,708,289

(360.32)

277.45

57.95

-119.28

-76.09

-233.97

Loans from Central Bank of Lebanon and Financial Institutions

Demand deposits

Time deposits

Customer Deposits

Demand deposits

Time deposits

Sight saving accounts

Time saving accounts

Total

In LBP (LBP billion)

In foreign currency (converted into USD million)

Total (LBP billion)

94.55%

120.05%

93.85%

0.41%

-7.35%

5.59%

-3.41%

-1.75%

8.69%

-5.86%

5.31%

0.41%

-5.19%

-3.93%

-4.49%

-2.95%

6.19%

3.23%

-5.87%

1.73%

-0.50%

Decrease Loans31/12/2018

Loans31/12/2017 Group Sector

In LBP (LBP billion)

In foreign currency (converted into USD million)

Total (LBP billion)

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The following table sets out the composition of the Group’s loans portfolio by the borrower’s economic activity, after accounting for specified loan loss provisions as at 31 December 2018 and 2017:

Personal, consumer and housing loans increased to 43.01 % of total loans as at 31 December 2018, compared to 42.57% as at 31 December 2017, while trade and services loans increased to 33.74% of total loans as at 31 December 2018, compared to 27.44% as at 31 December 2017. The Group’s industrial loans, construction loans, brokerage loans, agriculture and Government loans comprised 12.60%, 9.03%, 0.46%, 1.12 and 0.04% of total loans, respectively, as at 31 December 2018, compared to 12.37%, 15.77%, 0.55%, 1.25 and 0.05% of total loans, respectively, as at 31 December 2017.

LiquidityAs at 31 December 2018, Credit Libanais Group maintained high liquidity levels which represented 93.21% of total customer deposits and other liabilities and 69.87% of total assets, compared to 82.16% and 66.08% respectively, as at 31 December 2017. Liquidity was distributed on the basis of 50.20% in Lebanese Pounds and 49.80% in foreign currencies at 31 December 2018, compared to 48.23% and 51.77% respectively as at 31 December 2017.

As a result of the international financial crisis that almost affected the majority of banks operating all over the world, the Group reconsidered the risk exposures maintained with its bank correspondents and accordingly redistributed the liquidity held and the credit limits granted to them in a way to avoid high concentration of liquidity with a single correspondent and to deal with prime banks that can benefit from their government’s financial support.

The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills and Eurobonds as at 31 December 2018:

The average rate of return on Lebanese Pounds ordinary treasury bills subscribed by Credit Libanais SAL and amounting to LBP 1,488.27 billion stood at 7.10%. The overall yield on the Group’s portfolio of treasury bills held in Lebanese Pounds aggregated to 7.13% at 31 December 2018, compared to 6.81% at the end of the preceding year.The average yield on Lebanese Government treasury bills issued in foreign currencies was 6.77% at 31 December 2018, compared to 6.53% at the end of the preceding year.

The following table sets out the composition of the Group’s portfolio of Lebanese treasury bills, by maturity, as at 31 December 2018:

Loans by Industry

Lebanese government securities

2,219,839

1,431,044

644,861

822,227

28,732

65,066

3,396

5,215,165

1,549.41

25.89

7.28

(1.98)

(7.63)

1,572.97

145

134

139

155

455

521

1,549


In FCUSD Millions

In FCUSD Millions

As at 31 December 2018

As at 31 December 2018


In LBPLBP Billions

In LBPLBP Billions

Percentage change

Total LBP Billions

Total LBP Billions

2,142,276

1,680,438

627,579

450,004

23,030

55,680

2,183

4,981,190

934.44

12.35

1.04

(10.34)

(8.09)

929.40

36.98

49.60

30.84

1.23

243.87

571.92

934.44

Retail (personal, consumer and housing loans)

Trade and Services

Industries

Construction and Real Estate

Brokerage

Agriculture

Government

Total

Ordinary treasury bills

Plus: Accrued interest on treasury bills

Additions

Deductions

Expected Credit Loss

Total

Less than 6 months

Between 7 and 12 months



Between 2 and 5 years

Over 5 years

Total Lebanese treasury bills

-3.49%

17.43%

-2.68%

-45.27%

-19.85%

-14.43%

-35.72%

-4.49%

2,958.08

44.51

8.85

(17.57)

(19.82)

2,974.05

200

209

185

157

823

1,384

2,958

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The Group held investments and marketable securities amounting to LBP 1,818.09 billion as at year-end 2018 compared to LBP 1,655.10 billion as at year-end 2017, reflecting an increase of LBP 162.99 billion or 9.85%. All investments consisted of instruments and papers issued by Lebanese banks and prime local and international companies and are quoted in regulated financial markets.

The following table sets out the composition of the Group’s portfolio of investments and marketable securities, by type of instrument, as at 31 December 2018:

At 31 December 2014, the authorised and issued share capital comprised 23,400,000 ordinary shares with a nominal value of LBP 11,000. All shares rank equally with regards to the Bank’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time. All issued shares are fully paid.

In July 2013, the extraordinary general assembly of shareholders approved the issue of 1,000,000 perpetual non-cumulative preferred shares with a nominal value of LBP 11,000; increasing the share capital of the Bank from LBP 257,400 million to LBP 268,400 million, thus an increase of LBP 11,000 million. The share premium amounted to LBP 139,750 per share.

Holders of these shares receive a non-cumulative dividend at the Bank’s discretion, or whenever dividends to ordinary shareholders are declared. They do not have the right to participate in any additional dividends declared for ordinary shareholders. These shares do not have voting rights.

Equity to assets ratio reached 7.99% as at 31 December 2018, compared to 8.00% at year-end 2017.

Capital AdequacyDuring 2018, the Group conducted a quantitative impact study to assess the implications of the Basel III Accord on the shareholders’ equity of the Group. The capital adequacy ratio stood at 16.60%, compared to 15.20% at year-end 2018 (minimum required 15% in 2018),

Average rate of return on bonds and certificates of deposit held in foreign currencies stood at 6.04% for the year ended 31 December 2018, compared to 5.59% for the year ended 31 December 2017.

Investments and Marketable Securities

—

—

4.425

1,165.119

1,169.544

In FCUSD Millions

As at 31 December 2018In LBP

LBP BillionsTotal

LBP Billions

31.192

7.968

31.403

359.651

430.214

Corporate Bonds & Other Sovereign Bonds

Debts Securities

Unquoted & quoted Equity Securities & Preferred Shares

Certificates of deposits issues by the Central Bank

Total investment and marketable securities

47.021

12.012

51.765

1,707.293

1,818.091

Shareholders’ EquityShareholders’ equity is divided into core capital (Tier I) and supplementary capital (Tier II). Tier I capital comprises paid-up common share capital, reserves, retained earnings, and reserves for unspecified banking risks, less any unfavorable change in fair value of available-for-sale securities.

The following table sets out the composition of the Group’s shareholders’ equity as at 31 December 2018 and 2017, respectively:

257,400

11,000

139,750

147,254

239,363

356

388,464

118,334

160,545

1,462,466

36,683

1,499,150



Percentage change

257,400

11,000

139,750

260,455

130,284

52,411

272,187

116,249

120,376

1,360,112

33,327

1,393,439


Share capital - common shares

Share capital - preferred shares

Share premium - preferred shares

Capital reserves

Retained earnings

Fair value reserve

Other reserves

Profit for the year

Subordinated debt issued

Total equity attributable to equity holders of the Bank

Non-controlling interest

Total equity

0.00%

0.00%

0.00%

-43.46%

83.72%

-99.32%

42.72%

1.79%

33.37%

7.53%

10.07%

7.59%

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


Asset / Liability ManagementThe Group’s consolidated balance sheet is structured in terms of percentage of total assets as shown in the table below at 31 December 2018 and 2017:

RESULTS OF OPERATIONS

Interest IncomeThe following table sets out the principal components of the Group’s interest income, by amount and as a percentage change therein, for each of the years ended 31 December 2018 and 2017, respectively:

Interest on Financial Assets at amortized cost represents interest earned primarily on Lebanese treasury bills denominated in Lebanese Pounds and Government and corporate Eurobonds issued in foreign currencies (including principally US Dollars and Euro) Lebanese treasury bills continued to comprise the substantial majority of the Group’s portfolio of Financial Assets classified at amortized cost in 2018 and 2017, reflecting the Group’s significant portfolio of liquid assets that is largely financed by customer deposits gathered through the Group’s branch network.

The overall yield on the portfolio of Lebanese treasury bills held by the Group in Lebanese Pounds was 7.13% as at 31 December 2018, compared to 6.81% as at year-end 2017, and the average yield on Lebanese government Eurobonds issued in foreign currencies was 6.77% as at 31 December 2018 and 6.53% as at 31 December 2017.

Interest income on the Group’s loans portfolio increased by 4.85% during the year 2018 primarily due to the market increase of interest rate on loans.

Accordingly, total interest income for the year ended 31 December 2018 increased by 14.97% compared to total interest income for the year ended 31 December 2017.

Interest ExpenseThe following table sets out the principal components of the Group’s interest expense, by amount and as a percentage change therein, for each of the years ended 31 December 2018 and 2017, respectively:

The Group’s interest expense is principally comprised of interest paid on customer deposits, as these constitute the primary source of funding for the Group and aggregate to 75.00% of total assets at 31 December 2018. The total amount of interest paid on customer deposits increased in 2018, compared to 2017, by 19.89% despite the modest increase in total Group’s customer deposits by 0.41% as at 31 December 2018 due to the volatile market conditions and upward pressure on deposit returns brought on by the fierce competition among banks.

Net Interest IncomeThe following table sets out the Group’s net interest income and net interest margin for each of the years ended 31 December 2018 and 2017, respectively:

2017 2017Assets as at 31 Dec. Liabilities & Equity as at 31 Dec.2018 2018

Cash and banks

Treasury bills and Eurobonds

Marketable securities

Net loans and advances

Fixed assets

Other debtors and receivables

Total Assets

Due to banks

Customer deposits

Long-term liabilities

Other creditors and payables


Total Liabilities and Equity

37%

20%

9%

30%

2%

2%

100%

8%

80%

-

4%

8%

100%

14%

75%

-

3%

8%

100%

44%

16%

10%

26%

2%

2%

100%

355,334

247,916

321,324

-

-

924,574

9,744

621,198

6,637

7,632

-

645,211

924,574

(645,211)

279,363

1.73%







Percentage change

Percentage change

Percentage change

340,035

416,266

336,907

10,213

(40,406)

1,063,015

24,598

744,783

7,692

10,112

865

788,050

1,063,015

(788,050)

274,965

1.58%

Financial Assets at amortised cost (including Lebanese government

securities)

Deposits with banks

Loans and Advances to Customers

Financial Assets at Fair Value through OCI

Tax on interest income

Total

Loan from Central Bank of Lebanon

Customer deposits

Deposits from other banks and financial institutions

Subordinated Debt Issued

Subordinated notes

Total

Interest earned

Interest paid

Net interest income

Net interest margin (%)

-4.31%

67.91%

4.85%

100.00%

-100.00%

14.97%

152.44%

19.89%

15.90%

32.49%

100.00%

22.14%

14.97%

22.14%

-1.57%

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The Group’s net interest income decreased by 1.57% in 2018 to LBP 274.96 billion for the year ended 31 December 2018 from LBP 279.36 billion for the year ended 31 December 2017 overcoming the diminishing returns of sovereign investments amidst the global economic downturn and the regional turmoil as well as the competitive market in terms of attracting deposits.

Non-interest income The following table sets out the Group’s non-interest income deriving from commissions, fees and other operating income for each of the years ended 31 December 2018 and 2017, respectively:

Total net commissions, decreased by 2.28% to LBP 64.54 billion for the year ended 31 December 2018, compared to LBP 66.05 billion for the year ended 31 December 2017. Net commissions, consisting primarily of commissions and fees on accounts, fees for issuances of letters of credit and letters of guarantee, origination and commitment fees on loans and transaction-processing, development of retail services, electronic banking products and other non-interest generated revenues such as fees from its plastic card businesses, including the sponsoring and processing of debit and charge cards such as Visa, MasterCard and Amex, the processing of transactions made through its network of point-of-sale (“POS”) terminals installed at different locations throughout the country and the cross-selling of related financial services, including bancassurance products through the Group’s insurance subsidiary Credit Libanais d’Assurances (CLA).

Net gain on Trading and Financial Investments amounted to LBP 15.87 billion in 2018, compared to LBP 41.50 billion in the preceding year.

The Group’s non-interest income decreased by 25.35% to LBP 84.51 billion at 31 December 2018, from LBP 113.21 billion at the end of the preceding year. It contributed to 23.81% of the Group’s net financial income at 31 December 2018, compared to 31.93% at 31 December 2017.

Net Operating IncomeThe group decreased the provisions allocated for loan losses by 56.67% at 2018. Allowances for loan losses amounted to LBP 17.36 billion for the year ended 31 December 2018, compared to LBP 40.07 billion for the preceding year. In 2017 it represented the collective provisions reserved by the bank for IFRS9 Compliance. A study conducted by management shows that these provisions were sufficient to cover the expected credit loss on our portfolio after adopting IFRS9 at the beginning of 2018.

Provisions written-back on loans increased to an amount of LBP 12.83 billion for the year ended 31 December 2018, compared to LBP 2.04 billion for the year ended 31 December 2017.

As a result of the combined effects of the foregoing, the Group’s net financial income for the year ended 31 December 2018 amounted to LBP 353.04 billion, compared to LBP 352.35 billion for the year ended 31 December 2017, reflecting a year-on-year increase of 0.20%. Other operating income is the result of activities and operations incurred by the Group outside the normal course of banking business. It is constituted of Income received on sale of assets held in recovery of bad debts, rental income and other income. It increased to an amount of LBP 2.19 billion for the year ended 31 December 2018, compared to LBP 3.47 billion for the year ended 31 December 2017.

Staff Expenses and Related ChargesThe following table sets out the principal components of the Group’s staff expenses and related charges for each of the years ended 31 December 2018 and 2017, respectively:

Total staff expenses and related charges amounted to LBP 125.80 billion for the year ended 31 December 2018, compared to LBP 121.67 billion for the year ended 31 December 2017, reflecting a year-on-year increase of 3.39%. In line with the contractual 3% in the collective agreement.

129,272

(63,222)

66,050

20,276

21,227

3,467

2,188

113,208

84,540

3,178

12,010

6,215

15,730

121,673





Percentage change

Percentage change

128,519

(63,974)

64,545

14,592

1,282

2,189

1,906

84,514

88,814

2,697

12,719

5,310

16,257

125,797

Fees and Commissions income

Fees and Commissions expense

Net Commissions

Net gain on financial assets at fair value

Net gain on financial assets at amortised cost

Other operating income

Share of profit of investments in equity accounted investees

Total Non-interest Income

Wages and salaries

Allowances to the Board of Directors

Compulsory social security obligations

Employee benefits obligation

Other personnel expenses

Total staff expenses and related charges

-0.58%

1.19%

-2.28%

-28.03%

-93.96%

-36.86%

-12.89%

-25.35%

5.06%

-15.14%

5.90%

-14.56%

3.35%

3.39% Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


General Operating ExpensesThe following table sets out the principal components of the Group’s general operating expenses for the years ended 31 December 2018 and 2017, respectively:

General operating expenses decreased by 1.64% to LBP 68.21 billion for the year ended 31 December 2018, compared to LBP 69.35 billion for the year ended 31 December 2017.

The Group’s overall cost-to-income ratio increased to 57.55% as at 31 December 2018 from 52.07% as at 31 December 2017.

Profit before TaxThe following table sets out the Group’s pre-tax profit for the years ended 31 December 2018 and 2017, respectively:

Profit AppropriationThe Group’s consolidated profits for the year ended 31 December 2018 are generated from the following entities:

The Group’s pre-tax profits for the year 2018 amounted to LBP 147.57 billion (or the equivalent of US$ 97.89 million), compared to LBP 149.66 (or the equivalent of US$ 99.28 million) for the year 2017, a year-on-year decrease of 1.40%.

This is brought on by the sharp rise in interest expenses on customer deposits due to the adverse market conditions.

Return on shareholders’ equity (before tax) stood at 12.02% at year-end 2018, compared to 12.96% at year-end 2017. Return on average assets stood at 0.81% at year-end 2018, compared to 0.89% at year-end 2017.

7,599

6,641

6,642

5,598

4,400

2,478

4,448

4,931

2,503

2,350

2,879

8,054

2,787

1,366

2,668

663

-

3,343

69,350

149,662

(26,962)

122,700

(20,639)

(700)

(13)

(51)

(19)

—

(21,422)

(478)

(21,900)



Profits Before Tax LBP millionsAs at 31 December 2018



Income TaxLBP millions

Percentage change

Percentage change

Net ProfitsLBP millions

7,251

6,797

6,516

5,693

4,800

2,451

4,240

3,848

2,459

2,342

3,072

7,810

3,730

1,411

2,770

649

500

1,874

68,213

147,573

(21,906)

125,667

127,543

8,284

1,208

292

154

(5,969)

131,512

16,055

147,567

Taxes

Premiums for the guarantee of deposits

Rental charges and related expenses

Lawyers, audit and consultancy fees

Data processing services

Mail and telecommunication (PTT, Swift)

Maintenance and repairs

Electricity, water and heating

Travel and entertainment

Transportation charges

Insurance premiums

Advertising and public relations expenses

Computer maintenance and charges

Office stationery and printing

Board of directors attendance allowances

Training, documentation and services fees

Impairment losses on financial investments

Other expenses

Total general operating expenses

Profit before income tax

Income tax


Profit from Credit Libanais SAL

Profit from Credit Libanais Investment Bank SAL

Profit from Credit International (Senegal)

Profit from Credilease SAL

Profit from Lebanese Islamic Bank SAL

Eliminations of the inter-group dividend distributions

Profits deriving from the Group’s banking activities

Group’s share in profits of subsidiaries and affiliated companies


-4.58%

2.35%

-1.90%

1.70%

9.09%

-1.09%

-4.68%

-21.96%

-1.76%

-0.34%

6.70%

-3.03%

33.84%

3.29%

3.82%

-2.11%

100.00%

-43.94%

-1.64%

-1.40%

-18.75%

2.42%

106,904

7,584

1,195

241

135

(5,969)

110,090

15,577

125,667

Branch Netw

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Independent Auditors’ Report

OpinionWe have audited the consolidated financial statements of Credit Libanais S.A.L. (the “Bank” or “Group”), which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at 31 December 2018, and its consolidated financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Bank in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Lebanon, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment for credit losses of loans and advances to customers

As at 31 December 2018, the Group’s gross loans and advances to customers amounted to LBP 5,233,409 million (2017: LBP 5,326,428 million), against which a net impairment charge of LBP 2,724 million (2017: LBP 36,603 million) was recognised during the year and the total allowance for credit losses including maintained as at the reporting date amounts to LBP 269,222 million (2017: LBP 126,767 million).

Our audit procedures in response to the significant risk associated with the impairment of Group’s loans and advances to customers covered assessing the appropriateness and adequacy of the corresponding impairment allowances. Based on our understanding of the process and key controls, we focused on the determination of expected credit loss and the governance controls over the impairment process and determination of staging criteria

Key audit matter Why considered most significant How our audit addressed the key audit matter

To the shareholders of Credit Libanais S.A.L

Report on the Audit of the Consolidated Financial Statements


The General Assembly of Shareholders of Credit Libanais SAL met on the 2nd of May 2019 and approved the consolidated financial statements of Credit Libanais Group as at 31 December 2018, showing net profits (after tax) amounting to LBP 125.67 billion, and resolved the appropriation of the profits for the year 2018 deriving from Credit Libanais SAL and amounting to LBP 106.9 billion as follows:

i. To transfer an amount of LBP 10.19 billion representing 10% of these profits to a legal reserve account as per the requirements of article 132 of the Code of Money and Credit.

ii. To allocate an amount of LBP 1.05 billion in reserves for Real Estate acquired in recovery of bad debts not yet disposed of, at the rate of 5% of their book value as per BCC memo 4/2008 dated 14/01/2008.

iii. To allocate an amount of LBP 10 million representing unrealized profit on revaluation of financial instruments classified as FVTPL as per BCC circular No 270 dated September 19, 2011.

iv. To allocate an amount of LBP 10.55 billion representing dividends on preferred shares for the period between 01/01/2018 and 31/12/2018, at an annual return of 7% of the USD 100 million preferred shares issued; and to deduct the amount of tax charged by the bank as a result of the distribution of these dividends amounting to LBP 527.63 million.

v. To allocate an amount of LBP 371 million representing profits on sale of Properties acquired in settlement of debts assigned for capital increase.

vi. To allocate an amount of LBP 252 million representing released provisions on doubtful debts assigned for capital increase.

vii. To transfer the remaining profits, after the allocations and distributions listed above, to the retained earnings which will aggregate an amount of LBP 83.95 billion and to distribute out of these retained earnings an amount of LBP 35.10 billion to common shareholders of Credit Libanais SAL.

In closing, the Board of Directors of Credit Libanais SAL would like to express its gratitude for the continuous enthusiasm, confidence and support of our Shareholders and customers, and for the efforts and devotion of the Group’s senior management and employees.

Yours Sincerely,

Dr. Joseph TorbeyChairman General Manager

Beirut Central DistrictLazarieh Building Block 01 - 6th FloorP.O.Box: 11-8270Beirut - LebanonTel: 961 1 985 501 / 502Fax: 961 1 985 503

DFK Fiduciaire du Moyen OrientSin El Fil - Fouad Chehab BlvdGeahchan Bldg - 1st FloorP.O.Box: 110-167Beirut - LebanonTel: 961 1 480917 / 723Fax: 961 1 496682

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Due to the subjectivity inherent in the process of identifying and computing impairment charge for credit losses, it requires significant management judgment. Moreover, during the year ended 31 December 2018, the Group has implemented International Financial Reporting Standard 9 (‘IFRS 9 2014’) which requires management to determine and recognise expected credit losses (‘ECL’). Significant judgments, estimates and assumptions have been made by the management in the application of IFRS 9, especially in the areas of classifying loans and advances into stages as stipulated in IFRS 9, determination of significant increase in credit risk, establishing curing periods and computing probability of defaults (PD) and loss given default (LGD) percentages for counterparties. In accordance with the requirements of IFRS 9, the Group measures ECL based on the credit losses expected to arise over the next twelve months (‘12 month ECL’), unless there has been a significant increase in credit risk since origination or default, in which case, the allowance is based on the ECL expected to arise over the tenure of the loans and advances to customers (‘Lifetime ECL’).Since, loans and advances to customers forms a significant component of the Group’s consolidated assets, and on account of the significance of judgments, estimates and assumptions applied by management, we have considered impairment charge for credit losses on loans and advances to customers to be a key audit matter. Refer to notes 2 (d) to the consolidated financial statements for significant judgments applied in the determination of expected

established by the Group, including continuous re-assessment by management. We have performed walkthroughs and testing of relevant key controls to determine whether they were designed, implemented and operated effectively throughout the year. Also, we tested the entity and business unit level controls over the impairment model process in relation to model build (with specific focus on quantitative and qualitative attributes), and model monitoring. We obtained an understanding of the Group’s credit monitoring process comprising identifying, measuring and recording ECL and tested the operating effectiveness of key controls implemented over this process. We obtained the Group’s impairment allowance policy and compared it with the requirements of IFRS 9. We obtained an understanding of the Group’s internal rating model for the loans and advances to customers and for a selected sample of customers verified the internal rating determined by the management. We checked the appropriateness of the policy for identifying significant increase in credit risk and the resultant classification of exposures into the stages stipulated in IFRS 9. For a selected sample of exposures, we checked the appropriateness of the staging in line with the Group’s policy. For forward looking assumptions used by the Group in ECL calculations, we had discussions with management and corroborated the assumptions using publicly available information.For data from external sources, we understood the process of selecting such data, its relevance



credit losses, note 4 for ECL impact due to implementation of IFRS 9, note 3 (i), 5 (b) and 9 for significant accounting policies pertaining to ECL, for movement in ECL during the year ended 31 December 2018, for credit risk management strategy and for credit quality analysis in respect of loans and advances to customers.

to the Group and the controls and governance over input of such data. For a sample of exposures:- We checked the appropriateness of determining Exposure at Default (EAD) including the consideration of repayment in the cash flows and the resultant arithmetical calculations.- We checked the appropriateness of Probability of Default (PD) and Loss Given Default (LGD) used by the Group’s management in the ECL calculations.For selected sample of loans and advances to customers, we checked the:i. computation of PD and LGDii. appropriateness of cash flowsiii. appropriateness of discount rateWe checked the completeness of loans and advances to customers and credit related contingent items included in the ECL calculation as of 31 December 2018.Where relevant, we used specialists including IT specialists and financial risk modelling experts to gain comfort on model built, resultant ECL calculations and data integrity. We also assessed the financial statements’ disclosures to ensure compliance with IFRS 9 and IFRS 7 requirements.


