Commercial International Bank (CIB) Egypt
Annual Report 2012

Plain-text annual report

Investing in People Investing in the Future A n n u A l R e p o R t 2012 CIB's 5,181 employees bring to the table a balanced blend of seasoned insight coupled youthful vigor — a mix that helps us efficiently serve more than 589,645 customers. Veteran Know-How, Youthful Vigor CIB: An Introduction What We Do . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Our History . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Key Financial Highlights . . . . . . . . . . . . . . . . . . . 4 Key Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A Strategy that Delivers . . . . . . . . . . . . . . . . . . . . 6 A Word from Our Chairman . . . . . . . . . . . . . . . . . . 8 Board of Directors’ Report . . . . . . . . . . . . . . . . . . 10 Key Figures from 2012 . . . . . . . . . . . . . . . . . . . . 20 2012 in Review Institutional Banking . . . . . . . . . . . . . . . . . . . . . 24 Global Customer Relations . . . . . . . . . . . . . . . . . . 32 Consumer and Business Banking . . . . . . . . . . . . . . 34 COO Area . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Risk Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Strategic Subsidiaries CI Capital Holding . . . . . . . . . . . . . . . . . . . . . . . 56 Egypt Factors . . . . . . . . . . . . . . . . . . . . . . . . . 59 Commercial International Life Insurance Company . . . . 60 Falcon Group . . . . . . . . . . . . . . . . . . . . . . . . . 60 Corporate Leasing Company (Egypt) SAE – CORPLEASE . . 62 Corporate Governance . . . . . . . . . . . . . . . . . . . . . 66 Executive Management . . . . . . . . . . . . . . . . . . . . . 72 Community Development . . . . . . . . . . . . . . . . . . . . 76 CIB Foundation . . . . . . . . . . . . . . . . . . . . . . . . . 78 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 82 ContentsThe leading private sector bank in Egypt CIB: An Introduction What We Do Commercial International Bank (CIB) is the leading private sector bank in Egypt, offering a broad range of financial prod- ucts and services to its customers, which include enterprises of all sizes, institutions, households and high-net-worth (HNW) individuals. In addition to traditional asset and liability products, CIB offers wealth management, securitization, direct investment and treasury services, all delivered through client-centric teams. The Bank also owns a number of subsidiaries, including CI Capital (which offers asset management, investment banking, brokerage and research services), Commercial International Life Insurance Company, the Falcon Group, Egypt Factors, and CORPLEASE. CIB strives to provide clients with superior financial so- lutions to meet all of their financial needs. This enables the Bank to maintain its leadership position in the market, while providing a stimulating work environment for staff and gen- erating outstanding value for shareholders. Our History CIB was established in 1975 as Chase National Bank, a joint venture between Chase Manhattan Bank and National Bank of Egypt (NBE). In 1987, Chase divested its ownership stake due to a shift in international strategy, and the stake was ac- quired by NBE, at which point the Bank adopted the name Commercial International Bank. Over time, NBE decreased its participation in CIB, which eventually dropped to 19% in 2006, when a consortium led by Ripplewood Holdings acquired NBE’s remaining stake. In July 2009, Actis, an emerging market private equity special- ist, acquired 50% of the stake held by the Ripplewood Con- sortium. Five months later, in December 2009, Actis became the single largest shareholder in CIB with a 9.3% stake after Ripplewood sold its remaining share of 4.7% on the open market. The emergence of Actis as the predominant share- holder marked a successful transition in the Bank’s strategic partnership. 2 Annual Report 2012 A Snapshot of our Businesses Corporate Banking Widely recognized as the preeminent cor- porate bank in Egypt, CIB aspires to be- come one of the best banks in the region, serving industry-leading corporate clients. Business Banking The Business Banking Segment was for- mally launched at the end of 2011 follow- ing a successful one-year pilot program, particularly among retail companies in the Egyptian market. It mainly serves small and midsize companies which are the backbone of the Egyptian economy with a contribution of almost 80% of total GDP. This comes as a natural progression of the Bank’s mission to remain one of Egypt’s biggest financial and commercial institu- tions supporting the Egyptian economy. Mid-Cap Banking This division caters to medium-sized com- panies, employing a dedicated team of cer- tified officers who are highly specialized in providing advice and assistance to mid- sized businesses. The department’s role is to help these businesses grow to become large corporations in the future. Debt Capital Markets CIB’s global product knowledge, local expertise and capital resources make the Bank an industry leader in project finance, syndicated loans and structured finance in Egypt. CIB’s project finance and syndi- cated loans teams provide large borrowers