Contents annual report 2006 - BBAC · Ghassan T. Assaf Chairman General Manager 3 BBAC Annual Rep 2006 11/12/07 12:21 PM Page 3. ... USD C/V Total Loans and Advances LL USD C/V Total

BBAC ManagementChairman's Letter 2

Summary of Performance 6Board of Directors 8Major Shareholders and General Management 9Excerpts from the Shareholders Assemblies 10

BBAC Financial Statements BBAC Balance Sheet 12BBAC Income Statement 14

BBAC Management Discussion and Analysis Basis of Presentation 16Corporate Profile 16Observance of Anti-Money Laundering Requirements 16

BBAC Auditor's Report

Asset - Liability Management

Independent Auditor's Report 41Balance Sheet 42Income Statement 43Statement of Changes in Equity 44Statement of Cash Flows 45Notes to Financial Statements 46

BBAC Network Branch Network and Addresses 90Main Correspondents 91Subsidiaries 92

Developments Restructuring 17• Committees

• Divisions: Support Division Retail Banking Division Assets Management DivisionHuman Resources 20

Risk Management Risk Management 21

Asset - Liability Management 22Asset Management 24Liability Management 30LCs 32Asset Quality 32Regulatory Guidelines 33

Financial Performance Ratios Liquidity 34Profitability 35Management Efficiency 36Interest Margin 36Non-Interest Income 37Net Financial Income 38General Operating Expenses 38

Contents

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BBAC Annual Rep 2006 11/12/07 12:21 PM Page 1

Chairman's Letter

Dear Shareholders

There is no doubt that 2006was one of the more difficultyears the entire bankingsector has faced so far. Thetragic and devastating eventsof July and their aftermathmade for unfavorable marketand business conditions. Inthe midst of it all, wecontinued to finalize ourrestructuring program and toweather our way to containany and all adverse resultsfor the years to come.

Against this background, it isa pleasure to be able to tellyou that your Bankperformed relatively well.Revenues for the year roseby nearly 31 %, owingprimarily to the increase inliquidity after the issue ofUS$50 million preferredshares, and net operatingresults were only slightlydown by 3 %. The full yeardividend is unchanged andthe preferred shares dividendis fully paid to this class ofshareholders.

The impact of the year'sevents visibly affected twomajor areas in your Bank's

profits. While administrative Expenses rose only by the normal 3.8%, adverse marketconditions impacted heavily on the Bank's Trading portfolio, which since has been graduallydecreased to avoid further or future impact on profits. On the other hand, the Bank'sManagement opted for a more conservative, as well as preventive, approach to loanimpairment with the aim to contain possible future negative results of the July war.


Chairman's Letter

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Our resilience in 2006 owes much to the composition of our clients, the product mixof our business, in particular to the professionalism and dedication of our people.Moreover, the figures do not do full justice to the considerable progress we made inother areas. Our restructuring has been completed. Policies and procedures, both formanagement and control, are in place. Awareness for Risk management andinternational Standards for accounting and reporting have been adopted by the Boardand spread all over the Bank's departments. Preparation for Basle 2 has made greatstrides towards aligning the Bank's business and data with the 3 pillars including acomprehension framework for IT security and business continuity plans.

The implementation of the IBM Data Warehouse and the Pexim business intelligencesolution, which the Bank has acquired recently, is well advanced. The Bank is moreclearly focused than ever on creating value and we believe strongly that value creationmust be sustainable. Therefore, we introduced the concept of management bybusiness line principles, which are integral to creating sustainable long term valuebased on productivity, performance measures and rewards. On the other hand, wehave raised awareness of the regional expansion supported by the appropriate level ofcapitalization reached by the Bank.

It has been a demanding year. The plans necessary to ensure competitiveness and tomove towards our ambitious goals relative to our peers both locally and regionally havebeen set. Relating rewards more closely to the Bank's economic performance and themeasures taken to improve efficiency and contain costs are beginning to take effect.

In no small part thanks to you, Shareholders, Clients and Staff, your Bank isfundamentally a stronger institution then it was a year ago. I have every reason tobelieve that BBAC is better positioned than ever to prosper and take advantage ofbetter economic and political conditions when they return.

Ghassan T. AssafChairman General Manager

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Care Works Better Than Words

50 years of caring.


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BBAC Management

2006 2005Change

2006-2005

3,817,6502,532

588,143390

2,950,2211,957

3,287,6432,181

193,099128

26,36517.49

6.23%

11.29%

4.96%

3.99%

48.33%

-3.09%

4,055,5772,690

654,519434

3,096,5272,054

3,418,7972,268

286,422190

25,55016.95

Total AssetsLLUSD C/V

Total Loans and AdvancesLLUSD C/V

Total Net LiquidityLLUSD C/V

Deposits from CustomersLLUSD C/V

Shareholders' Equity*LLUSD C/V

Profits-after taxLLUSD C/V

(in millions)

* Including only LL 10 billion accepted in owners’ equity, out of LL 21.06 billion of revaluation variance of tangible fixed assets.

Summary of Performance


BBAC Management

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2006 2005(percentage)

Liquidity RatiosNet Liquidity LLNet Liquidity FCNet Liquidity TotalLoans / Deposits LLLoans / Deposits FCLoans / Deposits TotalLiquid Assets / Assets

Asset Quality *Doubtful Loans / Gross LoansProvisions for Doubtful Loans / Doubtful LoansProvisions for Loans / Gross LoansNet Doubtful / Assets

Capital Adequacy RatiosTotal Capital Adequacy RatioIncluding After Tax Profits

Profitability RatiosReturn on Average Assets ROAA after tax Return on Average Equity ROAE after tax Number of Common Shares Outstanding (million)Number of Preferred Shares Outstanding (million)Earnings per Share EPS in LL after taxDividends per Common Share DPS in LL**Dividends per Preferred Share in LLDividends Payout RatioRetention RatioNet Asset Value per Share in LL

Management EfficiencyInterest Paid / Interest ReceivedCost per Average Branch (LL million)Net Commissions / Net Financial IncomeCost / Income (Efficiency Ratio)

Exchange Rate (LL/USD)***

91.64%88.82%89.74%14.81%19.37%17.89%80.73%

15.71%70.59%12.16%0.81%

19.80%22.78%

0.72%14.27%

72-

366.289

-29.49%70.51%

2,836

78.12%1,442

17.66%61.08%

1507.5

94.43%89.03%90.57%16.32%20.27%19.14%79.95%

14.47%77.39%11.81%0.60%

26.84%29.38%

0.65%10.66%

725

354.8589

55235.14%64.86%

4,132

75.03%1,337

18.01%59.19%

1507.5

7

* Non-accrual interest is included in non-performing loans; unrealized interest is included in provisions.** An additional interest payment of about LL 1.194 billion was made on the cash contributions.*** The closing rate of the Lebanese Pound against the USD as set by the Central Bank.


BBAC Management

Board of Directors

Chairman General Manager Mr. Ghassan T. Assaf

Vice Chairman Mr. Abbas Halabi

Member Mr. Walid T. Assaf

Member Mr. Ali Assaf

Secretary Mr. Amine Rizk


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Chairman - General ManagerVice ChairmanMemberMemberSecretary of the Board

54.06 %37.05 %8.89 %

Major Shareholders and Management Major Shareholders

Assaf FamilyFransabank s.a.l.Other Shareholders

Board of Directors

Mr. Ghassan AssafMe. Abbas HalabiMr. Walid AssafMr. Ali AssafMe. Amine Rizk

Solicitors

Me. Chafic KhalafMe. Amine RizkMe. Ramzi HaykalMe. Assaad NajmMe. Paul Morcos

Auditors

PriceWaterhouse Coopers

Executive Advisors to the Chairman

Mr. Georges MirzaMr. Omar SaabMr. Chawki BadrDr. Amalia Azouri

General Management

Dr. Saad AndaryMr. Jean MehannaMr. Walid HaddadMr. Jihad NjeimDr. Adnan AridiMr. Raja MakaremMr. Marwan TayaraMr. Sami SalibaMr. Nadim HamadeMr. Michel KazanMiss Wafaa AbedMrs. Sabah KhatounianMr. Talal Abou ZikiMr. Ramzi Abi FaresMrs. Lina MakaremMr. Salim KaramMe. Amine RizkMe. Paul MorcosMr. Pierrot AtallahMr. Chadi ChamiMrs. Rana BaydounMiss Dina Bou Saba

Credit and RecoveryBusiness & DevelopmentBusiness & DevelopmentEconomic Studies

Deputy General Manager - Asset Management DivisionAssistant General Manager - Retail Banking DivisionSupport Division & OperationsHuman Resources DepartmentOrganization and Methods UnitRisk Management DepartmentRecovery and Restructuring DepartmentAccounting and Financial Control DepartmentCredit DepartmentBranch ManagementInternal Audit DepartmentAdministration DepartmentCompliance UnitMarketing Department & Business DevelopmentTreasury & Capital Markets DepartmentInsurance UnitLegal DepartmentLegal DepartmentIT DepartmentCards & E-Banking DepartmentCorrespondent Banking UnitPrivate Banking Unit

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BBAC Management

Excerpts from BBAC’s Ordinary GeneralShareholders’ Assembly

June 20, 2007

Resolution no. 2The Ordinary General Assembly of BBAC Shareholders approved the activities, accounts,

balance sheet and the profit and loss accounts for the year ending on December 31, 2006.

Resolution no. 3The Ordinary General Assembly of BBAC Shareholders decided on the appropriation of the

profits for 2006 as follows:

25,549,108

2,554,911

2,000,000

20,141,884

2,759,147

6,408,000

1,193,761

30,775,174

LL thousands

Profits for the year 2006

Less: Appropriation of 10% to Legal reserves

Appropriation for General Banking Risks

Profits Carried Forward for 2005

Less: Dividends on Preferred Shares

Less: Dividends on common Shares

Less: Interest on Cash Contribution

Profits Carried Forward for 2006


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BBAC Financial Statements

ASSETS (LL Millions) 2006FXLL

344,562579,107

189548

159,339-

562562

-3,524

-8169,989

42029,9594,058

1,131,441

615,945580,579

1,095,40113,131

495,18065,46412,552

-12,552

-

29,616-

124182

15,961

2,924,136

2005FXLL

408,088562,52410,576

548

158,118-

562562

-3,524

69610,129

59830,9215,104

1,191,390

550,203606,463920,153

9,630

430,02464,51213,229

-13,229

-

18,175-

146194

13,530

2,626,260

Balance Sheet as at December 31, 2006

Cash and Bank of LebanonLebanese Treasury billsLoans and Advances to banksTrading SecuritiesLoans and advances to customers *Debtors by acceptancesInvestment Securities

- available-for-sale- held-to-maturity

Investments in SubsidiariesProperty acquired in settlement of debtInvestment propertyIntangible assetsProperty and equipmentOther Assets

Total Assets

Total Assets C/V in thousand USD

Off-Balance Sheet

Engagements by signature received from financial intermediariesOther engagement received

* After deduction of:Provisions for doubtful loansUnrealized interest for doubtful loansCollective impairment

* After deduction of:Payables against receivables

* Including net non-performing loans:Substandard loansUnrealized interest for substandard loans

960,5071,159,6861,095,590

13,679

654,51965,46413,114

56212,5523,524

28,8009,989

54530,14120,019

4,055,577

2,690,267

2,006,253

1272,006,126

84,26954,572

28,5501,147

15,00015,000

8,01111,366

3,355

958,2901,168,988

930,72910,178

588,14364,51213,791

56213,2293,524

18,87210,129

74431,11518,635

3,817,650

2,532,438

1,900,603

5661,900,037

74,23846,093

28,145-

14,09514,095

11,61918,793

7,174


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LIABILITIES & SHAREHOLDERS' EQUITY (LL Millions)

2006FXLL

LiabilitiesDeposits from banksDue to customersCertificates of depositsEngagements by acceptancesOther liabilitiesCurrent income tax liabilityRetirement benefit obligationsTotal Liabilities

Shareholders’ equity Share capital and cash contribution to capitalPremium (Preferred Shares)Legal reserveOther reservesReserve for unidentified banking risksRevaluation variance of tangible fixed assets *Retained earningsTotal Shareholders’ Equity

Total Liabilities & Shareholders’ Equity

Total Liabilities & Shareholders’ Equity in thousand USD

Off-Balance Sheet Engagements by endorsement given to:Financial intermediariesCustomers

Fiduciary Investments

* Including LL 10 billions accepted in owners’ equity.

146,0493,418,797

77,02365,46437,567

76912,425

3,758,094

119,12070,37526,1373,972

15,68221,061

41,136297,483

4,055,577

2,690,266

110,22954,05156,178

4,070

3,192976,170

--

6,701769

11,683998,515

77,000-

26,1373,972

15,682

21,06131,460

175,311

1,173,826

778,658

142,8572,442,627

77,02365,46430,866

-742

2,759,579

42,12070,375

--

-

-9,677

122,172

2,881,750

1,911,609

2005FXLL

131,7563,287,643

77,00464,51239,6831,079

11,8133,613,490

114,120-

23,5822,485

13,68221,061

29,230204,160

3,817,650

2,532,438

112,71353,82858,885

4,070

3,6791,067,876

--

8,7341,079

11,0711,092,439

72,000-

23,5822,485

13,68221,061

24,222157,033

1,249,472

828,837

128,0772,219,767

77,00464,51230,949

-742

2,521,051

42,120---

--

5,00747,128

2,568,178

1,703,601

Balance Sheet as at December 31, 2006

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Interest and similar incomeLebanese T-billsDeposits and similar funds at banksand financial institutionsLoans and advances to customersInvestment SecuritiesRelated parties loans and advances

Interest and similar chargesDeposits and similar funds from banks and financial institutionsDue to customersCertificates of depositsDeposits from related partiesOther interest and similar charges

Interest margin

Net Provisions (releases) on loansand advancesProvisions for customers loans andadvancesRelease of provisions and unrealized interest on doubtful and substandard loans

Net Interest Received

Dividend income

Net CommissionFee and commission incomeFee and commission expense

Net trading incomeForeign exchangeInterest rate instrumentsEquities

Other operating income

Operating expensesStaff CostsOther operating expensesDepreciation and amortization

Net income of the year before taxes

Taxes

Net profits for the year

Income Statement for the year ending December 31, 2006

(LL Millions) 2006

266,171101,686

109,68653,681

849269

199,712

2,622189,655

5,2942,141

-

66,459

5,336

14,076

8,740

61,123

613

13,83215,6661,834

-1532,134

-3,9391,652

1,372

45,45126,78815,1583,505

31,336

5,786

25,550

2005

218,06087,532

82,19346,6171,478

241

170,356

5,455161,333

1,6291,939

-

47,704

-383

7,855

8,239

48,087

227

13,75815,1731,415

14,6932,3619,5712,762

1,157

47,59825,41818,4793,700

30,325

3,960

26,365

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BBAC Management Discussion & Analysis

Basis of PresentationAll the analysis presented in this report highlights the performance of the Bank in 2006. It isbased on the audited consolidated financial statements of BBAC Bank s.a.l. as at 31 Decemberof the years 2005 and 2006.

The content of the management discussion and analysis was prepared based on the bank’sfinancial statements. These statements were prepared in accordance with the InternationalAccounting Standards (IAS), International Financial Reporting Standards (IFRS) and generallyaccepted accounting principles applicable to banks in Lebanon.

Reference to BBAC is meant to cover BBAC s.a.l. along with its subsidiaries and internationalbranches.

All figures are denominated in Lebanese Pounds, where all US Dollar amounts are translated atthe Central Bank’s December 31, 2006 closing rate of LL 1507.5 /USD.

Corporate ProfileThe year of 2006 is a the year which marks the 50th anniversary of BBAC: In 1956, a group ofprominent investors consisting of Mr. Toufic Assaf, Mr. Nashaat Sheiklard, and Mr. Jamal Shehaiberestablished BBAC as a commercial bank. Since inception, BBAC dedicated itself to service its clientsin the best possible way and thus the bank grew with the growth in the base of its clients.

BBAC provides its clients with all kind of services through a wide network of thirty-twoLebanese branches, an International Banking Unit in Limassol, and an Off-Shore Banking Unitin Damascus Free Zone.

The Bank’s mission is to:• Satisfy its clients’ sophisticated financial needs using its internally developed resources.• Provide its clients with a wide range of customized services so as to cover their

needs: starting from retail and commercial banking services, private banking services,electronic banking and internet facilities, and extending to bancassurance products.

Observance of Anti-Money Laundering RequirementsBBAC, like all Lebanese Banks, is subject to all regulations as set out in the Anti-Money LaunderingLebanese Law No. 318 of April 20, 2001 and its amendments. The main aim of this law is todetect and prevent any money laundering and potential terrorist financing. A Special InvestigationCommission (SIC) supervises the implementation of this law by the Lebanese Banks.

BBAC also complies with the circulars of the Lebanese Central Bank which require establishingprocedures for controlling financial operations and activities that would either prevent or detectany act of Money Laundering.

BBAC is firmly committed to combat money laundering and terrorist financing. This isestablished by implementing an Anti-Money Laundering program that includes written policiesand procedures, a designated Anti-Money Laundering officer and controllers, regular trainingfor all of its staff, as well as an independent audit in order to test the effectiveness of theprogram.


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Developments

RestructuringThe restructuring project of 2005, which was the main consequence of the 2004 Deloitte andTouche study, continued in 2006. With an outlook to a framework of good corporategovernance, the main focus of the new structure was to set clear grounds for control, authoritysegregation, job specialization, responsibility and accountability.

This year also witnessed continued issuance of job descriptions of various committees,departments, branches as well as other positions; the re-allocation of employees into jobs thatbest suits their qualifications and potentials; as well as the issuance of various detaileddescription of processes and workflows for certain job routes.

a- Committees

BBAC Board of Directors emphasized the importance of the Bank’s committees. As a result, itestablished clear guidelines for their performance and the process of recommendation anddecision making for these committees.

b- Divisions

Support Division

The support division strives to manage the bank's activities that are related to operations,information technology, administration as well as insurance. It ensures the efficiency andeffectiveness of those activities and that they are in line with the bank's overall strategy.