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Impairment for credit losses on debt investments held at amortised cost

As at 31 December 2018, the Group had gross investments in debt instruments held at amortised cost amounting to LBP 4,639,836 million (2017: LBP 4,959,281 million), against which an impairment allowance of LBP 23,097 million (2017: LBP nil) has been maintained as at 31 December 2018. These include certificates of deposits, treasury bills, eurobonds, debt securities, other sovereign bonds and other debt investments.Due to the subjectivity inherent in the process of identifying and computing impairment charge for credit losses, it requires significant management judgment. As per the requirements of IFRS 9, management is required to determine and recognise expected credit losses (‘ECL’). This entails the exercise of considerable judgment, especially in the areas of classifying investments into stages as stipulated in IFRS 9, determination of significant increase in credit risk, establishing curing periods and computing probability of defaults (PD) and loss given default (LGD) percentages for counterparties.In accordance with the requirements of IFRS 9, the Group measures ECL based on the credit losses expected to arise over the next twelve months (’12 month ECL’), unless there has been a significant increase in credit risk since origination or default, in which case, the allowance is based on the ECL expected to arise over the life of the investments (‘Lifetime ECL’). Moreover, in making an assessment of whether an investment in a sovereign debt is credit-impaired, the Group considers creditworthiness as reflected in the bond yields and assessed by the rating agencies, the country’s ability to access the capital markets for new

Our audit procedures in response to the significant risk associated with the impairment charge for credit losses on Group’s debt investments held at amortised cost covered assessing the appropriateness and adequacy of the corresponding impairment allowances.We read the Group’s impairment provisioning policy against investments at amortised cost and compared it with the requirements of IFRS 9. We assessed the design and implementation and tested the operating effectiveness of the key controls over management’s processes for determining impairment allowance against investment in debt instruments held at amortised cost. We checked the appropriateness of the Group’s determination of significant increase in credit risk and the resultant basis for classification of exposures into various stages. For provision against debt instruments, we obtained an understanding of the Group’s provisioning methodology, assessed the reasonableness of the underlying assumptions and the sufficiency of the data used. For a sample of investments in debt instruments, we checked the appropriateness of determining exposure at default probability of default, and loss given default used in the expected credit losses calculations.There were no exposures determined to be individually impaired classified as stage 3 as at 31 December 2018.




debt issuance, the probability of being debt restructured, the international support mechanisms in place to provide the necessary support to that country, as well as the intention reflected in public statements of governments and agencies to use those mechanisms. Since debt investments form a significant component of the Group’s consolidated assets, and on account of the significance of judgments applied by management in the aforementioned aspects,we have considered impairment charge for credit losses on investments at amortised cost to be a key audit risk. Refer to notes 2 (d) to the consolidated financial statements for significant judgments applied in the determination of expected credit losses, note 3 (i) for significant accounting policies pertaining to ECL, note 4 for ECL impact due to implementation of IFRS 9, note 5 (b) for movement in ECL during the year ended 31 December 2018, for credit risk management strategy and for credit quality analysis in respect of investments.

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Independent Auditors’ Report (continued)

Other Information

Management is responsible for the other information. The other information comprises the information included in the Annual Report other than the consolidated financial statements and our auditors’ report thereon. The Annual Report is expected to be made available to us after the date of this auditors’ report.Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.


Independent Auditors’ Report (continued)Auditors’ Responsibilities for the Audit of the Consolidated Financial Statement (Continued)

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.The engagement partners on the audit resulting in this independent auditors’ report are Mr. Wissam Safwan for KPMG and Mr. Alfred Nehme for DFK Fiduciaire du Moyen-Orient.

KPMG16 April 2019Beirut, Lebanon

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5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,959,281

16,972

237,629

10,761

55,171

117,135

17,419,164

1,167,098

184,053

13,684,189

337,546

252,288

120,376

33,759

316,941

49,851

16,146,101

7

8

9

41

10

11

12

13

14

15

16

17

18

19

20

41

21

22

23

24

Consolidated statement of financial positionas at 31 December

2018Note 2017

7,409,329

922,368

4,964,187

17,003

238,958

161,104

12,117

4,616,739

16,849

236,570

9,288

55,680

113,102

18,773,294

2,304,615

323,991

13,744,831

334,852

238,981

160,545

46,519

223,727

56,629

17,434,690

Assets

Cash and balances with Central Banks

Balances with other banks and financial institutions

Loans and advances to customers

Loans and advances to related parties

Debtors by acceptances

Financial assets at fair value through other comprehensive income

Financial assets at fair value through profit or loss

Financial assets at amortised cost

Investments in equity-accounted investees

Property and equipment

Intangible assets

Assets held for sale

Other assets

Total assets

Liabilities

Loans and deposits from Central Banks


Deposits from customers

Deposits from related parties

Engagements by acceptances


Tax liabilities

Other liabilities

Provisions for risks and charges

Total liabilities

In Millions of Lebanese Pound


25

25

25

26

27

28

2018Note 2017

257,400

11,000

139,750

147,254

239,363

356

388,464

118,334

1,301,921

36,683

1,338,604

18,773,294



Share capital - common shares

Share capital - preferred shares

Share premium - preferred shares

Capital reserves

Retained earnings

Fair value reserve

Other reserves

Profit for the year

Total equity attributable to equity holders of the Bank


Total equity

Total liabilities and equity

The consolidated financial statements were approved on behalf of the Board of Directors on 14 March 2019.

257,400

11,000

139,750

260,455

130,284

52,411

272,187

116,249

1,239,736

33,327

1,273,063

17,419,164

108109

The notes on pages 118 to 201 are an integral part of these consolidated financial statements.

Branch Netw

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1,063,015

(788,050)

274,965

128,519

(63,974)

64,545

14,592

1,282

2,189

357,573

(4,530)

353,043

(125,797)

(13,073)

(293)

(68,213)

(207,376)

1,906

147,573

(21,906)

125,667

20,099

20,099

145,766

924,574

(645,211)

279,363

129,272

(63,222)

66,050

20,276

21,227

3,467

390,383

(38,036)

352,347

(121,673)

(13,054)

(796)

(69,350)

(204,873)

2,188

149,662

(26,962)

122,700

18,503

18,503

141,203

29

29

30

30

31

32

33

34

14, 15

35

13

36

27

Consolidated statementof profit or loss and other comprehensive income

as at 31 December

2018Note 2017In Millions of Lebanese Pound

Interest income, net of tax

Interest expense

Net interest income

Fee and commission income

Fee and commission expense

Net fee and commission income

Net trading income

Net gain on financial assets at amortised cost

Other income

Total operating income

Net impairment on financial assets

Net operating income

Personnel expenses

Depreciation and amortisation

Other provision

Other expenses

Total operating expenses

Share of profit of investments in equity-accounted investees


Tax expense

Profit for the year

Other comprehensive income, net of tax

Items that will not be reclassified to profit or loss

Fair value reserve (financial assets at fair value through other

comprehensive income)

Net change in fair value

Other comprehensive income for the year, net of tax

Total comprehensive income for the year


118,334

7,333

125,667

138,433

7,333

145,766

116,249

6,451

122,700

134,752

6,451

141,203

2018 2017In Millions of Lebanese Pound

The consolidated financial statements were approved on behalf of the Board of Directors on 14 March 2019.

Profit attributable to:

Equity holders of the Bank


Profit for the year

Total comprehensive income attributable to:

Equity holders of the Bank



110111


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Consolidated Statement of Changes in Equity

as at 31 December 2018


257,400

–

257,400

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

257,400

11,000

–

11,000

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

11,000

139,750

–

139,750

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

139,750

260,455

–

260,455

–

–

–

–

(798)

(112,426)

23

–

–

–

–

–

–

–

–

–

(113,201)

(113,201)

147,254

4

27

27

25

25

Note

Balance at 1 January 2018

Adjustment on initial application of IFRS 9, net of tax

Restated balance at 1 January 2018


Profit for the year


Net change in fair value of financial assets at fair value through other-

comprehensive income

Total other comprehensive income


Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank

Transfer to retained earnings

Transfer to reserves

Profit from sale of shares in SWIFT

Sale of Visa Class “C”

Dividend to preferred shareholders

Tax on dividends

Dividends to common shareholders

Other movements

Investment of Credit Libanais D’Assurances et de Reassurance SAL

in Credit Libanais SAL

Share of profit related to the participation of the Group in equity-

accounted investees

Allowances to directors

Translation difference

Total contributions by and distributions to owners of the Bank

Total transactions with owners recorded directly in equity

Balance at 31 December 2018

Capital Reserves

Share Premium-preferred Shares

Share capital-preferred Shares

Share capital-common SharesIn Millions of Lebanese Pound

130,284

–

130,284

–

–

–

–

116,249

(10,443)

–

62,970

(11,080)

(920)

(44,351)

(806)

–

–

(2,540)

–

109,079

109,079

239,363

52,411

(9,184)

43,227

–

20,099

20,099

20,099

–

–

–

(62,970)

–

–

–

–

–

–

–

–

(62,970)

(62,970)

356

272,187

(9,045)

263,142

–

–

–

–

798

122,872

–

–

–

–

8,346

–

(7,462)

813

–

(45)

125,322

125,322

388,464

116,249

–

116,249

118,334

–

–

118,334

(116,249)

–

–

–

–

–

–

–

–

–

–

–

(116,249)

(116,249)

118,334

1,239,736

(18,229)

1,221,507

118,334

20,099

20,099

138,433

–

3

23

–

(11,080)

(920)

(36,005)

(806)

(7,462)

813

(2,540)

(45)

(58,019)

(58,019)

1,301,921

33,327

–

33,327

7,333

–

–

7,333

–

(3)

–

–

–

–

(3,799)

–

–

–

(175)

–

(3,977)

(3,977)

36,683

1,273,063

(18,229)

1,254,834

125,667

20,099

20,099

145,766

–

–

23

–

(11,080)

(920)

(39,804)

(806)

(7,462)

813

(2,715)

(45)

(61,996)

(61,996)

1,338,604

Profit for the YearOther ReservesFair Value Reserve

Retained Earnings Total Equity

Non-controlling InterestTotal

112113


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Consolidated Statement of Changes in Equity



257,400

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

257,400

11,000

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

11,000

139,750

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

139,750

233,310

–

–

–

–

–

27,200

–

–

–

–

–

–

–

(55)

27,145

27,145

260,455

27

25

25

Note



Profit for the year


Net change in fair value of financial assets at fair value through other

comprehensive income

Total other comprehensive income


Transactions with owners recorded directly in equity

Contributions by and distributions to owners of the Bank



Dividend to preferred shareholders

Dividends to common shareholders

Other movements

Participation CLA in CL

Increase in participation in CISA

Tax on previous year inter group dividends

Allowances to directors

Translation difference

Total contributions by and distributions to owners of the Bank

Total transactions with owners recorded directly in equity


Capital Reserves

Share Premium-preferred Shares

Share capital-preferred Shares

Share capital-common SharesIn Millions of Lebanese Pound

114115

126,961

–

–

–

–

99,711

(38,821)

(11,080)

(43,010)

(9)

–

–

(929)

(2,539)

–

3,323

3,323

130,284

33,908

–

18,503

18,503

18,503

–

–

–

–

–

–

–

–

–

–

–

–

52,411

257,455

–

–

–

–

–

11,603

–

7,187

–

(3,015)

54

–

–

(1,097)

14,732

14,732

272,187

99,711

116,249

–

–

116,249

(99,711)

–

–

–

–

–

–

–

–

–

(99,711)

(99,711)

116,249

1,159,495

116,249

18,503

18,503

134,752

–

(18)

(11,080)

(35,823)

(9)

(3,015)

54

(929)

(2,539)

(1,152)

(54,511)

(54,511)

1,239,736

30,678

6,451

–

–

6,451

–

18

–

(3,798)

–

–

152

–

(174)

–

(3,802)

(3,802)

33,327

1,190,173

122,700

18,503

18,503

141,203

–

–

(11,080)

(39,621)

(9)

(3,015)

206

(929)

(2,713)

(1,152)

(58,313)

(58,313)

1,273,063

Profit for the YearOther ReservesFair Value Reserve

Retained Earnings Total Equity

Non-controlling InterestTotal


Branch Netw

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Consolidated Statement of Cash Flows

as at 31 December


125,667

13,073

–

4,530

(274,965)

1,044

(8)

(140)

21,906

123

(806)

(109,576)

(2,059,075)

11,092

89,096

(2,133)

4,033

103,250

1,131,328

34,506

(113,063)

(2,068)

(93,214)

185,039

(820,785)

969,415

(752,502)

(9,146)

(613,018)

122,700

13,054

38,036

–

(279,363)

–

(15)

(2,736)

26,962

(598)

(9)

(81,969)

(1,325,635)

(11,198)

(416,856)

620

6,141

68,382

424,328

838,706

–

(251,186)

3,840

1,249

(743,578)

929,563

(636,584)

(24,535)

(475,134)

33

33

29

11

36


Cash flows from operating activities

Profit for the year

Adjustments for:

- Depreciation and amortisation

- Net impairment loss on loans and advances to customers

- Net impairment loss on financial assets

- Net interest income. Net of tax

- Impairment losses on equity unquoted securities at fair value through profit or loss

- Net (gain) loss on sale of property and equipment

- Net gain on assets held for sale

- Tax expense

- Share of profit of investments in equity-accounted investees

- Other movements

Changes in:

- Cash and balances with Central Banks

- Balances with other banks and financial institutions

- Loans and advances to customers

- Loans and advances to related parties

- Other assets

- Deposits from other banks and financial institutions

- Loans and deposits from Central banks

- Deposits from customers

- Subordinated debts

- Deposits from related parties

- Other liabilities

- Provisions for risks and charges

Interest received

Interest paid

Income taxes paid

Net cash used in operating activities

278,355

68,795

(5,823)

(8,299)

8

(2,242)

–

–

(7,462)

813

(1,662)

1,293

323,776

(54,519)

150,750

96,231

(193,011)

1,624,264

(45)

1,431,208

441,652

–

–

(7,326)

113

(5,861)

142

206

(3,015)

–

(20,145)

4,404

410,170

(54,343)

–

(54,343)

(119,307)

1,744,723

(1,152)

1,624,264

21

37


Cash flows from investing activities

Net change in investment securities

Proceeds from sale of Visa Class “C”, net of tax

Sale of Visa Class “C”

Acquisition of property and equipment

Proceeds from the sale of property and equipment

Acquisition of intangible assets

Proceeds from the sale of intangible assets

Increase in participation in CISA

Investment of Credit Libanais D’Assurances et de Reassurance SAL

in Credit Libanais SAL

Share of profit related to the participation of the Group in equity-

accounted investees

Acquisition of assets held for sale

Proceeds from sale of assets held for sale

Net cash from investing activities

Cash flows from financing activities

Dividends paid and allowance to directors

Issuance of subordinated debt

Net cash from / (used in) financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at 1 January

Effect of exchange rate fluctuations on cash and cash equivalents

held

Cash and cash equivalents at 31 December


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Notes to the Consolidated Financial statements

1. Reporting entity

Credit Libanais S.A.L. (the “Bank” or the “Group”) is a Lebanese joint stock Company registered since 1961 in Lebanon under no. 10742 in the Beirut register of Commerce, and under no. 53 on the Bank’s list at the Central Bank of Lebanon. The address of the Bank’s registered office is Achrafieh, Cornich Nahr-Adlieh, Credit Libanais Headquarter Building, Beirut, Lebanon. The consolidated financial statements of the Bank as at and for the year ended 31 December 2018 comprise the Bank and its subsidiaries (together referred to as the Group and individually as Group entities). The Group primarily is involved in retail, commercial and investment banking activities through their headquarters as well as their branches and subsidiaries located in Lebanon, Cyprus, Bahrain, Iraq and Senegal.

2. Basis of preparation

(a) Basis of accounting

These consolidated financial statements have been prepared in accordance with IFRS. This is the first set of the Group’s annual financial statements in which IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have been applied noting that the Group has early adopted classification and measurement requirements as issued in IFRS 9 (2009) and IFRS 9 (2010). Changes to significant accounting policies are described in Note 4.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statement of financial position:• financial instruments at fair value through other comprehensive income are measured at fair value; and• financial instruments at fair value through profit and loss are measured at fair value.

(c) Functional and presentation currency

These consolidated financial statements are presented in Lebanese Pounds (LBP), which is the Bank’s functional currency. All amounts have been rounded to the nearest million, except when otherwise indicated.

(d) Use of judgements and estimates

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

(i) JudgmentsInformation about judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included in the following notes.



Applicable to 2018 onlyNote 5 (b) - establishing the criteria for determining whether credit risk on the financial asset has increased significantly since initial recognition, determining methodology for incorporating forward-looking information into measurement of ECL and selection and approval of models used to measure ECL.

Applicable to 2018 and 2017:Note 3 (a) – determination of control over investee. Note 3(i) (ii): classification of financial assets: assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are SPPI on the principal amount outstanding.

(ii) Assumptions and estimation uncertaintiesInformation about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended 31 December 2018 is included in the following notes.

Applicable to 2018 onlyNote 5 (b) - impairment of financial instruments: determining inputs into the ECL measurement model, including incorporation of forward-looking information.

Applicable to 2018 and 2017:Note 6: determination of the fair value of financial instruments with significant unobservable inputs.Note 3 (h) (ii): recognition of deferred tax assets: availability of future taxable profit against which carry-forward tax losses can be used.Note 38: recognition and measurement of contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.Note 3 (i) (vii) - impairment of financial instruments: key assumptions used in estimating recoverable cash flows.

3. Significant accounting policies

Except for the changes explained in Note 4, the Group has consistently applied the following accounting policies to all years presented in these consolidated financial statements.

(a) Basis of consolidation

(i) Non-controlling interestsNon-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(ii) SubsidiariesSubsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

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The Group reassesses whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(iii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency

(i) Foreign currency transactionsTransactions in foreign currencies are translated into the respective functional currencies of the operations at the spot exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the spot exchange rate at the reporting date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.Foreign currency differences arising on translation are generally recognised in profit or loss. However, foreign currency differences arising from the translation of financial assets at fair value through other comprehensive income are recognised in other comprehensive income (see Note 10).

(ii) Foreign operationsThe assets and liabilities of foreign operations are translated into LBP at the spot exchange rates at the reporting date. The income and expenses of foreign operations are translated into LBP at the spot exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve (translation reserve), except to the extent that the translation difference is allocated to NCI.When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, then the relevant proportion of the cumulative amount is reattributed to NCI.

(c) Interest

Policy applicable from 1 January 2018

Effective interest rateInterest income and expense are recognised in profit or loss using the effective interest method.The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

• the gross carrying amount of the financial asset; or• the amortised cost of the financial liability.


When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL.The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

Amortised cost and gross carrying amountThe amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018).The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.

Calculation of interest income and expenseThe effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate instruments to reflect movements in market rates of interest. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves.For information on when financial assets are credit-impaired, see Note 3 (i) (vii).

PresentationInterest income calculated using the effective interest method presented in the statement of profit or loss and OCI includes:

• interest on financial assets and financial liabilities measured at amortised cost;• interest on debt instruments measured at FVOCI.

Interest expense presented in the statement of profit or loss and OCI includes financial liabilities measured at amortised cost.Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income (see Note 3 (e)).

Policy applicable before 1 January 2018

Effective interest rateInterest income and expense were recognised in profit or loss using the effective interest method. The effective interest rate was the rate that exactly discounted the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability.

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When calculating the effective interest rate, the Group estimated future cash flows considering all contractual terms of the financial instrument, but not future credit losses.The calculation of the effective interest rate included all transaction costs and fees paid or received that were an integral part of the effective interest rate. Transaction costs included incremental costs that were directly attributable to the acquisition or issue of a financial asset or liability.

PresentationInterest income calculated using the effective interest method presented in the statement of profit or loss and OCI includes:

interest on financial assets and financial liabilities measured at amortised cost;interest on debt instruments measured at FVOCI.

Interest expense presented in the statement of profit or loss and OCI includes financial liabilities measured at amortised cost.Interest income and expense on all trading assets and liabilities were considered to be incidental to the Group’s trading operations and were presented together with all other changes in the fair value of trading assets and liabilities in net trading income (see Note 3 (e)).

(d) Fee and commission

Fee and commission income and expense that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate (see Note 3 (c)).Other fee and commission income - including account servicing fees, investment management fees, sales commission and placement fees- are recognised as the related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a straight-line basis over the commitment period.A contract with a customer that results in a recognised financial instrument in the Group’s financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.Other fee and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

(e) Net trading income

Net trading income comprises gains less losses related to trading assets and liabilities, and includes all fair value changes, interest, dividends and foreign exchange differences.

(f) Dividend income

Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for quoted equity securities. Dividends are presented in net trading income.From 1 January 2018, dividends on equity instruments designated as at FVOCI that clearly represent a recovery of part of the cost of the investment are presented in OCI.

(g) Leases

Group acting as a lessee - Operating leasesAssets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position.Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.


(h) Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

(i) Current taxCurrent tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

(ii) Deferred taxDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; andtemporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting period, to recover or settle the carrying amount of its assets and liabilities.Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Additional taxes that arise from the distribution of dividends by the Group are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss because they generally relate to income arising from transactions that were originally in profit or loss.

(i) Financial assets and financial liabilities

(i) Recognition and initial measurement The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated. All other financial instruments (including regular-way purchases and sales of financial assets) are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

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(ii) Classification

Financial assets On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; andthe contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; andthe contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI - see Note 3 (m). This election is made on an investment-by-investment basis.

All other financial assets are classified as measured at FVTPL.

In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model assessmentThe Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group’s management; the risks that affect the performance of the business model (and the financial assets held within that business model) and its strategy for how those risks are managed; how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group’s stated objective for managing the financial assets is achieved and how cash flows are realised.Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.


Assessment of whether contractual cash flows are solely payments of principal and interestFor the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:

contingent events that would change the amount and timing of cash flows;leverage features;prepayment and extension terms;terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse loans); andfeatures that modify consideration of the time value of money (e.g. periodical reset of interest rates).

ReclassificationsFinancial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.

Financial liabilitiesThe Group classifies its financial liabilities as measured at amortised cost. See Note 3(k), (r) and (t).

(iii) Derecognition

Financial assetsThe Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire (see also iv), or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. From 1 January 2018, any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit or loss on derecognition of such securities as explained in Note 3 (m). Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability.The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction similar to sale-and-repurchase transactions, because the Group retains all or substantially all of the risks and rewards of ownership of such assets.In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

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In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

Financial liabilitiesThe Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

(iv) Modifications of financial assets and financial liabilities


Financial assetsIf the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised (see (iii)) and a new financial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modification are accounted for as follows:

fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; andother fees are included in profit or loss as part of the gain or loss on derecognition.

If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place (see below for write-off policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.If such a modification is carried out because of financial difficulties of the borrower (see Note 3 (vii)), then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest rate method (see Note 3 (c)).

Financial liabilitiesThe Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the


resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs and fees incurred are recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.


Financial assetsIf the terms of a financial asset were modified, then the Group evaluated whether the cash flows of the modified asset were substantially different. If the cash flows were substantially different, then the contractual rights to cash flows from the original financial asset were deemed to have expired. In this case, the original financial asset was derecognised (see (iii)) and a new financial asset was recognised at fair value.If the terms of a financial asset were modified because of financial difficulties of the borrower and the asset was not derecognised, then impairment of the asset was measured using the pre modification interest rate (see (vii)).