with better market access and greater ease and speed of execution. Consumer Banking CIB registered considerable progress in 2012 as it continued to build a full-service, world-class consumer bank, as under- scored by the ability to serve clients in a challenging environment last year. We offer a wide array of consumer banking products, including: • Personal Loans: Focusing on employees of our corporate banking clients and offering secured overdrafts and trade products. • Auto Loans: Positioned to actively sup- port this growing market in the coming years. • Deposit Accounts: Offering a wide range of account types to serve our cli- ents’ deposit and savings needs, includ- ing tailored accounts for minors, youth and senior citizens, as well as certificates of deposit and care accounts. This is in addition to our standard range of cur- rent, savings and time deposit accounts. • Residential Property Finance: Provid- ing loans to finance home purchases, residential construction and refurbish- ment and finishing. • Credit and Debit Cards: Offering a broad range of credit, debit and prepaid cards. Wealth Management CIB offers a wide array of investment products and services to the largest num- ber of affluent clients in Egypt. Global Transactional Services (GTS) The Global Transactional Services (GTS) Group serves as a key group within CIB and oversees cash management, trade and global securities services. Treasury and Capital Markets Services CIB delivers world class service in the areas of cash and liquidity management, capital markets, foreign exchange and derivatives. Direct Investment CIB actively participates in select direct investment opportunities in Egypt and across the region. Investment Banking Services Through CI Capital, CIB offers existing and prospective clients a full suite of invest- ment banking products and services, in- cluding investment banking, advisory and execution, asset management, brokerage and equity research. CI Capital offers both deep and broad market knowledge and ex- pertise; the firm is consistently ranked as a leading brokerage house serving local and international clients in Egypt. CIB: An Introduction Key Financial Highlights Common Share Information Per Share Earning Per Share (EPS) * Dividends (DPS) Book Value (BV/No of Share) Share Price (EGP)** High low Closing Shares Outstanding (millions) Market Capitalization (EGP millions) Value Measures Price to Earnings Multiple (P/E) Dividend Yield (based on closing share price) Dividend Payout Ratio Market Value to Book Value Ratio Financial Results (EGP millions) Net Operating Income provision for Credit losses - Specific provision for Credit losses - General Total Provisions Non Interest Expense Net Profits Financial Measures Cost : Income Return on Average Common Equity (ROAE) Net Interest Margin (NII/average interest earning assets) Return on Average Assets (ROAA) Regular Workforce Headcount Balance Sheet and Off Balance Sheet Information (EGP millions) Cash Resources and Securities (Non Governmental) Net Loans and Acceptances Assets Deposits Common Shareholders Equity Average Assets Average Interest Earning Assets Average Common Shareholders Equity Balance Sheet Quality Measures Equity to Risk-Weighted Assets Risk-Weighted Assets (EGP billions) Tier 1 Capital Ratio Adjusted Capital Adequacy Ratio FY 12 Consoli- dated FY 11 FY 10 Consol- Consol- idated idated FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 FY 05 3 .53 1 .25 18 .94 2 .43 1 15 .03 3 1 14 .59 2 .63 1 .5 23 .75 4 .89 1 19 .25 3 .73 1 20 .93 3 .64 1 15 .59 2 .77 1 19 .44 39.8 21.1 34.6 47.4 18.5 18.7 79.49 33.75 47.4 59.7 29.5 54.68 93.4 27.87 37.2 95 53.61 91.77 79 42.11 57.87 63.5 39.91 58.68 597 .2 593 .5 590 .1 292 .5 292 .5 195 195 130 20,646 11,098 27,973 15,994 10,881 17,895 11,285 7,628 9 .8 7 .7 15 .8 20 .8 7 .6 24 .6 15 .9 21 .2 3 .62% 5 .35% 2 .11% 2 .74% 2 .69% 1 .09% 1 .73% 2 .60% 31 .36% 33 .90% 27 .60% 24 .60% 18 .10% 15 .80% 27 .50% 21 .30% 1 .83 1 .24 3 .25 2 .3 1 .93 4 .39 3 .71 3 .02 5,344 3,934 3,952 5,108 3,837 3,727 3,173 3,200 2,288 1,741 1,450 610 321 6 610 321 6 9 610 1,653 2,226 321 1,557 1,615 6 1,562 2,021 610 1,445 2,203 321 1,337 1,749 6 1,188 2,141 9 1,041 1,784 346 49 395 950 193 57 250 636 1,615 1,233 176 18 193 668 802 197 167 364 474 610 30 .93% 39 .58% 39 .52% 28 .29% 34 .84% 31 .87% 32 .80% 29 .69% 27 .82% 38 .38% 32 .72% 22 .79% 18 .69% 28 .66% 21 .77% 20 .96% 30 .47% 31 .18% 36 .31% 37 .95% 31 .58% 29 .30% 4 .74% 3 .71% 3 .62% 3 .81% 3 .54% 3 .12% 3 .06% 3 .50% 2 .48% 2 .01% 2 .89% 2 .45% 2 .18% 3 .08% 2 .94% 3 .08% 2 .90% 2 .37% 2 .09% 5,181 4,867 4,755 4,867 4,517 4,360 4,162 3,809 3,132 2,477 2,301 16,140 18,990 16,325 16,764 19,821 16,854 16,125 14,473 21,573 13,061 10,537 41,877 41,065 35,175 94,014 85,506 75,425 78,729 71,468 63,364 10,822 8,567 8,712 89,760 80,480 69,840 80,063 70,913 62,007 41,877 41,065 35,175 27,443 26,330 20,479 17,465 14,039 94,405 85,628 75,093 64,063 57,128 47,664 37,422 30,390 78,835 71,574 63,480 54,843 48,938 39,515 31,600 24,870 11,311 2,527 90,017 80,361 69,578 60,595 52,396 42,543 33,906 29,183 79,834 70,549 61,624 53,431 44,602 36,603 29,277 25,619 3,040 4,081 8,609 6,946 8,921 5,631 9,767 