Following the modernization of a large partition of the various procedures that encompassesBBAC’s different activities, the Support Division carried on its continuous efforts to controlcosts and minimize operational risks. These goals were pursued on the following levels:

1- Operations level

After describing the detailed workflow of each operation, in collaboration with the Organizationand Methods unit, the Operation Department continued its efforts to redesign, as well ascentralize, all operations so as to reduce the time consumed by the services production anddelivery.

2- Information technology level

During 2006, the IT department increased its efforts to support the Bank’s strategy as a whole,and in particular, the restructuring program. However, due to the July war, the IT Departmentwas confronted with strong challenges that were overcome within a framework of variousdisaster schemes.

This year was characterized by accomplishing various automation projects as well as other online / real-time applications whose aim was to centralize the different operations betweenthe branches and head office. The most important projects were:

• The Banc-assurance project which enabled the branches to issue insurance policiesin online / real-time mode where they will be electronically connected with theBank’s Insurance Unit.

• Enhanced the Internet Banking System to cover international units.

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• A new information system for automating the Anti Money Laundering (AML) activities of the compliance unit.

• Complete automation for Checks Clearing process.• Direct Posting of the incoming transfers.

Retail Banking Division

The main role of this division is to oversee all the Bank's activities related to cards, e-banking,marketing, and branch management. It coordinates among these various departments with theultimate goal of ensuring that all the actions that are taken by these departments complementeach other and are in harmony with the Bank’s overall strategy.

1- Branch Management

The branches’ activities, administration and profitability are the full responsibility of the BranchManagement department. It acts as a liaison within and between branches and the HeadOffice. It provides the branches with all the business and administrative support needed to beable to secure the best quality of standard services to local and expatriate clients. During theyear of 2006, this department supervised and followed all the internal tasks in order to shiftthe branches dynamics from a classical distribution of work into real points of sale channels.

2- Marketing

With an eye on expanding BBAC’s market share, the marketing department aligns its actionswith the new era of expansion. To that end, it has revised and opened new channels ofdistribution, product development, product management as well as promotion. BBAC has alsocreated a new qualified sales force of highly enthusiastic individuals whose main role is tocapture and expand the Bank’s market share.

Innovative selling techniques and brand positioning mark the marketing department activity.As a matter of fact, a new CRM system is being planned to allow a detailed segmentation ofthe market and deeper understanding of clients’ needs. The department assists in setting thesales targets and following achievements.

3- Cards and E- Banking

BBAC continues to provide a wide range of plastic cards designed to suit the needs of its ever-growing customer base. All BBAC cards provide worldwide easy usage, safety and conveniencefor their holders. These cards are distributed among three main categories :

• The electron cards which include: BBAC electron cards as well as the “TransparentCards” which provide enhanced security for cardholders through its chip feature.

• The credit cards that include Classic, Gold, Platinum types, and the Diamond Cardwhich is only tailored for the female clients and offers its users the opportunity toaccumulate points and win diamonds in addition to various gifts.BBAC also offers the Euro Card which facilitates payments and saves on exchangecosts. All BBAC credit card holders benefit from a free of charge SMS service thatprovides more security by immediately informing the card holders of any accountmovement.

• The internet cards which offer their users the utmost possible safety whilepurchasing through the World Wide Web.


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In its efforts to promote the welfare of the community and in particular to relieve the humansuffering, the BBAC CCCL Card was issued. It is a credit card that is issued in collaborationwith St. Jude Children's Research Hospital: whenever, the cardholders acquire and use thiscard, BBAC will donate 1% of the purchase amount to the Children's Cancer Center of Lebanonin addition to a share of the card membership fee.

These cards are easily accessible and could be used on any network in any location worldwide.As to the Bank's own network, it keeps on developing and currently comprises 38 ATMs thatare spread in almost all Lebanese areas.

BBAC continues to upgrade its Online Banking to provide a wide range of electronic servicesbased on stronger security measures to insure information safety and confidentiality; BBACTelephone Banking continues to provide 24-hour free and safe telephone service that givescustomers access to their personal account information.

Equipped with state-of-the-art technology and supported by qualified and well trained team,BBAC Internet Center continues to offer free internet services for school and universitystudents.

In the context of promoting easy banking access, BBAC’s experienced Customer Support Deskprovides technical support and directly communicates and provides answers in a timelymanner.

4- Insurance Products

BBAC offers five personal pre-signed insurance contracts through its branch network with thecooperation of its sister company, Capital Insurance and Reinsurance Co. These contracts areissued and immediately delivered to customers in all BBAC branches:

a- Motor Third Party Liability (Corporal & Material Damage)b- Personal Accident Insurance (Death T.P.D. & P.P.D. Due to Accident)c- Term Life Insurance (Death Natural &/or Accidental)d- Home Insurance (Fire, Neighbors Recourse and Earthquake)e- Expatriate Insurance (Life and Medical Expenses covering Domestics)

In association with SNA (Société Nationale D’assurances s.a.l.), BBAC offers two kinds ofinvestment products mainly consisting of Retirement and Educational Plans that are designedto give BBAC’s customers protection and guaranteed benefits on investment accounts.

Other insurance products are provided to BBAC customers that cover the Risk of Fire, Burglary,Natural Hazards, Workmen Compensation, Natural &/or Accidental Death, War, Sabotage,Terrorism Risk, and Travel Insurance.

Assets Management Division

BBAC’s Asset Management Division is dedicated to maximizing the return on the Bank’s assetswhile working under specific risk policies and guidelines that are set by the Board of Directors.This Division is made up of four main departments and units with the objective of satisfyingall types of clients.

The Credit Department aims to create value for their client base through providing a wide rangeof products and services starting from the simple credit facilities for individuals and smallbusiness sector, up to the most complex project financing. It’s mission is to ensure the highest

19


level of client satisfaction in providing pro-active financial and banking advice with the objectiveof building long term relationships with local and International clients. It offers the clients avariety of products that are tailored to their individual needs as well as their risk profiles.

Another section is the Private Banking Unit: With two choices on hand, either to compete oncost leadership or differentiation, the Private Banking chose to focus its approach ondifferentiation with a client-driven business model.

The Private Banking is equipped with a wide range of expertise and experience that supportseach and every aspect of clients’ wealth management requirements. Our team is committed toproviding quality solutions that capture the needs of our esteemed clientele from all angles. BBAC’s Private Banking is global in scope and offers a broad set of products. It seeks a cultureof innovation and performance while maintaining rigorous and disciplined approach to risk.

This unit is supported by many prime multi-national counterparties that help it to offer globalcoverage in all primary and secondary markets across all asset classes, including derivativeinstruments from the simplest to the most sophisticated structured products. Investmentstrategies are also tailored to speculate or to hedge exposure across the fast developingfinancial markets.

The Treasury Department manages all the Bank’s money market placements, financial assets,foreign exchange operations and capital market operations.

Finally, the Correspondent Banking Unit manages the Bank’s relations with correspondentbanks and financial institutions, and develops the Bank’s international business activities.

Human Resources1- Staff Productivity

BBAC believes that its value is primarily derived and created by the activities of its humancapital. BBAC’s human capital consists of qualified individuals who are fully involved in, andenthusiastic about, their work.

In its efforts to make the new restructuring process successful and in anticipation for plannedfuture growth, BBAC has increased the number of its staff to reach 584 employees at the endof 2006, of which 44.52% belong to the age bracket that is below 40 years. The number ofstaff per branch increased from 16.41 in 2005 to reach its 2004 level of nearly 17.2 in 2006.

This increase in the number of staff was reflected in a 5.39% increase in staff expenses whichreached about LL 26.79 billion, constituting 58.94% of total operating expenses. As foremployees’ productivity, it continued to grow with average footings per staff increasing fromLL 6.67 billion in 2005 to LL 6.94 billion in 2006.

2- Training

In order to accompany the various changes in the banking industry, BBAC conducted severalseminars and training sessions in 2006 that tackled various traditional topics as well as crucialnew ones: Basel II implementation, legal and fiscal issues, money laundering, latest ITdevelopments, recent development in financial markets, product and service knowledge,credit, management behavior and marketing, languages, procedures and risk management.

These intensive internal and external training sessions totaled about 16,070 hours, 38% of


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which were provided by external specialists and covered about 87.67% of BBAC’s employees,with 512 out of the 584 employees attending at least one training course.

BBAC also provided internships to numerous students so as to equip them with the basic toolsthat would enable them to better understand the work environment and thus be more preparedwhen they join the work-force upon graduation.

The bank also supported 37 employees to obtain technical certificates and academic degrees,which ranged from the Centre d’Etude Bancaire diplomas, to university B.A.’s and M.B.A.’s.

21

In April 2006 the Central Bank of Lebanon (BDL) issued directives on the adoption of the CapitalAdequacy Standards under the Basel II framework applicable to all licensed banks in Lebanon.These directives set out the new capital adequacy rules for calculating and maintaining theminimum capital required for credit and market risk under the “Standardized Approach” whilethe operational risk under the “Basic Indicator Approach.”

Even before the announcement of the adoption of Basel II Accord, risk was a major concernat BBAC with all the foreseen risks being effectively managed and prudently controlled.

BBAC’s Risk Management Department has the responsibility to recognize risk, assess it,develop strategies to manage it, and finally propose methods to mitigate all risks that exceedsthe limits that were set by the Board of Directors. These strategies include transferring the riskto another party, reducing the negative effect of the risk, and accepting some or all of theconsequences of a particular risk

Following the restructuring that was adopted earlier, BBAC’s risk management is evolvingtowards full compliance with the new directives of Basel II accord and in accordance withBCC’s implementation plan of the new accord.

Risk Management

Distribution of training hours according to training subjects

3%11%

10%

33%8%

16%

11%

2%6%

BBAC Products and Services

Credit

Finance, Accounting & ABL

Procedures and Risk Management

Management Behavior,MarketingHR & BBAC Restructing

Legal and Fiscal

Information Technology

Languages

Secreterial/Filing/Archieving/Training Center Meetings


(LL millions) Amount

2005 2006

Table 3: Non-Interest Earning Assets

2005 2006

Structure

Debtors by AcceptancesTrading SecuritiesInvestments in SubsidiariesEquity SecuritiesProperty Acquired in Settlement of DebtInvestment PropertyIntangible AssetsProperty and EquipmentOther Assets

Total Non-Interest Earning AssetsTotal Assets

1.69%0.27%0.09%0.01%0.49%0.27%0.02%0.82%0.49%

4.15%100%

65,46413,6793,524

56228,8009,989

54530,14120,019

172,7234,055,577

64,51210,1783,524

56218,87210,129

74431,11518,635

158,2713,817,650

1.61%0.34%0.09%0.01%0.71%0.25%0.01%0.74%0.49%

4.26%100%

Asset – Liability ManagementThe first half of the year 2006 revealed an economic rebound on all levels, however, all of thiscame to an end after the Israeli attacks on Lebanon, in what came to be known as the July Warof 2006. This war, as well as the entire political uncertainty, halted the Lebanese economy andthis was reflected in all of its sectors.

Despite the unfavorable situation that was prevailing in Lebanon, the interest earning assetsshowed a 6.11% increase over its 2005 levels where it remained, out of total assets, at a nearlystable level which is about 96%.

Treasury bills remained the dominant element in the interest earning assets despite the slightchange to 28.59% in 2006 down from 30.62%.

As for loans and advances to customers, they witnessed an 11.29% increase which raised theirshare in the interest earning assets from 15.41% in 2005 to 16.14% in 2006. This reflects acontinuation of the Bank’s aggressive plan in financing the private sector despite the severeinterruption from the July war.

The share of the non-interest earning assets out of total assets (Table 3) slightly increased where thechange was due to the acquiring of more property for settling debts as shown in the following table:


2005 2006

Table 2: Interest Earning Assets

2005 2006

Structure

Cash and Bank of LebanonLebanese Treasury billsLoans and Advances to BanksInvestment SecuritiesLoans and Advances to Customers

Total Interest Earning AssetsTotal Assets

25.10%30.62%24.38%0.35%

15.41%

95.85%100%

960,5071,159,6861,095,590

12,552654,519

3,882,8544,055,577

958,2901,168,988

930,72913,229

588,143

3,659,3793,817,650

23.68%28.59%27.01%0.31%

16.14%

95.74%100%


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As usual, the customers’ deposits remained the main source of funds with a total of 84.30%out of the interest bearing liabilities (Table 4). However, the share of interest bearing liabilitiesout of total liabilities slightly decreased so as to reach 89.80%, while that of the non-interestbearing liabilities increased to reach 10.20 % (Table 5). The major reason behind this changewas the successful June 2006 issuance of USD 50 million Preferred Shares.

The uncertainty that emerged in 2004 started, somehow, to diminish in the first half of 2006and this was reflected in a decrease in the dollarisation level, however, the July war drove upthe dollarisation rate of both assets and liabilities (Table 6).

(LL millions & percentage)

2005 2006 2005 2006 2005 2006

Percentage %Amount Change %

AssetsLLFC

LiabilitiesLLFC

-4.37%4.37%

-4.28%4.28%

27.90%72.10%

28.94%71.06%

31.21%68.79%

32.73%67.27%

3,817,6501,191,3902,626,260

3,817,6501,249,4722,568,178

4,055,5771,131,4412,924,136

4,055,5771,173,8262,881,750

-3.31%3.31%

-3.79%3.79%

Table 6: Assets and Liabilities


2005 2006

Table 5: Non-Interest Bearing Liabilities

2005 2006

Structure

Engagements by AcceptancesOther LiabilitiesCurrent Income Tax LiabilitiesRetirement Benefit ObligationsShareholders’ EquityRevaluation Variance of Tangible Fixed Assets

Total Non-Interest Bearing LiabilitiesTotal Liabilities

1.69%1.04%0.03%0.31%4.80%0.55%

8.41%100%

65,46437,567

76912,425

276,42221,061

413,7084,055,577

64,51239,6831,079

11,813183,09921,061

321,2473,817,650

1.61%0.93%0.02%0.31%6.82%0.52%

10.20%100%


2005 2006

Table 4: Interest Bearing Liabilities

2005 2006

Structure

Central BankDue to Banks and Financial InstitutionsDeposits and Customer AccountsCertificates of Deposits

Total Interest Bearing LiabilitiesTotal Liabilities

0.00%3.45%

86.12%2.02%

91.59%100%

0146,049

3,418,79777,023

3,641,8694,055,577

0131,756

3,287,64377,004

3,496,4043,817,650

0.00%3.60%

84.30%1.90%

89.80%100%

23


1- Asset Management

The components of the asset side of BBAC’s balance sheet are distributed among four maincategories expressed as follows:


Table 7: Uses of Funds

2004 2005 2006 2004 2005 2006

Percentage

Liquid AssetsLoans and AdvancesOther Financial AccountsPermanent Assets

Total Uses of Funds

80.73%15.41%2.18%1.69%

100%

79.66%16.32%2.27%1.75%

100%

2,756,306564,64778,71460,388

3,460,055

3,081,977588,14383,14764,384

3,817,650

3,242,576654,51985,48372,999

4,055,577

79.95%16.14%2.11%1.80%

100%


Table 8: Liquid Assets

Percentage

Cash and Bank of LebanonLebanese Treasury BillsTrading & Investment SecuritiesLoans and Advances to Banks

Total Liquid Assets

31.09%37.93%0.78%

30.20%

100.00%

958,2901,168,988

23,969930,729

3,081,977

960,5071,159,686

26,7931,095,590

3,242,576

29.62%35.76%0.83%

33.79%

100.00%

(LL millions) 2005 2006

Table 9: Cash and Central Bank Deposits

Cash

Central Bank

Sight DepositsTerm DepositsCertificates of DepositsAdd: Accrued Interest ReceivableLess: Tax on interest ReceivableLess: Interest Received in Advance/DiscountsLess: Certificate of Deposits

Total Central BankTotal Cash and Central Bank DepositsDenominated as follows

LL in millionsForeign currencies in thousands USD

38,038

95,954382,905431,59617,616

-661-4,941

-922,469960,507

344,562408,587

33,257

102,015402,599409,91317,928

-600-7,492

670925,033958,290

408,088364,977

a- Liquid Assets

Total liquid assets witnessed a 5.21% increase over 2005 level, thus reaching approximately LL3,243 billion at the end of 2006 forming 79.95% of total assets, down from 80.73% in 2005.

1- Cash and Central Bank deposits revealed an insignificant increase over 2005 levels. The decreasein the term deposits was compensated by an increase in the certificate of deposits of the CentralBank and an increase in cash. As for the currency composition of these deposits, their dollardenominations have increased from 57.42% in 2005 to 64.13% in 2006 in line with the Bank’sstructure of its customer deposits.

2005 2006 2005 2006


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2- The share of Treasury Bills in the portfolio of total liquid assets continued to decreasewhere it reached 35.76% in 2006 compared to 37.93% in 2005. The change in TreasuryBills was mainly characterized by a decrease of LL 26 billion in the Eurobond portfolio; theLebanese denominated Treasury Bills increased by an approximate amount of LL 17 billion.This resulted in the decrease of the percentage of foreign currency denominated TreasuryBills in the total portfolio to 50% in 2006 down from 51.88% in 2005 (Table 10).

3- Fixed and Variable Income securities showed a slight increase as a percentage of total liquidassets; however, the total amount remained low where it stood at 0.83% out of total liquidassets; the increase was mainly in the portfolio of variable income securities.