Financial liabilitiesThe Group derecognised a financial liability when its terms were modified and the cash flows of the modified liability were substantially different. In this case, a new financial liability based on the modified terms was recognised at fair value. The difference between the carrying amount of the financial liability extinguished and consideration paid was recognised in profit or loss.Consideration paid included non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.If the modification of a financial liability was not accounted for as derecognition, then any costs and fees incurred were recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.

(v) OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.

(vi) Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable

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inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for the particular risk exposure. Portfolio-level adjustments - e.g. bid-ask adjustment or credit risk adjustments that reflect the measurement on the basis of the net exposure - are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

(vii) ImpairmentSee also Note 5 (b).


The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL:

financial assets that are debt instruments;lease receivables;financial guarantee contracts issued; andloan commitments issued.No impairment loss is recognised on equity investments.The Group measures loss allowances at an amount equal to lifetime ECL except for the following, for which they are measured as 12-month ECL:debt investment securities that are determined to have low credit risk at the reporting date; andother financial instruments (other than lease receivables) on which credit risk has not increased significantly since their initial recognition.The Group considers a debt investment security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of investment grade. The Group does not apply the low credit risk exemption to any other financial instruments.12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date Financial instruments for which a 12-month ECL is recognised are referred to as ‘Stage 1 financial instruments’.Life-time ECL are the ECL that result from all possible default events over the expected life of the financial instrument- Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments’.

Measurement of ECLECL are a probability-weighted estimate of credit losses. They are measured as follows:

financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);


financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.See also Note 5 (b).

Restructured financial assetsIf the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised (see (iv)) and ECL are measured as follows.

If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset (see Note 5).If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.

Credit-impaired financial assetsAt each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:

days past due greater than 90 days (mortgage);days past due greater than 120 days (non-mortgage);exposures default due to isIMpDefault flag;

A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days (mortgage) and 120 (non-mortgage) or more is considered credit-impaired even when the regulatory definition of default is different. In making an assessment of whether an investment in sovereign debt is credit-impaired, the Group considers the following factors.

- when payments on obligation is a virtual certainty;- when payments on an obligation are not made on the due date- downgrade of mapped external rating credit rating to CC or below; or - the issuer files a bankruptcy petition or takes a similar action.

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Presentation of allowance for ECL in the statement of financial positionLoss allowances for ECL are presented in the statement of financial position as follows:

financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; loan commitments and financial guarantee contracts: generally, as a provision; where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.

Write-off Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level. Recoveries of amounts previously written off are included in ‘Net impairment on financial assets’ in the statement of profit or loss and OCI. Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.


Objective evidence of impairmentAt each reporting date, the Group assessed whether there was objective evidence that financial assets not carried at FVTPL were impaired. A financial asset or a group of financial assets was ‘impaired’ when objective evidence demonstrated that the loss event had occurred after the initial recognition of the asset(s) and that the loss event had an impact on the future cash flows of the asset(s) that could be estimated reliably.In addition, a retail loan that was overdue for 90 days or more was considered impaired.

Objective evidence that financial assets were impaired included:

significant financial difficulty of a borrower or issuer;default or delinquency by a borrower;the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;indications that a borrower or issuer would enter bankruptcy;the disappearance of an active market for a security; orobservable data relating to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlated with defaults in the group.

A loan that was renegotiated due to a deterioration in the borrower’s condition was usually considered to be impaired unless there was evidence that the risk of not receiving contractual cash flows had reduced significantly and there were no other indicators of impairment.In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost was objective evidence of impairment. In general, the Group considered a decline of 20% to be ‘significant’ and a period of nine months to be ‘prolonged’. However, in specific circumstances a smaller decline or a shorter period may have been appropriate.


The Group considered evidence of impairment for loans and advances and investment securities measured at amortised cost at both a specific asset and a collective level. All individually significant loans and advances and investment securities measured at amortised cost were assessed for specific impairment. Those found not to be specifically impaired were then collectively assessed for any impairment that had been incurred but not yet identified (IBNR). Loans and advances and investment securities at amortised cost that were not individually significant were collectively assessed for impairment by grouping together loans and advances and investment securities at amortised cost with similar credit risk characteristics.In making an assessment of whether an investment in sovereign debt was impaired, the Group considered the following factors.

The market’s assessment of creditworthiness as reflected in the bond yields.The rating agencies’ assessments of creditworthiness.The country’s ability to access the capital markets for new debt issuance.The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness.The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This included an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there was the capacity to fulfil the required criteria.

Individual or collective assessmentAn individual measurement of impairment was based on management’s best estimate of the present value of the cash flows that were expected to be received. In estimating these cash flows, management made judgments about a debtor’s financial situation and the net realisable value of any underlying collateral. Each impaired asset was assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable were independently approved by the Credit Risk function.

In assessing collective impairment, the Group uses statistical modelling of historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, and makes a judgment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than is suggested by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.The IBNR allowance covered credit losses inherent in portfolios of loans and advances, and investment securities at amortised cost with similar credit risk characteristics when there was objective evidence to suggest that they contained impaired items but the individual impaired items could not yet be identified.

In assessing the need for collective loss allowance, management considered factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, and assumptions were made to define how inherent losses were modelled and to determine the required input parameters, based on historical experience and current economic conditions.The accuracy of the allowance depended on the model assumptions and parameters used in determining the collective allowance. Loans that were subject to a collective IBNR provision wore not considered impaired.

Measurement of impairmentImpairment losses on assets measured at amortised cost were calculated as the difference between the carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate.

Reversal of impairmentIf an event occurring after the impairment was recognised caused the amount of impairment loss to decrease, then the decrease in impairment loss was reversed through profit or loss.

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PresentationImpairment losses were recognised in profit or loss and reflected in an allowance account against loans and receivables or investment securities at amortised cost.

Write-offThe Group wrote off a loan or an investment debt security, either partially or in full, and any related allowance for impairment losses, when Group Credit determined that there was no realistic prospect of recovery.

(viii) Designation at fair value through profit or loss

Financial assetsAt initial recognition, the Group has designated certain financial assets as at FVTPL because this designation eliminates or significantly reduces an accounting mismatch, which would otherwise arise.Before 1 January 2018, the Group also designated certain financial assets as at FVTPL because the assets were managed, evaluated and reported internally on a fair value basis.Note 6 sets out the amount of each class of financial asset that has been designated as at FVTPL. A description of the basis for each designation is set out in the note for the relevant asset or liability class.

(j) Cash and cash equivalents

Cash and cash equivalents include cash on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of three months or less from the date of acquisition that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.Cash and cash equivalents are carried at amortised cost in the statement of financial position.

(k) Trading assets and liabilities

Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position, with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in profit or loss.

(l) Loans and advances


Loans and advances captions in the statement of financial position include:loans and advances measured at amortised cost (see Note3 (i) (ii)); they are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method; andloans and advances mandatorily measured at FVTPL or designated as at FVTPL (see Note 3 (i) (ii)); these are measured at fair value with changes recognised immediately in profit or loss.When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Group’s financial statements.



‘Loans and advances’ were non-derivative financial assets with fixed or determinable payments that were not quoted in an active market and that the Group did not intend to sell immediately or in the near term.Loans and advances to banks were classified as amortised cost. Loans and advances to customers included:

• those classified as amortised cost; and• those designated as at FVTPL.

Loans and advances were initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. When the Group chose to designate the loans and advances as measured at FVTPL as described in (i) (viii), they were measured at fair value with face value changes recognised immediately in profit or loss.

When the Group purchased a financial asset and simultaneously entered into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement was accounted for as a loan or advance, and the underlying asset was not recognised in the Group’s financial statements.

(m) Investment securities


The investment securities caption in the statement of financial position includes:debt investment securities measured at amortised cost (see Note 3 (i) (ii)); these are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method;debt and equity investment securities mandatorily measured at FVTPL or designated as at FVTPL (see Note 3 (i) (ii)); these are at fair value with changes recognised immediately in profit or loss;debt securities measured at FVOCI; andequity investment securities designated as at FVOCI.For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, which are recognised in profit or loss in the same manner as for financial assets measured at amortised cost:interest revenue using the effective interest method;ECL and reversals; andforeign exchange gains and losses.When debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss.The Group elects to present in OCl changes in the fair value of certain investments in equity instruments that are not held for trading. The election is made on an instrument-by-instrument basis on initial recognition and is irrevocable.Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised in profit or loss. Dividends are recognised in profit or loss (see Note 3 i (ii)) unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal of an investment.


Investment securities were initially measured at fair value plus, in the case of investment securities not at FVTPL, incremental direct transaction costs, and subsequently accounted for depending on their classification as either amortised cost, FVOCI or FVTPL.

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(n) Property and equipment

(i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.If significant parts of an item of property or equipment have different useful lives, then they are accounted for as separate items (major components) of property and equipment.Any gain or loss on disposal of an item of property and equipment is recognised within other income/other expenses in profit or loss.

(ii) Subsequent costs

Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred.

(iii) Depreciation

Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line basis over their estimated useful lives, and is generally recognised in profit or loss. The estimated useful lives of significant items of property and equipment are as follows:

• buildings 50 years• installations and improvements 16.67 years• furniture and equipment 12.5 years• vehicles 10 years• power generators 12.5 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(o) Intangible assets

SoftwareSoftware acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.Software is amortised on a straight line basis in profit or loss over its estimated useful life, from the date on which it is available for use. The estimated useful life of software for the current and comparative periods is three to ten years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(p) Assets held for sale

Properties acquired through the enforcement of security over loans and advances to customers are accounted for in accordance with the directives issued by the banking regulators. These assets are initially measured at fair value at the date of enforcement of the security. A reserve is constituted for assets not disposed of within two years of the date of enforcement at a rate of 20% or 5%.The accumulated reserve is classified under “Other reserves” in equity.


•••••

(q) Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.Impairment losses are recognised in profit or loss.An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(r) Deposits, debt securities issued and subordinated debt issued

Deposits, debt securities issued and subordinated debt issued are the Group’s sources of debt funding.The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Group’s redeemable preference shares bear non-discretionary coupons and are redeemable at the option of the holder, and are therefore included within subordinated liabilities.

Deposits, debt securities issued and subordinated debt issued are initially measured at fair value minus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.

(s) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined using management’s best estimates to the risk specific to the liability.

(t) Financial guarantees and loan commitments

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions.

Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value. Subsequently, they are measured as follows:

from 1 January 2018: at the higher of the loss allowance determined in accordance with IFRS 9 (see i (vii)) and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15; andbefore 1 January 2018: at the higher of the amount representing the initial fair value amortised over the life of the guarantee or the commitment and the present value of any expected payment to settle the liability when a payment under the contract has become probable.The Group has issued no loan commitments that are measured at FVTPL.For other loan commitments:from 1 January 2018: the Group recognises a loss allowance (see Note 3 i (vii));before 1 January 2018: the Group recognised a provision in accordance with IAS 37 if the contract was considered to be onerous.Liabilities arising from financial guarantees and loan commitments are included within provisions.

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(u) Share capital and reserves

(i) Preference sharesThe Group classifies instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Group’s preference shares are not redeemable by holders and bear an entitlement to distributions that is non-cumulative and at the discretion of the board of directors. Accordingly, they are presented as a component of issued capital within equity. Distributions thereon are recognised in equity.

(ii) Share issue costsIncremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments.

(iii) Dividends on ordinary sharesDividends on ordinary shares are recognised in equity in the period in which they are approved by the Group’s shareholders.Dividends for the year that are declared after the date of the balance sheet are dealt with in the subsequent events note.

(v) Deferred restricted contributionsRestricted contributions derived from special and non-conventional deals arrangement with the regulator are deferred until designated conditions for recognition are met. At the time income is received, it is deferred under “Deferred surplus” and applied to the designated purpose according to the regulator’s requirements.

(w) Standards issued but not yet adoptedA number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018 and earlier application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements. Of the standards that are not yet effective, IFRS 16 is expected to have a significant impact on the Group’s consolidated financial statements in the period of initial application.

A. IFRS 16 LeasesThe Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group is currently in the process of assessing the estimated impact that the initial application of IFRS 16 will have on its consolidated financial statements. IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

i. Leases in which the Group is a lesseeThe Group has not yet completed the initial assessment of the potential impact on its consolidated financial statements. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future economic conditions, the development of the Group’s lease portfolio, the Group’s assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions.


The Group will recognise new assets and liabilities for its operating leases of branch and office premises. The nature of expenses related to these leases will now change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities.Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.

ii. TransitionThe Group plans to apply IFRS 16 initially on 1 January 2019, using a modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

B. Other standardsThe following amended standards are not expected to have a significant impact on the Group’s consolidated financial statements.

Annual Improvements to IFRS Standards 2015–2017 Cycle – various standardsLong-term Interests in Associates and Joint Ventures (Amendments to IAS 28)Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)IFRIC 23 Uncertainty over Income Tax TreatmentsAmendments to References to Conceptual Framework in IFRS StandardsIFRS 17 Insurance Contracts.

4. Changes in accounting policies

The Group has initially adopted IFRS 9 Financial Instruments (see (i)) except for the classification and measurement requirements as issued in IFRS 9 (2009) and IFRS 9 (2010) which were early adopted, and IFRS 15 Revenue from Contracts with Customers (see (ii)) from 1 January 2018. A number of other new standards are effective from 1 January 2018 but they do not have a material effect on the Groups’ financial statements. Due to the transition method chosen by the Group in applying IFRS 9, comparative information throughout these financial statements has not generally been restated to reflect its requirements.The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers and the related assets and liabilities recognised by the Group. The effect of initially applying these standards is mainly attributed to the following:

an increase in impairment losses recognised on financial assets (see Note 33); additional disclosures related to IFRS 9 (see Note 5).

Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 3 to all years presented in these consolidated financial statements.

(i) IFRS 9 Financial InstrumentsIFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The requirements of IFRS 9 represent a significant change from IAS 39. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018, but have not been applied to the comparative information.The key changes to the Group’s accounting policies resulting from its adoption of IFRS 9 are summarised below.

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Classification of financial assets and financial liabilitiesThe Bank has early adopted classification and measurement requirements as issued in IFRS 9 (2009) and IFRS 9 (2010). In the July 2014 publication of IFRS 9, the new measurement category FVOCI was introduced for financial assets that satisfy the contractual cash flow characteristics (SPPI test). This category is aimed at portfolio of debt instruments for which amortised cost information, as well as fair value information is relevant and useful. This will be the case if these assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets.

As the date of application of IFRS 9 (2014), the Bank reassessed the classification and measurement for all financial assets debt instruments that satisfy the contractual cash flow characteristic (SPPI test) and classified them within the category that it is consistent with the business model for managing these financial assets in the bases of facts and circumstances that existed at that date.The classification and measurement requirements for financial assets that are equity instruments or debt instruments that do not meet the contractual cash flow characteristics (SPPI test) and financial liabilities remain unchanged from previous versions of IFRS 9.The classification of financial liabilities under IFRS 9 remained the same.

The following table shows the new classification of financial assets under IFRS 9 July 2014:


Amortised cost

Amortised cost

Amortised cost

Amortised cost

Amortised cost

OCI

FVTPL

Amortised cost

Amortised cost

Amortised cost

Amortised cost

Amortised cost

Amortised cost

Amortised cost

OCI

FVTPL

Amortised cost

OCI

5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,755,406

203,875

5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,755,406

213,059

-

-

-

-

-

-

-

-

9,184

9,184

9.184

Category Category Amount Amount

Classification under IFRS 9 (2014)at 31 December 2017

Classification under IFRS 9 (2014)at 1 January 2018

Impact of IFRS 9adoption

Re-classificationIn Millions of Lebanese Pound

Financial assets


Balances with other banks

and Financial institutions


loans and advances to related parties


Financial assets at fair value through

other comprehensive income


profit or loss




Other comprehensive income

Fair value reserve

Net impact on opening equity

Impairment of financial assetsIFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments.

Under IFRS 9, credit losses are recognised earlier than under IAS 39. For an explanation of how the Bank applies the impairment requirements of IFRS 9, see Note 3 (i) (vii).

The following table reconciles the aggregate opening loan loss provision allowances under IAS 39 and provisions for loan commitments and financial guarantee contracts in accordance with IAS 37 Provision Contingent Liabilities and Contingent Assets to the ECL allowance under IFRS 9

The following table summarise the movement of impact of adopting IFRS 9 as at 1 January 2018.

* Credit Libanais Investment Bank had a deficit in provisions. An amount of LBP 9,045 million was appropriated from reserves.

-

126,767

9,235

3,800

-

-

-

139,802

23

14,952

153,575

11,430

4,122

21,652

29

1,048

206,808

206,808

72,257

67,545

57,961

9,045

206,808

14,952

26,808

2,195

322

21,652

29

1,048

67,006

Impairment allowanceunder IAS 39/IAS 37at 31 December 2017

ECLs under IFRSat 1 January 2018

Impact of adoptingIFRS 9 as at

1 January 2018

Impact of adoptingIFRS 9 as at

1 January 2018



Impairment allowance for





Dept investment securities at amortised cost


Loan commitments and financial guarantee contract

Total impact of adopting IFRS 9

Specific provision

Collective provision

Deffered surplus

Adjustment on initial application of IFRS 9 in equity*

Note

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TransitionChanges in accounting policies resulting from the adoption of IFRS 9 have been applied as follows:

Comparative periods generally have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

- The determination of the business model within which a financial asset is held.- The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.- The designation of certain investments in equity instruments not held for trading as at FVOCI.

If a debt security had low credit risk at the date of initial application of IFRS 9, then the Group has assumed that credit risk on the asset had not increased significantly since its initial recognition.

(ii) IFRS 15 Revenue from Contracts with CustomersIFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.The Bank initially applied IFRS 15 on 1 January 2018 retrospectively in accordance with IAS 8 without any practical expedients. The timing or amount of the Bank’s fee and commission income from contracts with customers was not impacted by the adoption of IFRS 15.

5. Financial risk management

(a) Introduction and overview

The Group has exposure to the following risks from financial instruments:credit riskliquidity riskmarket risksoperational risks.This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management frameworkThe Group’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Directors has established the Board Risk Committee, the Board Credit Policy Committee and at the management level, the Asset and Liability Management Committee (ALCO), which are responsible for developing and monitoring Bank risk management policies.The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.The Board Risk Committee, the Credit Policy Committee and the Asset Liability Management Committee (ALCO) oversee how management monitors compliance with the Group’s risk management policies and procedures, and review the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.


(b) Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s loans and advances to customers and other banks, and investment debt securities. For risk management reporting purposes the Group considers and consolidates all elements of credit risk exposure.For risk management purposes, credit risk arising on trading assets is managed independently by the market risk management function. The overall objective of managing market risk is to avoid unexpected losses due to changes in market prices and to optimise the use of market risk capital. The Group manages these potential exposures on a daily basis within predefined limits for each of the major types of market risk established within the Group’s policies and commensurate with the risk appetite defined by the Board of Directors.

Settlement riskThe Bank is also exposed to settlement risk in its dealings with other financial institutions. This risk arises when the Bank pays its side of the transaction to the other bank or counterparty before receiving payment from the third party. The risk is that the third party may not pay its obligation. While these exposures are short in duration but they can be significant. The risk is mitigated by dealing with highly rated counterparties, holding collateral and limiting the size of the exposures according to the risk rating of the counterparty.

Management of credit riskThe Board of Directors has delegated responsibility for the oversight of credit risk to its Risk Management Committee, Credit Policy Committee and allocated Credit Committees. An independent Credit Risk Management function, reporting to the Chief Risk Officer (CRO), is responsible for management of the Group’s credit risk, including:

Formulating credit policies covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.Establishing the authorisation structure for the approval and renewal of credit facilities.Reviewing and assessing credit risk. The Credit Committee assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.Limiting concentrations of exposure to counterparties, geographies and sectors. The Group’s approach to controlling this concentration of exposure is by the diversification of its commitments and by setting limits at level of aggregate of products, economic sectors, region and segments.Developing and maintaining the Group’s credit risk rating system. This system is a summary indicator of the Group’s individual credit exposure. An internal rating system categorises all credits into various classes on the basis of underlying credit quality. A well-structured credit rating framework is an important tool for monitoring and controlling risk inherent in individual credits as well as in credit portfolios of the Group or a business line. The importance of internal credit rating framework becomes more eminent due to the fact that historically major losses to banks stemmed from default in loan portfolios. While the Group already has a system for rating individual credits in addition to the risk categories prescribed by the Central Bank of Lebanon, the Group established an internal rating framework. The internal rating framework benefits the Group in a number of ways such as: credit selection, amount of exposure, tenure and price of facility, frequency or intensity of monitoring, analysis of migration of deteriorating credits and more accurate computation of future loan loss provision; and deciding the level of approving authority of loan.Reviewing compliance with agreed exposure limits, including those for selected sectors, geography and product types. Regular reports on the credit quality of portfolios are provided to the Credit Policy Committee who may require appropriate corrective action to be taken.Providing advice, guidance and specialist skills to promote best practice throughout the Group in the management of credit risk.Conduct, approve and monitor the appropriate staging of the Bank’s financial assets (including any upgrades or downgrades between stages) and compute the Expected Credit Losses (ECLs) of the Bank’s Sovereign, Financial Sector, Lending and Financial Instruments portfolios, in line with IFRS 9 Requirements and local regulatory requirements.

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Each Credit Officer is required to implement Group credit policies and procedures, with credit approval authorities delegated from the Group Credit Committee. Each Credit Officer reports on all credit related matters to management and the Group Credit Committee.Each Credit Officer is responsible for the quality and performance of his/her credit portfolio and for monitoring and controlling all credit risks in his/her portfolios, including those subject to central approval.Regular audits of Group Credit processes are undertaken by Internal Audit.

Credit quality analysisThe following table sets out information about the credit quality of financial assets measured at amortised cost.Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts. For lending commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed, respectively.Explanation of the terms: “Stage 1”, “Stage 2” and “Stage 3” is included in Note 3 i (vii).

7,345,377

7,345,377

(11,225)

7,334,152

4,282,923

-

-

-

-

4,282,923

(8,543)

4,274,380

922,777

-

-

922,777

(709)

922,068

-

-

-

-

268,275

306,946

-

-

-

575,221

(50,802)

524,419

-

418

-

418

(118)

300

-

-

-

-

-

-

173,443

150,323

51,499

375,265

(209,877)

165,388

-

-

12,444

12,444

(12,444)

-

7,345,377

7,345,377

(11,225)

7,334,152

4,551,198

306,946

173,443

150,323

51,499

5,233,409

(269,222)

4,964,187

922,777

418

12,444

935,639

(13,271)

922,368

5,294,127

5,294,127

-

5,294,127

4,751,783

351,446

118,141

80,619

24,439

5,326,428

(126,767)

5,199,661

1,013,148

-

9,235

1,022,383

(9,235)

1,013,148

Stage 1 Stage 2 Stage 3 Total TotalIn Millions of Lebanese Pound

Balances with Central Banks

Grade 1-2: Low fair risk

Less allowance

Carrying amount


Grade 1-2: low fair risk

Grade 3: Low fair risk

Grade 4: Substandard

Grade 5: Impaired

Grade 6: Impaired

Less allowance

Carrying amount

Balances with other banksand financial institutions



Grade 6: Impaired

Less allowance

Carrying amount

2018 2017

18,369

-

-

18,369

(2,079)

16,290

4,639,836

4,639,836

(23,097)

4,616,739

238,981

(23)

238,958

113,473

(371)

113,102

1,071,712

(980)

1,070,732

-

831

-

831

(118)

713

-

-

-

-

-

-

-

-

-

-

33,964

(814)

33,150

-

-

2,237

2,237

(2,237)

-

-

-

-

-

-

-

-

-

-

-

241

(15)

226

18,369

831

2,237

21,437

(4,434)

17,003

4,639,836

4,639,836

(23,097)

4,616,739

238,981

(23)

238,958

113,473

(371)

113,102

1,105,917

(1,809)

1,104,108

14,770

725

3,809

19,304

(3,800)

15,504

4,959,281

4,959,281

-

4,959,281

252,288

-

252,288

117,135

-

117,135

888,613

-

888,613


Loans and advances to related

parties

Grade 1-2: low fair risk

Grade 3: Low fair risk

Grade 6: Impaired

Less allowance

Carrying amount

Debt investment securities at amor-

tised cost


Less allowance

Carrying amount


Grade 1-2-3: Low fair risk

Less allowance

Carrying amount

Other assets


Less allowance

Carrying amount

Loan Commitments and financial

guarantee contract


Less allowance

Carrying amount

2018 2017

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Amounts arising from ECLInputs, assumptions and techniques used for estimating impairmentSee accounting policy in Note 3 i (vii).