8,640 7,800 10,116 8,765 7,777 6,288 4,856 3,560 2,784 2,325 16 .59% 15 .79% 17 .63% 17 .33% 16 .11% 17 .71% 17 .01% 15 .19% 13 .70% 14 .14% 13 .83% 55 65 22 12 .20% 12 .53% 15 .66% 12 .20% 12 .53% 15 .66% 15 .28% 13 .74% 10 .17% 9 .59% 9 .78% 13 .59%*** 15 .40% 16 .92% 13 .59%*** 15 .40% 16 .92% 16 .53% 14 .99% 14 .70% 13 .60% 13 .10% 30 26 49 49 65 41 55 37 * Based on net profit available to distribution (after deducting staff profit share and board bonus) ** unadjusted to stock dividends *** As per Basel II regulations before profit appropriation Key Facts #1 Bank in terms of: Profitability, achieving EGP 2.2 billion in net income. Revenue among all Egyptian private sector banks with EGP 5.3 billion in total revenues. Net-worth among all Egyptian private sector banks. Market capitalization in the Egyptian banking sector. Loan and deposit market share among all Egyptian private sector banks. Our 5,181 employees serve some 589,648 customers . EGP 94 .0 bn in total assets . 119,611 internet banking subscribers . Over 500 of Egypt’s largest corporations bank with CIB . CIB: An Introduction A Strategy that Delivers CIB’s outstanding performance during the turbulent times since early 2011 re- veals that at CIB, our customers are our top priority. Our continued success de- pends not only on our ability to satisfy their evolving needs, but also to have them served in prime time. CIB prides itself on its remarkable performance in standing hand-in-hand with our clients during these unstable times. Our un- wavering commitment to our clients is the basis on which we will continue to provide our shareholders with consis- tent and high-quality returns. We believe a key component of our success is our skillful staff. CIB’s abil- ity to offer employees an attractive work environment, myriad career opportu- nities and comprehensive training and feedback, allows us to attract and retain the strongest banking professionals in Egypt. Our employees reciprocate with dedication to our customers and the wider CIB community. An Outstanding Track Record Our Vision To be the leading and most trusted financial institution in Egypt, admired for our people, strong core values and performance. Our Mission To create outstanding stakeholder value by providing best-in-class financial solutions to the in- dividuals and enterprises that drive Egypt’s economy. Through our innovative products, focus on superior customer service, development of staff and commitment to our community, we will realize our ambitions and pave the landscape of banking in Egypt for years to come. Our Objective To grow and help others grow. Our Values A number of core values embody the way in which CIB employees work together to deliver ef- fective results for our customers and community. Integrity: • Exemplify the highest standards of personal and professional ethics in all aspects of our business. • Be honest and open at all times. • Stand up for one’s convictions as well as accept responsibility for one’s own mistakes. • Comply fully with the letter and spirit of the laws, rules and practices that govern CIB’s business in Egypt and abroad. • Say what we do and do what we say. Client Focus: • Our clients are at the center of our activities and their satisfaction is our ultimate objective. • Our success is dependent upon our ability to provide the best products and services to our clients; we are committed to helping our clients achieve their goals and be the best at what they do. Innovation: • Since our inception as the first joint venture bank in Egypt, CIB has been a pioneer in the financial services industry. We believe innovation is a core competitive advantage and promote it accord- ingly. • We strive to lead the Egyptian financial services industry to a higher level of performance in serv- ing the millions of Egyptians who remain under-served or un-banked. Hard Work: • Discipline and perseverance govern our actions so as to achieve outstanding results for our clients and outstanding returns for our stakeholders. • Seeking service excellence guides our commitment to our clients. • We work with our clients to reach their current goals while anticipating and planning for their future objectives. Teamwork: • We collaborate, listen and share information openly within CIB and with our partners, clients and shareholders. • Each one of us consistently represents CIB’s total corporate image. • There is only one CIB in the eyes of our clients. • We value and respect one another’s cultural backgrounds and unique perspectives. Respect to the Individual: • We respect the individual whether an employee, a client, a shareholder or a member of the com- munities in which we live and operate. • We treat one another with dignity and respect and take time to answer questions and respond to concerns. • We firmly believe each individual must feel free to make suggestions and offer constructive criti- cism. • CIB is a meritocracy, where all employees have equal opportunity for development and advance- ment based only on their merits. A Word from Our Chairman In the wake of the revolution we protected middle management and junior ranks from salary cuts. Our rationale was clear: Rank