Table 10: Lebanese Treasury bills

Treasury BillsAdd: Interest Receivable

Unrealized Gain on Fair Value ReceivableLess: Interest Received in Advance/Discounts

Tax on Interest ReceivableTotalDenominated as follows


1,139,48823,941-2,0261,058

6591,159,686

579,107385,127

1,150,76621,0993,5685,804

6411,168,988

562,524402,297


Table 11: Fixed and Variable Income Securities

Fixed Income SecuritiesAdd: After-Tax Interest ReceivableLess: Provisions for Debt Securities

TotalVariable Income Securities

Less: Provision for Decline in Value of SharesTotalTotal Fixed and Variable Income SecuritiesDenominated as followsFixed


VariableLL in millionsForeign currencies in thousands USD

12,446106

-12,55214,496

-25514,24126,793

-8,326

1,1108,710

13,115114

-13,22910,999

-25810,74123,970

-8,775

1,1106,388


4- Deposits with Banks and Financial Institutions reached LL 1,096 billions (Table 12), witha ratio of 33.79% out of total liquid assets, against a ratio of 30.20% in 2005. The majorincrease was mainly caused by higher placements in time deposits and CDs rather than in thelower yielding demand deposits.

b- Loans and Advances to Customers

Despite the political and economic situation in Lebanon, BBAC’s loan portfolio grew by11.29% in 2006 preserving almost the same currency structure that prevailed in 2005.


Table 12: Deposits with Banks and Financial Institutions

Demand DepositsTime Deposits & CDsAfter-tax Interest Receivable Total DepositsDenominated as follows


86,1991,005,619

3,7731,095,590

189726,634

77,214851,103

2,413930,729

10,576610,383


2005 20062005 2006

Structure

Denominated as followsLL in millionsForeign currencies CV in millions LLForeign currencies in thousands USD

Total

158,118430,024285,257

588,143

159,339495,180328,477

654,519

26.88%73.12%

100%

24.34%75.66%

100%

Table 13: Breakdown of Loans and Advances to Customers by Currency

The geographical distribution of the loan portfolio shifted slightly with lending activities in thearea of Mount Lebanon increasing at the expense of Beirut and Suburbs which dropped fromthe 52% in 2005 to 45%. This drop reflected the unique political and economic situation thatfaced Beirut in the second half of 2006.


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Retail lending increased in 2006 reflecting BBAC’s new lending policy that encouragedconsumer lending in 2005. The breakdown of loans by economic sector (Table 15) confirmsthat trade and industrial financing decreased while that of consumer loans increased.

Corporate loans also witnessed an increase so as the share of these loans rose to 43.53% of thetotal loan portfolio while the share of both medium and small loans decreased.


2005 20062005 2006

Percentage

Beirut and SuburbsMount LebanonBekaaNorth LebanonSouth LebanonCyprus

Total (Gross Loans)

386,519158,11990,35970,82226,91915,424

748,162

368,242240,10288,28876,72531,84117,409

822,607

52%21%12%9%4%2%

100%

45%29%11%9%4%2%

100%


2005 20062005 2006

Percentage

TradeConstructionIndustryAgricultureConsumerOthers

Total

221,724161,14385,14323,342

228,32528,485

748,162

219,851158,93684,83120,967

303,82734,195

822,607

30%22%11%3%

31%4%

100%

27%19%10%3%

37%4%

100%

Table 14: Geographical Distribution of Loans and Advances to Customers

Table 15: Breakdown of Loans and Advances to Customers by Sector

Table 16: Breakdown of Loans and Advances to Customers by Size


2005 20062005 2006

Percentage

Small (less than 250 million)Medium (250 – 1500 million)Large (exceeding 1500 million)

Total

251,491202,038294,633

748,162

263,012201,533358,062

822,607

33.61%27.00%39.38%

100.00%

31.97%24.50%43.53%

100.00%


In order to minimize the risk profile as viewed in Basle II accord, more weight was given toliquid guarantees. Cash collaterals increased slightly at the expense of real estate collaterals(Table 17).

The implementation of BDL Intermediary circular No. 41 which was issued in 2004 had apositive impact on the remedial process with net substandard and doubtful loans to grossloans declining from 6.36% to 4.36% in 2006. This was due to the decrease of substandardloans by around LL 7.4 billion (Table 18) while doubtful loans showed a slight increase byabout 2.24 billions.


2005 20062005 2006

Percentage

Real EstatePersonal GuaranteesNon-securedSecuritiesCash CollateralOthers

Total

323,534132,80499,348

878191,598

-

748,162

339,140144,729106,992

2,642229,091

13

822,607

43%18%13%0%

26%0%

100%

41%18%13%0%

28%0%

100%

Table 17: Breakdown of Loans and Advances to Customers by Guarantees

(LL millions) 20052004 2006

Table 18: Breakdown of Loans and Advances to Customers by Central Bank Classification

1- Net Regular LoansAdd Collective Impairment

2- Total Regular Loans

3- Net Substandard LoansAdd Unrealized Interest

4- Total Substandard

5- Net Doubtful LoansAdd Unrealized InterestAdd Provisions

6- Total Doubtful Loans

Total Net Substandard and Doubtful Loans (3+5)Net Total LoansGross LoansNet Substandard and Doubtful to Gross Loans*

* (3+5) / (2+4+6)

621,0701,147

622,217

8,0113,355

11,366

24,29128,55054,572

107,413

32,302654,519740,996

4.36%

545,590-

545,590

11,6197,174

18,793

30,93428,14546,093

105,172

42,553588,143669,555

6.36%

513,719-

513,719

12,8387,251

20,089

38,09030,07247,224

115,386

50,928564,647649,194

7.84%


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c- Other Financial Accounts

The decrease in the accounts of other assets (which consists of higher credit card facilities,prepaid expenses, and miscellaneous debtor accounts) essentially drove the other financialaccounts to fall by around 2.73% in 2006 (Table 19).

d- Loans to Deposits Ratio

Loans to deposits ratio in 2006 witnessed an increase of 1.26% where it reached 19.14% upfrom 17.89% in 2005. Despite this, the operating surplus increased to LL 2,764 billion in2006 mainly due to a much higher increase in deposits as compared to loans.

Total deposits from customers also increased by 3.99% in 2006 (Table 20). The LL depositshave decreased by 8.59% while foreign currency deposits increased by 10.04%, thusincreasing the deposit dollarisation ratio to 71.45%.

Total loans in 2006, on the other hand, grew by 11.29% with the percentage of the foreigncurrency loans out of total loans slightly increasing to reach 75.66% up from 73.12% in2005.

(LL millions)

2005/2004 2005/2006

Amount Percentage Change

Table 20: Operating Surplus or Deficit

Table 19: Other Financial Accounts

Deposits from Customers LL+ Deposits from Customers FC= Operating Resources (OR)

Loans and Advances to Customers LL+Loans and Advances to Customers FC= Operating Uses (OU)

Operating Surplus LLOperating Surplus FCOperating surplus (OR-OU)

Loans to Deposits LLLoans to Deposits FCLoans to Deposits (Total)

1,098,5991,988,2723,086,871

155,550409,097564,647943,049

1,579,1752,522,224

14.16%20.58%18.29%

1,067,8762,219,7673,287,643

158,118430,024588,143909,757

1,789,7432,699,501

14.81%19.37%17.89%

976,1702,442,6273,418,797

159,339495,180654,519816,831

1,947,4472,764,278

16.32%20.27%19.14%

-2.80%11.64%6.50%1.65%5.12%4.16%-3.53%13.33%7.03%0.65%

-1.20%-0.40%

-8.59%10.04%3.99%0.77%

15.15%11.29%-10.21%

8.81%2.40%1.52%0.90%1.26%

2004 2005 2006


Debtors by Acceptances

Other Assets

Total

64,512

18,635

83,147

65,464

20,019

85,483


2- Liability Management

The table below shows the main components of BBAC’s sources of funds:

a- Banks and Financial Institutions

The share of Banks and Financial Institutions did not change much in 2006 if compared tothe total sources of funds. The major increase was in the sight deposit item which increasedby about LL 16.8 billion as shown in Table 22.

b- Deposits from Customers

In 2006, deposits from customers increased so as to reach about 3,419 billion; thus reflectingan annual growth of 3.99%. This limited increase of deposits was due to the slow down in thesecond half of the year. Higher dollarisation dominated the Lebanese Economy with BBAC’sdollarisation ratio of deposits increasing in 2006 to reach 72.08%, up from 68.26% in 2005.As for the outstanding Certificate of Deposits, they remained the same with no additionalcertificates being issued.


Table 22: Banks and Financial Institutions

Sight DepositsTerm DepositsShort-Term LoanAccrued Interest PayableTotal Banks and Financial InstitutionsDenominated as follows


18,321123,717

3,801210

146,049

3,19294,764

1,527124,549

4,5231,158

131,756

3,67984,960


2005 20062005 2006

Percentage

Denominated as followsLL in millionForeign currencies CV in million LLForeign currencies in thousands USD

Total

1,067,8762,296,7721,523,563

3,364,648

976,1702,519,6501,671,410

3,495,820

31.74%68.26%

100%

27.92%72.08%

100%

Table 23: Breakdown by Currency of Customers’ Deposits & CDs

(LL millions) Sources of Funds

Table 21: Sources of Funds

2004 2005 2006 2004 2005 2006

Percentage

Central BankBanks and Financial InstitutionsDeposits From CustomersOther Financial AccountsShareholders’ Equity

Total Sources of Funds

0.00%3.52%

87.89%3.13%5.46%

100%

0.00%2.02%

89.21%3.35%5.42%

100%

069,776

3,086,871115,914187,494

3,460,055

0131,756

3,287,643117,086204,160

3,740,646

0146,049

3,418,797116,225297,483

3,978,554

0.00%3.67%

85.93%2.92%7.48%

100%


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In its continuous attempt to reduce geographical concentration, BBAC aimed toward increasing itscustomer base and consequently its deposits into the various Lebanese regions. The highest growthin the absolute value of deposits was in the Mount Lebanon area while the highest Lebanesepercentage growth was in the South. The deposits from Mount Lebanon constitute the bulk of theoverall amount representing about 31.37 % of these deposits.

The size structure of the customers’ deposits remained stable, with only a slight shift recorded frommedium to large size deposits reflecting changes in the saving capacity of different classes of customers.

c- Other Financial Accounts

Other financial accounts slightly decreased over its 2005 level. The main influencingcomponents of these accounts are the engagements by acceptances and other liabilities. Otherliabilities include margins against documentary credits, margins against credit card and safebox facilities. It also includes taxes and other charges that mainly consist of taxes withheld oninterest paid on deposits, and other credit accounts such as capital increase differences.


2005 20062005 2006

Percentage

Beirut and SuburbsBekaaMount LebanonSouth LebanonNorth LebanonCyprus

Total

1,234,701849,333904,554163,251121,81990,989

3,364,647

1,046,556864,991

1,096,752231,781124,565131,175

3,495,820

36.70%25.24%26.88%4.85%3.62%2.70%

100.00%

29.94%24.74%31.37%6.63%3.56%3.75%

100.00%

Table 24: Geographical Distribution of Deposits from Customers


2005 20062005 2006

Percentage

Small (less than 250 million)Medium (250 – 750 million)Large (exceed 750 million)

Total

1,250,953678,432

1,435,262

3,364,647

1,295,952678,432

1,521,436

3,495,820

37.18%20.16%42.66%

100%

37.07%19.41%43.52%

100%

Table 25: Breakdown by Size of Deposits from Customers


Table 26: Other Financial Accounts

Engagements by AcceptancesOther LiabilitiesCurrent Income Tax LiabilitiesRetirement Benefit Obligations

Total

65,46437,567

76912,425

116,225

64,51239,6831,079

11,813

117,086


d- Shareholders’ Equity

Prior to dividend distribution, shareholders’ equity increased by 45.71% mainly due to theissuance of Preferred Shares with a total value USD 50 million in the first half of 2006. As forreserves for general banking risk, they increased by LL 2 billion, and legal reserves by LL 2.555 billion.

3- LCs opened during the year

The first half of 2006 witnessed an improvement in the level of imports; however, due to theJuly war, the financing of imports by BBAC only increased by 2.16% over the level of 2005.Despite the economic situation, the small increase in imports was actually accompanied by anapproximate 25% increase in total export LCs opened during the year.

4- Asset Quality

BBAC continues its plan to resolve problem loans. This is reflected in the improvement in mostof the 2006 asset quality ratios with doubtful loans to total loans decreasing to reach 14.50%in 2006 and the coverage ratio increasing to 77.39% in 2006. As for the net doubtful to totalassets ratio, it continued its downward trend where it reached 0.60%.


Table 27: Shareholders’ Equity

Share Capital and Cash Contribution to CapitalPremium (Preferred Shares)Legal ReserveOther ReservesReserve for Unidentified Banking RisksRetained EarningsRevaluation Variance of Tangible Fixed Assets

Total

119,12070,37526,1373,972

15,68241,13621,061

297,483

114,120-

23,5822,485

13,68229,23021,061

204,160

(Percentage) 2005 2006

Table 28: Asset Quality

Doubtful Loans / Gross LoansProvisions for Doubtful Loans / Doubtful LoansProvisions for Loans / Gross LoansNet Doubtful / Assets

14.50%77.39%11.81%0.60%

15.71%70.59%12.16%0.81%


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5- Regulatory Guidelines

a- Article 152: Loans to Related Parties

A further decrease was achieved in 2006 in total loans and advances to related parties whosetotal amount decreased by nearly 39.23 % to reach LL 1,218 millions at the end of 2006.This resulted in the further decrease in the ratio of these loans to total gross loans from 0.34% in 2005 to 0.19 % in 2006.

b- Capital Adequacy Ratio

In anticipation of the application of the Basel II accord in the Lebanese Banking Sector, BBACissued USD 50 million Preferred Shares that further increased its capital adequacy ratio. Thisresulted in the increase of Tier I Capital ratio which became 25.85% in 2006 up from its2005 level of 18.66%. As for the Total Capital ratio, it reached the level of 26.84% which ismuch higher than the 12% that was still required by BDL up to 2006.

(LL millions and percentage) Amount

Table 29: Capital Adequacy

2005 2006

Risk Weighted Assets

Tier I Capital

Tier II Capital

Total Net Capital

Tier I Capital ratio

Tier II Capital ratio

Total Capital Ratio

882,433

164,688

10,000

174,688

18.66%

1.13%

19.79%

1,008,664

260,771

10,000

270,771

25.85%

0.99%

26.84%


Financial Performance

BBAC’s net income before tax witnessed a 3.33% increase over that of 2005. Despite theincrease in the interest margin (39.32% increase over 2005 level) as well an approximate15.86 % decrease in other operating expenses, this small increase was due to the highincrease in loan provisions as well as a 47.50 % decrease in non-interest income. Thisdecrease in non-interest income was mainly due to the negative income from financialoperations in 2006 while in 2005 such profit reached about LL 9.5 billion and was driven bythe Swap operations that took place. All of these as well as higher interest and income taxresulted in a slight decrease of 2006 after-tax net profit thus reaching nearly LL 25.5 billionin 2006.

1- Liquidity

Net liquid assets witnessed a 4.96 % increase over its 2005 level. However, its ratio out oftotal assets slightly decreased from 77.28 % to 76.35 %, due to the increase in total loans.This is clearly shown in the ratio of loans to total assets which increased from 15.41 % in2005 to 16.14 % in 2006 while loans to total deposits increased from 17.89 % in 2005 to19.14 % in 2006.


2005 2006 2006-2005

Growth %

Interest Margin

Net provision less Releases on Loans and Advances

Non-interest Income

Staff Expenses

Other Operating Expenses

Net Income - before Tax

Tax on Interest

Net Income - before Income Tax

Income Tax

Net Income - after Tax

47,704

383

29,836

(25,418)

(22,180)

30,325

(3,887)

26,438

(74)

26,365

66,459

(5,336)

15,663

(26,788)

(18,663)

31,335

(4,714)

26,621

(1,072)

25,550

39.32%

-1492.08%

-47.50%

5.39%

-15.86%

3.33%

21.29%

0.69%

1355.77%

-3.09%

Table 30: Income Statement


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2- Profitability

The return on average assets (ROAA) decreased from 0.72 % in 2005 to reach 0.65 % in 2006.The return on average equity (ROAE) reached 10.66 %, down from 14.27% in 2006. Thisdecrease in ROAE can be mainly attributed to the increase in the shareholders’ equity that isrepresented by the USD 50 million Preferred Shares that were issued during the second half ofyear 2006.

Although in 2006 earnings per share slightly decreased from LL 366 in 2005 to LL 355, the netasset value per share has increased by 45.71 % to reach LL 4,132.

(LL millions) 2005

Table 31: Liquidity

2006

Liquid AssetsDeposits from BanksNet Liquid AssetsDue to CustomersLoans and Advances to Customers Total Assets (%)Loans / Assets Loans / Deposits Liquid Assets / DepositsLiquid Assets / AssetsNet Liquid Assets / DepositsNet Liquid Assets /Total Assets

2,317,608142,857

2,174,7512,442,627

495,1802,924,136

16.93%20.27%94.88%79.26%89.03%74.37%

924,9683,192

921,776976,170

159,3391,131,441

14.08%16.32%94.75%81.75%94.43%81.47%

982,2993,679

978,6191,067,876

158,1181,191,390

13.27%14.81%91.99%82.45%91.64%82.14%

2,099,678128,077

1,971,6012,219,767

430,0242,626,260

16.37%19.37%94.59%79.95%88.82%75.07%

3,081,977131,756

2,950,2213,287,643

588,1433,817,650

15.41%17.89%93.74%80.73%89.74%77.28%

3,242,576146,049

3,096,5273,418,797

654,5194,055,577

16.14%19.14%94.85%79.95%90.57%76.35%

(LL millions and percentage) 2005 2006

Table 32: Profitability

2006-2005

% Change

Average AssetsAverage Equity *Return on Average Assets ROAA after tax (%)Return on Average Assets ROAE after tax (%)Net Income for the Year after taxNet Profits**Net Profits after Distribution of Preferred Shares Dividends **Number of Common Shares Outstanding (million)Number of Preferred Shares Outstanding (million)Earnings per Common Share (EPS) in LL after tax

Dividends per Common Share DPS in LL***Dividends per Preferred Share in LLDividends Payout RatioRetention RatioNet Asset Value per Share in LL****

3,640,860184,766

0.72%14.27%26,36521,72821,728

72-

366

89-

29.49%70.51%

2,836

3,936,614239,760

0.65%10.66%25,54920,99418,235

725

355

89552

35.14%64.86%

4,132

8.12%29.76%-0.08%-3.61%-3.09%-3.38%

0.00%-

-3.09%

0.00%-

3.81%-3.81%45.71%

* Including only LL 10 billion revaluation variance accepted by the Central Bank as Tier II** After allocation of profits to reserves for general banking risks and legal reserves *** An additional interest payment of about LL 1.194 billion was made on the cash contributions in 2006**** Before dividend payment

C/V TotalLL C/V TotalLL


3- Management Efficiency

Despite the July War, the continued political instability, and the economic deterioration, BBACsucceeded in controlling and improving the ratio of interest paid to interest received from 78.12% in 2005 to 75.03 % in 2006.