Significant increase in credit riskUnder IFRS 9, when determining whether the credit risk (i.e. risk of default) on a financial instrument has increased significantly since initial recognition, the Group will consider reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis based on the Bank historical experience, expert credit assessment and forward-looking information.

The Bank primarily identity whether a significant increase in credit risk has occurred for an exposure by comparing:

the remaining lifetime probability of default (PD) as at the reporting date; withthe remaining lifetime PD for this point time that was estimated on initial recognition of the exposure.

Assessing whether credit risk has increased significantly since initial recognition of a financial instruments requires identifying the date of initial recognition of the instrument. For certain revolving facilities, (e.g. credit cards and overdrafts), the date when the facility was first entered into could be a long time ago. Modifying the contractual terms of a financial instrument may also affect this assessment, which is discussed below.

Credit risk grades The Bank will allocate each exposure to a credit risk grade based on a variety of data that determined to be predictive of the risk of default and applying experienced credit judgment. The Bank will use these grades in identifying significant increase in credit risk under IFRS 9. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default. These factors may vary depending on the nature of the exposure and the type of borrower.

Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3.

Each exposure will be allocated to credit risk grade on initial recognition based on available information about the borrower. Exposures will be subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically involves use of the following data.

Information obtained during periodic review of customer files; e.g. audited financial statements, management accounts, budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service coverage, compliance with covenants, quality of management, senior management changes

Data from credit reference agencies, press articles, changes in external credit ratings

Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities

Internally collected data on customer behaviour; e.g. utilisation of credit card facilities

External data from credit reference agencies, including industry-standard credit scores

Payment record - this includes overdue status as well as a range of variables about payment ratios

Utilisation of the granted limit

Requests for and granting of forbearance

Existing and forecast changes in business, financial and economic conditions

Corporate exposures Retail exposures All exposures

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Generating the term structure of PD Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by jurisdiction, by type of product and borrower and by credit risk grading. For some portfolios information purchased from external credit reference agencies may also be used.

The Group employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time. This analysis will include the identification and calibration of relationships between changes in default rates and changes in key macro-economic factors. For most exposures, key macro-economic indicators are likely to include GDP growth, benchmark interest rates and unemployment.

The Bank’s approach to incorporating forward-looking information into this assessment is discussed below.

Determining whether credit risk has increased significantlyThe Group assesses whether credit risk has increased significantly since initial recognition at each reporting date. Determining whether an increase in credit risk is significant depends on the characteristics of the financial instrument and the borrower. What is considered significant differs for different types of lending. Such factors are based on its expert judgment and relevant historical experiences.

i. For the retail portfolio, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria:

Days past due between 60 and 90 (non-mortgage);Days past due between 60 and 120 (mortgage);Rescheduled facility;BDL flag – isIMpDefault in (300, 305, 310, 320, 330);Probability of default assigned by the model at the calculation date is significantly higher than the one determined at origination;DTI value greater than 1.5 (non-mortgage); andLTV value greater than 1 (mortgage).For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are considered:Days past due greater than 90 (mortgage);Days past due greater than 120 (non-mortgage); andExposures in default due to isIMpDefault flag.

ii. For the corporate portfolio, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria:

Days past due between 60 and 90;Rescheduled facility;BDL flag – isIMpDefault in (300, 305, 310, 320, 330);A loan is assessed negatively by the Bank’s early warning system;A loan is on the Bank’s watch list; andAn exposure’s rating at calculation date is worse than the rating at origination date by corresponding number of notches given by following table.

Moodys

Notches

1 2+ 2 2- 3+ 3 3- 4+ 4 4- 5+ 5 5- 6+ 6 6- 7+ 7 7-

15 13 13 12 11 10 9 8 7 6 5 5 4 3 3 3 1 1 1

For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are considered:

Days past due greater than 90 (mortgage);Days past due greater than 120 (non-mortgage); andExposures in default due to isIMpDefault flag.

For the sovereigns, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria:

Significant financial difficulty of the sovereign;A breach of contract, such as a default or delinquency in interest or principal payments;Restructured facilities;Evident deterioration in the sovereign’s debt servicing capacity;A mapped rating downgrade to CCC+ (mapped ratings are determined as per Basel II directives i.e. second best rating).

For the financial sector portfolios, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria:

Significant financial difficulty of the financial institution;A breach of contract, such as a default or delinquency in interest or principal payments;Restructured facilities;Material and persistent decrease in the financial institution’s income / future cash flows;Evident deterioration in the financial institution’s debt servicing capacity; andMultiple rating downgrades from rating agencies.For a transition between stage 2 and stage 3, the following quantitative and qualitative criteria are consideredDowngrade of mapped External Credit Rating to CC or below;When payments on an obligation are not made on the due date; The financial institution files a bankruptcy petition or takes a similar action; andWhen the default on an obligation is a virtual certainty.

For the financial instruments portfolios, a significant increase in credit risk of an exposure, which would prompt a transition from Stage 1 to Stage 2, is defined using the following criteria:

Significant financial difficulty of the issuer;A breach of contract, such as a default or delinquency in interest or principal payments;Restructured facilities;Material and persistent decrease in the issuer’s income / future cash flows;Evident deterioration in the issuer’s debt servicing capacity; andMultiple rating downgrades from rating agencies at the level of the issuer or the issue.The transition of financial instruments exposures from stage 2 to stage 3 takes place when any default on the payments of these financial instruments occurs or is not made on the date due.

A staging upgrade may only occur after a cooling period of 1 year, during which the borrower has proven its ability of settlement by paying back his installments without any delinquencies. Any decisions related to the upgrade of financial assets should be documented in detailed minutes of meetings along with the upgrade rationale attaching the supportive documentation. Any update from Stage 3 (i.e. BDL 4, 5 and 6) to Stage 2 requires BCC approval as per clause 4.2 of the BCC Circular no 293.

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The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that:

the criteria are capable of identifying significant increases in credit risk before an exposure is in default;the criteria do not align with the point in time when an asset becomes 60 days past due;the average time between the identification of a significant increase in credit risk and default appears reasonable;exposures are not generally transferred directly from 12-month ECL measurement to credit-impaired; andthere is no unwarranted volatility in loss allowance from transfers between 12-month PD (Stage 1) and lifetime PD (Stage 2).

Definition of defaultThe definition of default adopted is the one mentioned in BDL Basic Circular No. 115 stipulating that the debtor is considered as defaulting in any of the following cases:

if it appears that the debtor has become unable to fulfill any of his obligations towards the bank, even if the latter, in order to sue the client, does not resort to its legal right in acquiring or liquidating or executing the guarantees, collateral or commitments submitted by the debtor upon obtaining the loan;if more than 90 days have elapsed since the debtor has failed to settle his/her/its liabilities to the bank;In addition to the abovementioned cases, the overdraft debtor is considered as defaulting, if 90 days have elapsed after he exceeded the ceiling of facilities obtained under the original debit account contract or under the renewed and duly documented debit account contract. This shall also apply to credit accounts that become debit accounts by chance and that are not settled after 90 days; andAny exposure set under stage 3 will trigger a contagion effect to all facilities under same client i.e. Stage 3 is applied to all exposures under same client (Cross-Default).

Incorporation of forward-looking informationThe Bank incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. Based on a variety of external actual and forecast information, the Bank formulates a ‘base case’ view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. This process involves developing two additional economic scenarios and considering the relative probabilities of each outcome. External information includes economic data and forecasts published by “The World Bank”.

The base case represents a most-likely outcome and is aligned with information used by the Bank for other purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more pessimistic outcomes. Periodically, the Bank carries out stress testing of more extreme shocks to calibrate its determination of these other representative scenarios.

The Bank has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses.

The economic scenarios used as at 31 December 2018 included the following ranges of key indicators for Lebanon for the years ending 31 December 2019 to 2023.

Modified financial assets The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been modified may be derecognised and the renegotiated loan recognised as a new loan at fair value.

Under IFRS 9, when the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether the asset’s credit risk has increased significantly reflects comparison of:

the remaining lifetime PD at the reporting date based on the modified terms: with the remaining lifetime PD estimated based on data on initial recognition and the original contractual terms.

The Bank renegotiates loans to customers financial difficulties (referred to as ‘forbearance activities’ to maximise collection opportunities and minimise the risk of default).The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Both retail and corporate loans are subject to the forbearance policy. The Bank Credit Committee regularly reviews reports on forbearance activities.For financial assets modified as part of the Banks’ forbearance policy, the estimate of PD will reflect whether the modification has improved or restored the Bank’s ability to collect interest and principle and the Bank’s previous experience of similar forbearance action.

Generally, forbearance is a qualitative indicator of default and credit impairment and expectations of forbearance are relevant to assessing whether there is a significant increase in credit risk. Following forbearance, a customer needs to demonstrate consistently good payment behaviour over a period at time before the exposure is no longer considered to be in default/credit-impaired or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECLs.

Gross fixed capital formation(annual % growth)

Base 4.71%Range between 3.44% and 5.98%















Unemployment rates (% of total labor force)

GDP growth(annual % )

20202019 2021 2022 2023

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Measurement of ECLs The key inputs into the measurement of ECLs are likely to be the term structures of the following variables:

PDloss given default (LGD); and exposure at default (EAD).

These parameters will be derived from internally developed statistical models and other historical data that leverage regulatory models.PD estimates are estimates at a certain date, which will be calculated based on statistical rating models and assessed using rating tools tailored to the various categories of counterparties and exposures. LGD the magnitude of the likely loss if there is a default.EAD represents the expected exposure in the event of default. The EAD of a financial asset will be the gross carrying amount at default. For lending commitments and financial guarantees, the EAD will consider the amount drawn.Where modelling of a parameter is carried out on a collective basis, the financial instruments will be grouped on the basis of shared risk characteristics that include:

instrument type, credit risk grading’s, industry;geographic location of the borrower.

Loss allowanceThe following tables show reconciliations from the opening to the closing balance of the loss allowance by class of financial instrument. Comparative amounts for 2017 represent impairment allowance for credit losses and unrealised interest and reflect measurement basis under IAS 39.

14,952

(3,727)

11,225

12,153

1,296

(1,195)

(140)

(4,121)

912

(362)

–

–

–

8,543

–

–

–

59,969

(1,263)

2,053

(5,950)

(4,538)

675

(144)

–

–

–

50,802

–

–

–

81,453

(33)

(858)

6,090

18,762

140

(8,600)

112,923

–

–

209,877

14,952

(3,727)

11,225

153,575

–

–

–

10,103

1,727

(9,106)

112,923

–

–

269,222

–

–

–

90,398

–

–

–

38,641

–

(2,038)

–

(371)

137

126,767


Balances with Central Banks

Balance at 1 January

Recoveries and releases

Balance at 31 December



Transfer to Stage 1

Transfer to Stage 2

Transfer to Stage 3

Net remeasurement of loss allowance

New financial assets originated or

purchased


Transfer from unrealised interest to

ECL Stage 3

Write-offs

Foreign exchange and other move-

ments


2018 2017

* Movement of loss allowance by type of customer is above.

5,976

639

(1,118)

(44)

(372)

768

–

(120)

5,729

6,177

657

(77)

(96)

(3,749)

144

–

(242)

2,814

25,757

(606)

1,874

(4,813)

(663)

613

–

(42)

22,120

34,212

(657)

179

(1,137)

(3,875)

62

–

(102)

28,682

41,304

(33)

(756)

4,857

14,643

126

64,445

(2,434)

122,152

40,149

–

(102)

1,233

4,119

14

48,478

(6,166)

87,725

73,037

–

–

–

13,608

1,507

64,445

(2,596)

150,001

80,538

–

–

–

(3,505)

220

48,478

(6,510)

119,221

Stage 1 Stage 2 Stage 3 TotalIn Millions of Lebanese Pound

Loans and advances to customers at amortised cost -

retail customers *


Transfer to Stage 1

Transfer to Stage 2

Transfer to Stage 3


New financial assets originated or purchased

Transfer from unrealised interest to ECL Stage 3



Loans and advances to customers at amortised cost -

corporate customers *


Transfer to Stage 1

Transfer to Stage 2

Transfer to Stage 3



Transfer from unrealised interest to ECL Stage 3



2018

150151

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


292

417

709

1,767

312

2,079

21,652

1,445

23,097

29

(6)

23

–

371

371

828

152

980

–

–

(3,727)

(3,727)

10,103

1,727

(9,106)

2,724

1,841

–

–

1,841

312

–

–

312

35

83

118

118

–

118

–

–

–

–

–

–

–

–

–

215

599

814

11,103

1,341

12,444

2,237

–

2,237

–

–

–

–

–

–

–

–

–

5

10

15

11,430

1,841

13,271

4,122

312

4,434

21,652

1,445

23,097

29

(6)

23

–

371

371

1,048

761

1,809

–

–

–

(3,800)

–

(3,800)

–

–

–

–

–

–

–

–

–

–

–

–



Balances with other banks

and financial institutions




Loans and advances to related

parties




Debt investment securities at

amortised cost








Other assets




Loan commitments and financial

guarantee contract







Total

2018 2017

The following table provides a reconciliation between:

amounts shown in the above tables reconciling opening and closing balances of loss allowance per class of financial instrument; and the impairment losses on financial instruments line item in the consolidated statement of profit or loss and other comprehensive income.



Balances with other banks and financial

institutionsLoans and advanc-es to related parties

1,445

–

–

1,445

(6)

–

–

(6)

371

–

–

371

761

–

–

761

14,827

1,727

(12,833)

3,721

Debt investment securi-ties at amortised cost

Debtorsby acceptances

Loan commitments and financial

guarantee contractOther assets Total

152153

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


Impaired financial assets - Comparative information under IAS 39

Collateral held

Type of credit exposureThe Group holds collateral against certain of its credit exposures. The table below sets out the principal types of collateral held against loans and advances to customers and related parties.

5,103,229

5,103,229

118,141

80,619

24,439

223,199

(59,222)

(67,545)

(126,767)

38,484

4,279,106

4,722,679

31,173

13,211

695,205

9,779,858

46,437

4,352,852

4,586,290

38,885

3,332

805,980

9,833,776



Neither past due nor impaired


Individually impaired


Grade 5: Doubtful

Grade 6: Loss

Allowance for impairment

Individual

Collective

Total allowance for impairment

Principal type of collateral held for secured lending

Engagement by signature received

Personal guarantees received

Mortgages and real securities received

Mobilisation bills received as guarantee

Bills received as guarantee

Commitment and contingencies received

2017

2018 2017


Loans and advancesto customers

Loans and advancesto related parties

Investmentdebt securities

Balances with Central banks, banks


The Group typically does not hold collateral against balances with other banks and financial institutions and against investment securities, and no such collateral was held at 31 December 2018 or 2017.The Group did not obtain non-financial assets during the year by taking possession of collateral held as security against loans and advances.The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Group generally does not use the non-cash collateral for its own operations.

Concentration of credit riskThe Group monitors concentrations of credit risk by sector and by geographic location. An analysis of concentrations of credit risk from loans and advances and investment securities is shown below:

Concentration by location for loans and advances to customers, related parties and banks and financial institutions are based on the country of domicile. Concentration by location for investment securities is based on the country of domicile of the issuer of the security.

4,964,187

2,140,566

1,674,726

627,579

440,423

23,030

55,680

–

–

2,183

4,964,187

4,735,647

128,327

86,905

13,308

4,964,187

5,199,661

2,217,824

1,426,872

644,861

812,910

28,732

65,066

–

–

3,396

5,199,661

4,991,468

155,303

41,733

11,157

5,199,661

17,003

1,710

5,712

–

9,581

–

–

–

–

–

17,003

17,003

–

–

–

17,003

15,504

2,015

4,172

–

9,317

–

–

–

–

15,504

15,496

8

–

–

15,504

8,256,520

–

–

–

–

–

–

922,368

–

7,334,152

8,256,520

7,271,165

210,441

628,316

146,598

8,256,520

6,307,275

–

–

–

–

–

–

1,013,148

–

5,294,127

6,307,275

5,249,793

236,130

686,248

135,104

6,307,275

4,735,807

–

–

–

–

–

–

54,737

3,965

4,677,105

4,735,807

4,657,313

66,813

11,681

–

4,735,807

5,024,736

–

–

–

–

–

–

43,646

4,244

4,976,846

5,024,736

4,958,552

66,184

–

–

5,024,736


Carrying amount

Concentration by sector

Retail

Trade and services

Industries

Construction and real estate

Brokerage

Agriculture

Banks and financial institutions

Corporate

Government

Concentration by location

Lebanon

Middle East and Africa

Europe

Other

2018 2018 2018 20182017 2017 2017 2017

154155

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


Trading assets An analysis of the credit quality of the maximum credit exposure, based on the median rating of the three eligible rating agencies as per Basel II (Moody’s, Standard & Poor’s and Fitch) where applicable, is as follows:

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity riskThe Group’s Board of Directors sets the Group’s strategy for managing liquidity risk and delegates the responsibility for the oversight of the implementation of this policy to the Risk Committee and ALCO. ALCO approves the Group’s liquidity policies and procedures. Central Treasury manages the Bank’s liquidity position on a day-to-day basis and reviews daily reports covering the liquidity position of both the Bank and foreign branches.

The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The key elements of the Group’s liquidity strategy are as follows:

Maintaining a diversified funding base consisting of customer deposits (both retail and corporate) and maintaining contingency facilities;Carrying a portfolio of highly liquid assets, diversified by currency and maturity;Monitoring liquidity ratios, maturity mismatches, behavioural characteristics of the Group’s financial assets and liabilities, and the extent to which the Group’s assets are encumbered and so not available as potential collateral for obtaining funding.

In addition, the Group maintains statutory deposits with Central Banks. As per Lebanese banking regulations, the Group must retain non-interest bearing balances with the Central Bank of Lebanon equivalent to 25% of the sight deposits and 15% of term deposits denominated in Lebanese Pounds. As for foreign currencies, the Group must retain with the Central Bank of Lebanon interest bearing statutory investments equivalent to 15% of all deposits regardless of their nature.

-

-

-

-

-

-

7,259

65,455

4,858

2,317

12,117

67,772


31 December 2018


profit or loss

31 December 2017


profit or loss

From A+ to A-

From BB+ to BB-

From BBB+ to BBB-

From B+ to B-

From CCC+ to CCC-

or NR Total

The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. The Group maintains a solid ratio of highly liquid net assets in foreign currencies to deposits and commitments in foreign currencies taking market conditions into consideration. In accordance, with the Central Bank of Lebanon circulars, the ratio of net liquid assets to deposits and commitments in foreign currencies and Lebanese Pounds should not be less than 10% and 40% respectively. The highly liquid net assets consist of cash and balances with Central Banks, balances with other banks and financial institutions less deposits from banks and financial institutions and deposits that mature within one year. Deposits and commitments are composed of total deposits from customers in addition to acceptances and loans that mature within one year.

When a branch is subject to a liquidity limit imposed by its local regulator, the branch is responsible for managing its overall liquidity within the regulatory limit in co-ordination with Central Treasury. Central Treasury monitors compliance of all foreign branches with local regulatory limits on a daily basis.The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment debt securities for which there is an active and liquid market less any deposits from banks and financial institutions, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Group’s compliance with the liquidity limit established by the Central Bank of Lebanon and the Banking Control Commission. Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date was as follows:

34.87% 36.81%At 31 December

2018 2017

156157

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The tables below set out the remaining contractual maturities of the Bank’s assets and liabilities.

Maturity analysis for assets and liabilities

935,709

920,293

1,745,270

13,279

238,958

58,918

6,087

83,695

16,849

236,570

9,288

55,680

113,102

4,433,698

(379,137)

(110,241)

(7,646,345)

(141,950)

(238,981)

(9,795)

(46,519)

(223,727)

(56,629)

(1,338,604)

(10,191,928)

(5,758,230)

(5,758,230)

191,453

2,000

62,372

289

–

–

–

131,773

–

–

–

–

–

387,887

(339,825)

(26,112)

(1,968,698)

(17,651)

–

–

–

–

–

–

(2,352,286)

(1,964,399)

(7,722,629)


31 December 2018

Assets











Intangible assets


Other assets

Total assets

Liabilities


Balances from other banks and financial institutions


Deposits form related parties

Engagement by acceptances


Tax liabilities

Other liabilities



Total liabilities and shareholders’ equity

Liquidity gap

Cumulative gap

Amountwithout maturity

1-3months

241,200

–

85,753

247

–

–

537

129,005

–

–

–

–

–

456,742

(789,998)

(182,558)

(1,794,559)

(69,717)

–

–

–

–

–

–

(2,836,832)

(2,380,090)

(10,102,719)

171,855

–

159,823

103

–

–

–

206,696

–

–

–

–

–

538,477

(16,520)

(5,080)

(1,764,151)

(100,452)

–

–

–

–

–

–

(1,886,203)

(1,347,726)

(11,450,445)

1,215,794

75

849,951

1,128

–

92,636

3,448

1,336,158

–

–

–

–

–

3,499,190

(52,857)

–

(569,578)

(5,082)

–

–

–

–

–

–

(627,517)

2,871,673

(8,578,772)

4,653,318

–

2,061,018

1,957

–

9,550

2,045

2,729,412

–

–

–

–

–

9,457,300

(726,278)

–

(1,500)

–

–

(150,750)

–

–

–

–

(878,528)

8,578,772

–

7,409,329

922,368

4,964,187

17,003

238,958

161,104

12,117

4,616,739

16,849

236,570

9,288

55,680

113,102

18,773,294

(2,304,615)

(323,991)

(13,744,831)

(334,852)

(238,981)

(160,545)

(46,519)

(223,727)

(56,629)

(1,338,604)

(18,773,294)

–

–

3-6months

6 monthsto 1 year

1-5years Total

More than5 years

158159

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


133,854

455

114,281

3

–

83,390

3,373

63,568

16,972

237,629

10,761

55,171

117,135

836,592

(1,666)

(927)

(83,110)

(3,023)

–

(7,313)

(9,624)

(259,632)

(49,851)

(1,273,063)

(1,688,209)

(851,617)

(851,617)

884,228

1,012,693

1,838,547

13,254

185,427

–

–

273,695

–

–

–

–

–

4,207,844

(88,171)

(101,800)

(10,595,401)

(321,172)

(185,427)

–

(12,835)

(57,309)

–

–

(11,362,115)

(7,154,271)

(8,005,888)


31 December 2017

Assets











Intangible assets


Other assets

Total assets

Liabilities


Balances from other banks and financial institutions


Deposits form related parties

Engagement by acceptances


Tax liabilities

Other liabilities



Total liabilities and shareholders’ equity

Liquidity gap

Cumulative gap

Amountwithout maturity

1-3months

150,751

–

108,728

208

58,634

–

–

267,956

–

–

–

–

–

586,277

(199,954)

(80,160)

(1,268,936)

(10,897)

(58,634)

–

(11,300)

–

–

–

(1,629,881)

(1,043,604)

(9,049,492)

341,774

–

140,497

–

8,227

–

3,402

260,673

–

–

–

–

–

754,573

(125,054)

(288)

(1,124,661)

(2,454)

(8,227)

–

–

–

–

–

(1,260,684)

(506,111)

(9,555,603)

1,033,263

–

825,946

1,130

–

–

32,787

1,537,762

–

–

–

–

–

3,430,888

(272,002)

(878)

(611,024)

–

–

(113,063)

–

–

–

(996,967)

2,433,921

(7,121,682)

2,820,959

–

2,171,662

909

–

25,623

28,210

2,555,627

–

–

–

–

–

7,602,990

(480,251)

–

(1,057)

–

–

–

–

–

–

–

(481,308)

7,121,682

–

5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,959,281

16,972

237,629

10,761

55,171

117,135

17,419,164

(1,167,098)

(184,053)

(13,684,189)

(337,546)

(252,288)

(120,376)

(33,759)

(316,941)

(49,851)

(1,273,063)

(17,419,164)

–

–

3-6months

6 monthsto 1 year

1-5years Total

More than5 years

160161

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The above tables show the undiscounted cash flows on the Group’s assets and liabilities on the basis of their earliest possible contractual maturity.