and file and mid-level management are the engine of this institution. Systems Built and Lived by People, For People Managing an institution such as CIB through exception- ally challenging economic and political times on a regional and even international scale is primarily an exercise in ho- meostasis. Our goal is simple: To maintain our position as the nation’s leading private-sector financial institution, to maintain our credit quality, our risk profile and our abil- ity to respond creatively to new opportunities and threats alike. We have succeeded in doing so since 25 January 2011, which is a testament not just to the dedication and skills of our 5,181 employees, but to the soundness of the systems these same people have built in the decades preceding. It is for this reason that a spotlight on our investment in human talent is at the heart of this year’s annual report. Over a period of years, our staff have built an institution that rewards creativity, minimizes risk and maximizes pro- ductivity by recruiting, empowering and retaining profes- sionals capable of building the responsive systems that have made us what we are today: Egypt’s largest private-sector bank by assets, revenues and profitability. This has been possible because of a can-do culture that has been part of the fabric of CIB since our earliest days. The blueprint for success is as deceptively simple as it is difficult to implement: We seek business partners: There’s a reason why top- level management welcome middle management to our weekly meetings, allowing them to learn from and inter- nalize our debates and discussions. There’s a reason why we encourage this practice at all levels of the organization: Business partners build for the future and feel sufficiently in- vested in to deliver results come hell or high water. We specialize: We instill, manage and measure productiv- ity by creating area specialists. We are not jacks of all trades and masters of none. Every young fast-mover in our orga- nization is, first and foremost, someone who has the same entrepreneurial spirit and systems-backed approach that we look for in mid-career and senior-level recruits. Our staff are cross-trained, but they focus on specific areas and become industry-recognized experts. We are efficient: From planning to execution, we work at all costs to minimize wasted time. Our staff are our greatest asset, and the number of hours available to them in each day is finite. We retain our best and brightest: We don’t just look to recruit the highest-quality individuals possible, we also invest significantly in their professional development and retain them for the long term by acknowledging that their best interests are almost always the best interests of our in- stitution. We defy conventional wisdom: The global tendency in our industry is to cut wages, slash bonuses and reduce head count in times of crisis. That’s the obvious, mechanical mod- el: Hammer headcount and fixed costs. Not at CIB. We dig- in and persevere. Take 2011, when we clearly acknowledged that short-term savings on the backs of middle management and the rank and file is not the way to sustain — let alone enhance — our competitive edge in a 38-bank environment. In the wake of the Revolution, we protected middle manage- ment and junior ranks from salary cuts. It was not an ob- vious solution in our industry, but our rationale was clear: Rank and file and mid-level management are the engine of this institution. They repaid our 2011 investment with inter- est with their outstanding performance in 2012. We are nimble: Adaptation and change have become part of our culture, and we have stamped out both institutional stagnation and the cancer that is mental rust. Where other institutions would have taken half a year to study and debate responses to the challenges of 2011 and 2012, we pivoted our business plans in a matter of weeks. We show no fear: We are an institution of human beings, not machines. From the freshest recruit to senior manage- ment, we are impacted at work by the outside forces that shape our private lives: by the way we live and go home, by se- curity and the recurrent nightmare of night-time talk shows. We cope with difficult times such as these just as we did in the best of times: By learning how to operate with confidence outside our comfort zone. That’s what managing change is all about. Across the bank, our managers have shown a level- headed approach to business that has instilled confidence in staff throughout this institution. 2012 Performance as an Institution If you have read more than a single day’s front-page head- lines in any newspaper or website — or watched a single night of television — you know that it is an understatement to say 2012 presented a ‘challenging working environment.’ As bankers, we have a simple business model: We take deposits, and give out loans. It is a simple calculus in most circumstances, but an utter lack of visibility during the pro- tracted post-Revolutionary transition period made business judgment not a science, but a dark art. I was privileged, against this backdrop, to have worked in 2012 with Mr. Hisham Ramez as an equal partner. Hisham joined us from the Central Bank of Egypt, and having some- one with whom to share the burden of leadership was among the highlights of my year. Hisham made a substantial differ- ence in his time with the bank, and his departure to assume his duties as the Governor of the CBE is both our nation’s gain and this institution’s loss. He did great work here and we will definitely miss him. As we pray for his success, our mis- sion continues: "To create outstanding value for shareholders by being the best bank in Egypt, full stop." Based on our Board Charter, in the absence of one of the managing directors, the other assumes his responsibilities. Accordingly, I will temporarily assume Hisham's responsi- bilities as per the mandated authorities by the board. As I write these words, it is clear that the challenges of 2012 did not come to an end with the change of the calendar year. Our goal for 2013 is thus to maintain continuity in people and systems to allow us to mitigate risk at every turn. We will maintain a homeostatic position while we hope that early seeds of willingness on the part of the opposition and government alike to talk across factional lines blossoms. We look forward to bedrock political stability returning and to wise guidance by the new governor of the Central Bank of Egypt — two factors that we are confident will ultimately see the return of business confidence. As local businesses begin investing once more, pent-up foreign interest in Egypt to translate into fresh investment, attracted by enduring macro fundamentals, a sound finan- cial system and attractive asset prices. As this comes to frui- tion, we will be ready to deliver, calling on the same people who created the systems and processes that have allowed us to flourish as others have foundered on the rocks. Any organization can write policies and slogans, but con- sistent implementation is the key. Implementation and en- forcement on the ground year after year is what makes it part of your DNA. Hisham ezz el-Arab Chairman and Managing Director 8 Annual Report 2012 Annual Report 2012 9 Board of Directors’ Report Board of Directors' Report 2012 Macroeconomic Overview Egypt has been undergoing a period of profound socio-political change as it as- pires to improve its economic, political and social conditions post-revolution. Challenging conditions in both the do- mestic and global arenas have resulted in macroeconomic disruptions and kept growth and investment levels from reaching their full potential. The major challenge currently facing the Egyptian economy is a combination of reduced security and political instability, which raise investor concerns and negatively impact tourism, investment, employ- ment and production. to Egypt’s real GDP growth showed a relative improvement of 2.2% in FY 2011/2012 from 1.8% during FY 2010/2011 but remained significantly below average historical levels. The main sectors contributing this growth were agriculture, construction, telecommunications and real estate. Manufacturing and tourism, Egypt’s traditional economic growth drivers, showed only modest increases. Tourism grew by 2.3% (0.1% of real GDP growth) while manufacturing grew by only 0.7% (0.1% of real GDP growth). Tourism’s contribution to current account receipts has witnessed steady decline from 20% in 2010 to 17% in 2011 and to only 14% in 2012. Low investor confidence caused do- mestic investments to contract from 19.5% of GDP in 2010 to 17.1% in 2011 and 16.7% in 2012, while FDI came in at just a quarter of 2010 levels (0.8% of GDP vs. 3.1%). The lack of investor ap- petite contributed to lower levels of job creation and caused unemployment to reach 12.5% in 2012 (the highest level since 2002), from 11.9% in 2011 and 8.9% in 2010. Domestic savings declined from 14.3% of GDP in 2010 to 13% in 2011 and 9.1% in 2012 (lower than levels seen during the global financial crisis of 2008/2009). The budget deficit in- creased to 10.7% of GDP in 2012 from 9.8% in 2011 and BOP to GDP declined 10 Annual Report 2012 to (4.4%) in 2012 from (4.1%) in 2011 and 1.5% in 2010. Egypt recorded a significant drop of 58% in the Central Bank of Egypt's net international reserves, from USD 36 bil- lion in 2010 to USD 15 billion in 2012, as the CBE defended the Egyptian pound against devaluation pressures. As a re- sult, the USD / EGP exchange rate deval- ued from 6.03 at the end of 2011 to 6.31 by December 2012. Due to continued weakness in domestic demand as well as lower global commodity prices, inflation (consumer price index in urban areas) declined from 11% in 2011 to 8.6% as of November 2012. Despite the unfavorable economic backdrop, the Egyptian banking system Management's proactive actions in Q4 2011 and Q1 2012 to reposition the Bank against looming headwinds were instrumental in boosting product revenues. has remained relatively resilient, liquid and well-capitalized. The sector’s loan- to-deposit ratio declined to 47.8% (as of November 2012) from 49.5% in Decem- ber 2011. The local currency loan-to-de- posit ratio declined from 45.7% to 45.3% while the foreign currency loan-to-de- posit ratio declined from 61.7% to 56.2%. Total market deposits grew by 8.1% from EGP 989 billion in 2011 to EGP 1.07 tril- lion in November 2012 on increases of 8.2% and 7.5% in LCY and FCY depos- its respectively. Total market loans grew by 4.5% from EGP 490 billion in 2011 to EGP 512 billion as of November 2012, on a 7.2% increase in LCY loans and a 2.0% decline in FCY loans. The sharp increase in sovereign debt rates encouraged local banks to allocate a larger portion of their portfolio to sovereign assets. 