In addition to all of the above, BBAC was able to increase the efficiency ratio by nearly 2% with costto income declining from 61.08 % in 2005 to 59.19 % in 2006. Thus, the cost per average branchdecreased in 2006 to reach LL 1,337 million down from the 2005 level of LL 1,442 million.

4- Interest Margin

During 2006, the pressure on the Lebanese pound eased, thus enabling BBAC to increase itsLebanese currency gross interest margin from the 2005 level of 0.21 % to 1.09 % in 2006.Also, a 0.10 % improvement in foreign currency gross interest margin was realized due to therise of prevailing interest rates in the international markets. These resulted in the increase ofthe total gross spread by 0.39 % where it reached 1.76 % in 2006.

The positive development of the gross spread enabled the consolidation of loan provisionning.The high provisions that were taken on loans and advances resulted in lowering the net grossmargin by 0.14 % so as it reached 1.62 % during 2006. This remained much higher than the1.38 % that prevailed in 2005.

(Percentage) 2005 2006

Table 33: Management Efficiency

Interest Paid / Interest ReceivedNet Commissions / Net Financial IncomeCost / Income (Efficiency Ratio)Cost per Average Branch (LL million)

75.03%18.01%59.19%

1,337

78.12%17.66%61.08%

1,442

(LL millions) 2005LL Total%CV LL% LL Total%CV LL%

2006

Average Interest Earning AssetsInterest PaidInterest ReceivedNet Interest ReceivedCost of Earning Assets (in %) Return on Earning Assets (in %)Gross Interest Margin (in %)Net Releases (Provisions) onLoans and AdvancesNet Interest Margin (in %)Average Interest Earning Assets to Average Assets (in %)Gross Spread (in %)Net Spread (in %)

33.23%47.29%38.06%5.09%6.95%

7.16%

0.21%

-0.30%

95.71%0.20%-0.29%

1,158,67180,56882,9962,428

-5,923

2,328,07389,788

135,06445,276

6,306

66.77%52.71%61.94%94.91%3.86%

5.80%

1.94%

2.22%

95.79%1.86%2.12%

3,486,744170,356218,06047,7044.89%

6.25%

1.37%

383

1.38%

95.77%1.31%1.32%

29.47%42.60%36.51%18.23%7.66%

8.75%

1.09%

-0.01%

95.68%1.04%-0.01%

1,111,25285,07897,19112,113

-12,178

2,659,865114,634168,98054,346

6,842

70.53%57.40%63.49%81.77%4.31%

6.35%

2.04%

2.30%

95.84%1.96%2.20%

3,771,117199,712266,17166,4595.30%

7.06%

1.76%

-5,336

1.62%

95.80%1.69%1.55%

Table 34: Interest Analysis


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5- Non-Interest Income

The economic and political environment that prevailed in the second half of 2006 pressuredthe values of the financial assets thus causing net trading income to show a slight negativemargin, as compared to the positive results in 2005.

The other non-interest income items showed a LL 674 million increase in 2006 where theyreached LL 15.8 billion.

As for net commissions, it is clear from the following table that the growth in commissionsreceived over-compensated the increase in commissions paid. The return from traditionalbanking activities regained ground as indicated in the commissions received over the creditrelated activities.


2005 20062005 2006

Percentage

Net Commissions ReceivedDividend IncomeOther Operating IncomeTotal Non-Interest Income withoutNet Trading IncomeNet Trading Income

Total Non-Interest Income

13,758227

1,157

15,14314,693

29,836

13,832613

1,372

15,817-153

15,664

46.11%0.76%3.88%

50.75%49.25%

100%

88.31%3.91%8.76%

100.98%-0.98%

100%

Table 35: Non-Interest Income


2005 20062005 2006

Percentage

Credit Related Fees and CommissionsEngagement by Endorsement FeesOther Fees

Total Commissions Received

6,2914,3294,553

15,173

4,2504,4426,974

15,666

41.46%28.53%30.01%

100%

27.13%28.35%44.52%

100%


2005 20062005 2006

Percentage

Brokerage FeesOther Fees

Total Commissions Paid

1,283132

1,415

7871,047

1,834

90.67%9.33%

100%

42.91%57.09%

100%

Table 36: Commissions Received

Table 37: Commissions Paid


6- Net Financial Income

BBAC managed to maintain the same level of net financial income to average footings with aslight decrease of 0.20 %. The 2006 net spread of 1.55%, which was higher than the 1.32% of 2005, created enough value to compensate for the negative effect of the financial assets’revaluation that was driven by the deterioration of confidence level that prevailed in the localmarket through out the second half of 2006.

7- General Operating Expenses

BBAC’s continued efforts to enhance its efficiency materialized through further control of costs.The 6.23 % growth in assets was accompanied by a 4.51 % reduction in costs.


2006-20052005 2006

% Change

Staff ExpensesOther Operating ExpensesDepreciation & Amortization

Total

25,41818,4793,700

47,598

26,78815,1583,505

45,451

5.39%-17.97%-5.28%

-4.51%

Table 39: General Operating Expenses


2006-20052005 2006

% Change

Net Interest MarginNon Interest Income

of which Net Trading IncomeNet Financial IncomeAverage Footings

Net Financial Income / Average Footings

48,08729,83614,69377,923

3,724,181

2.09%

61,12315,663

(153)76,786

4,052,155

1.89%

27.11%-47.50%

-101.04%-1.46%8.81%

-0.20%

Table 38: Net Financial Income

BBAC

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Independent auditor's report

Balance sheet

Income statement

Statement of changes in equity

Statement of cash flows

Notes to the financial statements

Contents

Auditor's Report

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Independent Auditor's Report to the shareholders of BBAC S.A.L.Report on the financial statements

We have audited the accompanying financial statements of BBAC S.A.L. ("the Bank")which comprise the balance sheet as of 31 December 2006 and the income statement,statement of changes in equity and cash flow statement for the year then ended and asummary of significant accounting policies and other explanatory notes.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financialstatements in accordance with International Financial Reporting Standards. Thisresponsibility includes: designing, implementing and maintaining internal controlrelevant to the preparation and fair presentation of financial statements that are freefrom material misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonablein the circumstances.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with International Standards on Auditing.Those standards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance whether the financial statements arefree from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amountsand disclosures in the financial statements. The procedures selected depend on theauditor's judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparationand fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the entity's internal control. An audit also includes evaluatingthe appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of thefinancial statements.

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

Opinion

In our opinion, the accompanying financial statements present fairly, in all materialrespects, the financial position of the Bank as of 31 December 2006, and of itsfinancial performance and its cash flows for the year then ended in accordance withInternational Financial Reporting Standards.

Beirut, Lebanon

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ASSETS (LL Millions) 2006Note 2005

Cash and Bank of Lebanon 5 960,507 958,290Lebanese treasury bills 6 1,159,686 1,168,988Loans and advances to banks 7 1,095,590 930,729Trading assets 8 13,679 10,178Loans and advances to customers 9 654,519 588,143Debtors by acceptances 10 65,464 64,512Investment securities: 11- Available for sale 562 562- Held to maturity 12,552 13,229Investments in subsidiaries 12 3,524 3,524Property acquired in settlement of debt 13 28,800 18,872Investment property 14 9,989 10,129Intangible assets 15 545 744Property and equipment 16 30,141 31,115Other assets 17 20,019 18,635

Total assets 4,055,577 3,817,650

LiabilitiesDeposits from banks 18 146,049 131,756Due to customers 19 3,418,797 3,287,643Certificates of deposits 20 77,023 77,004Engagements by acceptances 10 65,464 64,512Other liabilities 21 37,567 39,683Current income tax liabilities 37 769 1,079Retirement benefit obligations 23 12,425 11,813

Total liabilities 3,758,094 3,613,490

Shareholders' equityShare capital and cash contributions to capital 25 119,120 114,120Premium on issuance of preferred shares 25 70,375 -Legal reserve 26 26,137 23,582Real estate revaluation reserve 27 21,061 21,061Reserve for unidentified banking risks 26 15,682 13,682Retained earnings 26 41,136 29,230Other reserves 26 3,972 2,485

Total shareholders' equity 297,483 204,160

Total equity and liabilities 4,055,577 3,817,650

Balance Sheet at December 31, 2006

The financial statements on pages 3 to 64 were authorised for issue by the Chairman on.........

Ghassan AssafChairman

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Income statement For the Year Ended December 31, 2006

(LL Millions) 2006Note 2005

Interest and similar income 28 266,171 218,060

Interest expense and similar charges 28 (199,712) (170,356)

Net interest income 66,459 47,704

Fee and commission income 29 15,666 15,173

Fee and commission expense 29 (1,834) (1,415)

Net fee and commission income 13,832 13,758

Dividend income 30 613 227

Net trading income 31 (153) 14,693

Other operating income 32 1,372 1,157

Impairment (charge) release for credit losses 33 (5,336) 383

Administrative expenses 35 (40,595) (39,110)

Other operating expenses 36 (4,856) (8,488)

Profit before income tax 31,336 30,324

Income tax expense 37 (5,786) (3,960)

Profit for the year 25,550 26,364

Earnings per ordinary shares

(expressed in LL per share):

Basic 38 354.9 366.2

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ShareCapital

Preferredshares

Premiumon

issuanceof

preferredshares

Real estate

revaluationreserve

TotalReserve forunidentified

banking risks

Legalreserve

Cashcontributionsto capital

Retainedearnings

Otherreserves(LL Millions)

Statement of Changes in Equity For the Year Ended December 31, 2006

At 1 January 2005 72,000 - - 21,697 20,946 21,061 11,682 - 40,108 187,494

Net profit - - - - - - - - 26,364 26,364

Dividends declared (Notes 25) - - - - - - - - (28,920) (28,920)

Cash contributions to

capital (Note 25) - - - 20,423 - - - - - 20,423

Interest paid on cash

contributions to capital (Note 39) - - - - - - - - (1,201) (1,201)

Transfers (Note 26) - - - - 2,636 - 2,000 2,485 (7,121) -

At 1 January 2006 72,000 - - 42,120 23,582 21,061 13,682 2,485 29,230 204,160

Net profit - - - - - - - - 25,550 25,550

Issuance of preferred shares (Note 25) - 5,000 70,375 - - - - - - 75,375

Dividends declared (Note 39) - - - - - - - - (6,408) (6,408)

Interest paid on cash

contributions to capital (Note 39) - - - - - - - - (1,194) (1,194)

Transfers (Note 26) - - - - 2,555 - 2,000 1,487 (6,042) -

At 31 December 2006 72,000 5,000 70,375 42,120 26,137 21,061 15,682 3,972 41,136 297,483

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Statement of Cash FlowsFor the Year Ended December 31, 2006

(LL Millions) 2006 2005Note

45

Cash flows from operating activitiesProfit before income tax 31,336 30,324Adjustments:

Depreciation of property and equipment 16 2,915 2,967Amortisation of intangible assets 15 448 590Gain on disposal of property and equipment 32 (1) (1)Gain on disposal of property acquired in settlement

of debt 32 (170) (137)Fair value loss on investment property 14 140 142Provision for property acquired in settlement of debt 36 789 590Impairment (charge) release for credit losses 33 5,336 (383)Unrealised loss (gain) on fair value through profit

and loss treasury bills 6 5,595 (3,568)Changes in fair value of trading assets 8 (342) (2,761)Gain on sale of trading assets 31 (1,310) -Net transfer from provisions – other receivables - (1,265)Net transfer (from) to other provisions (1,108) 3,197Net transfer to retirement benefit obligations 612 409

Net changes in operating assets and liabilities:Net (increase) / decrease in Bank of Lebanon –

mandatory reserve (11,500) (36,338)Net increase in Bank of Lebanon – loans and advances (22,531) (43,558)Net (increase) / decrease in Lebanese treasury bills (1,191) 156,531Net decrease in loans and advances to banks 42,381 11,405Net increase in trading assets (3,857) (1,134)Net increase in loans and advances to customers (84,522) (30,367)Net increase in other assets (1,385) (1,961)Net increase in deposits from banks 14,293 66,588Net increase in due to customers 131,154 273,169Net decrease in other liabilities (1,282) (7,276)

Cash provided from operations 105,800 417,163Taxes paid 37 (6,096) (2,955)

Net cash provided from operating activities 99,704 414,208

Cash flows from investing activitiesLebanese treasury bills - Held to maturity 4,899 (213,951)Investment securities - Held to maturity 677 10,962Purchase of intangible assets 15 (249) (59)Purchase of property and equipment 16 (2,019) (3,262)Proceeds from disposal of property and equipment 79 1,374Proceeds from disposal of property acquired

in settlement of debt 2,263 1,054Proceeds from sale of trading assets 2,008 -

Net cash provided from (used in) investing activities 7,658 (203,882)

Cash flows from financing activitiesCertificates of deposits 20 19 -Issuance of preferred shares 75,375 -Interest paid on cash contributions to capital (1,150) (1,201) Dividends paid (6,178) (5,867)

Net cash provided from (used in) financing activities 68,066 (7,068)

Net increase in cash and cash equivalents 175,428 203,258

Cash and cash equivalents at beginning of year 40 939,642 736,384

Cash and cash equivalents at end of year 40 1,115,070 939,642

Principal non-cash transactions:The principal non-cash transaction relates mainly to properties acquired in settlement of debt amounting to LL 12.8billion (2005 – LL 7.3 billion) (Note 13).

Auditor's Report

Notes to the financial statements1- General information

BBAC S.A.L. was incorporated in Lebanon in 1956 and registered at the Commercial Courtin Beirut under No. 6196. It appears under number 28 in the list of Lebanese banks.

The Bank undertakes commercial banking operations through its head office in Beirut and its network of thirty two branches across Lebanon, in addition to a branch in Cyprus(off-shore) and a branch at the Damascus free zone in Syria.

2- Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statementsare set out below. These policies have been consistently applied to all the years presented,unless otherwise stated. These financial statements which are presented on a non-consolidated basis are the separate financial statements of BBAC S.A.L. (" the Bank").Consolidated financial statements are prepared and are available under a separate cover.

2.1 Basis of presentation

The financial statements have been prepared in accordance with International FinancialReporting Standards ("IFRS"). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain property,available-for-sale financial assets, trading assets at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement in theprocess of applying the Bank's accounting policies. The areas involving a higher degree ofjudgement or complexity, or areas where assumption and estimates are significant to thefinancial statements, are disclosed in Note 4.

2.2 Investments in subsidiaries

Investments in subsidiaries are stated at cost. When the carrying amount of the investmentis greater than its recoverable amount, it is written down to its recoverable amount.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of the Bank are measured using the currency ofthe primary economic environment in which the Bank operates ('the functional currency').The financial statements are presented in Lebanese Pounds which is the Bank's functionaland presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchangerates prevailing at the dates of the transactions. Foreign exchange gains and losses resultingfrom the settlement of such transactions and from the translation at year-end exchangerates of monetary assets and liabilities denominated in foreign currencies are recognised inthe income statement.

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Translation differences on non-monetary items, such as equities held at fair value throughprofit or loss, are reported as part of the fair value gain or loss. Translation differences onnon-monetary items, such as equities classified as available-for-sale financial assets, areincluded in the fair value reserve in equity.

2.4 Financial assets

The Bank classifies its financial assets in the following categories: financial assets at fairvalue through profit or loss; loans and receivables; held-to-maturity investments; andavailable-for-sale financial assets. Management determines the classification of itsinvestments at initial recognition.

(a) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and thosedesignated at fair value through profit or loss at inception.

A financial asset is classified as held for trading if it is acquired or incurred principally forthe purpose of selling or repurchasing in the near term or if it is part of a portfolio ofidentified financial instruments that are managed together and for which there is evidenceof a recent actual pattern of short-term profit-taking.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market, other than: (a) those that the entity intends to sellimmediately or in the short term, which are classified as held for trading, and those that theentity upon initial recognition designates as at fair value through profit or loss; (b) those thatthe entity upon initial recognition designates as available for sale; or (c) those for which theholder may not recover substantially all of its initial investment, other than because of creditdeterioration.

(c) Held- to-maturity financial assets

Held to maturity investments are non-derivative financial assets with fixed or determinablepayments and fixed maturities that the Bank's management has the positive intention andability to hold to maturity. If the Bank were to sell other than an insignificant amount ofheld to maturity assets, the entire category would be reclassified as available for sale.

(d) Available-for-sale financial assets

Available-for-sale investments are those intended to be held for an indefinite period of time,which may be sold in response to needs for liquidity or changes in interest rates, exchangerates or equity prices. Regular-way purchases and sales of financial assets at fair valuethrough profit or loss, held to maturity and available for sale are recognised on trade-date– the date on which the Bank commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs for all financialassets not carried at fair value through profit or loss. Financial assets carried at fair valuethrough profit and loss are initially recognised at fair value, and transaction costs areexpensed in the income statement.

Financial assets are derecognised when the rights to receive cash flows from the financialassets have expired or where the Bank has transferred substantially all risks and rewardsof ownership. Financial liabilities are derecognised when they are extinguished – that is,when the obligation is discharged, cancelled or expires.

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Available-for-sale financial assets and financial assets at fair value through profit or loss aresubsequently carried at fair value. Loans and receivables and held-to-maturity investmentsare carried at amortised cost using the effective interest method.