The Group’s expected cash flows on some assets and liabilities vary significantly from the contractual cash flows. For example, demand deposits from customers are expected to maintain a stable or increasing balance.As part of the management of its liquidity risk arising from financial liabilities, the Group holds liquid assets comprising cash and cash equivalents, compulsory reserves with Central Banks and investment securities for which there is an active and liquid market so that they can be readily sold to meet liquidity requirements. In addition, the Bank maintains agreed lines of credit with banks.

(d) Market risksMarket risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of the Group’s market risk management is to manage and control market risk exposures within acceptable parameters in order to ensure the Group’s solvency while optimising the return on risk.

Management of market risksOverall authority for market risk management is vested in ALCO. ALCO sets up limits for each type of risk in aggregate and for portfolios, with market liquidity being a primary factor in determining the level of limits set for trading portfolios. The Group Market Risk is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation.The Group employs a range of tools to monitor and limit market risk exposures.

Exposure to interest rate riskThe principal risk to which portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. A summary of the Group’s interest rate gap position is as follows.

Liquidity reserves

1,542,876 1,542,876 1,441,587 1,441,587



20172017

Carrying amount Carrying amountFair value Fair value

2018 2018

162163

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones

7,409,329

922,368

4,964,187

17,003

238,958

161,104

12,117

4,616,739

16,849

236,570

9,288

55,680

113,102

18,773,294

(2,304,615)

(323,991)

(13,744,831)

(334,852)

(238,981)

(160,545)

(46,519)

(223,727)

(56,629)

(1,338,604)

(18,773,294)

–

–

380,079

690,086

1,700,501

13,622

–

–

–

158,668

–

–

–

–

–

2,942,956

(710,583)

(73,597)

(8,160,283)

(145,941)

–

–

–

–

–

–

(9,090,404)

(6,147,448)

(6,147,448)


31 December 2018

Assets











Intangible assets


Other assets

Total assets

Liabilities







Tax liabilities

Other liabilities




Interest rate sensitivity gap

Cumulative gap

Carryingamount

Less than3 months


241,200

–

85,753

247

–

–

537

129,005

–

–

–

–

–

456,742

(789,998)

(182,558)

(1,794,559)

(69,717)

–

–

–

–

–

–

(2,836,832)

(2,380,090)

(8,527,538)

171,855

–

159,823

103

–

–

–

206,696

–

–

–

–

–

538,477

(16,520)

(5,080)

(1,764,151)

(100,452)

–

–

–

–

–

–

(1,886,203)

(1,347,726)

(9,875,264)

1,215,794

75

849,951

1,128

–

92,380

3,448

1,336,158

–

–

–

–

–

3,498,934

(52,857)

–

(569,578)

(5,082)

–

–

–

–

–

–

(627,517)

2,871,417

(7,003,847)

4,653,318

–

2,061,018

1,903

–

9,550

3,276

2,729,412

–

–

–

–

–

9,458,477

(727,062)

–

(1,500)

–

–

(150,750)

–

–

–

–

(879,312)

8,579,165

1,575,318

747,083

232,207

107,141

–

238,958

59,174

4,856

56,800

16,849

236,570

9,288

55,680

113,102

1,877,708

(7,595)

(62,756)

(1,454,760)

(13,660)

(238,981)

(9,795)

(46,519)

(223,727)

(56,629)

(1,338,604)

(3,453,026)

(1,575,318)

–

3-6months

6-12months

1-5years

Non interest bearing

More than5 years

164165

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones

5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,959,281

16,972

237,629

10,761

55,171

117,135

17,419,164

(1,167,098)

(184,053)

(13,684,189)

(337,546)

(252,288)

(120,376)

(33,759)

(316,941)

(49,851)

(1,273,063)

(17,419,164)

–

–

1,178,190

722,380

1,838,547

13,254

–

–

–

273,695

–

–

–

–

–

4,026,066

(80,188)

(76,660)

(9,360,862)

(304,145)

–

–

–

–

–

–

(9,821,855)

(5,795,789)

(5,795,789)


31 December 2017

Assets











Intangible assets


Other assets

Total assets

Liabilities







Tax liabilities

Other liabilities




Interest rate sensitivity gap

Cumulative gap

Carryingamount

Less than3 months


88,943

108,728

208

–

–

–

267,956

–

–

–

–

–

465,835

(199,954)

(80,160)

(1,268,936)

(10,897)

–

–

–

–

–

–

(1,559,947)

(1,094,112)

(6,889,901)

233,235

140,497

–

–

–

–

260,673

–

–

–

–

–

634,405

(125,054)

(288)

(1,124,661)

(2,454)

–

–

–

–

–

–

(1,252,457)

(618,052)

(7,507,953)

555,385

825,946

1,130

–

–

–

1,537,762

–

–

–

–

–

2,920,223

(272,002)

(878)

(611,024)

–

–

(113,063)

–

–

–

–

(996,967)

1,923,256

(5,584,697)

2,753,122

2,171,662

909

–

–

–

2,555,627

–

–

–

–

–

7,481,320

(480,251)

–

(1,057)

–

–

–

–

–

–

–

(481,308)

7,000,012

1,415,315

555,954

290,768

114,281

3

252,288

109,013

67,772

63,568

16,972

237,629

10,761

55,171

117,135

1,891,315

(9,649)

(26,067)

(1,317,649)

(20,050)

(252,288)

(7,313)

(33,759)

(316,941)

(49,851)

(1,273,063)

(3,306,630)

(1,415,315)

–

3-6months

6-12months

1-5years

Non interest bearing

More than5 years

166167

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves. An analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows:

Overall interest rate risk positions are managed by Risk Management, which uses investment securities, advances to banks, deposits from banks to manage the overall position arising from the Group’s activities.

+100

+50

+25

+100

+50

+25

(75,895)

(22,472)

(259)

(102,365)

(25,845)

(256)


31 December 2018

LBP

USD

EUR

In millions of Lebanese Pound

31 December 2017

LBP

USD

EUR

Change in bp

Change in bp

Sensitivity of net interest income

Sensitivity of net interest income

168169

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


Exposure to currency risk

The Group monitors any concentration risk in relation to any individual currency in regard to the translation of foreign currency transactions and monetary assets and liabilities into the functional currency of the Group, and with regard to the translation of foreign operations into the presentation currency of the Group.

The following table presents the breakdown of assets and liabilities by currency:


Assets











Intangible assets


Other assets

Total assets

Liabilities







Tax liabilities

Other liabilities




LBP Other

31 December 2018

3,765,671

79,634

2,175,817

2,168

–

31,387

–

2,711,128

6,325

229,691

8,843

6,436

98,675

9,115,775

2,282,027

14,384

5,758,617

25,191

–

–

46,519

50,937

48,063

1,085,224

9,310,962

(195,187)

3,643,658

842,734

2,788,370

14,835

238,958

129,717

12,117

1,905,611

10,524

6,879

445

49,244

14,427

9,657,519

22,588

309,607

7,986,214

309,661

238,981

160,545

–

172,790

8,566

253,380

9,462,332

195,187

31 December 2017

Total LBP Other Total

7,409,329

922,368

4,964,187

17,003

238,958

161,104

12,117

4,616,739

16,849

236,570

9,288

55,680

113,102

18,773,294

2,304,615

323,991

13,744,831

334,852

238,981

160,545

46,519

223,727

56,629

1,338,604

18,773,294

–

2,429,660

34,205

2,296,059

1,199

–

4,660

48,318

3,039,732

13,910

230,320

10,383

6,436

101,460

8,216,342

1,167,098

12,465

6,124,764

19,362

–

–

19,231

117,274

43,764

961,747

8,465,705

(249,363)

2,935,169

978,943

2,903,602

14,305

252,288

104,353

19,454

1,919,549

3,062

7,309

378

48,735

15,675

9,202,822

–

171,588

7,559,425

318,184

252,288

120,376

14,528

199,667

6,087

311,316

8,953,459

249,363

5,364,829

1,013,148

5,199,661

15,504

252,288

109,013

67,772

4,959,281

16,972

237,629

10,761

55,171

117,135

17,419,164

1,167,098

184,053

13,684,189

337,546

252,288

120,376

33,759

316,941

49,851

1,273,063

17,419,164

–

170171

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The Group is subject to currency risk on financial assets and liabilities denominated in currencies other than the Group’s functional currency, which is the Lebanese Pound (LBP). Most of these financial assets and liabilities are denominated in US Dollars or Euros.Since the LBP is pegged to the USD since 1999 in a band of LBP 1,500 and LBP 1,515, the net exposure is minimal.

An analysis of the Group’s sensitivity to a change in currency rates, assuming all other variables remain constant, is as follows:

(e) Operational risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks, such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations.

The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and innovation. In all cases, the Group policy requires compliance will all applicable legal and regulatory requirements.

1%

1%

1%

1%

1%

1%

1%

1%

(316)

(15)

277

–

(443)

(8)

315

–

8,250

–

–

–

3,579

–

–

–


31 December 2018

USD

EUR

BHD

XOF


31 December 2017

USD

EUR

BHD

XOF

Increase in currency rate

Increase in currency rate

Effect on profit before tax

Effect on profit before tax

Effect on equity

Effect on equity

The Board of Directors has delegated responsibility for operational risks to management which is responsible for the development and implementation of controls to address operational risk. This responsibility is supported by the development of overall Bank standards for the management of operational risk in the following areas:

requirements for appropriate segregation of duties, including the independent authorisation of transactions;requirements for the reconciliation and monitoring of transactions;compliance with regulatory and other legal requirements;documentation of controls and procedures;requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;requirements for the reporting of operational losses and proposed remedial action;development of contingency plans;training and professional development;ethical and business standards; andrisk mitigation, including insurance where this is cost effective.

Compliance with Group standards is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management, with summaries submitted to the Audit Committee and senior management of the Group.

(f) Capital management

Regulatory capitalThe Group’s lead regulator, the Central Bank of Lebanon, sets and monitors capital requirements for the Group as a whole. The Group’s regulatory capital adequacy ratio at 31 December was as follows:

To monitor the adequacy of its capital, the Group uses ratios established by the Bank for International Settlements (BIS). In line with Basel III and Central Bank of Lebanon Basic Circular no. 44 amended by Central Bank of Lebanon Intermediary Circular no. 282, the minimum requirements for capital adequacy ratios are set at 8% by the BIS and 15% by the Central Bank of Lebanon. These ratios measure capital adequacy by comparing the Group’s eligible capital with its statement of financial position, off-balance-sheet commitments and market and other risk positions at weighted amounts to reflect their relative risk.The market risk approach covers the risk of open positions in currencies and debt and equity securities. Assets are weighted according to broad categories of notional risk, being assigned a risk weighting according to the amount of capital deemed to be necessary to support them. Six categories of risk weights (0%, 20%, 35%, 50%, 75%, 100%) are applied; for example cash and LBP placements with the Central Bank have a 0% risk weighting which means that no capital is required to support the holding of these assets.Off-balance-sheet credit instruments are taken into account by applying different categories of conversion factors, designed to convert these items into statement of financial position equivalents. The results of the capital adequacy computation exercise are presented to Senior Management and the Group’s Risk Committee for regular review and monitoring of the Group’s overall capitalisation levels.The resulting equivalent amounts are then weighted for risk using the same percentages as for on-balance-sheet assets.

14.26%

16.59%

13.02%

13.44%

Capital adequacy ratio - Tier 1 capital

Capital adequacy ratio - Total capital

2018 2017

172173

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


The Group’s regulatory capital comprises two tiers:

• Tier 1 capital, which includes ordinary share capital, share premium, retained earnings and NCI after deductions for intangible assets, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes; and• Tier 2 capital, which includes qualifying subordinated liabilities, and the element of the fair value reserve relating to unrealised gains and losses on equity instruments measured at fair value through other comprehensive income and real estate revaluation reserve.

The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.The Bank and its individually regulated operations have complied with all externally imposed capital requirements.

6. Fair values of financial instruments

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The Bank’s regulatory capital position under Basel III at 31 December was as follows:

7,933,322

57,827

672,145

8,663,294

1,235,018

202,115

1,437,133

7,766,769

203,981

647,499

8,618,249

1,121,899

36,007

1,157,906

Risk weighted assets

Credit risk

Market risk

Operational risk

Total risk weighted assets

Tier 1 capital

Tier 2 capital

Total regulatory capital

2018

2018

2017

2017



(a) Valuation models

The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.

Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments.Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs that are not observable and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, bond and equity prices and foreign currency exchange rates.The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

174175

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


(b) Financial instruments measured at fair value – fair value hierarchy

The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position.


31 December 2018

Financial assets measured at fair value


Lebanese government treasury bills and eurobonds

Unquoted equity securities



Quoted equity securities

Debt securities

Preferred shares

Financial assets not measured at fair value






Financial liabilities not measured at fair value






Tax liabilities

Other liabilities

Designated atfair value

Amortisedcost

Carrying amount

Other financialliabilities

7,259

4,858

5,924

13,992

113,867

27,321

173,221

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

7,409,329

922,368

4,964,187

17,003

4,616,739

17,929,626

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(2,304,615)

(323,991)

(13,744,831)

(334,852)

(160,545)

(46,519)

(223,727)

(17,139,080)

Fair Value

Level 1 Level 2 Level 3 TotalTotal

7,259

4,858

5,924

13,992

113,867

27,321

173,221

7,409,329

922,368

4,964,187

17,003

4,616,739

17,929,626

(2,304,615)

(323,991)

(13,744,831)

(334,852)

(160,545)

(46,519)

(223,727)

(17,139,080)

7,259

–

–

13,992

87,527

–

108,778

75,177

–

–

–

1,615,074

1,690,251

–

–

–

–

–

–

–

–

–

–

–

–

26,340

27,321

53,661

7,334,152

922,368

4,923,592

16,965

2,730,358

15,927,435

(2,304,615)

(323,991)

(13,739,810)

(334,790)

(160,545)

(46,519)

(223,727)

(17,133,997)

–

4,858

5,924

–

–

–

10,782

–

–

–

–

–

–

–

–

–

–

–

–

–

–

7,259

4,858

5,924

13,992

113,867

27,321

173,221

7,409,329

922,368

4,923,592

16,965

4,345,432

17,617,686

(2,304,615)

(323,991)

(13,739,810)

(334,790)

(160,545)

(46,519)

(223,727)

(17,133,997)

176177

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones



31 December 2017

Financial assets measured at fair value






Quoted equity securities

Preferred shares

Financial assets not measured at fair value






Financial liabilities not measured at fair value






Tax liabilities

Other liabilities

Designated atfair value

Amortisedcost

Carrying amount

Other financialliabilities

65,455

2,317

6,042

75,691

27,280

176,785

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

5,364,829

1,013,148

5,199,661

15,504

4,959,281

16,552,423

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(1,167,098)

(184,053)

(13,684,189)

(337,546)

(120,376)

(33,759)

(316,941)

(15,843,962)

Fair value

Level 1 Level 2 Level 3 TotalTotal

65,455

2,317

6,042

75,691

27,280

176,785

5,364,829

1,013,148

5,199,661

15,504

4,959,281

16,552,423

(1,167,098)

(184,053)

(13,684,189)

(337,546)

(120,376)

(33,759)

(316,941)

(15,843,962)

17,137

–

–

75,691

–

92,828

70,702

–

–

–

1,781,895

1,852,597

–

–

–

–

–

–

–

–

48,318

–

–

–

27,280

75,598

5,294,127

1,013,148

4,809,977

15,291

3,189,232

14,321,775

(1,167,098)

(184,053)

(13,684,147)

(337,546)

(120,376)

(33,759)

(316,941)

(15,843,920)

–

2,317

6,042

–

–

8,359

–

–

–

–

–

–

–

–

–

–

–

–

–

–

65,455

2,317

6,042

75,691

27,280

176,785

5,364,829

1,013,148

4,809,977

15,291

4,971,127

16,174,372

(1,167,098)

(184,053)

(13,684,147)

(337,546)

(120,376)

(33,759)

(316,941)

(15,843,920)

178179

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


7. Cash and balances with Central Banks

8. Balances with other banks and financial institutions

75,177

5,664,151

1,535,053

3,419

734

600

3,070

138,350

(11,225)

7,409,329

232,254

690,085

75

12,422

(12,422)

–

781

(827)

922,368

70,702

3,789,388

1,433,805

3,432

524

600

3,226

63,152

–

5,364,829

290,313

710,884

11,496

9,235

–

(9,235)

455

–

1,013,148

Cash

Unrestricted balances with Central Banks

Mandatory reserves with the Central Bank of Lebanon

Mandatory reserves with the Central Bank of Iraq

Mandatory reserves with the Central Bank of Cyprus

Mandatory reserves with the Central Bank of Bahrain

Mandatory reserves with the Central Bank of Senegal

Interest receivable

Expected credit loss allowance

Current accounts

Term deposits

Loans and advances to banks

Impaired loans to banks and financial institutions

Expected credit loss allowance on impaired loans to banks


Less specific allowance for impairment

Interest receivable


2018

2018

2017

2017



In accordance with Central Bank of Lebanon regulations, the Bank is required to constitute mandatory reserves in Lebanese pounds (LBP) of 15% and 25% of the average weekly customers’ term and sight commitment accounts denominated in Lebanese pounds respectively. The Bank is also required to constitute mandatory reserves in foreign currency (FCY) calculated on the basis of 15% of total customers deposit accounts denominated in foreign currency, regardless of their nature.

Foreign branches and subsidiaries with banking operations are also subject to mandatory reserve requirements with varying percentages, according to the banking rules and regulations of the countries in which they are operating.

Mandatory reserve deposits are not available for use in the Group’s day-to-day operations. Cash on hand and LBP reserves are non-interest bearing, whereas FCY reserves are floating-rate assets.Cash and balances with Central Bank include assets under leverage arrangement amounting to LBP 999,349 million (2017: 94,544 million) in Lebanese Pounds originated from and are pledged against the corresponding leverage arrangements with the Central Bank of Lebanon for the same amount in Lebanese pounds (See note 18), purpose of which is to provide yield adjustment on certain transactions related to either fresh deposits in foreign currency or sale of foreign currency against Lebanese Pounds placed in term deposits at the Central Bank of Lebanon and/or Government securities. The leverage and related pledged assets mechanism resulted in a yield enhancement on term placements with Central Bank of Lebanon and Lebanese treasury bills.

9. Loans and advances to customers

130,139

1,727,669

52,956

44,703

310,169

101,145

2,266,659

206,239

102,542

74,695

23,670

70,901

75,628

27,829

18,465

5,233,409

(107)

(7,133)

(325)

(92)

(1,702)

(26,691)

(3,332)

(30,427)

(38,501)

(54,005)

(21,799)

(17,596)

(42,145)

(25,367)

–

(269,222)

130,032

1,720,536

52,631

44,611

308,467

74,454

2,263,327

175,812

64,041

20,690

1,871

53,305

33,483

2,462

18,465

4,964,187

Regular retail customers:

Normal

Cash collateral

Mortgage

Personal

Credit cards

Other

Watch

Regular corporate customers:

Normal

Watch

Classified retail customers:

Substandard

Doubtful

Bad

Classified corporate customers:

Substandard

Doubtful

Bad

Accrued interest receivable

2018

Gross amountExpected credit loss

allowance Carrying amountIn Millions of Lebanese Pound

180181

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


137,247

1,801,323

50,884

42,346

298,555

96,372

2,403,570

255,074

67,081

46,938

8,549

51,060

33,681

15,890

–

17,858

5,326,428

–

–

–

–

–

–

–

–

–

(19,329)

(8,549)

–

(15,454)

(15,890)

(67,545)

–

(126,767)

137,247

1,801,323

50,884

42,346

298,555

96,372

2,403,570

255,074

67,081

27,609

–

51,060

18,227

–

(67,545)

17,858

5,199,661

Regular retail customers:

Normal

Cash collateral

Mortgage

Personal

Credit cards

Other

Watch

Regular corporate customers:

Normal

Watch

Classified retail customers:

Substandard

Doubtful

Bad

Classified corporate customers:

Substandard

Doubtful

Bad

Collective allowance


2017

Gross amount (net of unrealised interest)

Impairmentallowance Carrying amount


Below is movement of expected credit loss allowance (2017: impairment allowance) booked on loans and advances to customers.

* During 2018, the Bank sold his shares in Visa class “C” (See Note 27).

10. Financial assets at fair value through other comprehensive income

126,767

26,808

11,830

(9,106)

–

–

112,923

–

–

–

–

269,222

5,924

13,992

25,624

111,809

2,058

1,697

161,104

5 (b)

5 (b)

5 (b)

33

33

5 (b)

90,398

–

–

–

38,641

(2,038)

–

5

13

119

(371)

126,767

6,042

75,691

25,624

–

–

1,656

109,013


Adjustment upon IFRS 9 application

Expected credit loss allowance for the year:

Charge for the year


Impairment allowance for the year based on IAS 39:

Charge for the year


Transfer from unrealised interest to ECL stage 3

Provision transferred from to off balance sheet

Transfer from provisions for risks and charges

Difference of exchange

Provisions written off



Quoted equity securities *

Preferred shares

Debt securities

Interest receivable

Accrued dividend receivable

2018

2018

2017

2017

NoteIn Millions of Lebanese Pound


182183

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


* Unquoted equity securities represent investments in start-up companies. During 2018, the Group recognised impairment losses amount-

ing to LBP 1,044 million as these companies are incurring losses.

11. Financial assets at fair value through profit or loss

12. Financial assets at amortised cost

7,125

134

7,259

5,902

(1,044)

4,858

12,117

2,773,055

64,681

44,505

(19,816)

2,862,425

1,674,676

35,295

(2,678)

1,707,293

47,532

92

(603)

47,021

4,616,739

64,399

1,056

65,455

2,317

–

2,317

67,772

3,304,957

64,251

49,251

–

3,418,459

1,478,716

14,216

–

1,492,932

47,798

92

–

47,890

4,959,281


Interest receivable

Unquoted equity securities *

Impairment losses on unquoted equity securities


Other sovereign bonds

Interest receivable


Certificates of deposits issued by the Central Bank of Leba-

non

Interest receivable


Other debt instruments - Corporate bonds

Interest receivable


2018

2018

2017

2017



Financial assets at amortised cost include assets under leverage arrangement amounting to LBP 483,673 million (2017: 245,226 million) in Lebanese Pounds originated from and are pledged against the corresponding leverage arrangements with the Central Bank of Lebanon for the same amount in Lebanese pounds (See note 18), purpose of which is to provide yield adjustment on certain transactions related to either fresh deposits in foreign currency or sale of foreign currency against Lebanese Pounds placed in term deposits at the Central Bank of Lebanon and/or Government securities. The leverage and related pledged assets mechanism resulted in a yield enhancement on term placements with Central Bank of Lebanon and Lebanese treasury bills.

13. Investments in equity-accounted investees

66,982

16,201

(14,623)

(10,116)

58,444

19,306

(11,442)

7,864

64,806

16,444

(14,440)

(10,430)

56,380

19,460

(12,327)

7,133

Current assets

Non current assets

Current liabilities

Non current liabilities

Net assets

Income

Expenses

Profit

2018

2018

2018

2017

2017

2017


The Group’s share of its equity-accounted investees for the year was LBP 1,906 million (2017: LBP 2,188 million).Summary financial information for equity-accounted investees is as follows.

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

7,285

3,356

1,728

323

452

3,705

16,849

6,786

3,244

1,678

304

1,290

3,670

16,972

25.86%

28.96%

20.18%

19.10%

48.13%

45.00%

25.86%

28.96%

20.18%

19.10%

48.13%

45.00%

Company

Agence Generale de Courtage d’Assurance S.A.L.

Credit Card Management S.A.L.

International Payment Network S.A.L.

Net Commerce S.A.L.

Hot Spot Properties S.A.L.

Dourrat Loubnan Al Iqaria S.A.L.


Company

Agence Generale de Courtage d’Assurance S.A.L.

Credit Card Management S.A.L.

International Payment Network S.A.L.

Net Commerce S.A.L.

Hot Spot Properties S.A.L.

Dourrat Loubnan Al Iqaria S.A.L.