2012 Financial Position The year 2012 was a record one for CIB on many levels. CIB recorded consoli- dated net income for FY 2012 of EGP 2,227 million, growing 38% from FY 2011. Standalone net income grew 26% over 2011 and 2.9% over 2010 figures to EGP 2,203 million. Total standalone revenues grew 36% over 2011 and 44% over 2010 to reach EGP 5,422 million, achieving their highest level of growth since 2008. Management’s proactive actions in Q4 2011 and Q1 2012 to reposition the Bank against looming headwinds were instrumental in boosting product reve- nues, which traditionally have not been major contributors to top and bottom lines. In 2012, CIB also witnessed great adaptability and responsiveness in pric- ing decisions, which led to a restructur- ing of the liabilities mix along with mar- ket share growth, while simultaneously securing profitability from a long-dated sovereign position as the Bank ventures into a more challenging 2013. In the core business, CIB recorded net interest income (NII) of EGP 4,084 mil- lion in FY 2012 constituting approxi- mately 75% of its total revenues. Of this figure, approximately 22% came from the sovereign bond portfolio, which grew by nearly 87% during the year. Net income from banking fees and commis- sions grew by 9% during 2012 to reach EGP 943 million as a result of solid business growth. Driven by strong NII growth, conser- vative asset growth and tight expense- control, 2012 saw improvements in all of the Bank’s key performance indicators. CIB recorded ROAE of 22.68% up from 22.04% in 2011 despite the impact of the higher equity base that resulted from the marking to market of the available for sale (AFS) bond portfolio. Driven by concern over the macroeconomic situ- ation and further delays in a return to growth, CIB maintained its cautious capital base, reflected in a comfortable capital adequacy level and CBE liquid- ity ratios. Board of Directors’ Report In 2012, CIB achieved its lowest cost- to-income ratio since 2008, which was primarily driven by NII growth, con- servative asset growth and controlled expense growth. CIB had ROAA of 2.45% up from 2.18% in 2011. Net inter- est margin (NIM) also continued its up- ward trend to reach 4.74% up 103 basis points (bps) from 2011. NIM was also positively impacted by management’s push to raise minimum lending rates and re-pricing floating rate loans to bet- ter reflect risk and enhance margins. Reflecting the prevailing economic conditions, CIB’s loan portfolio grew 3.3% from 2011 to reach EGP 44,351 million, with all growth coming from local currency loans. On the back of management’s actions to enhance ef- ficiency and improve portfolio quality, CIB’s loan market share declined from 8.77% in 2011 to 8.45% as of November 2012. One of management’s key goals for 2012 was to significantly restruc- ture the loan portfolio’s currency mix in favour of higher yielding local cur- rency loans, which increased by 6.5% from December 2011 to represent 57% of the total loan portfolio, up from 55% in 2011. CIB increased deposits to reach EGP 78,835 million, up 10.1% from 2011. Several pricing decisions were made throughout the year to manage the pace of deposit gathering and the Bank’s cost of funds. The bulk of 2012’s incremental deposits came in the form of certificates of deposit, with the remainder coming from saving accounts. Again, CIB was successful in reweighting its balance sheet towards local currency deposits, which reached 61% of the total portfo- lio (up from 58% in 2011). This achieve- ment is even more impressive when taking into account that the foreign currency portion of the balance sheet was boosted by a 5% devaluation dur- ing 2012. On the competitive landscape, CIB benefitted from the retrenchment of foreign competitors and achieved the fastest year-on-year revenue growth among its closest competitors as of the third quarter of 2012. CIB grew rev- enues by 34% from 2011 higher than peer banks. CIB’s deposit growth of 8.9% outpaced the overall deposit mar- ket growth of 8.1%, thus reaching a market share of 7.29% as of November 2012. Prudent Risk Management CIB is well-known for its conservative risk management strategy, aiming to take proactive steps at the earliest signs of weakening in accounts before actual downgrades in credit rating become a reality. Building on this track record, CIB took provisions of EGP 610 million for the full year. The Bank’s world-class risk management framework is reflect- ed in its best-in-sector asset quality and a high-class corporate loan book. Preservation of Asset Quality Despite the prevailing economic cir- cumstances, CIB maintained its asset quality and avoided significant deterio- ration, thanks to its effective credit cul- ture and stringent risk