Gains and losses arising from changes in the fair value of the 'financial assets at fair valuethrough profit or loss' category are included in the income statement in the period in whichthey arise. Gains and losses arising from changes in the fair value of available-for-salefinancial assets are recognised directly in equity, until the financial asset is derecognised orimpaired. At this time, the cumulative gain or loss previously recognised in equity isrecognised in profit or loss. However, interest calculated using the effective interest methodand foreign currency gains and losses on monetary assets classified as available for sale arerecognised in the income statement. Dividends on available-for-sale equity instruments arerecognised in the income statement when the entity's right to receive payment isestablished.

The fair values of quoted investments in active markets are based on current bid prices. Ifthere is no active market for a financial asset, the Bank establishes fair value using recentarm's length transactions.

2.5 Offsetting financial instruments

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

2.6 Interest income and expense

Interest income and expense for all interest-bearing financial instruments are recognisedwithin 'interest income' and 'interest expense' in the income statement using the effectiveinterest method.

The effective interest method is a method of calculating the amortised cost of a financialasset or a financial liability and of allocating the interest income or interest expense overthe relevant period. The effective interest rate is the rate that exactly discounts estimatedfuture cash payments or receipts through the expected life of the financial instrument or,when appropriate, a shorter period to the net carrying amount of the financial asset orfinancial liability. When calculating the effective interest rate, the Bank estimates cashflows considering all contractual terms of the financial instrument (for example, prepaymentoptions) but does not consider future credit losses. The calculation includes all fees andpoints paid or received between parties to the contract that are an integral part of theeffective interest rate, transaction costs and all other premiums or discounts.

2.7 Fee and commission income

Fees and commissions are recognised on an accrual basis when the service has beenprovided and mainly comprise commissions on client transactions.

2.8 Dividend income

Dividends are recognised in the income statement when the Bank's right to receive paymentis established.

2.9 Impairment of financial assets

(a) Assets carried at amortised cost

The Bank assesses at each balance sheet date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of

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financial assets is impaired and impairment losses are incurred only if there is objective evidenceof impairment as a result of one or more events that occurred after the initial recognition of theasset (a 'loss event') and that loss event (or events) has an impact on the estimated future cashflows of the financial asset or group of financial assets that can be reliably estimated.

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

- Delinquency in contractual payments of principal or interest;- Cash flow difficulties experienced by the borrower (for example, equity ratio,

net income percentage of sales);- Breach of loan covenants or conditions;- Initiation of bankruptcy proceedings;- Deterioration of the borrower's competitive position; and- Deterioration in the value of collateral.

The amount of the loss is measured as the difference between the asset's carrying amountand the present value of estimated future cash flows (excluding future credit losses thathave not been incurred) discounted at the financial asset's original effective interest rate.The carrying amount of the asset is reduced through the use of an allowance account andthe amount of the loss is recognised in the income statement. If a loan or held-to-maturityinvestment has a variable interest rate, the discount rate for measuring any impairment lossis the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralisedfinancial asset reflects the cash flows that may result from foreclosure less costs forobtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped onthe basis of similar credit risk characteristics (ie, on the basis of the Bank's grading processthat considers asset type, industry, geographical location, collateral type, past-due statusand other relevant factors). Those characteristics are relevant to the estimation of futurecash flows for groups of such assets by being indicative of the debtors' ability to pay allamounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated forimpairment are estimated on the basis of the contractual cash flows of the assets in theBank and historical loss experience for assets with credit risk characteristics similar tothose in the Bank. Historical loss experience is adjusted on the basis of current observabledata to reflect the effects of current conditions that did not affect the period on which thehistorical loss experience is based and to remove the effects of conditions in the historicalperiod that do not currently exist.

When a loan is uncollectible, it is written off against the related provision for loanimpairment. Such loans are written off after all the necessary procedures have beencompleted and the amount of the loss has been determined.

If, in a subsequent period, the amount of the impairment loss decreases and the decreasecan be related objectively to an event occurring after the impairment was recognised (suchas an improvement in the debtor's credit rating), the previously recognised impairment lossis reversed by adjusting the allowance account. The amount of the reversal is recognised inthe income statement in impairment charge for credit losses.

(b) Assets classified as available for sale

The Bank assesses at each balance sheet date whether there is objective evidence that afinancial asset or a group of financial assets is impaired. In the case of equity investments

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classified as available for sale, a significant or prolonged decline in the fair value of thesecurity below its cost is considered in determining whether the assets are impaired. If anysuch evidence exists for available for sale financial assets, the cumulative loss – measuredas the difference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognised in profit or loss – is removedfrom equity and recognised in the income statement. Impairment losses recognised in theincome statement on equity instruments are not reversed through the income statement. If,in a subsequent period, the fair value of a debt instrument classified as available for saleincreases and the increase can be objectively related to an event occurring after theimpairment loss was recognised in profit or loss, the impairment loss is reversed throughthe income statement.

(c) Renegotiated loans

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

2.10 Property and equipment

Land and buildings comprise mainly branches and offices. All property and equipment isstated at historical cost or revaluation less depreciation. Historical cost includes expenditurethat is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or are recognised as aseparate asset, as appropriate, only when it is probable that future economic benefitsassociated with the item will flow to the Bank and the cost of the item can be measuredreliably. All other repairs and maintenance are charged to other operating expenses duringthe financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are creditedto a revaluation reserve in shareholders' equity. Decreases that offset previous increases ofthe same asset are charged against revaluation reserves directly in equity; all otherdecreases are charged to the income statement.

Land is not depreciated. Depreciation of other assets is calculated using the straight-linemethod to allocate their cost or revaluation to their residual values over their estimateduseful lives as follows:

%

Buildings 2.5Computer equipment 20Furniture, fixtures and equipment 9 - 13Vehicles 15Leasehold improvements 25

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, ateach balance sheet date. Assets that are subject to amortisation are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amountmay not be recoverable. An asset's carrying amount is written down immediately to itsrecoverable amount if the asset's carrying amount is greater than its estimated recoverableamount. The recoverable amount is the higher of the asset's fair value less costs to sell andvalue in use.

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

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2.11 Intangible assets

(a) Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquireand bring to use the specific software. These costs are amortised on the basis of the expecteduseful lives of four years. Costs associated with developing or maintaining computer softwareprograms are recognised as an expense as incurred. Costs that are directly associated with theproduction of identifiable and unique software products controlled by the Bank, and that willprobably generate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Direct costs include software development employee costs and an appropriateportion of relevant overheads.

(b) Key money

Key money paid for repossessed properties from tenants is amortised over a period of four years.

2.12 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are testedannually for impairment. Assets that are subject to amortisation are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset'sfair value less costs to sell and value in use. For the purposes of assessing impairment, assetsare grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment arereviewed for possible reversal of the impairment at each reporting date.

2.13 Investment property

Investment property, principally comprising land and buildings, is held for long-term rentalyields and is not occupied by the Bank. Investment property is carried at fair value,representing open-market value determined annually by external valuers. Changes in fairvalues are recorded in the income statement as part of other income.

2.14 Properties acquired in settlement of debt

The Bank exercises its ownership rights over the real estate collateral when it exhausts allreasonable means for collecting non-performing loans.

Such properties are accounted for at cost which is initially measured at fair value uponacquisition.

The Bank reviews for impairment the carrying value of property acquired in settlement of debtat least annually or whenever events or changes in circumstances indicate that the carryingamount may not be recoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amount is the higherof an asset's fair value less costs to sell and value in use.

2.15 Leases

The leases entered into by the Bank are primarily operating leases. The total paymentsmade under operating leases are charged to other operating expenses in the incomestatement on a straight-line basis over the period of the lease.

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When an operating lease is terminated before the lease period has expired, any paymentrequired to be made to the lessor by way of penalty is recognised as an expense in theperiod in which termination takes place.

2.16 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balanceswith less than three months' maturity from the date of acquisition, including cash and non-restricted balances with Bank of Lebanon and loans and advances to banks.

2.17 Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation asa result of past events, it is more likely than not that an outflow of resources will be requiredto settle the obligation and the amount has been reliably estimated.

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

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

2.18 Retirement benefit obligations

The Bank is subscribed to the compulsory defined benefit plan in accordance with thenational social security fund regulations. A defined benefit plan is a pension plan thatdefines an amount of pension benefit that an employee will receive in retirement, usuallydependent on one or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of the defined benefit pension planis the present value of the defined benefit obligation at the balance sheet date lesscontributions to the fund, together with adjustments for actuarial gains/losses and pastservice costs. The defined benefit obligation is calculated annually by the Bank using theprojected unit credit method. The present value of the defined benefit obligation isdetermined by discounting the estimated future cash outflows using interest rates ofgovernment securities that have terms to maturity approximating the terms of the relatedliability.

2.19 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differencesarising between the tax bases of assets and liabilities and their carrying amounts in thefinancial statements. Deferred income tax is determined using the rates (and laws) thathave been enacted or substantially enacted by the balance sheet date and are expected toapply when the related deferred income tax asset is realized or the deferred income taxliability is settled. Currently enacted tax rates are used in the determination of deferredincome tax.

Deferred tax assets are recognised where it is probable that future taxable profit will beavailable against which the temporary differences can be utilised.

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Deferred income tax is provided on temporary differences arising from general provisions onloans and advances to customers and differences between accounting and fiscaldepreciation, except where the timing of the reversal of the temporary difference iscontrolled by the Bank and it is probable that the difference will not reverse in theforeseeable future.

2.20 Borrowings

Borrowings are recognised initially at fair value net of transaction costs incurred. Borrowingsare subsequently stated at amortised cost; any difference between proceeds net oftransaction costs and the redemption value is recognised in the income statement over theperiod of the borrowings using the effective interest method.

2.21 Speculation accounts

Foreign currency placements and foreign currency borrowings relating to speculationaccounts of Bank customers are netted off as required by the Bank of Lebanon directives.

2.22 Share capital

(a) Ordinary shares

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

(b) Cash contributions to capital

Cash contributions to capital is classified as equity. A part of these cash contributionsgenerates interest charges paid to the respective shareholders.

(c) Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they areapproved by the Bank's shareholders. Dividends for the year that are declared after thebalance sheet date are dealt with in Note 39.

2.23 Fiduciary activities

The Bank acts as trustees and in other fiduciary capacities that result in the holding orplacing of assets on behalf of individuals, trusts, retirement benefit plans and otherinstitutions. These assets and income arising thereon are excluded from these financialstatements, as they are not assets of the Bank.

2.24 Comparatives

Where necessary, comparative figures have been adjusted to conform with changes inpresentation in the current year.

3- Financial risk management

The Bank's activities expose it to a variety of financial risks and those activities involve theanalysis, evaluation, acceptance and management of some degree of risk or combination ofrisks. Taking risk is core to the financial business, and the operational risks are an inevitableconsequence of being in business. The Bank's aim is therefore to achieve an appropriatebalance between risk and return and minimise potential adverse effects on the Bank'sfinancial performance.

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The Bank's risk management policies are designed to identify and analyse these risks, toset appropriate risk limits and controls, and to monitor the risks and adherence to limits bymeans of reliable and up-to-date information systems. The Bank regularly reviews its riskmanagement policies and systems to reflect changes in markets, products and emergingbest practice.

Risk management is carried out by a central treasury department (Bank Treasury) underpolicies approved by the Board of Directors. Bank Treasury identifies, evaluates and hedgesfinancial risks in close co-operation with the Bank's operating units. The Board provideswritten policies for overall risk management, as well as written policies covering specificareas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financialinstruments and non-derivative financial instruments. In addition, internal audit isresponsible for the independent review of risk management and the control environment.The most important types of risk are credit risk, liquidity risk, market risk and otheroperational risk. Market risk includes currency risk, interest rate and other price risk.

The Bank takes on exposure to credit risk, which is the risk that a counterparty will causea financial loss for the Bank by failing to discharge an obligation. Credit risk is the mostimportant risk for the Bank's business; management therefore carefully manages itsexposure to credit risk. Credit exposures arise principally in lending activities that lead toloans and advances, and investment activities that bring debt securities and other bills intothe Bank's asset portfolio. There is also credit risk in off-balance sheet financialinstruments, such as loan commitments.

3.1 Credit risk

The Bank takes on exposure to credit risk, which is the risk that a counterparty will causea financial loss for the Bank by failing to discharge an obligation. Credit risk is the mostimportant risk for the Bank's business; management therefore carefully manages itsexposure to credit risk. Credit exposures arise principally in lending activities that lead toloans and advances, and investment activities that bring debt securities and other bills intothe Bank's asset portfolio. There is also credit risk in off-balance sheet financialinstruments, such as loan commitments. The credit risk management and control arecentralised in credit risk management team of Bank Treasury and reported to the Board ofDirectors and the Credit committee regularly.

3.1.1 Credit risk measurment

(a) Loans and advances

In measuring credit risk of loan and advances to customers and to banks at a counterpartylevel, the Bank's clients are segmented into five rating classes according to the Bank ofLebanon ("BDL") and the Banking Control Commission ("BCC") requirements as follows:- Normal;- Special mentioned;- Sub-standard;- Doubtful; and- Bad.

(b) Debt securities and other bills

For debt securities and other bills, external ratings are used by the Bank Treasury formanaging credit risk exposure. The investments in those securities and bills are viewed asa way to gain a better credit quality mapping and maintain a readily available source tomeet the funding requirement at the same time.

3.1.2 Risk limit control and mitigation policies

The Bank manages, limits and controls concentrations of credit risk wherever they areidentified – in particular, to individual counterparties and Banks, and to industries andcountries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amountof risk accepted in relation to one borrower, or groups of borrowers, and to geographicaland industry segments. Such risks are monitored on a revolving basis and subject to anannual or more frequent review, when considered necessary. Limits on the level of creditrisk by product, industry sector and by country are approved annually by the Board ofDirectors.

Exposure to credit risk is also managed through regular analysis of the ability of borrowersand potential borrowers to meet interest and capital repayment obligations and by changingthese lending limits where appropriate.

Some other specific control and mitigation measures are outlined below.

(a) Collateral

The Bank employs a range of policies and practices to mitigate credit risk. The mosttraditional of these is the taking of security for funds advances, which is common practice.The Bank implements guidelines on the acceptability of specific classes of collateral orcredit risk mitigation. The principal collateral types for loans and advances are:- Mortgages over residential properties.- Charges over business assets such as premises, inventory and accounts receivable.

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

(b) Master netting arrangements

The Bank further restricts its exposure to credit losses by entering into master nettingarrangements with counterparties with which it undertakes a significant volume oftransactions. Master netting arrangements do not generally result in an offset of balancesheet assets and liabilities, as transactions are usually settled on a gross basis. However,the credit risk associated with favourable contracts is reduced by a master nettingarrangement to the extent that if a default occurs, all amounts with the counterparty areterminated and settled on a net basis.

(c) Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to acustomer as required. Guarantees and standby letters of credit carry the same credit risk asloans. Documentary and commercial letters of credit – which are written undertakings bythe Bank on behalf of a customer authorising a third party to draw drafts on the Bank upto a stipulated amount under specific terms and conditions – are collateralised by theunderlying shipments of goods to which they relate and therefore carry less risk than adirect loan.

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The internal rating tool assists management to determine whether objective evidence ofimpairment exists under IAS 39, based on the following criteria set out by the Bank:- Delinquency in contractual payments of principal or interest.- Cash flow difficulties experienced by the borrower (eg equity ratio, net income

percentage of sales).- Breach of loan covenants or conditions.- Initiation of bankruptcy proceedings.- Deterioration of the borrower's competitive position.- Deterioration in the value of collateral.

The Bank's policy requires the review of individual financial assets that are above

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(%) Loans &advances

Impairmentprovision

2006 2006

1. Normal &special mentioned2. Sub-standard3. Doubtful4. Bad

81%2%

13%4%

100%

0%1%

10%4%

15%

Loans &advances

Impairmentprovision

2005 2005

78%3%

14%5%

100%

0%1%

10%5%

16%

Bank's rating

Commitments to extend credit represent unused portions of authorisations to extend creditin the form of loans, guarantees or letters of credit. With respect to credit risk oncommitments to extend credit, the Bank is potentially exposed to loss in an amount equalto the total unused commitments. However, the likely amount of loss is less than the totalunused commitments, as most commitments to extend credit are contingent uponcustomers maintaining specific credit standards. The Bank monitors the term to maturity ofcredit commitments because longer-term commitments generally have a greater degree ofcredit risk than shorter-term commitments.

3.1.3 Impairment and provisioning policies

The internal rating systems described in Note 3.1.1 focus more on credit-quality mappingfrom the inception of the lending and investment activities. In contrast, impairmentprovisions are recognised for financial reporting purposes only for losses that have beenincurred at the balance sheet date based on objective evidence of impairment (see Note 2.9).The impairment provision shown in the balance sheet at year-end is derived from each ofthe five internal rating grades. However, the majority of the impairment provision comesfrom the doubtful and bad gradings. The table below shows the percentage of loans andadvances and the associated impairment provision for each of the Bank's internal ratingcategories:

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The above table represents a worse case scenario of credit risk exposure to the Bank at 31December 2006 and 2005, without taking account of any collateral held or other creditenhancements attached.

For on-balance-sheet assets, the exposures set out above are based on net carryingamounts as reported in the balance sheet.

As shown above, 28% of the total maximum exposure is derived from investment intreasury bills (2005 – 30%); 27% represents loans and advances to banks (2005 – 24%)and 23% represents cash and Bank of Lebanon (2005 – 25%).

(LL Millions) 2006 2005

AssetsCash and Bank of Lebanon 960,507 958,290Lebanese treasury bills- in Lebanese Pounds 579,107 562,524- in Foreign currencies 580,579 606,464Loans and advances to banks 1,095,590 930,729Trading assets 13,679 10,178Loans and advances to customers

Loans to individuals- Overdrafts 32,615 40,393- Supported loans 1,007 1,076- Kafalat loans 14,284 17,190- Ordinary loans 197,366 196,691- Other (22,064) (18,770)Loans to corporate entities- Large corporate customers 224,223 200,264- Small and medium size enterprises (SMEs) 206,891 149,074- Other 197 2,225

Debtors by acceptances 65,464 64,512Investment securities:- Available for sale 562 562- Held to maturity 12,552 13,229Other assets 20,019 18,635

Credit risk exposures relating to off-balance sheet items are as follows:Letters of credit 38,665 40,607Letters of guarantee 71,564 72,106

At 31 December 4,092,807 3,865,979

materiality thresholds at least annually or more regularly when individual circumstancesrequire. Impairment allowances on individually assessed accounts are determined by anevaluation of the incurred loss at balance-sheet date on a case-by-case basis, and areapplied to all individually significant accounts.