Country ofincorporation


Ownershipinterest

Ownershipinterest

184185

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


14. Property and equipment

224,246

90

–

–

224,336

224,336

2,378

–

–

226,714

21,114

4,148

–

25,262

25,262

4,163

–

29,425

203,132

199,074

197,289

56,622

502

(3)

1,908

59,029

59,029

44

(646)

1,203

59,630

44,506

1,265

(3)

45,768

45,768

1,067

(646)

46,189

12,116

13,261

13,441

59,903

3,518

(1,714)

633

62,340

62,340

1,489

(1,140)

451

63,140

41,874

4,242

(1,676)

44,440

44,440

3,922

(1,140)

47,222

18,029

17,900

15,918

2,107

42

(23)

–

2,126

2,126

162

(137)

–

2,151

1,392

157

(23)

1,526

1,526

130

(137)

1,519

715

600

632

2,394

–

(230)

–

2,164

2,164

–

–

–

2,164

1,933

120

(230)

1,823

1,823

76

1,899

461

341

265

5,880

3,174

(60)

(2,541)

6,453

6,453

4,226

–

(1,654)

9,025

–

–

–

–

–

–

–

–

5,880

6,453

9,025

351,152

7,326

(2,030)

–

356,448

356,448

8,299

(1,923)

–

362,824

110,819

9,932

(1,932)

118,819

118,819

9,358

(1,923)

126,254

240,333

237,629

236,570

Cost


Additions

Disposals

Transfers



Additions

Disposals

Transfers


Accumulated depreciation


Depreciation for the year

Disposals



Depreciation for the year

Disposals


Carrying amounts





Land andBuildings

Installationsand

improvementsFurniture

andequipment Vehicles

Power generators

Advances on capital

expenditures Total

15. Intangible assets15. Intangible assets

16. Assets held for sale

1,883

174

–

2,057

2,057

13

–

2,070

1,713

52

–

1,765

1,765

52

–

1,817

170

292

253

11,800

3,426

(7)

15,219

15,219

1,473

(12)

16,680

6,981

1,537

(7)

8,511

8,511

1,913

(12)

10,412

4,819

6,708

6,268

20,673

2,261

(142)

22,792

22,792

756

(33)

23,515

17,498

1,533

–

19,031

19,031

1,750

(33)

20,748

3,175

3,761

2,767

34,356

5,861

(149)

40,068

40,068

2,242

(45)

42,265

26,192

3,122

(7)

29,307

29,307

3,715

(45)

32,977

8,164

10,761

9,288

Cost


Additions

Disposals



Additions

Disposals


Accumulated amortisation


Amortisation for the year

Disposals



Amortisation for the year

Disposals


Carrying amounts




In Millions of Lebanese PoundKey money Licenses Software Total

55,171

1,662

(1,153)

55,680

36,694

20,145

(1,668)

55,171


Additions

Disposals


2018 2017In Millions of Lebanese Pound

186187

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


17. Other assets

18. Loans and deposits from Central Banks

19. Deposits from other banks and financial institutions

9,309

16,098

7,033

2,550

(371)

78,483

113,102

8,244

2,288,777

7,594

2,304,615

60,200

12,867

210,851

37,518

2,555

323,991

6,602

18,453

6,015

3,091

–

82,974

117,135

7,983

1,157,449

1,666

1,167,098

25,140

47,728

80,779

29,479

927

184,053

Accounts receivable and prepayments

Reinsurers’ share of technical reserves

Restricted deposits with the Central Treasury

Deferred charges


Other assets

Current account

Loans from Central Banks*

Accrued interest payable

Current deposits

Term deposits

Loan from banks *

Financial institutions


* Following the Central Bank of Lebanon basic decision no. 6116 related to basic circular no. 23 and intermediate circular no. 367 issued on 11 August 2014, the Central Bank of Lebanon offered the commercial banks facilities that are subject to an interest rate of 1% per annum payable on a yearly basis. These facilities were given subject to granting mainly loans back to clients at an average interest rate of 4.22% (2017: 4.34%).

During 2017 and 2018, the Bank made term placements in USD with the Central Bank of Lebanon amounting to LBP 835,155 million (2017: LBP 273,913 million). In return the Central Bank of Lebanon granted a loan in LBP amounting to 125% of the amount invested in term placements in USD. The Central Bank of Lebanon would provide such return under one condition that the loaned amount is used to purchase Treasury Bills in LBP. The Bank placed LBP 1 trillion (2017: LBP 339,770 million) with BDL as part of the financial engineering.Loans from Central Banks include term loans amounting to LBP 1,483,022 million (2017: LBP 339,770 million) secured by term placements with the Central Bank of Lebanon and Lebanese Treasury bills (see Notes 7 and 12).

* Loan from banks are loans granted by Standard Chartered Bank, Caixabank SA and First Abu Dhabi Bank before being lent to corporate clients of the Bank with matching maturities. They are trade loans in nature involving cross border transactions

2018

2018

2018

2017

2017

2017




20. Deposits from customers

21. Subordinated debt issued

5,390,048

1,132,855

7,060,504

52,178

109,246

13,744,831

150,750

9,795

160,545

5,107,118

1,256,694

7,185,196

52,071

83,110

13,684,189

113,063

7,313

120,376

Term deposits

Current deposits

Savings

Other credit balances


Subordinated debt


The first loan which is financed by Standard Chartered Bank amounts to LBP 25,881 million (2017: LBP 38,605 million).

The second loan which is financed by Caixabank SA amounts to LBP 8,561 million (2017: LBP 30,621 million) and the third loan is financed by First Abu Dhabi Bank amounts to LBP 28,530 million (2017: LBP 11,553 million). Loans are granted for periods not exceeding 182 days bearing an interest not exceeding 6 month Libor plus 1.8% for Standard Chartered Bank and First Abu Dhabi and 6 months Libor plus 0.55% for Caixabank SA. Additionally, a loan was granted by SMBC Dubai amounting to LBP 29,386 million bearing an interest not exceeding 6 month Libor + 1.85%.

During 2018, three new loans were granted. The first loan was granted by International Finance Corporation amounting to LBP 75,375 million maturing in 2026 and bearing an average interest rate of 6.75%. A loan was granted by Banca UBAE S.P.A. amounting to LBP 43,118 million maturing in 2019 and bearing an interest of 3 month Euribor plus 1.8%.

During 2010, the Bank issued subordinated bonds for an amount of USD 75 million bearing an interest rate of 6.75% payable annually which matured on 15 January 2018. The amount was settled by the Bank during the current year. On 15 of March 2018, the Bank issued subordinated debt for the amount of USD 100 million bearing an interest rate of 7.75% and maturing in 2028.These subordinated debts are included in Tier 2 capital as per local regulatory requirements.

2018

2018

2017

2017



188189

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


22. Tax liabilities

23. Other liabilities

20,779

9,050

2,771

1,860

12,059

46,519

33,922

17,115

97,738

6,404

6,435

22,746

–

39,367

223,727

11,224

6,764

4,536

9,624

1,611

33,759

57,309

15,753

108,716

6,004

7,749

22,008

60,045

39,357

316,941

Income tax

Taxes on interest

Taxes on salaries

Deferred tax liabilities

Other taxes

Margins held against documentary credits

Due to reinsurance

Technical reserves for insurance companies

Accrued expenses

Unearned revenue

Other creditors

Deferred surplus*

Other payables

2018

2018

2017

2017



* During 2016, the Bank entered into sales transactions of Lebanese Treasury Bills in Lebanese Pounds designated at amortised cost securities and having a nominal value of LBP 198 billion concluded in conjunction with the acquisition of BDL CDs and Lebanese Republic Eurobonds in U.S. Dollars with longer maturity designated at amortised cost with a nominal value of USD 132 million.

An exceptional gain of LBP 60,045 million resulted from these special swaps which is largely considered as government grant and was deferred within other liabilities and was reassessed at the year end to ensure its alignment with:

(i) BDL circular 446 requirements which attach certain conditions with respect to the utilisation of such gains; and

(ii) The accounting requirements of IAS 20 on government grants with respect to the timing of recognition of such gains in the profit or loss, .i.e. when the conditions of such a grant have been fulfilled.

During 2018 and upon the implementation of IFRS 9, the Group has allocated LBP 57,961 million to allowance for ECL (see note 4) and the remaining surplus which amounted to LBP 2,084 was transferred to provisions for risks and charges (see note 24 (c) ).

24. Provisions for risks and charges

5,611

39,622

9,296

1,809

291

56,629

36,926

4,953

(2,257)

–

–

39,622

5,611

36,926

7,044

–

270

49,851

36,271

5,529

(4,855)

(28)

9

36,926

Provision for structural exchange position (a)

Provision for employee benefits obligations (b)

Provision for risks and charges (c)

Expected credit loss provisions for off-balance sheet items

Provision for loss on foreign currency position (d)


Provision raised during the year

Provision used during the year

Provision written-off during the year



2018

2018

2017

2017



(a) Provision for structural exchange position

This provision is taken as per the requirement of Central Bank Circular number 32 related to foreign exchange position.

(b) Provision for employee benefits obligations

The movement in the provision for employee benefits obligations during the year was as follows.

(c) Provision for risks and charges

The movement in the provision for risks and charges during the year was as follows.

7,044

2,084

(871)

1,048

–

(9)

9,296

23

6,450

745

(340)

198

(35)

26

7,044


Provision transferred during the year

Provision used during the year

Provision released

Transfer to collective allowance



2018 2017NoteIn Millions of Lebanese Pound

190191

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones

(d) Provision for loss on foreign currency position

As per local regulatory requirements the Group provides for an amount equivalent to 5 percent of its year-end foreign exchange position.

At 31 December 2018 and 2017, the authorised and issued share capital comprised 23,400,000 ordinary shares with a nominal value of LBP 11,000. All shares rank equally with regards to the Bank’s residual assets.The holders of ordinary shares are entitled to receive dividends as declared from time to time. All issued shares are fully paid.

DividendsThe following dividends were declared and paid by the Group during the year:

Issue of preferred sharesIn July 2013, the extraordinary general assembly of shareholders approved the issue of 1,000,000 perpetual non-cumulative preferred shares with a nominal value of LBP 11,000; increasing the share capital of the Bank from LBP 257,400 million to LBP 268,400 million, thus an increase of LBP 11,000 million. The share premium amounted to LBP 139,750 per share.

Holders of these shares receive a non-cumulative dividend at the Bank’s discretion, or whenever dividends to ordinary shareholders are declared. They do not have the right to participate in any additional dividends declared for ordinary shareholders. These shares do not have voting rights.

25. Share capital and share premium

26. Capital reserves

39,804

11,080

50,884

–

135,787

11,467

147,254

39,621

11,080

50,701

134,309

120,685

5,461

260,455

LBP 1,701.03 per ordinary share (2017: LBP 1,693.21)

LBP 11,080 per preferred share (2017: 11,080)

General banking risks reserve (a)

Legal reserve (b)

Reserve appropriated to capital increase (c)

2018

2018

2017

2017




(a) General banking risks reserveThe Group is required, according to the Central Bank regulations and commencing at 1998, to set-up a reserve for general banking risks at a minimum of 0.2% and a maximum rate of 0.3% of the risk weighted assets and off-balance sheet financial instruments in local and foreign currencies. This reserve should not be less than 1.25% and 2% by the end of the 10th and the 20th years, respectively. During 2018, LBP 134,309 million was transferred to other reserves (See Note 28).

(b) Legal reserveThe Lebanese Commercial Law and the Group’s articles of association stipulate that 10% of the net annual profits be transferred to legal reserve. This reserve is not available for distribution.

(a) Reserve appropriated to capital increaseIn compliance with Banking Control Commission circular no. 173, the gain realised on the sale of an asset acquired in settlement of debt (note 16) should be appropriated from retained earnings and recorded as “Reserve for capital increase”.

The movement in fair value reserve is as follows:

27. Fair value reserve

28. Other reserves

356

52,411

(9,184)

43,227

20,099

(62,970)

356

20,004

368,460

388,464

18,293

253,894

272,187

33,908

–

33,908

18,503

–

52,411

52,411 Fair value reserve

Reserve for property acquired in settlement of debt

Other reserves


Impact of adopting IFRS 9

Restated balance at 1 January

Net change in fair of financial assets at fair value through


Sale of VISA Class “C”


2018

2018

2018

2017

2017

2017




192193

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones



29. Net interest income

30. Net fee and commission income

399,731

16,535

336,259

648

340,035

10,213

(40,406)

1,063,015

(24,598)

(7,692)

(724,362)

(20,421)

(10,112)

(865)

(788,050)

274,965

36,959

27,731

55,903

7,926

128,519

(35,674)

(28,300)

(63,974)

64,545

41

41

240,979

6,937

320,807

517

355,334

–

–

924,574

(9,744)

(6,637)

(599,398)

(21,800)

(7,632)

–

(645,211)

279,363

32,560

30,576

58,742

7,394

129,272

(33,223)

(29,999)

(63,222)

66,050

Fee and commission income

Fees on credit cards and ATM transactions

Fees on transactions with customers

Fees on various banking transactions

Fees on letters of guarantee

Total fee and commission income

Fee and commission expense

Fees on credit cards and ATM transactions

Fees on various banking transactions

Total fee and commission expense

Net fee and commission income

Interest income







Tax on interest

Total interest income

Interest expense






Subordinated notes

Total interest expense

Net interest income

2018

2018

2017

2017

Note

Note



31. Net trading income

32. Net gains on financial assets at amortised cost

33. Net impairment losses on financial assets

1,269

2,218

43

11,062

14,592

1,322

(23)

(17)

1,282

(16,554)

–

–

(809)

12,833

–

(4,530)

5(b)

9

5(b)

9

3,741

2,563

308

13,664

20,276

21,227

–

–

21,227

–

(38,641)

(55)

(1,378)

–

2,038

(38,036)

Net gain on trading portfolio

Dividend received on quoted securities

Dividend received on unquoted securities

Net gain on foreign currency position

Net gain on sale of investments securities at amortised cost *

Net loss from exchange of financial assets at amortised cost

Interest paid on islamic banking activities

Expected credit loss allowance booked

Allowance for impairment on loans and advances to customers

Allowance for impairment on loans and advances to related parties

Direct write-offs

Write-back on expected credit loss allowance booked

Release of allowance for impairment on loans and advances to customers

2018

2018

2018

2017

2017

2017Note




* Net gain on sale of investment securities at amortised costThe LBP 1,322 million represents the amortisation of the deferred gain on certificate of deposits swap deal performed in 2016 (2017: LBP 1,362 million).During 2017, the Bank entered into a repurchase agreement with the Central Bank of Lebanon where the Bank sold certificates of deposits and treasury bills denominated in LBP issued by the Central Bank of Lebanon with a nominal value of LBP 50,000 million maturing in January 2026 and 25,000 million maturing in June 2023 and placed the amounts of LBP 33,000 million maturing in June 2037 and LBP 50,000 million maturing in June 2047 with the Central Bank of Lebanon. The gain on the transactions amounted to LBP 4,440 million and LBP 1,610 respectively.

During 2017, the Bank also entered into a repurchase agreement with the Central Bank of Lebanon where the Bank sold treasury notes denominated in LBP issued by the Central Bank of Lebanon with a nominal value of LBP 150,000 million maturing in September 2025 and placed the amounts of LBP 25,000 million maturing in June 2032, LBP 68,000 million maturing in June 2037 and LBP 75,000 million maturing in May 2047 with the Central Bank of Lebanon. The gain on the transactions amounted to LBP 13,815 million.

194195

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


34. Personal expenses

35. Other expenses

36. Tax expense

(20,639)

(1,267)

(21,906)

88,814

2,697

12,719

5,310

16,257

125,797

6,516

7,251

7,810

3,848

3,072

4,800

4,240

2,451

5,693

6,797

2,459

3,730

2,342

2,770

1,411

649

500

1,874

68,213

41

(24,171)

(2,791)

(26,962)

84,540

3,178

12,010

6,215

15,730

121,673

6,642

7,599

8,054

4,931

2,879

4,400

4,448

2,478

5,598

6,641

2,503

2,787

2,350

2,668

1,366

663

–

3,343

69,350

Income tax expense on the Bank’s operations

Income tax expense on subsidiaries and branches

Wages and salaries

Board of Directors attendance fees

Compulsory social security obligations

Employee benefits obligation

Other personnel expenses

Rental and building charges

Taxes and similar disbursements

Advertising expenses

Electricity, water and heating charges

Insurance premiums

Information technology costs

Repairs and maintenance charges

Postage and telecommunication charges

Professional fees

Premiums for the guarantee of deposits

Travel and entertainment fees

Computer maintenance charges

Transportation charges

Board of directors attendance allowance

Stationery and office supplies

Training charges

Impairment losses on financial investments

Other expenses

2018

2018

2018

2017

2017

2017

Note




37. Cash and cash equivalents

577,284

922,368

(8,244)

(60,200)

1,431,208

147,573

(21,906)

125,667

20,000

(23,752)

3,110

(7,978)

2,160

–

(14,448)

(146)

104,613

17,784

–

17,784

40,406

58,190

39.43%

655,832

1,001,555

(7,983)

(25,140)

1,624,264

149,662

(26,962)

122,700

9,500

(21,992)

37,447

–

2,670

11,598

(20,007)

(162)

141,754

21,830

(12,328)

9,502

12,328

21,830

14.59%






Income tax expense

Profit for the year

Current tax liability

Less: profit of branches abroad and subsidiaries

Non-deductible provisions

Release provision subjected to tax

Add: non-deductible expenses

Add: 5% tax on interest received

Less: dividends received

Less: tax exempt income

Taxable income

Corporate income tax expense at 17% (2017: 15.4%) *

Less: tax paid on interest received **

Excess of corporate tax over tax paid on interest

Tax on interest

Effective income tax rate

* During 2017, the Ministry of Finance increased the corporate income tax rate from 15% to 17%, 15% applicable for the period ending 26 October 2017 inclusive, and 17% applicable starting 27 October 2017.

** In addition, the Ministry of Finance published a new Decision no. 1504/1 dated 22 December 2017 regarding the implementation of Article 51 of Law no. 497/2003 which states that interest income is subject to a tax rate of 7% (5% applicable for the period starting 1 January 2017 till 26 October 2017 inclusive, while 7% starting 27 October 2017) and Banks can no longer benefit from deducting the tax on interest received when calculating the income tax.

Reconciliation of tax expense on the Credit Libanais SAL (standalone)’s operations in Lebanon

2018

2018

2017

2017



196197

Branch Netw

orkand C


entsBusiness Segm

ents Activities

and Analysis


and Analysis

Control Functions A

ctivities and A

nalysisC

L Milestones


38. Commitments and contingencies

39. Assets under management

40. Group Entities

377,275

649,229

250,941

11,081

38,484

9,741,374

573,348

668,019

422,979

232,510

15,497

46,437

9,787,339

521,415

(a) List of significant subsidiaries

The following table shows information related to the significant subsidiaries of the Group.

Financing commitments

Financing commitments given to customers

Financing commitments given to financial institutions

Guarantees

Guarantees given to customers

Restricted and non-restricted fiduciary accounts

Commitments of signature received from financial intermediaries

Other commitments received

Credit Libanais Investment Bank SAL

Lebanese Islamic Bank SAL

Cedar’s Real Estate SAL

Soft Management SAL

Hermes Tourism and Travel SAL

Credit Libanais d’Assurances et de Reassurances SAL

Business Development Center SARL

Capital Real Estate SAL

Credilease SAL

Collect SAL

Credit International SA

Credit Libanais SAL (Limassol Branch)

Credit Libanais SAL (Bahrain Branch)

Credit Libanais SAL (Baghdad Branch)

Credit Libanais SAL (Erbil Branch)

Company

Banking

Banking

Real estate

IT solutions

Tourism and ticketing

Insurance

Advertising

Real estate

Leasing services

Collection services of receivables

Banking

Banking

Banking

Banking

Banking

Business activity

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Lebanon

Senegal

Cyprus

Bahrain

Iraq

Iraq


99.86

99.84

99.92

47.00

99.99

66.97

98.62

99.00

99.26

44.94

89.13

Branch

Branch

Branch

Branch

2018% of control

99.86

99.84

99.92

47.00

99.99

66.97

98.62

99.00

99.26

44.94

89.13

Branch

Branch

Branch

Branch

2017% of control

Assets under management

2018

2018

2017

2017



Credit Libanais D’Assurances et de Reassurances S.A.L

41. Related parties

8,355

298,728

28

213,949

121,280

92,669

30,609

22,343

21,975

7,258

4,463

(3,965)

(13,816)

(13,318)

7,408

302,367

28

216,477

133,755

82,722

27,323

22,830

18,753

6,194

6,041

(9,463)

(11,782)

(15,204)

(b) Significant restrictions

The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate.The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group, and comply with other ratios.

(b) NCI in subsidiaries

The following table summarises the information relating to the Group’s subsidiary that has a material NCI.

(a) Transactions and balances with key management personnel

Key management personnel and their immediate relatives have transacted with the Group during the year as follows:

Interest rates charged on balances outstanding from related parties are equal to the internally approved rates for employees of the Bank.

Direct facilities and credit balances

Loans and advances

Deposits

Indirect facilities

Letters of guarantees

Assets

Liabilities

Net assets

Carrying amount of NCI

Revenue

Profit

Profit allocated to NCI

Cash flows from operating activities

Cash flows used in investing activities

Cash flows used in financing activities


NCI percentage 33,03 33,03

2018

2018

2017

2017



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No impairment losses have been recorded against balances outstanding during the year with key management personnel, and no specific allowance has been made for impairment losses on balances with key management personnel and their immediate relatives at the year end.Key management personnel compensation for the year comprised:

Board of Directors attendance fees amounted to LBP 2697 million (2017: LP 3,178).

(b) Balances with associated companies

(d) Interest income on loans and advances to related parties

(c) Loans and advances to related parties

9,764

648

8,645

33,727

1,175

8,411

13,023

–

3

(4,434)

17,003

8,093

32,156

1,175

7,408

11,893

(3,800)

3

–

15,504

11,237

517

Short-term employee benefits

Interest income on loans and advances to related parties

Direct facilities and credit balances

Loans and advances

Deposits

Indirect facilities

Letters of guarantees

Loans and advances to shareholders, directors and other key management personnel

Loans and advances to associated companies

Impairment allowance



2018

2018

2018

2018

2017

2017

2017

2017





(e) Deposits from related parties

(f) Interest expense on deposits from related parties

169,707

11,208

151,540

2,397

334,852

20,421

158,489

16,798

159,236

3,023

337,546

21,800

Term deposits

Current deposits

Savings


Interest expense on deposits from related parties

2018

2018

2017

2017



42. Comparative figures

Certain comparative figures have been reclassified in order to comply with the basis of preparation adopted in the current year.

43. Subsequent events

On 11 March 2019, the Board of Directors of the Group resolved to propose to the General Assembly of shareholders the distribution of dividends amounting to LBP 1,500 per share.

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Board of Directors

Management’s Discussion and Analysis of Results

Statement of Financial Position

Statement of Comprehensive Income

Statement of Cash Flows

Statement of Changes in Equity

202

204

208

210

211

212

Credit LibanaisInvestment Bank (CLIB) SAL

Board of Directors


H.E. Dr. Samir Makdessi

H.E. Mr. Jacques Joukhadarian

Dr. Chafic Moharram

H.E. Mr. Michel Haddad

Dr. Michel Khadige

Mr. Moustafa Alaeddine

Dr. Joseph Torbey

Members

202203


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and Analysis

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Basis of PresentationThe following discussion and analysis have been prepared based on the audited consolidated financial statements of Credit Libanais Investment Bank (“CLIB”) as at year end 2017 and 2018 and on selected financial information.

a) Total Assets CLIB’s Assets have witnessed a decrease of 15.71% in 2018, particularly in liquid assets which was substantially matched by a decrease in funding consisting primarily of customer deposits. The following table sketches the changes in major asset classes year-on-year.

b) Liabilities & Shareholders’ Equity Total Liabilities showed a decrease of 17.58% to reach LBP 817.93 billion in 2018 compared to LBP 992.43 billion at yearend 2017. The 17.61% decrease in total deposits, which constitute 98.76% of CLIB’s liabilities, was the main driver behind this decrease.

1) Statement of Financial Position

Analysis of Financial Position


2018 2017 %Change(million LBP)As at end of



Head Office, branches, parent company, sisters, fin. Inst. & subs.