assessment mea- sures. CIB reported a 3.63% NPL ratio in 2012, which is amongst the lowest in the sector with an ample coverage ratio of 120%, further cementing a growth strategy underpinned by an emphasis on maintaining quality standards. Institutional Banking CIB is widely considered the traditional institutional banking leader in Egypt. Despite the impact of domestic politi- cal and economic disruptions in 2012, net income for Institutional Banking increased 18% from EGP 1.2 billion in 2011 to EGP 1.5 billion in 2012 repre- senting 61% of CIB’s total profitabil- ity. Management instituted minimum lending rate hikes to increase the prof- itability and quality of the Bank’s loan portfolio. Consumer Banking Following the January 25th Revolu- tion, CIB management adopted a more customer-focused strategy. Consumer Banking net income increased by 31% from 2011 to reach EGP 870 million in 2012, accounting for 39% of CIB’s total profitability. This growth was largely driven by acquiring LCY deposits of EGP 10.4 billion to serve as a stable funding base. As part of the Bank’s overall strat- egy to concentrate on alternative chan- nels in order to allow branches to focus more on retail customers and sales ac- tivities, CIB succeeded in offloading a greater portion of customer activities from branches to ATMs. In the drive to lower cash handling costs, tough deci- sions were taken regarding corporate’s top teller users that resulted in the re- duction of excess cash. Bancassurance was a key initiative for Consumer Banking in 2012, with revenues of EGP 38 million, an increase of 142% over 2011. Business Banking was another strategic focus for the year, adding EGP 1.8 billion of incremental net sales. Income Appropriation CIB’s primary objective is to enhance value for both customers and share- holders. The Board of Directors pro- posed the distribution of a dividend per share of EGP 1.25. CIB is increasing its Legal Reserve balance by 64% (EGP 149 million) from EGP 231 million in 2011 to EGP 380 million in 2012 and its General Reserve balance by 65% (EGP 803 million) from EGP 1,234 million to EGP 2,037 million. This reinforces CIB’s solid financial position as reflected in its Basel II Capital Adequacy Ratio of 13.6% (before net profit appropriation). 2012 Achievements In 2012, CIB for the first time joined the list of top 20 MENA region banks in managing and marketing syndicated loans (ranked 13th) and was among the leading mandated loan arrangers (ranked 18th) according to Bloomberg. This came as CIB arranged for three syndicated loans of USD 645 million and managed two syndicated loans of USD 575 million in addition to partici- pating in syndicated loans of USD 5.15 billion. In addition to ranking first in market share among Egyptian private-sector banks, CIB was also the only Egyptian bank to succeed in improving its rank- ing in the MENA region. CIB climbed 20 places from 2011 to 2012, capturing a market share of 3% in managing and marketing syndicated loans, vs. 0.4% in 2011, and rose 35 places among syndi- cated loan arrangers to capture a mar- ket share of 1.6%, vs. 0.5% in 2011. Subsidiaries CI Capital experienced its strongest performance in recent years and main- tained its third place overall ranking among the top 10 brokerage companies during 2012. CIBC achieved transac- tion volumes of around EGP 20.7 bil- lion on 503 million transactions cover- ing 2,895 million shares, to capture a market share of 7.1% in 2012. If a single outsized transaction is excluded, CIBC would actually be the brokerage market leader for listed companies. Expense control and a turnaround in broker- age were the key profit drivers for the Group. During 2012, the entire research team was restructured with the hiring of key talent. Additionally, a second managing director and vice president joined Investment Banking in Decem- ber 2012. It is expected that this new investment in human capital will have a strong impact on 2013 revenues. Awards and Recognitions An award-winning 2012 added another chapter to CIB’s success story. CIB has continued to receive global acknowl- edgment awards for the Bank’s excep- tional performance and reputation, ac- quiring a total of 12 awards in 2012. • Global Finance magazine acknowl- edged CIB with four awards; “Best Bank in Egypt” for the 16th time, “Best Sub-Custodian Bank in Egypt” for the fourth consecutive year, “Best Foreign Exchange Provider Bank in Egypt” for the ninth year and “Best Trade Finance Bank in Egypt” for the sixth year. • EMEA Finance recognized CIB as “Best Local Bank” for the fifth consec- utive year and “Best Asset Manager in Egypt” for the second consecutive year. • CIB was Global Investor ISF’s “Best Asset Manager in Egypt” for the third consecutive year as well as the “Best FX Provider in the Middle East” for the second time. • The Remittances Department was awarded the “Quality Recognition Award for Outstanding Achievement – Best-in-Class Book Transfer Rate” by JP Morgan. • Global Trade Review acknowledged CIB as the “Best Trade Finance Bank in Egypt” for the fourth consecutive year. • In addition, CIB earned the "STP awards for 2012 in USD and EUR.” Corporate Governance We believe