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

Collectively assessed impairment allowances are provided for: (i) portfolios of homogenousassets that are individually below materiality thresholds; and (ii) losses that have beenincurred but have not yet been identified, by using the available historical experience,experienced judgment and statistical techniques.

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(LL Millions)

Nature of assets

Residential property 12,810

Carrying amount

Management is confident in its ability to continue to control and sustain minimal exposureof credit risk to the Bank resulting from both its investment in Lebanese treasury bills andplacements at Bank of Lebanon, and from its investment in other banks, since the fundsare placed in highly-rated banks.

3.1.5 Repossessed collateral

During 2006, the Bank obtained assets by taking possession of collateral held as security,as follows:

Repossessed properties are sold as soon as practicable, with the proceeds used to reducethe outstanding indebtedness. Repossessed property is classified in the balance sheetwithin property acquired in settlement of debt (Note 13).

3.1.6 Concentration of risks of financial assets with credit risk exposure

(a) Geographical sectors

The following table breaks down the Bank's main credit exposure at their carrying amounts,as categorized by geographical region as of 31 December 2006. For this table, the Bankhas allocated exposures to regions based on the country of domicile of its counterparties(refer to the schedule below).

(b) Industry sectors

The following table breaks down the Bank's main credit exposure at their carrying amounts,as categorised by the industry sectors of its counterparties (refer to the schedule below).

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(a) Geographical sectors

Lebanon Arabcountries

UnitedKingdom

Othercountries

OtherEuropeancountries

Total(LL Millions)

ASSETSCash and Bank of Lebanon 957,771 - - - 2,736 960,507Lebanese treasury bills 1,159,686 - - - - 1,159,686Loans and advances to banks 161,566 102,171 104,832 677,912 49,109 1,095,590Trading assets 12,154 - 378 - 1,147 13,679Loans and advances to customers

Loans and advances to individuals:- Overdrafts 31,584 178 - - 853 32,615- Supported loans 1,007 - - - - 1,007- Kafalat loans 14,284 - - - - 14,284- Ordinary loans 196,015 (1,812) - 712 2,451 197,366- Other (22,069) - - - 5 (22,064)

Loans to corporate entities:- Large corporate customers 222,198 96 - - 1,929 224,223- Small and medium enterprises (SMEs) 194,731 11,649 - - 511 206,891- Other 75 117 - 5 - 197

Debtors by acceptances 62,213 - - - 3,251 65,464Investment securities

- Available for sale 562 - - - - 562- Held to maturity 5,014 - - - 7,538 12,552

Other assets 71,948 - - - (51,929) 20,019

At 31 December 2006 3,068,739 112,399 105,210 678,629 17,601 3,982,578

At 31 December 2005 3,068,854 108,843 84,971 507,883 (17,285) 3,753,266

(b) Industry sectors

Trading ConstructionFinancialinstitutions Industrial Agriculture OtherConsumer

loans Total(LL Millions)

ASSETSCash and Bank of Lebanon 960,507 - - - - - - 960,507Lebanese treasury bills 1,159,686 - - - - - - 1,159,686Loans and advances to banks 1,095,590 - - - - - - 1,095,590Trading assets 13,679 - - - - - - 13,679Loans and advances to customers - 174,928 126,460 67,497 16,683 241,744 27,207 654,519Debtors by acceptances - 17,496 12,648 6,751 1,669 24,179 2,721 65,464Investment securities

- Available for sale 562 - - - - - - 562- Held to maturity 12,552 - - - - - - 12,552

Other assets - - - - - - 20,019 20,019

At 31 December 2006 3,242,576 192,424 139,108 74,248 18,352 265,923 49,947 3,982,578

At 31 December 2005 3,081,977 193,419 140,572 74,274 20,362 199,178 43,484 3,753,266

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3.2 Market risk

The Bank takes on exposure to market risks, which is the risk that the fair value or futurecash flows of a financial instrument will fluctuate because of changes in market prices.Market risks arise from open positions in interest rate, currency and equity products, all ofwhich are exposed to general and specific market movements and changes in the level ofvolatility of market rates or prices such as interest rates, credit spreads, foreign exchangerates and equity prices. The Board sets limits on the value at risk that may be accepted,which is monitored on a daily basis.

3.2.1 Foreign exchange risk

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currencyexchange rates on its financial position and cash flows. The Board sets limits on the levelof exposure by currency and in aggregate for both overnight and intra-day positions, whichare monitored daily. The table below summarises the Bank's exposure to foreign currencyexchange rate risk at 31 December.

Included in the table are the Bank's financial instruments at carrying amounts, categorisedby currency.

LL USD EURO TotalGBP Others(LL Millions)

ASSETS

Concentrations of currency risk - on - and off-balancesheet financial instruments

Cash and Bank of Lebanon 344,562 610,070 2,321 141 3,413 960,507Lebanese treasury bills 579,107 569,194 11,385 - - 1,159,686Loans and advances to banks 189 998,445 67,534 3,248 26,174 1,095,590Trading assets 548 13,131 - - - 13,679Loans and advances to customers 159,339 414,892 22,615 48,976 8,697 654,519Debtors by acceptances - 52,526 12,754 - 184 65,464Investment securities

- Available for sale 562 - - - - 562- Held to maturity - 12,552 - - - 12,552

Other assets 4,059 15,881 64 - 15 20,019

Total financial assets 1,088,366 2,686,691 116,673 52,365 38,483 3,982,578

LiabilitiesDeposits from banks 3,192 64,747 44,384 24,166 9,560 146,049Due to customers 976,170 2,331,388 56,067 27,618 27,554 3,418,797Certificates of deposits - 77,023 - - - 77,023Engagements by acceptances - 52,526 12,754 - 184 65,464Other liabilities (45,701) 79,499 3,523 67 179 37,567Current income tax liability 769 - - - - 769Retirement benefit obligations 11,683 742 - - - 12,425

Total financial liabilities 946,113 2,605,925 116,728 51,851 37,477 3,758,094

Net on-balance sheet position 142,253 80,766 (55) 514 1,006 224,484

Credit commitments 15,324 73,942 13,600 329 7,034 110,229

At 31 December 2005Total financial assets 1,145,521 2,334,621 159,624 47,847 65,652 3,753,265Total financial liabilities 1,092,438 2,250,543 154,193 47,535 65,780 3,610,489

Net on-balance sheet position 53,083 84,078 5,431 312 (128) 142,776

Credit commitments 16,972 77,290 12,867 5 5,579 112,713

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3.2.2 Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrumentwill fluctuate because of changes in market interest rates. Fair value interest rate risk is therisk that the value of a financial instrument will fluctuate because of changes in marketinterest rates. The Bank takes on exposure to the effects of fluctuations in the prevailinglevels of market interest rates on both its fair value and cash flow risks. Interest marginsmay increase as a result of such changes but may reduce losses in the event thatunexpected movements arise. The Board sets limits on the level of mismatch of interest raterepricing that may be undertaken, which is monitored daily by Bank Treasury.

The table below summarises the Bank's exposure to interest rate risks. It includes theBank's financial instruments at carrying amounts, categorised by the earlier of contractualrepricing or maturity dates.

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Up to1 months

1-3months

3-12months

1-5years

Over5 years

Non interestbearing

Total(LL Millions)

ASSETSCash and Bank of Lebanon 256,503 - 125,123 437,354 87,706 53,821 960,507 Lebanese treasury bills 188,745 81,375 172,000 559,711 137,658 20,197 1,159,686Loans and advances to banks 779,457 288,874 15,495 1,960 6,030 3,774 1,095,590Trading assets - - - - - 13,679 13,679Loans and advances to customers 331,295 24,652 102,637 85,368 108,405 2,162 654,519Debtors by acceptances - - - - - 65,464 65,464Investment securities

- Available for sale - - - - - 562 562- Held to maturity 988 - 3,015 8,291 151 107 12,552

Other assets - - - - - 20,019 20,019

Total financial assets 1,556,988 394,901 418,270 1,092,684 339,950 179,785 3,982,578

LiabilitiesDeposits from banks 141,065 1,952 1,862 960 - 210 146,049Due to customers 2,665,406 234,596 346,944 131,861 9,119 30,871 3,418,797Certificates of deposits - - - 75,375 - 1,648 77,023Engagements by acceptances - - - - - 65,464 65,464 Other liabilities 21,425 - - - - 16,142 37,567Current income tax liability - - - - - 769 769Retirement benefit obligations - - - - - 12,425 12,425

Total financial liabilities 2,827,896 236,548 348,806 208,196 9,119 127,529 3,758,094

Total interest repricing gap (1,270,908) 158,353 69,464 884,488 330,831

At 31 December 2005Total financial assets 1,612,515 412,097 423,137 834,990 209,179 265,672 3,757,590Total financial liabilities 2,757,090 205,720 320,363 198,782 10,269 127,126 3,619,350

Total interest repricing gap (1,144,575) 206,377 102,774 636,208 198,910

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3.3 Liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations associatedwith its financial liabilities when they fall due and to replace funds when they arewithdrawn. The consequence may be the failure to meet obligations to repay depositors andfulfil commitments to lend.

3.3.1 Liquidity risk management process

The Bank's liquidity management process, as carried out within the Bank and monitored bya separate team in Bank Treasury, includes:- Day-to-day funding, managed by monitoring future cash flows to ensure that

requirements can be met. This includes replenishment of funds as they mature orare borrowed by customers.

- Maintaining a portfolio of highly marketable assets that can easily be liquidated asprotection against any unforeseen interruption to cash flow;

- Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and

- Managing the concentration and profile of debt maturities.

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

Bank Treasury also monitors unmatched medium-term assets, the level and type ofundrawn lending commitments, the usage of overdraft facilities and the impact ofcontingent liabilities such as standby letters of credit and guarantees.

The liquidity ratio of the Bank for all currencies as at 31 December 2006 was 85% (2005 – 84%), as per Bank of Lebanon's method of calculation.

3.3.2 Funding approach

Sources of liquidity are regularly reviewed by a separate team in Bank Treasury to maintaina wide diversification by currency, geography, provider, product and term.

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3.4 Fair value of financial assets and liabilities

Financial instruments not measured at fair value

The table below summarises the carrying amounts and fair values of those financial assetsand liabilities not presented on the Banks's balance sheet at their fair value.

(i) Due from other banks

Due from other banks includes inter-bank placements and items in the course of collection.The fair value of floating rate placements and overnight deposits is their carrying amount.The estimated fair value of fixed interest bearing deposits is based on discounted cash flowsusing prevailing money-market interest rates for debts with similar credit risk and remainingmaturity.

(ii) Loans and advances to customers

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

(iii) Investment securities

Investment securities include only interest-bearing assets held to maturity; assets classifiedas available for sale are measured at fair value. Fair value for held-to-maturity assets isbased on market prices or broker/dealer price quotations. Where this information is notavailable, fair value is estimated using quoted market prices for securities with similarcredit, maturity and yield characteristics.

(LL Millions) Carryingamount

Carryingamount

2006 2005

Cash and Bank of Lebanon 960,507 958,290 960,507 958,290Lebanese treasury bills 967,105 973,252 975,459 987,209Loans and advances to banks 1,095,590 930,729 1,095,590 930,729Loans and advances to customers

Loans to individuals:- Overdrafts 32,615 40,393 32,615 40,393- Supported loans 1,007 1,076 1,007 1,076- Kafalat loans 14,284 17,190 14,284 17,190- Ordinary loans 197,366 196,691 197,366 196,691- Other (22,064) (18,770) (22,064) (18,770)Loans to corporate entities:- Large corporate customers 224,223 200,264 224,223 200,264- Small and medium enterprises (SMEs) 206,891 149,074 206,891 149,074- Other 197 2,225 197 2,225

Debtors by acceptances 65,464 64,512 65,464 64,512Investment securities

- Held to maturity 12,552 13,229 12,552 13,229Other assets 20,019 18,635 20,020 18,635

3,775,756 3,546,790 3,784,111 3,560,747

Fair value Fair value

2006 2005Balance sheet assets (net of provisions)

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(iv) Due to other banks and customers, other deposits and other borrowings

The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.

The estimated fair value of fixed interest-bearing deposits and other borrowings not quotedin an active market is based on discounted cash flows using interest rates for new debtswith similar remaining maturity.

(v) Debt securities in issue

The aggregate fair values are calculated based on quoted market prices. For those noteswhere quoted market prices are not available, a discounted cash flow model is used basedon a current yield curve appropriate for the remaining term to maturity.

3.5 Capital management

To monitor the adequacy of its capital the Bank uses ratios established by the Bank forInternational Settlements (BIS). These ratios measure capital adequacy (minimum 8% asrequired by BIS and 12% as required by the Bank of Lebanon) by comparing the Bank'seligible capital with its balance sheet assets, off-balance-sheet commitments and marketand other risk positions at weighted amounts to reflect their relative risk.

The market risk approach covers the general market risk and the risk of open positions incurrencies and debt and equity securities. Assets are weighted according to broadcategories of notional risk, being assigned a risk weighting according to the amount ofcapital deemed to be necessary to support them. Five categories of risk weights (0%, 20%,30%, 50%, 100%) are applied; for example cash and placements with the Bank ofLebanon have a zero risk weighting which means that no capital is required to support theholding of these assets. Property and equipment carries a 100% risk weighting, meaningthat it must be supported by capital equal to 12% of the carrying amount.

Off-balance-sheet credit related commitments and forwards and options based derivativeinstruments are taken into account by applying different categories of conversion factors,designed to convert these items into balance sheet equivalents. The resulting equivalentamounts are then weighted for risk using the same percentages as for on-balance-sheetassets.

The Bank's regulatory capital as managed by its Treasury is divided into two tiers:- Tier 1 capital: share capital, preferred shares, retained earnings and reserves

created by appropriations of retained earnings, less the net book value of the intangible assets; and

- Tier 2 capital: real estate revaluation surplus approved by Bank of Lebanon.

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The Group's capital adequacy level was as follows:

(LL Millions) Consolidated Balance Sheet/Notional amount

Risk Weightedamount

2006 2005

Cash and Bank of Lebanon 960,535 958,309 - -Lebanese treasury bills 1,159,686 1,168,988 229,854 218,159Loans and advances to banks 1,096,355 931,505 223,036 189,449Trading securities 13,679 10,178 5,045 10,178Loans and advances to customers 661,685 595,319 388,116 312,387Debtors by acceptances 65,465 64,512 51,213 41,780Investment securities 13,428 14,106 5,455 7,428Property acquired in settlement of debt 31,320 20,603 - -Intangible assets 2,238 2,410 2,238 -Property and equipment 28,597 43,574 28,597 26,643Other assets 22,069 24,162 19,955 22,027

Off-balance sheet positionsLetters of credit 38,665 40,607 6,834 7,900Letters of guarantee 71,564 72,106 47,452 45,328

Unassigned market risk components 869 1,154

Total risk-weighted assets 1,008,664 882,433

2006 2005Balance sheet assets (net of provisions)

(LL Millions) Capital BIS %

2006 2005

Tier I capital 260,771 164,688 25.85 18.66Tier I + Tier II capital 270,771 174,688 26.84 19.79

2006 2005

BIS Capital Ratios

4 Critical accounting estimates and judgements

The Bank makes estimates and assumptions that affect the reported amounts of assets andliabilities within the next financial year. Estimates and judgements are continually evaluatedand based on historical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. Indetermining whether an impairment loss should be recorded in the income statement, theBank makes judgments as to whether there is any observable data indicating that there isa measurable decrease in the estimated future cash flows from a portfolio of loans beforethe decrease can be identified with an individual loan in that portfolio. This evidence mayinclude observable data indicating that there has been an adverse change in the paymentstatus of borrowers in a group, or national or local economic conditions that correlate withdefaults on assets in the group. Management uses estimates based on historical lossexperience for assets with credit risk characteristics and objective evidence of impairmentsimilar to those in the portfolio when scheduling its future cash flows.

Auditor's Report

(b) Held to maturity investments

The Bank follows the IAS 39 guidance on classifying non-derivative financial assets withfixed or determinable payments and fixed maturity as held to maturity. This classificationrequires significant judgment. In making this judgment, the Bank evaluates its intention andability to hold such investments to maturity. If the Bank fails to keep these investments tomaturity other than for the specific circumstances – for example, selling an insignificantamount close to maturity – it will be required to reclassify the entire category as availablefor sale. The investments would therefore be measured at fair value not amortised cost. If the entire held-to-maturity investments are tainted, the fair value would increase by LL 8.4 billion, with a corresponding entry in the fair value reserve in shareholders' equity.

(c) Income taxes

The Bank is subject to income taxes. Significant estimates are required in determining theprovision for income taxes.

5- Cash and Bank of Lebanon

Local banking regulations require banks to maintain a mandatory reserve with the Bank ofLebanon. At end of 2006, mandatory reserve deposits with Bank of Lebanon comprise non-interest earning reserves in Lebanese Pound amounting to LL 85 billion and foreigncurrency deposits that earn interest at 5.71% per annum with a counter value of LL 374billion (US$ 248 million). At end of 2005, the Lebanese currency reserves amounted to LL 94 billion while the foreign currency deposits amounted to LL 354 billion (US$ 235million) that earned interest at 4.74% per annum.

Money market placements and certificates of deposit are fixed-rate assets. Mandatoryreserve deposits are not available for use in the Bank's day-to-day operations.