Financial assets at fair value/OCI

Financial assets at fair value/Profit or Loss


Investment in associates

Property & equipment

Intangible assets


Other assets

Total Assets

113,740

2,162

310,838

309,522

143

8,494

3,068

166,476

44,077

1,072

-

14,890

1,829

976,310

138,492

99

564,641

310,181

297

9,209

3,621

69,984

44,077

1,161

5

14,681

1,862

1,158,310

-17.87%

2074.68%

-44.95%

-0.21%

-51.76%

-7.76%

-15.28%

137.88%

0.00%

-7.70%

-100.00%

1.42%

-1.77%

-15.71%

On the equity side, shareholders’ equity decreased to LBP 158.38 billion in 2018, a decrease of 4.52% compared to LBP 165.88 billion recorded in 2017. The following table sketches the development of the liability and equity accounts during the period 2017-2018:

2018

2018

2017

2017

%Change

%Change

(million LBP)

(million LBP)

As at end of

As at end of

Loans and deposits with Central Banks




Current tax liabilities

Other liabilities

Provision for risks and charges

TOTAL LIABILITIES

SHAREHOLDERS’ EQUITY

Share capital-Common Shares

Legal Reserve

General banking risks reserve

Reserve appropriated to capital increase

Other Reserves


Net change in fair of financial assets at fair value through OCI

Retained Earnings

Result of the period

TOTAL SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

5,856

25

782,313

25,431

1,585

800

1,917

817,926

80,000

28,077

-

4,725

16,196

10,216

618

10,969

7,584

158,384

976,310

5,239

1,934

954,285

26,102

2,331

846

1,690

992,428

80,000

26,978

18,230

2,807

16,917

8,930

1,024

-

10,996

165,882

1,158,310

11.78%

-98.69%

-18.02%

-2.57%

-32.01%

-5.44%

13.40%

-17.58%

-

4.08%

-100.00%

68.31%

-4.26%

14.40%

-39.65%

100%

-31.03%

-4.52%

-15.71%

204205

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2018

2018

2017

2017

%Total

%Total

(million LBP)

(million LBP)

As at end of

As at end of

Customers’ deposits


Total

Head Office, branches, parent company, sisters, fin. Inst. & subs.

Loans & advances to customers

Loans & advances to related parties

Total

Sources of Funds

Uses of Funds

782,313

25,431

807,744

310,838

309,522

143

620,503

954,285

26,102

980,387

564,641

310,181

297

875,119

96.85%

3.15%

100.00%

50.09%

49.88%

0.02%

100.00%

The following table portrays the evolution of CLIB’s sources and uses of funds during the period 2017-2018:

The above table clearly states that the entirety of CLIB’s financing is sourced from customer deposits

“On the fund’s utilization front, loans and advances to customers, while registering a YOY decrease of 0.26%, were increased to a 49.91% share of the total fund utilization in 2018 compared to 35.48% in 2017.On the other hand, CLIB’s current account with the Head Office, branches and parent company has witnessed a 44.95% decrease in 2018 to constitute the bulk of CLIB’s funds deployment at a ratio of 50.09% in 2018 compared to 64.52% in 2017.”

Credit Libanais Investment Bank posted after tax net profits of LBP 7.18 billion in 2018, a decrease of 35.59% from the LBP 11.14 billion registered in 2017. The following table highlights the yearly change of the major items in CLIB’s statement of income:

Profits of CLIB are stated on an individual basis and do not include the share of the bank in the companies in which it holds a direct interest. After consolidating the share of CLIB in the profit of affiliated companies, Net profits for the year 2018 would aggregate LBP 12.70 billion compared to LBP 16.22 billion in 2017. CLIB’s Pre-tax consolidated return on average equity and on average assets reached 8.33% and 1.25% respectively in 2018, compared to 10.72% and 1.51% respectively in 2017.

2) Statement of Income

2018 2017 %Change(million LBP)As at end of

Interest and similar income

Tax on Interest

Interest and similar expense

Net interest income

Fees & commissions income

Fees & commissions expense

Net fees & commissions income / (loss)

Net gain (loss) on trading portfolio

Net gain on disposal of subsidiary

Net gain on financial investments


Total operating income

Credit loss expense

Net reversal of impairment losses on financial investments

Net operating income

Staff costs

Depreciation and amortization

Other operating expenses

Total Operating Expenses

Profit before tax

Income Tax expense

Profit for the year

Other comprehensive income

Net gain on available-for-sale financial assets

Total comprehensive income for the year, net of tax

62,423

(987)

(45,614)

15,822

439

(806)

(367)

(80)

-

2,061

345

17,782

(789)

-

16,993

(4,403)

(102)

(4,204)

(8,709)

8,284

(700)

7,584

(406)

7,178

64,262

-

(46,060)

18,201

3,210

(1,514)

1,696

(150)

-

2,272

807

22,827

(1,922)

-

20,905

(4,342)

(265)

(4,001)

(8,608)

12,297

(1,301)

10,996

148

11,144

-2.86%

-0.97%

-13.07%

-86.32%

-46.76%

-121.64%

-46.72%

-

-9.30%

-57.23%

-22.10%

-58.96%

-

-18.72%

1.40%

-61.38%

5.06%

1.17%

-32.64%

-46.20%

-31.03%

-

-373.84%

-35.59%

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Statement of financial positionas at 31 December

2018 2017(million LBP)

ASSETS

Cash and balances with the central bank

banks and financial institutions

Head office,branches, parent company, foreign sister financial institutions & subsidiaries



Financial assets at Fair value through other comprehensive income

Financial assets at Fair value through Profit or Loss

Financial assets at amortized cost

Investments in associates


Intangible assets

Assets acquired in recovery of bad debts

Other assets

TOTAL ASSETS

LIABILITIES

Loans and deposits with Central Banks

banks and financial institutions

Head office,branches, parent company, foreign sister financial institutions & subsidiaries

Customers’ deposits

Related parties’ deposits

Current tax liabilities

Other liabilities

Provision for risks and charges

TOTAL LIABILITIES

113,740

2,162

310,838

309,522

143

8,494

3,068

166,476

44,077

1,072

-

14,890

1,829

976,310

5,856

25

-

782,313

25,431

1,585

800

1,917

817,926

138,492

99

564,641

310,181

297

9,209

3,621

69,984

44,077

1,161

5

14,681

1,862

1,158,310

5,239

1,934

-

954,285

26,102

2,331

846

1,690

992,428


SHAREHOLDERS’ EQUITY

Share capital - Common shares

Legal reserves

General Banking risks reserve

Capital reserve

Other reserves


Special Reserves Against doubtful debts

Fair value reserve

Retained Earnings

Profit for the year

TOTAL SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

80,000

28,077

-

4,725

14,940

10,216

1,256

618

10,969

7,584

158,384

976,310

80,000

26,978

18,230

2,807

15,661

8,930

1,256

1,024

-

10,996

165,882

1,158,310

208209

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Statement of Comprehensive Incomeas at 31 December


Interest and similar income

Tax on Interest ( 51)

Interest and similar expense

Net interest income

Fees and commission income

Fees and commission expense

Net fees and commission income

Net gain/loss on financial investments

Net gain/loss on disposal of subsidiaries

Net gain on FVTPL financial instruments


Total Operating Income

Credit losses (gains)

Net reversal of impairment losses on financial investments

Net Operating Income

Staff expenses

Depreciation and Amortisation

Other operating expenses

Total Operating Expenses

Profit Before Tax

Income Tax Expense

Profit for the Period

Change in Fair Value of Financial Instruments through OCI


62,423

(987)

(45,614)

15,822

439

(806)

(367)

2,061

-

(80)

345

17,782

(789)

-

16,993

(4,403)

(102)

(4,204)

(8,709)

8,284

(700)

7,584

(406)

7,178

64,262

-

(46,060)

18,201

3,210

(1,514)

1,696

2,272

-

(150)

807

22,827

(1,922)

-

20,905

(4,342)

(265)

(4,001)

(8,608)

12,297

(1,301)

10,996

148

11,144

Statement of Cash Flowsas at 31 December


Cash Flows From Operating Activities

Profit before tax

Adjustments for:

Depreciation and Amortization

Net (recovery) Impairment Loss on loans and advances to customers

Net Provision for End of service indemnity

Gain /Loss on sale of shares in an associate

Change in balances with the central bank

Change in Head office,branches, parent company, foreign sister financial institutions &

subsidiaries

Change in balances with the central bank

Change in banks and financial institutions

Change in loans and advances to customers and related parties

Change in other assets

Change in deposits from customers

Change in deposits from related parties

Change in Current Tax Liabilities

Change in other liabilities

Income tax paid

Provisions transferred from parent company

Settled End of Service indemnity

Other Provisions

Net cash flows from operating activities

Cash Flows From Investing Activities

Acquisition of Property and Equipment

Net change in assets acquired in recovery of bad debts

Proceeds from investments in associates

Net change in investment securities

Net cash used in investing activities


Distribution of dividends

Effect of exchange rate fluctuation on cash & cash

Transfer from Reserves to ECL

Net cash from financing activities


Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

8,284

102

789

281

(67)

9,389

25,509

269,934

600

(1,909)

42

33

(171,973)

(671)

(145)

(46)

130,765

(1,301)

-

(687)

614

129,391

(8)

(142)

-

(95,629)

(95,780)

(6,000)

369

(9,045)

(14,676)

18,935

75,037

93,972

12,297

265

1,922

185

(672)

13,997

(132)

(36,910)

1,380

1

9,538

208

(5,969)

1,108

347

(165)

(16,597)

(1,800)

25

(521)

(18,893)

(20)

1,283

(4,914)

18,936

15,285

(12,000)

(706)

-

(12,706)

(16,313)

91,350

75,037

210211


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and Analysis


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Statement of Changes in Equityas at 31 December

80,000

-

-

-

-

-

-

-

-

80,000

80,000

-

-

-

-

-

-

-

-

-

80,000

25,616

-

1,361

-

-

-

-

-

-

26,977

26,977

-

1,100

-

-

-

-

-

-

-

28,077

16,434

-

1,804

-

-

(8)

-

-

-

18,230

18,230

-

-

-

-

(18,230)

-

-

-

-

-

2,807

-

-

-

-

-

-

-

-

2,807

2,807

-

672

-

1,246

-

-

-

-

-

4,725



Profit allocation 2016


Previous Years adjustments

Difference of Exchange

Profit for the year

Net Change in fair value of financial assets at fair value through OCI

Total comprehensive income for the year 2017


Impact Of IFRS9



Profit allocation 2017


Profits from sale of properties in recovery of bad debts

Net Change of foreign financial assets

Transfer to other reserves

Transfer from Reserves to ECL

Profit for the year

Net Change in fair value of financial assets at fair value through OCI

Total comprehensive income for the year 2018


Share Capital-Common Shares

General Banking Risks ReserveLegal Reserve Capital Reserve(million LBP) Total Equity

7,294

(12,000)

20,537

528

-

(698)

-

-

-

15,661

(4,402)

11,259

-

(10,832)

(1,246)

369

20,033

(4,643)

-

-

-

14,940

7,981

-

1,435

(486)

-

-

-

-

-

8,930

8,930

-

1,286

-

-

-

-

-

-

-

-

10,216

1,298

-

-

(42)

-

-

-

-

-

1,256

1,256

-

-

-

-

-

-

-

-

-

-

1,256

875

-

-

-

-

-

-

148

148

1,024

1,024

-

-

-

-

-

-

-

-

(406)

(406)

618

11,524

-

(11,524)

-

-

-

-

-

-

-

-

(6,000)

7,939

10,832

-

-

(1,802)

-

-

-

-

10,968

13,613

-

(13,613)

-

-

-

10,996

-

10,996

10,996

10,996

-

(10,996)

-

-

-

-

-

7,584

-

7,584

7,584

167,444

(12,000)

-

-

-

(706)

10,996

148

11,144

165,882

(4,402)

161,480

(6,000)

-

-

-

369

-

(4,643)

7,584

(406)

7,178

158,384

Fair Value Reserve

Special Reserves Against Doubtful

Debts

Reserve For Property Acquired in Settlement of DebtOther Reserves

Profit For the Year

Retained Earnings

212213

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Credit Libanais D’Assuranceset de Reassurances (CLA) SAL

Board of Directors



Insurance Activities

Independent Auditor’s Report

Statement of Financial Position

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flows

214

216

217

218

219

221

222

223

224

Board of Directors


Credit Libanais SAL

Mr. Jacques Sehnaoui

The Honorable Mr. Said Mirza

Mr. Khaldoun Barakat

H.E. Mr. Jacques Joukhadarian

Agence Generale de Courtage d’ Assurances (AGCA) SAL

Mr. Elie Torbey

Members

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A year in reviewCLA’s total assets decreased confirming the company’s strength since in 2018 the company total assets amounted to LBP 213.950 Billion as compared to LBP 216.478 billion in 2017 with a percentage decrease of 11.67%.

Cash flow statement for the company at the end of the year 2018 shows that the net cash provided from operating activities decreased by 26.13% from LBP 6.042 billion in 2017 to LBP 4.463 Billion in 2018.

The total gross premiums written amounting to LBP 22.343 billion for the year under review, nevertheless the Gross premiums written for the life insurance business amounted to LBP 13.773 Billion in 2018 representing 61,65% of total gross premiums written.

The after tax profits recorded in 2018, amounting to LBP 21.974 billion as compared to LBP 18.753 billion in 2017 with a percentage increase of 17.17% mainly attributed to the increase of operating and financial income.

The year under review was a challenging year for the insurance sector in general and for our company in particular. In 2018, “Credit Libanais d’Assurances” (CLA) s.a.l. after tax profits amounted to LBP 21.974 billion, recording an increase of 17.17% compared to 2017 despite the economic stagnation in Lebanon and in the Middle East.

Nonetheless, in 2018, we developed the life insurance business and introduced several investment and insurance products which contributed positively to the recorded increase in the company profits. The solid financial position is mainly attributed to the loyalty of our customers and to the retention strategy applied by CLA management team.

Looking ahead, we intend to further develop our insurance products based on our customers’ needs. We look forward to further strengthening our position on the Lebanese market and enhancing the company competitiveness in the years to come. Such will be the main target of CLA management and staff. Our strategy can only be achieved by consolidating our efforts to reach our objectives for the benefit of our customers and shareholders alike.

Sincerely,

Elie TorbeyChairman General Manager

MOTOR

The motor line of business showed a slight increase in premiums from LBP 3.547 billion in 2017 to LBP 3.556 billion for the year under review.

The loss ratio for the motor class of business for the year 2018 based on calendar year stands at 53,47% as compared to 56.54% in 2017.

MARINE

The marine business showed a decrease in premiums from LBP 118 million in 2017 to 78 million for 2018.

FIRE

The gross premiums written for the fire business in 2018 totaled LBP 2.504 Billion compared to LBP 2.795 billion achieved in the year 2017 this recording a percentage decrease of 10.41%.

LIFE

In 2018, the generated income under the life business totaled LBP 13.773 billion as compared to LBP 13.750 billion in 2017 with a percentage increase of 0,17%.

The loss ratio recorded for the year under review is 13,86% compared to the loss ratio of22.40% recorded in the year 2017.

CASUALTY

Casualty business premium income generated for the year 2018 amounted to LBP 2.432 Billion as compared to LBP 2.619 billion in 2017, a percentage Decrease of 7.14%.The lines of business falling under the casualty class are mainly Hospitalization, Workmen’s compensation, personal accident, theft on property…etc.

The loss ratio calculated on this line of business is 27,66 % in 2018 while it was 14.41% in 2017.

TECHNICAL RESERVES

At the end of year 2018, a decrease in the unexpired risks reserves has been recorded to become LBP 88.596 billion with a difference of LBP 10.594 million as compared to the year 2017 when it recorded LBP 99.190 billion including the premium deficiency reserves.

Outstanding claims reserves decrease from LBP 9.526 billion in 2017 to LBP 9.142 Billion in 2018 including IBNR due to a decrease in the number of claims recorded in 2018 as compared to 2017 especially in motor business.

As a result, CLA recorded as technical reserves LBP 97.737 billion in its books for 2018 as compared to LBP 108.715 billion in 2017 with a decrease of 10.09%.

The loss ratio, all lines of business combined, decreased from 23.50 % in 2017 to 16,01% in 2018.

Performance by class of business

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Insurance activities

A comprehensive car insurance scheme.

A travel Insurance program providing worldwide emergency medical assistance of up to $200,000.

A travel Insurance, purchase protection and wallet cover service linked to bank cards.

A third-party car insurance scheme covering death and total personal disability for the driver and his family.

A personal accident insurance service offering worldwide coverage.

A long-term savings program, providing children with financial assistance during university education.

A personal accident policy, which provides the insured and his/her family with worldwide coverage for personal accidents, including death and disability.

A long-term retirement plan that ensures an income during retirement years to better face life needs.

A long-term savings plan that allows parents to constitute the down-payment for their children to buy a house, and benefit from a preferential interest rate.

Insurance Products

SAFEDRIVE

SAFETRAVEL

A LA CARTE

SAFEWAY

SAFEMIND

SAFE STEPS

SAFEGUARD

SAFEFUTURE

SAFEHOME

Credit Libanais insurance services are offered in coordination with Credit Libanais d’Assurances et de Reassurances (CLA) SAL, the 66,97% owned bancassurance subsidiary.

CLA offers a diversified product portfolio and has recently increased the availability to products in the motor, marine, fire and life lines of business. Opinion

We have audited the accompanying financial statements of Credit Libanais D’Assurances et de Reassurances S.A.L. which comprise the statement of financial position as of 31 December 2018, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Credit Libanais D’Assurances et de Reassurance S.A.L. as of 31 December 2018 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the Code of Ethics of the Lebanese Association of Certified Public Accountants that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

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

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with lSAs will always detect a material misstatement when it exists.

Independent Auditor’s report

Independent Audit’s report to the shareholders of Credit Libanais D’Assurances et de Reassurances S.A.L.

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Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identity during our audit.

Beirut, Lebanon12 March, 2019

Statement of financial positionas at 31 December 2018

2018 2017(Thousand LBP)

Assets


Intangible assets

Deferred acquisition costs

Financial assets at amortized cost

Unquoted equity investments

Premiums receivable

Receivables from related party

Reinsurance balances receivable

Other receivables

Reinsurance assets

Bank deposits

Cash and cash equivalents

Total assets

Equity and Liabilities Equity

Capital

Legal reserve

Other reserves

Profit for the year

Total equity

Liabilities

Insurance liabilities

Unearned reinsurance commission

Retirement benefits obligations

Other payables and accruals

Reinsurance balances payable

Reinsurance deposits

Taxes payable

Total liabilities

Total equity and liabilities

478,530

123,877

9,356,893

7,269,871

15,613,478

2,510,460

6,030,000

3,693,394

54,100

16,098,542

149,769,498

2,951,063

213,949,706

10,005,000

3,335,000

57,355,032

21,974,859

92,669,891

97,737,523

2,724,510

901,203

453,785

17,028,789

1,147,166

1,286,840

121,279,815

213,949,706

589,152

173,430

9,830,211

7,267,451

8,651,353

2,165,434

6,030,000

3,681,672

33,918

18,453,504

156,547,180

3,054,471

216,477,775

10,005,000

3,335,000

50,629,600

18,753,057

82,722,657

108,715,829

2,912,209

1,749,097

645,830

15,551,284

2,935,089

1,245,779

133,755,117

216,477,775

The financial statements were approved on 12 March 2019, by the Board of directors.

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22,828,538

(9,367,423)

13,461,114

4,353,657

17,814,771

9,749,962

3,142,576

(4,120)

30,703,189

(4,344,006)

1,900,312

(198,258)

(2,641,952)

(3,043,824)

(5,638,353)

(190,196)

-

(335,251)

15,943

161,204

(11,672,429)

19,030,760

(277,703)

18,753,057


Statement of comprehensive incomeas at 31 December 2018


22,343,278

(9,608,170)

12,735,108

8,637,042

21,372,150

9,800,531

2,929,256

266,671

34,368,608

(5,701,728)

3,130,739

(13,700)

(2,584,688)

(3,239,913)

(5,566,956)

(183,037)

(500,000)

152,850

12,735

(110,895)

(12,019,906)

22,348,702

(373,843)

21,974,859

The financial statements were approved on 12 March 2019, by the Board of directors.

Insurance premium revenue

Insurance premium ceded to reinsurers

Net insurance premium revenue

Change in unearned premium revenue

Net earned premium

Net investment income

Reinsurance commission income and profit sharing

Other operating income/(loss)

Net income

Insurance claims expenses

Insurance claims recovered from reinsurers

Change in outstanding claims

Net insurance claims

Expense for acquisition of insurance contracts

Expense for administration and other expenses

Depreciation and amortization expense

Impairment loss recognized on unquoted equity investments

Write - back /Provision for retirement benefits obligations

Net foreign exchange profit

Net allowance/write - back of provisions for premiums receivable

Profit before tax

Income tax expense


Statement of changes in equityas at 31 December 2018

Balance as at January 2017

Allocation of 2016 profit

Dividends and Bonuses distributed

Profit for the year 2017

Balance as at 31/12/2017

Allocation of 2017 profit

Dividends and Bonuses distributed

Profit for the year 2018

Balance as at 31/12/2018

Capital Legal Reserve Other ReserveProfit

for the Year Total

44,114,315

18,542,910

(12,027,625)

-

50,629,600

18,753,057

(12,027,625)

-

57,355,032

18,542,910

(18,542,910)

-

18,753,057

18,753,057

(18,753,057)

-

21,974,859

21,974,859

75,997,225

-

(12,027,625)

18,753,057

82,722,657

-

(12,027,625)

21,974,859

92,669,891

3,335,000

-

-

-

3,335,000

-

-

-

3,335,000

10,005,000

-

-

-

10,005,000

-

-

-

10,005,000

(Thousand LBP)

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22,348,701

183,037

500,000

(152,850)

-

(9,959,401)

158,870

294

110,895

(192,045)

(20,182)

2,354,962

(10,978,306)

(187,699)

473,318

1,477,506

(55,080)

(11,723)

(455,921)

(695,045)

(277,703)

(158,870)

4,462,758

19,030,760

190,196

-

335,251

-

(9,899,186)

149,224

4,368

(161,204)

(33,488)

7,714

(759,678)

1,717,304

(149,392)

154,788

(4,253,432)

49,654

46,094

50,279

(7,327)

(281,134)

(149,224)

6,041,567

Statement of cash flowsas at 31 December 2018



Operating activities

Profit before tax

Adjusted for:

Depreciation and amortization expenses

Impairment loss recognized on unquoted equity investments

Write - back /Provision for retirement benefits obligations

Write off of intangible assets

Interest income

Interest expense and related charges

Loss from sale of property and equipment

Allowance/write - back of provision for premiums receivable

Change in other payables and accruals

Change in other receivables

Change in reinsurance assets

Change in insurance liabilities

Change in unearned reinsurance commission

Change in deferred acquisition cost

Change in reinsurance balances payable

Change in taxes payable

Change in reinsurance balances receivable

Change in premiums receivable

Employees’ end of service benefits paid

Income tax paid

Interest expense paid

Net cash provided from operating activities

(23,760)

-

(6,237,274)

(7,462,125)

-

-

603

9,757,782

(3,964,773)

(1,787,922)

(12,027,625)

(13,815,547)

(13,317,563)

33,982,322

20,664,759

(109,102)

(92,572)

(15,940,709)

(3,015,047)

-

-

5,020

9,689,421

(9,462,989)

245,424

(12,027,625)

(11,782,201)

(15,203,622)

49,185,944

33,982,322


Cash flows from investing activities

Acquisition of Property and equipment

Acquisition of Intangible assets

Increase in bank deposits (more than 3 months)

Increase in unquoted equity investments

Subsidized loan granted to Dourat Loubnan

Disposal of financial assets at fair value through OCI

Proceeds from disposal of property and equipment

Interest income received

Net cash used in investing activities


Change in reinsurance deposits

Dividends and bonuses distributed

Net cash used in financing activities


Cash & cash equivalents at the beginning of the year

Cash & cash equivalents at the end of the year

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With a landmark reference Head Office Tower in the banking sector, the Bank has a network outreach of 79 branches including local and international presence in Cyprus, Bahrain and Iraq, a representative office in Canada and a subsidiary bank in Senegal.

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05

Credit Libanais Tower - Corniche El Nahr, Adlieh RoundaboutAshrafieh 1107 2080 - Beirut, Lebanon

P.O.Box: 11-1458Fax: +961 1 425 637 - Phone: +961 1 425 671/2/3/4 - +961 1 608000 Website: www.creditlibanais.comE-mail: [email protected] - [email protected]


P.O.Box: 116-5235 Museum - LebanonFax: +961 1 425 637 - Phone: +961 1 608 400 Website: www.creditlibanais.comE-mail: [email protected] - [email protected]


P.O.Box: 16-6729Phone: +961 1 425 761/2/3/4 Website: www.creditlibanais.comE-mail: [email protected]

Hamra, Roma Street, Liberty Tower 9th Floor - Beirut, Lebanon

P.O.Box: 113/5357 Hamra - BeirutFax: +961 1 755 316/8 - Phone: +961 1 755 310/1/2/3/4/5Website: www.lebaneseislamicbank.com.lbE-mail: [email protected]

Head Office and Branch Network

Call Center +961 1 6071001518Lebanon


P.O.Box: 16-6729Fax: +961 1 608 126 - Phone: +961 1 608 000 Website: www.creditlibanais.comE-mail: [email protected] - [email protected]

CL Network in Lebanon

Hamra Hamra St., Ghanem Bldg.Fax: (01) 340 390 - Phone: (01) 346 960 - 342 954/5 - 350 293Branch Manager: Mr. Saadeddine Akel

Zahret Al Ihsan St., Sausalito Bldg.Fax: (01) 204 643 - Phone: (01) 216 540 - 204 641Branch Manager: Mr. Rami Nassif

Ashrafieh

Adlieh (Main Branch)Credit Libanais Tower Corniche El Nahr, Adlieh Roundabout,P.O.Box: 16-6729Fax: (01) 608 047 - Phone: (01) 608 048/9 - 608 050Branch Manager: Mr. Roger Bridi

Badaro Badaro St., Khatoun CenterFax: (01) 382 145 - Phone: (01) 387 878/9Branch Manager: Mr. Gaby Torbey

Geitawi Facing Geitawi HospitalFax: (01) 582 087 - Phone: (01) 580 715/6Branch Manager: Mr. Samer Assaf

Gefinor Clemenceau St., Gefinor Center 1st floor, Bloc CFax: (01) 740 168 - Phone: (01) 739 830/1Branch Manager: Ms. Noha Yammout

Liberty Tower Hamra, Rome St., Liberty Tower Bldg. Fax: (01) 740 017 - Phone: (01) 740 017/8/9Branch Manager: Ms. Rana Takieddine

Mar Elias Mousaitbeh, Mar Elias St.Fax: (01) 312 028 - Phone: (01) 819 116 - 312 021Branch Manager: Mr. Houssam El Hajj

Mazraa Corniche El-Mazraa, Salam Blvd., Choueiry Bldg.Fax: (01) 300 937 - Phone: (01) 313 590 - 317435Branch Manager: Mr. Bassam Matta

Raouche In process of relocation

Riad El Solh Beirut Central District, Riad El Solh Square, Asseily Bldg.Fax: (01) 983 141 - Phone: (01) 983 141/2/3Branch Manager: Ms. Lina Dabaghi

Rmeil Nahr St., Zoghbi Bldg.Fax: (01) 445 275 - Phone: (01) 445 684 - 443806Branch Manager: Ms. Marie Ayoub

Sassine Sassine Square, Independance Ave., Credit Libanais Bldg.Fax: (01) 203 007 - Phone: (01) 332 889 - 218 608Branch Manager: Mr. Joseph S. Raad

Sofil Ashrafieh, Charles Malek Ave., Sofil CenterFax: (01) 215 044 - Phone: (01) 200 028/9 - 201 292Branch Manager: Ms. Georgette Abdo

Starco Mina El Hosn, George Picot St., Starco Center, Bloc A, 1st FloorFax: (01) 367 584Phone: (01) 367 582/3Branch Manager: Mr. Nadim Hatoum

Verdun (Unesco) Unesco St., Boubes Bldg.Phone/Fax: (01) 790 511 - 790 289Branch Manager: Ms. Fadia Hammoud

BEIRUT

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MOUNT LEBANON

Amchit Main Road, Jafoury Bldg.Fax: (09) 621 072 - Phone: (09) 622 781/2Branch Manager: Mr. Paul Ajaltouni

Antelias Rahabneh St., Antelias Square, St. Elie CenterFax: (04) 419 760 - Phone: (04) 418 582/3Branch Manager: Ms. Nohad Torbey

Awkar Main RoadFax: (04) 544 763 - Phone: (04) 544 760/1/2Branch Manager: Ms. Amal El Azar

Bhamdoun Main Road, Bhamdoun Station, Mouttawah CenterFax: (05) 260 247 - Phone: (05) 260 244/5/6/7Branch Manager: Mr. Imad Abdel Nour

Bourj El Brajneh Zein Harb Road, Yassine Bldg.Fax: (01) 450 471 - Phone: (01) 450 470/2Branch Manager: Mr. Hassan Nasser

Bourj Hammoud Municipality Square, Mukhtarian & Sarkissian Bldg.Fax: (01) 265 299 - Phone: (01) 262 393Branch Manager: Ms. Arpie Tcheboukjian

Broummana Main Road, Tawil Bldg.Fax: (04) 862 105 - Phone: (04) 960 664 - 960 349Branch Manager: Mr. Naoum Labaki

Chehim Main Road, El Chraifeh St., Raiif Abdallah Bldg.Fax: (07) 242 405/6 - Phone: (07) 242 405/6/7Branch Manager: Mr. Ahmad Charafeddine

Dora Dora Roundabout, Bassil Bldg.Fax: (01) 264 813 - Phone: (01) 251 832 - 260 358Branch Manager: Mr. Antoine Kmeid

DbayehSarkis Center, Next to ascension church (Al Saoud)Phone: (04) 547 570 - 544 549Branch Manager: Mr. Abdo El Khoury

Dekwaneh Main Road, Rawda RoundaboutFax: (01) 686 903 - Phone: (01) 686 794/5Branch Manager: Ms. Reine Abi Hatab

Beit Mery Notre Dame St., Dr. Sawan Bldg.Fax: (04) 871 176 - Phone: (04) 871 916 - 871 761Branch Manager: Mr. Adib Hamouche

Bauchrieh Industrial City St., Boulghourjian Bldg.Fax: (01) 497 332 - Phone: (01) 497 092- 497 260Branch Manager: Mr. Atef Renno

Haret Hreik Hady Nasrallah Blvd., Diab and Ayad Bldg.Fax: (01) 278 004 - Phone: (01) 278 042/9 - 278 121Branch Manager: Mr. Noureddine Ballout

Hadeth Adib Al Chidiac St., Kafaa’t Intersection, Wehbe CenterFax: (05) 466 680 - Phone: (05) 466 681/2Branch Manager: Mr. Chawki El Asmar

Fanar Fanar Roundabout, Samra CenterFax: (01) 902 362 - Phone: (01) 902 360/1/2Branch Manager: Ms. Antoinette Tannoury

Furn El Chebbak Damascus Road, Ghaoui Bldg.Phone/Fax: (01) 281 518/9Branch Manager: Ms. Ghada Bassil

Ghobeiry Airport Blvd., Moucharafieh Square, Wazneh Bldg.Fax: (01) 552 781 - Phone: (01) 552 781/2Branch Manager: Mr. Fawaz Toufeili

Haret Hreik Menchieh St., Dabaja Bldg.Fax: (01) 556 784 - Phone: (01) 556 780/1/2Branch Manager: Mr. Alaa Diab

Haret Sakhr Jounieh highway, Credit Libanais TowerFax: (09) 636 842 - Phone: (09) 636 841 - (03) 675 004Branch Manager: Mr. Chakib Khoury

Hazmieh Jisr El Bacha Main Road, S & S CenterFax: (05) 952 425 - Phone: (05) 952 426Branch Manager: Ms. Randa Khater

Jal El Dib Main Road, Next to Mar Takla Church,Facing The Public GardenFax: (04) 721 853 - Phone: (04) 721 850/1/2Branch Manager: Ms. Marie Abi Haidar

Jounieh Facing La CitéFax: (09) 832 075 - Phone: (09) 832 069/70 - 832 063/5Branch Manager: Mr. Michel Ghalieh

Kaslik Main Road, Kaslik Plaza CenterFax: (09) 640 244 - Phone: (09) 639 945 - 640 794 - 640 118Branch Manager: Mr. Joseph Kmeid

Khaldeh Saida Highway, Credit Libanais Bldg.Fax: (05) 810 893 - Phone: (05) 810 891/2/3Branch Manager: Mr. Mahfoud Ghanem

Mkalles Main Road, Factory CenterFax: (01) 698 753 - Phone: (01) 698 750/1/2/3/4Branch Manager: Mr. Emile Moukarzel

Sin El Fil Fouad Chehab Road, St. Georges CenterFax: (01) 491 899 - Phone: (01) 495 370/1 - 482 368Branch Manager: Ms. Katia Ayoub

Tannourine Tannourine, Main Road, Douma junction Beit ChlalaPhone: (06) 520 980 - 520 961/3Branch Manager: Mr. Nicolas Maalouf

Zouk Jounieh Highway, Zeayter Bldg.Fax: (09) 211 556 - Phone: (09) 210 485/7 - 211 542Branch Manager: Mr. Joseph B. Khoury

Zouk Mosbeh Geita Main Road, Near Pizza HutFax: (09) 211 083 - Phone: (09) 211 082 - 210 744 - 210 711Branch Manager: Ms. Amale Araman

Jbeil Main St., Kordahi & Matta CenterFax: (09) 949 588 - Phone: (09) 942 588 - 949 558Branch Manager: Mr. Antoine Habib

Jbeil Fères Collège des Frères, Street 13, Khoury Business CenterPhone/Fax: (09) 540 496/7/8 - 540 534Branch Manager: Mr. Akram Khoury

Jdeideh Nahr El Mott Roundabout, Montelibano Bldg.Fax: (01) 887 780 - Phone: (01) 898 065 - 887 779Branch Manager: Mr. Kamal Zakhem

Jisr Dora Highway, Karantina Bridge, Azar Bldg.Fax: (01) 257 641 - Phone: (01) 257 640/1Branch Manager: Mr. Naji Lahoud

Kornet Chehwan Main Road, Forum 600 CenterFax: (04) 913 911 - Phone: (04) 913 911 - 928 240Branch Manager: Mr. Joseph Mallouk

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and Analysis

Bar Elias Damascus Road, Araji Bldg.Fax: (08) 510 267 - Phone: (08) 510 265/6/7Branch Manager: Mr. Nayef Al Kadi

Machghara Main Road, Albert Karam Bldg.Phone/Fax: (08) 650 250 - 650 297Branch Manager: Mr. Antoine Hajjar

Rachaya - Dahr El Ahmar Dib Mounzer Bldg.Fax: (08) 590 303 - Phone: (08) 591 013/4Branch Manager: Mr. Nidal Abou Hjeili

Zahle Hoch Al Omara, Deir Mar Chaaya Bldg.Fax: (08) 800 459 - Phone: (08) 810 142/3 - 803 200Branch Manager: Mr. Aziz Chamma

Chtaura Damascus Road, Rose Massabki Bldg.Fax: (08) 544 802 - Phone: (08) 540 833 - 543 555/666Branch Manager: Mr. Wassim Rahal

Jeb Jannine Ismaïl Sharanek Bldg.Fax: (08) 660 233 - Phone: (08) 660 233 - 660 710Branch Manager: Mr. Souheil Charanik

Ferzol Main Road, Ordre Salvatoriens Bldg.Fax: (08) 950 540 - Phone: (08) 950 54/12/3/4Branch Manager: Mr. Michel Gerges

Amioun Koura Main Road, Azar Bldg.Fax: (06) 952 714 - Phone: (06) 952 715/6/7Branch Manager: Mr. Esper El Azar

Batroun Main Road, Juliette Adaymi Bldg.Fax: (06) 642 168 - Phone: (06) 742 074/5Branch Manager: Mr. Nidal Farah

Kobbe Kobbe Main Road, Yehya CenterFax: (06) 393 902 - Phone: (06) 393 900/1Branch Manager: Mr. Walid Rima

Abdeh Abdeh Main Road, Haddad Bldg. Fax: (06) 470 650/1/2 - Phone: (06) 470 650/1/2 - (03) 583 586Branch Manager: Mr. Aghiad Dandachi

Tripoli - Tell Abdel Hamid Karame St., Kantara Bldg.Fax: (06) 430 350 - Phone: (06) 430 350/1/2 - 424 434Branch Manager: Mr. Chadi Kalaoun

Zghorta Main Road, Kareh & Mouawad Bldg.Fax: (06) 668 601 - Phone: (06) 668 600/1/2/3Branch Manager: Ms. Elissar Frangieh

Tripoli - Azmi Azmi St., Haytham CenterFax: (06) 215 900 - Phone: (06) 215 900/1/2Branch Manager: Mr. Nazih Naja

BEKAA

NORTH

SOUTH

Nabatieh Main Road, Sabbagh Bldg.Fax: (07) 767 911 - Phone: (07) 767 909/10/11Branch Manager: Mr. Zahi Jaffal

Saida 1 Riad El Solh St., Zaatary Bldg.Fax: (07) 721 401 - Phone: (07) 721 401/2 - 751 101/2/3Branch Manager: Mr. Wassim Kotob

Tyr Abbassieh Abbassieh, Main Road, Jal Al Baher, Sea CenterFax: (07) 351 094 - Phone: (07) 351 064 - 351 074 - 351 084Branch Manager: Mr. Hussein Saleh

Saida 2 East Blvd., Elia Roundabout, Center Zaatari 2035Fax: (07) 755 793 - Phone: (07) 755 790/1/2Branch Manager: Mr. Mohamad Saad

Tyr Rest House St., Farran Bldg.Fax/Phone: (07) 742 854/5/6Branch Manager: Mr. Riad Chebli

Bint Jbeil Main Road, Charara CenterFax: (07) 450 802 - Phone: (07) 450 800/1 - (03) 675 012Branch Manager: Mr. Ghassan Ghafari

Regional Branch Management

Regional Branch Management-Hamra

Gefinor center, Clemenceau street, Gefinor

Phone: (01) 350 092 - 345 364

Regional Branch Manager: Mr. Hassan Ali

Regional Branch Management - Mr. Michele Cherenti -

Deputy General Manager-Retail Banking and Branches

Credit Libanais Tower, Blvd. Pierre Gemayel, Corniche El Nahr, Adlieh

Phone: (01) 609392

Regional Branch Management- Riad el Solh

Asseily Building, Riad El Solh Square, Riad El Solh

Phone: (01) 983 204

Regional Branch Manager: Mr. Fouad Boustani

Regional Branch Management-North Metn and Keserwan

Kaslik Plaza, Kaslik Main Street, Zouk

Phone: (09) 832 893- 639 451

Regional Branch Manager: Mr. Georges Hajj

Regional Branch Management- Bekaa and South

Masabki Building, Chtaura Main Road, Chtaura

Phone: (08) 540 738 - 542 372

Regional Branch Manager: Mr. Antoine Khater

Regional Branch Management-North

Credit Libanais Tower, Jounieh Highway, Haret Sakhr

Phone: (09) 638 178 - 638 187

Regional Branch Manager: Mr. Nadim Issa

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CL Network Worldwide

Baghdad Branch (Iraq) Erbil Branch (Iraq)

Helpline for transfers

GermanyDeutsche Bank AG - FrankfurtCommerzbank AG - FrankfurtStandard Chartered Bank - Frankfurt

ItalyIntesa Sanpaolo SPA - MilanUniCredit SPA - Milan

JapanMUFG – TokyoSumitomo Mitsui Banking Corporation - Tokyo

AustriaUniCredit Bank Austria AG - Vienna

BahrainNational Bank of Bahrain BSC - Manama

CyprusBank of Cyprus Public Company Limited - Nicosia

CanadaBank of Montreal - Montreal

DenmarkDanske Bank A/S - Copenhagen

KuwaitThe Gulf Bank KSC - Kuwait CityThe National Bank of Kuwait SAK - Kuwait City

NorwayDNB Bank ASA - Oslo

SpainBanco Bilbao Vizcaya Argentaria SA (BBVA) - MadridBanco de Sabadell - SA Madrid

Saudi ArabiaThe National Commercial Bank - Riyad

Sri LankaBank of Ceylon - ColomboCommercial Bank of Ceylon PLC - Colombo

SwedenSkandinaviska Enskilda Banken AB (Publ) - Stockholm

USAJP Morgan Chase Bank NA - New YorkCitibank NA - New YorkStandard Chartered Bank - New YorkThe Bank of New York Mellon - New York

UKCitibank - LondonStandard Chartered Bank - London

Central Processing Department Phone : + 961 1 258 106/9 Ext. 100/111 Fax : + 961 1 257 635/6

Correspondent Banks Network

SwitzerlandCredit Suisse AG - Zurich

TurkeyAkbank TAS - Istanbul

ThailandBangkok Bank Public Company Limited - Bangkok

UAEFirst Abu Dhabi Bank - Abu DhabiStandard Chartered Bank PLC - Dubai city

FranceNatixis - Paris

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Street No. 14, Selman Al Faek, 904, Credit Libanais Bldg.

P.O. Box: 81018, Abi NawasFax: +964 727 0020385Phone: +964 770 0434434 / +964 750 5000555 Mobile: +964 750 5000111 / +964 770 0000665SWIFT/BIC: CLIB IQ BABranch Manager: Mr. Marwan Abi HanaWebsite: www.creditlibanais.comE-mail: [email protected]

Newroz Street, Worech 44, Credit Libanais Bldg.

P.O. Box: 20 NewrozFax: +964 66 2296690Phone: +964 750 3000111 / +964 770 0000766 /+964 750 3000666 / +964 770 0000103SWIFT/BIC: CLIB IQ BABranch Manager: Mr. Gaby KhouryWebsite: www.creditlibanais.comE-mail: [email protected]

Manama, Bahrain BranchLimassol, Cyprus BranchChrysalia Court, 1st Floor, 206 Arch. Makarios III Avenue, CY 3303

P.O.Box: 53-492, Limassol CyprusFax: +357 25 376 807Phone: +357 25 376 444 Country Manager: Ms. Hayat HarfoucheE-mail: [email protected] [email protected]

Seef Area, 428, Road 2806

P.O.Box: 5576, Manama Kingdom of BahrainE-fax: +973 17 910 573 - Fax: +973 17 582 224 Phone: +973 17 560 570Mobile: +973 39 912 912 / +973 39 981 981SWIFT/BIC: CLIB BH BBCountry Manager: Mr. Aghar KanafaniE-mail: [email protected]@creditlibanais.com.lb

Representative Office-Montreal, Canada

Montreal, Quebec, Place du Canada, 1010 de la Gauchetière Ouest # 1325, 13th Floor, Montreal, Quebec H3B 2N2 CanadaFax: +1 514 866 6220Phone: +1 514 866 6688 / +1 800 864 5512Manager: Mr. Malek BadroE-mail: [email protected]@creditlibanais.com.lb

Credit International, SA (CISA) -Zone Industrielle - Dakar (Senegal)

Credit International,SA (CISA) - Dakar (Senegal)Agence PrincipaleCredit International sa (CISA) Senegal, Immeuble le Goelan, Boulevard Djily Mbaye, Intersection Henri DunanB.P.: 50117 Dakar RPFax: +221 33 822 80 80Phone: +221 33 829 64 64 / +221 33 889 18 18General Manager: Mr. Christian KhalifeWebsite: www.cisenegal.comE-mail: [email protected]

Zone Industrielle de Dakar, Km 2.8 Boulevard du Centenaire de la commune de Dakar

Fax: +221 33 822 80 80

Phone: +221 33 849 30 80E-mail: [email protected]

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CL Milestones06We deliver superior customer service. Customer advocacy is ensured by our application of the suitability, transparency,

fairness and equitability standards across all our

activities.

CL Milestones

A Journey of Continuous Success and Achievements

Acquisition of both First Phoenician Bank and Capital Trust Bank

Acquisition of Continental Bank

Launching of the investment banking arm “Credit Libanais Investment Bank” (CLIB)First issuance of Euro CD listed on international markets by a Lebanese bank

Establishment of the Bank

1961

2009

1994

2011

1997

2013

1977

2010

1996

2012

Acquisition of a Controlling majority by CIH Manama Holding

Launching of operations in Iraq (Baghdad and Erbil)Migration to the core banking system, equation, across all branches of the Group

Best in category: Social and Economic Award for Housing LoansBest Website Awards granted to affiliates: Hermes Travel and CISA (Senegal)PCI DSS compliance for subsidiaries Netcommerce and IPN

Opening of Credit International SA, SenegalAcquisition by EFG Hermes Group of a controlling majority in Credit Libanais.Issuance of USD 75 million Subordinated Bonds maturing in January 2018

Management with Credit Suisse & Byblos Bank of the 2009 Republic of Lebanon voluntary exchange transaction for a total consideration of some USD 2.3 billion.

Increase of CL Tier One capital by 18.28%, through the issuance of $100m preferred sharesJP Morgan Elite “Quality Recognition for Outstanding Achievement” AwardCross Knowledge Special Award in the Best e-learning CategoryWorld Finance “Best Commercial Bank” AwardWorld Confederation of Businesses “Peak of Success” AwardFirst e-payment services for built property taxes and first e-payment services for the Order of Engineers and Architects in BeirutOpening of Jounieh Branch

2000

2014

2005

2016 2017 2017

20072004

2015

2006

Opening of Bahrain BranchChanging of affiliated leasing company Credilease into a Lebanese financial institution

Issuance of three-year Euro CD listed on international marketsLaunching of Islamic banking operations in Lebanon (LIB)

Issuance of $50m preferred sharesAcquisition of ISO 9001:2000 Certification for Quality Management System

Acquisition of the operations of American Express Bank, Lebanon

A capital increase of USD 102mImplementation of the Employee Stock Ownership Plan for a total consideration of 5.7% of the Bank’s common sharesWinning of the Golden Pan Arab Corporate Website Award

Winning of prestigious awards by Citibank, Deutsche Bank and Standard Chartered BankOpening of Adlieh and Jal el Dib branchesSocial Economic Award (SEA): The National and Social Impact Award

2016 saw a structural change in the shareholders base of the Bank pursuant to the disposal of a majority stake by EFG Hermes CL Holding SAL in the Bank’s Capital, to a network of international, Arab and Lebanese investors comprising sophisticated funds, institutional and individual investors.CISO (Chief Information Security Officer) 100 Award by Middle East Security Awards (MESA).

Relocation to the landmark newly built Headquarters Tower in AdliehWinning of the prestigious Awards for STP by Citibank and JP MorganFirst bank in Lebanon to be fully compliant with Payment Card Industry Data Security Standard (PCI DSS)Opening of CISA second branch in Dakar

Straight Through Processing (STP) Outstanding Achievement Award by JP Morgan.Straight Through Processing (STP) Euro Operational Excellence Award by Deutsche BankSafest Bank Award by World Union of Arab Banks (WUAB).Reconstruction and Development Award by Union of Arab Banks (UAB).CISO (Chief Information Security Officer) 100 Award by Middle East Security Awards (MESA).

2018

$100 million subordinated notes issuance$50 million from International Finance Corporation (IFC) to Credit LibanaisOpening of Beit Chlala – Tannourine BranchOpening of Dbayeh BranchCISO (Chief Information Security Officer) 100 Award by Middle East Security Awards (MESA).

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The Forest Stewardship Council www.FSC.org is an international organization promoting responsible forest management.FSC has developed principles for forest management of forest holdings, and system of tracing, verifying and labeling timber and wood products, which original from FSC-certified forests.

The Forest Stewardship Council www.FSC.org is an international organization promoting responsible forest management. FSC has developed principles for forest management of forest holdings, and a system of tracing,

verifying and labeling timber and wood products, which originate from FSC-certied forests.

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Documents

2018 - Credit Libanais€¦ · On March 27, 2019, Visa International recognized Dr. Joseph Torbey Chairman General Manager of Credit Libanais Group with the prestigious “Lifetime