Cash in hand 41,807 33,257Other money market placements 2,724 39,550Balances with Bank of Lebanon other than

mandatory reserve deposits 4,469 8,007Included in cash and cash equivalents (Note 40) 49,000 80,814Mandatory reserve deposits with Bank of Lebanon 459,497 447,997Loans and advances:Term deposits 8,399 9,060Certificates of deposit 431,596 409,913Interest receivable – Bank of Lebanon 3,151 2,201Net interest receivable – Certificates of deposit 13,805 15,127Net discount – Certificates of deposit (4,941) (6,822)

452,010 429,479960,507 958,290

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6- Lebanese treasury bills


Treasury bills in Lebanese Pound 566,898 560,558Treasury bills in foreign currency 572,590 590,207Net unamortised (discount) premium (736) (2,075)Unearned interest (322) (3,728)Amortised cost 1,138,430 1,144,962Net interest receivable 23,283 20,458Unrealised (loss)/gain on fair value through

profit and loss – treasury bills (2,027) 3,5681,159,686 1,168,988

Lebanese treasury bills comprise bills with variable rates and fixed rates of LL 1,093 billionand LL 47 billion respectively.

In 2005, Treasury bills in foreign currency included securities pledged amounting to LL 7.14 billion (EUR 4 million) in favour of a non-resident bank in respect of a foreigncurrency swap that matured in October 2006 (Note 24).

Lebanese treasury bills are classified at 31 December 2006 as follows:

Lebanese treasury bills are classified at 31 December 2005 as follows:

(LL Millions) Amortised cost Unrealisedgain/(loss)Fair value

In Lebanese PoundHeld to maturity 519,108 539,798 20,690Fair value through profit and loss 47,127 48,129 1,002

566,235 587,927 21,692In foreign currencyHeld to maturity 447,997 435,661 (12,336)Fair value through profit and loss 124,198 121,169 (3,029)

572,195 556,830 (15,365)1,138,430 1,144,757 6,327

(LL Millions) Amortised cost Unrealisedgain/(loss)Fair value

In Lebanese PoundHeld to maturity 511,988 516,846 4,858Fair value through profit and loss 43,378 43,875 497

555,366 560,721 5,355In foreign currencyHeld to maturity 461,264 470,363 9,099Fair value through profit and loss 128,332 131,900 3,568

589,596 602,263 12,6671,144,962 1,162,984 18,022

Auditor's Report

7- Loans and advances to banks

Loans and advances to banks comprise loans with variable rates and fixed rates of LL 137 billion and LL 952 billion respectively.

8- Trading assets

The movement in trading assets may be summarised as follows:


Items in course of collection from banks 2,183 2,183Placements with banks 979,871 781,614Current accounts 84,016 75,031Included in cash and cash equivalents (Note 40) 1,066,070 858,828Loans and advances:Term deposits 15,495 59,238Certificates of deposit 10,251 10,251Net interest receivable – banks 3,649 2,289Net interest receivable – certificates of deposit 125 123

29,520 71,9011,095,590 930,729

Current 1,072,056 897,849Non-current 23,534 32,880

1,095,590 930,729


Equity securities:- Listed 10,116 5,969- Unlisted 3,563 4,209

13,679 10,178


At 1 January 10,178 6,283Acquisitions during the year 3,857 1,134Disposals during the year (698) -Change in fair value 342 2,761At 31 December 13,679 10,178

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9- Loans and advances to customers

(LL Millions)

Commercial advances:Discounted bills 8,002 8,950Bills to the order of the Bank 22,484 23,570Unpaid bills 3,137 1,657Short term loans 91,475 73,925Medium and long term loans 349,492 296,757 Impairment provision (1,147) -

473,443 404,859

2006 2005

(LL Millions)

Current debtor accounts:Creditors accidentally debtors 1,377 1,044Advances 142,105 134,319Substandard loans 11,366 18,793Impairment provision ("unrealised interest") (3,355) (7,174)

151,493 146,982

2006 2005

(LL Millions)

Net doubtful accounts:Doubtful loans 107,413 105,172Impairment provision (83,122) (74,238)

24,291 30,934

2006 2005

(LL Millions)

Other loans and advances:Net debit against credit accounts – speculation accounts 1,912 2,012Related parties loans and advances (Note 45) 1,218 2,004Interest receivable 2,162 1,352

5,292 5,368654,519 588,143

2006 2005

Auditor's Report

(LL Millions) Gross loans & advances

Impairmentprovision

Net loans onadvances

At 31 December 2006Normal and special mention loans 623,364 (1,147) 622,217Substandard loans 11,366 (3,355) 8,011Doubtful and bad debts 107,413 (83,122) 24,291

742,143 (87,624) 654,519At 31 December 2005Normal and special mention loans 545,590 - 545,590Substandard loans 18,793 (7,174) 11,619Doubtful and bad debts 105,172 (74,238) 30,934

669,555 (81,412) 588,143

(LL Millions)

Current 357,129 331,224Non-current 297,390 256,919

654,519 588,143

2006 2005

(LL Millions)

Balance 65,464 64,512

2006 2005

(LL Millions)

At 1 January 81,412 84,548Additions (Note 33) 14,076 7,856Unrealised interest 5,089 12,444Releases (7,349) (12,977)Provisions applied against loan write offs (5,604) (10,459)At 31 December 87,624 81,412

2006 2005

The movement in impairment provision is summarised as follows:

Loans and advances allocated:

10- Debtors by acceptances

This caption represents the customer's liability to the Bank on outstanding drafts and billsof exchange that have been accepted by the Bank and/or by other banks for its account.These acceptances relate to negotiated deferred payment of import letters of credit. Thiscaption corresponds to and offsets engagements by acceptance caption reflected underliabilities.

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11- Invetment securities

All debt securities have fixed coupons.

The available-for-sale securities represent 62,500 shares in Banque de l'Habitat S.A.L. ata cost of LL 562 million. These shares are classified as available-for-sale and are stated athistorical cost since they are not listed, and their current market value cannot be readilyestimated.

Unrealised loss on held to maturity securities amounted to LL 19 million or US$ 12,500as at 31 December 2006 (2005 – LL 23 million or US$ 15,000).

The movement in investment securities may be summarised as follows:

\

12- Investments in subsidiaries


Securities available for saleEquity securities – at fair value:- Unlisted 562 562Securities held to maturityDebt securities – at amortised cost:- Listed 4,757 5,276- Unlisted 7,688 7,839

12,445 13,115Interest receivable 107 114Total securities held to maturity 12,552 13,229Total investment securities 13,114 13,791

(LL Millions) Availablefor sale

Held tomaturity Total

At 1 January 2006 562 13,115 13,677Additions - 151 151Disposals (redemption) - (821) (821)At 31 December 2006 562 12,445 13,007

(LL Millions) %ownership 2006 2005

Capital for Insurance and Reinsurance Company S.A.L. 80% 3,524 3,524

Informatics Co. S.A.R.L. 84% - -Société Libanaise de Service S.A.R.L. 91% - -

3,524 3,524

Auditor's Report

The principal activities of Capital for Insurance and Reinsurance Company S.A.L. compriseproviding life and general insurance services to the Bank. The principal activities ofInformatics Co. S.A.R.L. comprise providing information technology services to the Bank.The principal activities of Société Libanaise de Service S.A.R.L. comprise managing theproperties of the Bank and third parties, providing security guarding and differentmaintenance services.

13- Property acquired in settlement of debt

The movement of property acquired in settlement of debt in as follows:

Total impairment provisions in respect of properties acquired in settlement of debtamounted to LL 2.5 billion as of 31 December 2006 (2005 – LL 1.73 billion). Theseimpairment provisions are in line with the requirements of the Bank of Lebanon CircularNo. 78 and its amendments.

These properties are available for sale and are not included within the Bank's property usedin the normal course of business. Management believes that the fair market value of theseproperties approximates their carrying amount as of 31 December 2006.

Properties acquired in settlement of debt are subject to an option allowing the debtors tobuy back these properties at the original settlement amount during the two year period fromthe acquisition date by the bank.

14- Investment property


Cost 31,320 20,603Impairment provision (2,520) (1,731)

28,800 18,872

(LL Millions)

At 1 January 18,872 13,125Acquisitions during the year 12,810 7,253Disposals during the year (2,093) (916)Net change in the provision (789) (590)At 31 December 28,800 18,872

2006 2005

(LL Millions) Land Buildings Total

Beginning of year 2005 5,747 4,524 10,271Fair value loss (Note 35) - (142) (142)End of year 2005 5,747 4,382 10,129Fair value loss (Note 35) - (140) (140)End of year 2006 5,747 4,242 9,989

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The investment property of the Bank was revalued in 1997 by an independent appraiserunder the provisions of fiscal law 282/93 based on market values at 31 December 1993.The revaluation resulted in an increase in the value of investment property over its carryingvalue by LL 3.3 billion. Management believes that the fair market value of these propertiesapproximates their recorded carrying amount as of 31 December 2006.

Had the Bank's investment property been stated on the historical cost basis, the amountswould have been as follows:

The following amounts have been recognised in the income statement:

15- Intangible assets


Cost 8,064 8,064Accumulated depreciation (550) (490)Net book amount 7,514 7,574


Rental income (Note 32) 187 193Direct operating expenses of investment properties

that generate rental income (Note 35) (117) (110)70 83

(LL Millions) Computersoftware Key money Total

At 1 January 2005Cost 2,817 1,730 4,547Accumulated amortisation (2,107) (1,165) (3,272)Net book amount 710 565 1,275

Year ended 31 December 2005Opening net book amount 710 565 1,275Additions 59 - 59Amortisation charge (Note 35) (349) (241) (590)Net book amount 420 324 744

At 31 December 2005Cost 2,876 1,730 4,606Accumulated amortisation (2,456) (1,406) (3,862)Net book amount 420 324 744

Year ended 31 December 2006Opening net book amount 420 324 744Additions 97 152 249Amortisation charge (Note 35) (302) (146) (448)Net book amount 215 330 545

At 31 December 2006Cost 2,973 1,882 4,855Accumulated amortisation (2,758) (1,552) (4,310)Net book amount 215 330 545

Auditor's Report

16- Property and equipment

The property and equipment of the Bank were revalued in 1997 by an independentappraiser under the provisions of fiscal law 282/93 based on market values at 31December 1993. The revaluation resulted in an increase in the value of property andequipment of LL 17.8 billion.

Had the Bank's property and equipment been stated on the historical cost basis, theamounts would have been as follows:

Land &Buildings

ComputerEquipment

FurnitureFixtures &Equipment

Vehicles Leaseholdimprovements

Total

(LL Millions)

At 1 January 2005Cost or valuation 30,938 8,041 6,198 214 11,010 56,401Accumulated depreciation (5,226) (5,584) (4,077) (92) (9,229) (24,208)Net book amount 25,712 2,457 2,121 122 1,781 32,193

Year ended 31 December 2005Opening net book amount 25,712 2,457 2,121 122 1,781 32,193Additions 546 1,073 375 119 1,149 3,262Disposals - (705) (12) (5) (651) (1,373)Depreciation charge (Note 35) (747) (976) (442) (33) (769) (2,967)Closing net book amount 25,511 1,849 2,042 203 1,510 31,115

At 31 December 2005Cost or valuation 31,484 7,646 6,345 296 11,502 57,273 Accumulated depreciation (5,973) (5,797) (4,303) (93) (9,992) (26,158)Net book amount 25,511 1,849 2,042 203 1,510 31,115

Year ended 31 December 2006Opening net book amount 25,511 1,849 2,042 203 1,510 31,115Additions - 359 443 - 1,217 2,019Disposals - (28) (25) (25) - (78)Depreciation charge (Note 35) (750) (842) (456) (38) (829) (2,915)Closing net book amount 24,761 1,338 2,004 140 1,898 30,141

At 31 December 2006Cost or valuation 31,484 7,778 6,586 243 12,719 58,810 Accumulated depreciation (6,723) (6,440) (4,582) (103) (10,821) (28,669)Net book amount 24,761 1,338 2,004 140 1,898 30,141


Cost 41,045 39,509Accumulated depreciation (23,186) (22,028)Net book amount 17,859 17,481

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17- Other assets

Advances on fixed asset purchases include an amount of LL 5.4 billion (2005 – LL 5.4billion) paid to a contractor for a branch being built in Beirut Central District.

The above provisions include a provision of LL 1.8 billion (2005 – LL 1.8 billion) set upagainst one of the Bank's money dealers. Although the total amount due from this moneydealer is LL 2.6 billion, management believes that the provision of LL 1.8 billion isadequate to cover the expected loss.

The above provision also includes an amount of LL 1.7 billion (2005 – LL 1.7 billion) setup during 2003 to cover losses incurred in connection with contentious depositors' claimsin one of the Bank's branches.

The movement in the impairment provision – other receivables is as follows:

18- Deposits from banks

(LL Millions)

Credit card facilities 9,139 8,566Advances on fixed asset purchases 5,985 6,485Prepaid expenses 746 833Stamps 80 67Deposits receivable 37 35Precious metals 18 18Foreign exchange difference (Note 43) - 5Other receivables 8,157 6,763

24,162 22,772Impairment provision – other receivables (4,143) (4,137)

20,019 18,635

(LL Millions)

Sight deposits 18,321 1,527Term deposits 123,717 124,548Short-term loan 3,801 4,523Interest payable – banks 210 1,158

146,049 131,756Current 143,227 106,930Non-current 2,822 24,826

146,049 131,756


2006 2005

2006 2005

At 1 January 4,137 5,411Release of provision - (1,265)Difference of exchange 6 (9) At 31 December 4,143 4,137

Auditor's Report

The short-term loan represents a loan granted to the Bank by the Arab Trade Financing Programin September 2004. The loan balance will be repaid in 24 May 2007 with an annual interestrate of 6-month Libor + 0.5%.

Deposits from banks comprise deposits with variable rates and fixed rates of LL 24 billion andLL 122 billion respectively.

19- Due to customers

Deposits include coded accounts amounting to LL 77 billion as of 31 December 2006(2005 – LL 139 billion). These accounts were opened under the provisions of Article 3 ofthe Banking Secrecy Law dated 3 September 1956 governing banks in Lebanon. As perthe terms of this article, the Bank, under normal conditions, is not permitted to disclose theidentities of coded account depositors to third parties including its auditors.


Sight deposits 219,890 274,523Term deposits 503,528 410,728Saving accounts 2,359,876 2,276,028Related parties accounts (Note 45) 31,588 43,994Net credit against debit accounts and cash margins 279,182 261,728Interest payable – customers 24,733 20,642

3,418,797 3,287,643

Current 2,927,349 2,853,823Non-current 491,448 433,820

3,418,797 3,287,643Sight deposits:Checking and current accounts 196,509 246,766Debtors accidentally creditors 17,145 18,839Cheques and orders to be paid 5,751 8,133Public sector deposits 485 785

219,890 274,523Saving accounts:Saving accounts – demand 181,927 181,424Saving accounts – term 2,177,949 2,094,604

2,359,876 2,276,028Net credit against debit accounts and cash margins:Pledged deposits against credit facilities 10,072 208,008Margins on speculation accounts 238,530 12,106Margins on letters of guarantee 30,580 41,614

279,182 261,728

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20- Certificates of deposits

During 2005, the Bank issued certificates of deposits amounting to LL 75.38 billion (US$50 million) with a maturity of two and a half years in 2008 bearing a fixed interest rate of7% that is paid semi-annually. Certificates of deposits amounting to LL 70.8 billion werepurchased by the Bank's customers while LL 4.5 billion were purchased by other banks.

21- Other liabilities

(a) Withholding taxes and other charges of LL 1,552 million (2005 – LL 1,323 million)consist mainly of withheld taxes from interest on deposits, employee salaries, non-residentincome, built property and municipality tax.

(b) The gain resulting from the translation of the Bank's fixed foreign exchange position of LL 2.5 billion (2005 – LL 2.5 billion) is deferred in the balance sheet until realised. Thisrepresents exchange gains on the translation of the US Dollar fixed exchange positionamounting to LL 40.4 billion or US$ 26.8 million as at 31 December 2006.

(c) Foreign exchange gain on allocations to foreign branches of LL 573 million (2005 – LL 573 million) represents exchange gains on capital allocations made to theBank's branch in the Damascus free zone in Syria of LL 15.08 billion or US$ 10 million.

(d) The treatment of exchange differences in (b) and (c) above is in line with therequirements of the regulatory authorities. However, under IFRS these exchange differencesmust be accounted for in the income statement in the period in which they arise. The effectof carrying these exchange differences on the balance sheet is compensated by provisionsrequired on loans and advances and other assets. Accordingly, the Bank is in compliancewith IFRS in terms of the net effect on the income statement.

(LL Millions)

Certificates of deposits – Banks 4,522 4,522Certificates of deposits – Customers 70,853 70,853Interest payable – Banks 86 86Interest payable – Customers 1,562 1,543

77,023 77,004

2006 2005


Margins against documentary credits 21,425 23,578Margins against credit card and safe box facilities 1,690 1,931Foreign exchange gains on fixed position held

against the Bank's equity 2,545 2,545Withholding taxes and other charges 1,552 1,323Foreign exchange gain relating to allocations to foreign branches 573 573Dividends payable and interest payable on cash

contribution to capital 1,662 1,388Accrued expenses 663 758Due to National Social Security Fund 315 275Foreign exchange difference (Note 43) 13 -Other provisions (Note 22) 4,782 5,890Other 2,347 1,422

37,567 39,683

Auditor's Report

22- Other provisions

23- Retirement benefit obligations

The provision for retirement benefit obligations comprises the following:

The retirement benefit obligation is determined in accordance with the accounting policyset out in Note 2.18 and is broadly in line with the computation in accordance with theNational Social Security Fund regulations.

In accordance with the provisions of IAS 19, management has carried out an exercise toassess the present value of its retirement benefit obligations as at 31 December 2006 usingthe projected unit credit method. Under this method, an assessment has been made of anemployee's expected service life with the Bank and the expected basic salary at the date ofleaving the service. Management has assumed average increment/promotion costs of 3.5%(2005 - 3%). The expected liability at the date of leaving the service has been discountedto its net present value using a discount rate of 8.01% (2005 – 7.5%).


Provision for risks 4,432 5,550Provision for levies and other charges 288 278Other provisions 62 62

4,782 5,890


Provision for retirement benefit obligations 12,733 12,103Advances against retirement benefit obligations (308) (290)

12,425 11,813


At 1 January 11,813 11,404Charge for the year 900 900Payments during the year (288) (491)At 31 December 12,425 11,813

(LL Millions) ReleasesUtilised duringthe yearAdditionsJanuary 31 December

Provision for risks 5,550 1,757 (2,300) (575) 4,432Provision for levies

and other charges 278 114 (104) - 288Other provisions 62 - - - 62

5,890 1,871 (2,404) (575) 4,782

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24- Assets pledged

In 2005, the Bank entered in a foreign currency swap with a non-resident bank, and thelong position amounted to LL 16.2 billion (US$ 10.73 million) against a short position ofLL 17.8 billion (EUR 10 million). This swap transaction matured in October 2006 and itwas pledged against the following Treasury bills:

25- Share capital and cash contributions to capital

The total number of ordinary shares at year end was 72 million (2005 – 72 million) witha par value of LL 1,000 per share (2005 – LL 1,000 per share). All issued shares are fullypaid.

In July 2006 the Bank issued 5 million non-cumulative redeemable preferred shares withnominal value of LL 1,000 each at an issue price of US$ 10 per share. The excess of issueprice over nominal value amounted to LL 70 billion and was reflected as share premium.

On 31 July 2002, the Central Council of the Bank of Lebanon approved the US Dollardenominated cash contributions to capital of LL 21.7 billion (US$ 14.4 million) fromcertain shareholders to the Bank. These contributions earn interest at a rate of 5.5% perannum.

At the Annual General Assembly held on 23 June 2005, dividends amounting to LL 28.9 billion were declared, out of which LL 20.42 billion (US$ 13.54 million) weretransferred to cash contributions to capital (after tax deduction). The cash contributions tocapital of LL 20.42 billion were approved by the Central Bank on 2 February 2006.These contributions do not earn interest.


Treasury bills pledged (Note 6) - 7,137


Share capital 72,000 72,000Preferred shares 5,000 -Cash contributions to capital – interest bearing 21,697 21,697Cash contributions to capital – non-interest bearing 20,423 20,423

119,120 114,120

Auditor's Report

26- Reserves and retained earnings

Article 132 of the Code of Money and Credit requires 10% of the Bank's net profits to betransferred from retained earnings to a legal reserve. This reserve is not available fordistribution.

According to the Bank of Lebanon directives, banks are required to appropriate from annualprofits an amount equal to 2 per mil of the solvency denominator to a reserve forunidentified banking risks. The above reserve is considered as part of Tier I capital. Thisreserve is not available for distribution.

The Ordinary General Assembly held on 29 June 2006 resolved to transfer LL 1.5 billionfrom retained earnings to other reserves. This reserve is available for distribution.


ReservesLegal reserve (a) 26,137 23,582Reserve for unidentified banking risks (b) 15,682 13,682Other reserves (c) 3,972 2,485

45,791 39,749


(a) Legal reserveAt 1 January 23,582 20,946Transfer from retained profits 2,555 2,636At 31 December 26,137 23,582


(b) Reserve for unidentified banking risksAt 1 January 13,682 11,682Transfer from retained profits 2,000 2,000At 31 December 15,682 13,682


(c) Other reservesAt 1 January 2,485 -Transfer from retained profits 1,487 2,485At 31 December 3,972 2,485

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Retained earningsAt 1 January 29,230 40,108Net profit for the year 25,550 26,364Dividend for prior year (Note 39) (6,408) (28,920)Interest on cash contributions to capital for prior year (1,194) (1,201)Transfer to legal reserve (2,555) (2,636)Transfer to reserve for unidentified banking risks (2,000) (2,000)Transfer to other reserves (1,487) (2,485)At 31 December 41,136 29,230

27- Real estate revaluation reserve

As explained in Notes 14 and 16, the revaluation reserve arises from the fiscal revaluationof investment property, and property and equipment under Law No. 282/93. No furthertaxes are due upon the eventual distribution of this reserve.

28- Net interest income


Interest and similar incomeLebanese treasury bills 101,686 87,532Deposits and similar funds at banks

and financial institutions 109,686 82,192Loans and advances to customers 53,681 46,617Investment securities 849 1,478Loans and advances to related parties (Note 45) 269 241

266,171 218,060Interest expense and similar chargesDeposits and similar funds from banks

and financial institutions 2,622 5,455Due to customers 189,655 161,333Debt securities in issue 5,294 1,629Deposits from related parties (Note 45) 2,141 1,939

199,712 170,356

Auditor's Report

29- Net fee and commission income

30- Dividend income

31- Net trading income


Fee and commission incomeCredit related fees and commissions 4,250 6,291Letters of credit and guarantees related fees and commissions 4,442 4,329Other fees 6,974 4,553

15,666 15,173Fee and commission expenseBrokerage fees paid 787 1,283Other fees paid 1,047 132

1,834 1,415


Trading securities 586 204Available-for-sale securities 27 23

613 227


Foreign exchange:- Transaction gains less losses 2,211 2,805- Translation gains less losses (77) (444)Unrealised (loss) gain on debt securities classified

as fair value through profit and loss (5,639) 3,720Unrealised gain on equity securities classified

as fair value through profit and loss 342 2,761Realised gain – treasury bills and certificates of deposits 1,700 5,851Realised gain – equity securities 1,310 -

(153) 14,693

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32- Other operating income


Commission on insurance business 717 732Gain on disposal of property acquired in settlement of debt 170 137Gain on disposal of property and equipment 1 1Rent income (Note 14) 187 193Other 297 94

1,372 1,157

33- Impairment (charge) release for credit losses


Provisions for customer loans and advances (14,076) (7,856)Release of provisions on doubtful and

substandard loans 8,740 8,239(5,336) 383

34- Staff costs


Wages and salaries 15,762 15,164Social security costs 2,600 2,478Bonuses 2,176 2,117Scholarship 1,650 1,598Transportation 1,107 1,023Pension costs – defined benefit plan (Note 23) 900 900Directors' remuneration (Note 45) 817 771Medical expenses 686 724Other employee benefits 915 499Training expenses 175 144

26,788 25,418

Auditor's Report

35- Administrative expenses


Staff costs (Note 34) 26,788 25,418Depreciation on property and equipment (Note 16) 2,915 2,967Water, electricity and communication expense 2,451 2,348Professional fees 1,313 1,031Repairs and maintenance 1,153 1,085Advertising expense 1,594 1,019Municipality and other taxes 500 678Office supplies 949 845Subscriptions 663 737Travel expense 597 615Amortisation charge (Note 15) 448 590IT outsourcing service cost - 510Insurance expense 460 461Directors' attendance fees (Note 45) 245 290Cleaning expense 262 264Fair value loss on investment property (Note 14) 140 142Investment property expense (Note 14) 117 110

40,595 39,110

36- Other operating expenses


(Releases) provisions for liabilities and charges (575) 2,023Deposits guarantee premiums 1,660 1,530Provision for properties acquired in settlement of debt (Note 13) 789 590Software costs 394 412Provision for other receivables 120 120Operating lease rentals 315 388Other taxes 32 1,188Other 2,121 2,237

4,856 8,488

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37- Income tax expense

In accordance with article 51 of law number 497/2003, a 5% tax is withheld at source oninterest received. The Bank's tax charge is determined as the higher of corporate tax andtax on interest withheld during the year. During 2006, the 5% tax withheld on interestreceived of LL 4.7 billion was lower than the Bank's corporate income tax of LL 5.5 billion.

The Bank's tax charge consists of the following:

Corporate income tax

Corporate income tax expense for the year is determined as follows:

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

The fiscal years 2004 to 2006 remain subject to examination by the income tax authorities.


Corporate income tax - Lebanon 5,451 3,704Corporate income tax - Cyprus Branch 335 256Tax charge for the year 5,786 3,960


At 1 January 1,079 74Provision set up during the year 5,786 3,960Payments during the year (6,096) (2,955) At 31 December 769 1,079


Profit before taxes 31,336 30,324Profit before tax of the Cyprus Branch (3,208) (5,263)Profit subject to tax in Lebanon 28,128 25,061Income tax at statutory rate of 15% 4,219 3,759Effect of expenses not deductible for tax purposes or non-taxable income:

Differences between accounting and fiscal depreciation 19 31Provision for diminution in the value of fixed

and variable income securities 291 21Provision for diminution in the value of Treasury Bills 845 -Donations 102 121Provision for properties acquired in settlement of debt 118 88Bad debt expense 14 18Other provisions 327 295Release of provisions which were previously subject to tax (337) (626)Interest paid on cash contributions to capital (179) (181) Other 32 178

Corporate income tax 5,451 3,704

Auditor's Report

38- Earnings per share

Basic earning per share is calculated by dividing the net profit attributable to equity holdersof the Bank by the weighted average number of ordinary shares in issue during the year i.e.72 million shares (2005 – 72 million ordinary shares).

39- Proposed dividends and interest on cash contributions to capital

Final dividends are not accounted for until they have been ratified at the Annual GeneralAssembly. A dividend in respect of 2006 of LL 105 per share (2005 – LL 89 per share)amounting to a total of LL 7.5 billion (2005 – actual LL 6.4 billion) and interest paid oncash contributions to capital of LL 1.2 billion (2005 – actual LL 1.2 billion) are proposedby the directors subject to ratification by the General Assembly. These financial statementsdo not account for the proposed dividend and interest, which will be accounted for inshareholders' equity as an appropriation of retained earnings in 2007.

40- Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprises thefollowing balances with less than three months maturity from the date of acquisition.


Profit attributable to equity holders of the Bank (LL Millions) 25,550 26,364Weighted average number of ordinary shares in issue 72,000,000 72,000,000Basic earnings per ordinary share (LL) 354.9 366.2


Cash and Bank of Lebanon (Note 5) 49,000 80,814Loans and advances to banks (Note 7) 1,066,070 858,828

1,115,070 939,642

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41- Contingent liabilities and commitments

a) Legal proceedings

There were a number of legal proceedings outstanding against the Bank at 31 December2006. No provision has been made as professional advice indicates that it is unlikely thatany significant loss will arise.

b) Capital commitments

At 31 December 2006 the Bank had no capital commitments.

c) Guarantee and other financial facilities

At 31 December 2006, the Bank's off-balance sheet financial instruments that commit itto extend credit and guarantees to customers are as follows:

42- Fiduciary investments

43- Forward foreign exchange contracts


Letters of credit 38,665 40,607Letters of guarantee 71,564 72,106

110,229 112,713


Foreign currency to be received 5,199 13,922Foreign currency to be delivered (5,212) (13,917)

Translation difference on forward foreign exchange contracts (Notes 17, 21) (13) 5


Fiduciary investments 4,070 4,070

Auditor's ReportAuditor's Report

44- Assets in custody

45- Related-party transactions

The Bank is controlled by Assaf Holding S.A.L. (incorporated in Lebanon), which owns 45%of the ordinary shares and Fransabank S.A.L. (incorporated in Lebanon), which owns 37%of the ordinary shares. The remaining 18% of the shares are widely held.

A number of banking transactions are entered into with related parties in the normal courseof business. These include loans, deposits and foreign currency transactions. The volumesof related party transactions, outstanding balances at the year end, and related expense andincome for the year are as follows:

Transactions with related parties

Outstanding balances with related parties

No provisions have been recognised in respect of loans given to related parties (2005: nil).

Loans and advances to related parties comprise loans with variable rates and fixed rates ofLL 12 million and LL 1,206 million respectively. The loans are secured by a residentialmortgage.

Deposits from related parties comprise deposits with variable rates, repayable on demandand fixed rates, repayable at maturity of LL 399 million and LL 31 billion respectively.


Nominal value of Lebanese Treasury Bills purchased for customers 20,924 22,601

Nominal value of certificates of depositspurchased for customers 13,703 17,339

34,627 39,940


Related parties loans and advances (Note 9) 1,218 2,004Related parties deposits (Note 19) 31,588 43,994


Interest paid on deposits (Note 28) 2,141 1,939Insurance expense 460 461Cost of other services received 196 169Commissions paid on rent collection 10 10Interest received from loans and advances (Note 28) 269 241Fee and commission income 454 279IT outsourcing service cost - 510Directors' remuneration (Note 34) 817 771Directors' attendance fees (Note 35) 245 290Key management compensation 1,353 1,294

BBAC

Netw

ork

Network

Branch Network and AddressesHead Office: Beirut250 Clemenceau StreetP.O.Box: 11 - 1536 Beirut, LebanonTel: (01) 360460/1 - 366630/1(03) 265501/2 Fax: (01) 365200SWIFT: BBAC LBBXwww.bbacbank.com

Central Branch250 Clemenceau StreetP.O.Box: 11 - 1536 Beirut, LebanonTel: (01) 360460/1 - 366630/1Fax: (01) 365200

UnescoCorniche El MazraaTel: (01) 867144/5/6 - 810390 (03) 233733 Fax: (01) 790394

Hamra Abd El Aziz StreetTel: (01) 341280/2 - 351261 (03) 414514 Fax: (01) 353745

Mazraa Corniche El MazraaTelefax: (01) 818429/31 - 302540(03) 265266

Furn El ChebbakDamascus RoadTel: (01) 291528/9 - (03) 388611 Fax: (01) 280906

AleyEl SahaTel: (05) 555433/4 - 557433(03) 548549 Fax: (05) 557434

Tripoli TallTall SquareTelefax: (06) 430460/1 - (03) 388622

Bir El AbedHaret HreikTel: (01) 548900 - 545435 - (03) 539540Fax: (01) 548901

ZalkaZalka HighwayTel: (01) 893910 - 886764(03) 534111Fax: (01) 893486

Achrafieh Mar NicolasSaint NicolasTel: (01) 201780/1 - 331599 (03) 541542 Fax: (01) 331690

ChtauraDamascus RoadTel: (08) 542451/3 - (03) 840844Fax: (08) 542452

BaaklineMain RoadTel: (05) 300776 - 304060 (03) 265503 Fax: (05) 300348

ChoueifatOld Saida RoadTel: (05) 433302 - 433600/1(03) 271194Fax: (05) 433303

SaidaNijmeh SquareTelefax: (07) 723857 - 724369 734116(03) 535536

MetnHammana - Cross road BkeshtayTel: (05) 530050 - 530822(03) 265504 Fax: (05) 530482

Aley BaqaaBkeshtay RoadTel: (05) 554701 - 557701/2(03) 563564 Fax: (05) 554432

BekaataMain RoadTelefax: (05) 500587 - 501587507587 - 501706 - (03) 265506

ManassefMain RoadTelefax: (05) 720598/9(03) 220729

DekwanehBlvd. Camille ChamounTel: (01) 682391/2 - (03) 542543Fax: (01) 682389

ChahharQabr ChmounTelefax: (05) 410281/2 - (03) 265509

Bar EliasDamascus RoadTel: (08) 510014 - (03) 840842 Fax: (08) 511085

Rachaya El WadiMain RoadTelefax: (08) 591243 - 590240561244 - (03) 840845

Jib JannineMain RoadTel: (08) 660370 - 660240(03) 840843 - Fax: (08) 662740

FerzolMain RoadTel: (08) 950850/1/2 - (03) 840841Fax: (08) 950853

TyrBuss - Jal El Baher - Main RoadTel: (07) 343651/2(03) 265505 Fax: (07) 343650

Tripoli MinaAl Mina Street - Dannaoui Bldg.Tel: (06) 200103/4/5/6(03) 566635 Fax: (06) 611555

BaalbekMain RoadTel: (08) 374014/5 - (03) 614899Fax: (08) 374016

KaslikTripoli - Beirut HighwayTelefax: (09) 221437/8/9 - (03) 494495

Bint JbeilAl Shami Bldg. - Main RoadTelefax: (07) 450121/2 - (03) 499300

HasbayaChehabi’s Sarail RoadTelefax: (07) 550272/3 - (03) 311788

ElyssarBikfaya - Main RoadTelefax: (04) 913211/221 - (03) 714150

JbeilMain RoadTelefax: (09) 546700 - 546407546567 - (03)180250

Achrafieh IstiklalIstiklal StreetTel: (01) 203987 - 203991/2 - 204016

Limassol BranchEmelle Bldg.135, Makarios AvenueP.O.Box: 56201 LimassolTel: +357 - 25 - 381290 - 381369Telefax: +357 - 25 - 381584

DamascusFree Zone AreaTel: 02 - 11 - 2134596/7Fax: 02 - 11 - 2134598

Network

annu

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2005

Main CorrespondentsAmmanJordan National Bank

AmsterdamABN AMRO Bank

BrusselsFortis Bank

CopenhagenDanske Bank

DubaiMashreqBank

FrankfurtDeutsche BankCommerzBank

KuwaitNational Bank of Kuwait

LondonBarclays Bank PLC

MadridBanco Bilbao Vizcaya Argentaria

MelbourneANZ Bank

MilanoBanca Intesa SpA

MontrealNational Bank of Canada

New YorkCitibankThe Bank of New YorkJP Morgan Chase Bank

OsloDen Norske Bank

ParisBanque Saradar France

RiyadhAlbank AlSaudi Alfaransi

StockholmSkandinaviska Ensklida Bank

TokyoU.B.A.F.

ViennaBank Austria A.G.

ZurichCredit Suisse First Boston

91

Network

Subsidiaries1- Informatics’ Co. s.a.r.l.

A software company, that offers commercial and technical services. It was established in1980 by the bank shareholders: Mr. Toufic Assaf and Mr. Nashaat Sheikhlard. It is chairedby Mr. Ghassan Assaf; 84 % of the shares are owned by BBAC s.a.l.

2- Societe Libanaise de Service s.a.r.l.

SLS started its operations in 1980, with 91 % of its shares owned by BBAC s.a.l. Thecompany is chaired by Mr. Ghassan Assaf.

3- Capital Insurance & Reinsurance Co. s.a.l.

The company provides the full-range of insurance and re-insurance services. It is chaired byMr. Assad G. Merza. BBAC s.a.l. owns 80 % of its shares.

Documents

Contents annual report 2006 - BBAC · Ghassan T. Assaf Chairman General Manager 3 BBAC Annual Rep 2006 11/12/07 12:21 PM Page 3. ... USD C/V Total Loans and Advances LL USD C/V Total