that good governance is a cornerstone of our success at CIB and we are proud of CIB’s leadership posi- tion in board governance. The Board remains committed to continuous im- provement where we regularly review and update our practices. The overall corporate governance framework of CIB is directed by the Board and its sub-committees: Audit Committee, Corporate Governance and Compensation Committee, Risk Com- mittee, Management Committee, High Lending and Investment Committee. The Board and its committees are governed by well-defined charters and are tasked with assisting directors in fulfilling their responsibilities and ob- ligations with respect to their decision- making roles. Such task is further facilitated by the wide array of established internal poli- cies and manuals covering all business aspects such as credit and investment, operational procedures, staff hiring and promotion. CIB’s Board consists of nine members, seven of which are non-executive mem- bers with a wide range of industry exper- tise. CIB’s Board met six times over the course of 2012. In the event of a vacant Board seat, the Compensation and Gov- ernance Committee is responsible for nominating a new member. Among its defined set of responsibilities, CIB’s Board constantly monitors the Bank’s adherence to well-defined, stringently enforced and fully transparent corporate governance standards. The Board fulfils its commit- ment in the following manner: • Ensures that Board Members have a clear understanding of their roles in corporate governance. Annually re- views the size and overall composition of the Board and ensures it respects its independence criteria. • Through its Governance and Compen- sation Committee, the Board ensures that an appropriate review and selec- tion process for new nominees to the Board is in place. • Establishes the strategic objectives and ethical standards that will direct the on-going activities of the Bank, taking into account the interests of all stake- holders. • Establishes an internal control envi- ronment, which comprises systems, policies, procedures and processes that are in compliance with regulatory re- quirements. These control measures safeguard Bank assets and limit risks In 2012 CIB was ranked 13th on Bloomberg's list of top 20 MENA banks in managing and marketing syndicated loans and 18th on the list of mandated loan arrangers. as the Board, management and other employees work to achieve the Bank’s objectives. • Ensures that senior management im- plements policies to identify, prevent, manage and disclose potential conflicts of interest. The Board also oversees the performance of the Bank, its managing director, chief executive officers and se- nior management to ensure that Bank affairs are conducted in an ethical and moral manner and in alignment with Board policies. • Reviews and approves material related to disclosure and transparency docu- ments as may be required to conform with regulatory requirements or as may be determined by the Board from time to time. • Oversees a code of conduct to govern the behavior of directors, officers and 12 Annual Report 2012 Annual Report 2012 13 Innovative Financial Solutions In 2012, CIB increased the efficiency and availability of ATM's and conducted a soft-launch of new online banking applications to support the evolving needs of its customers. 119,611 internet banking subscribers. 5 Easy Branches, CIB's new teller- less branch concept in high-end areas using alternative cash channels. Board of Directors’ Report employees through an independent Compliance function reporting direct- ly to the Audit Committee. • The Code of Conduct sets CIB's core values as integrity, client focus, inno- vation, hard work, and respect for the individual. These values encompass CIB’s commitment to create a culture that adopts ethical business practices, good corporate citizenship, and an equal and fair working environment. At the same time, it promotes a culture of transparency, encourages a whistle- blowing environment and provides protection to the whistle-blower. The Central Bank of Egypt’s audi- tors and controllers conduct regular audit assignments and review reports submitted to them periodically. During CBE audit missions, CIB’s management ensures that the auditors are provided with all necessary documents to fully perform their audits. CIB’s internal audit team closely follows up with the Bank’s management to take all correc- tive measures with regards to CBE’s au- dit comments. Moreover, given the utmost atten- tion to maintaining the highest levels of corporate governance, CIB’s inves- tor relations team is committed to con- sistently sharing high quality informa- tion with all stakeholders regarding the Bank’s activities with emphasis on transparency. Operations Platform with International Standards The year 2012 was extremely exciting for the COO Area, which continued with its efforts to implement its agenda for improvement and standardization. All departments worked on a number of activities during the year. Substan- tial progress was made in Finance, HR, Premises, Operations, Marketing and Corporate Services. The progress pro- vides a framework for our strategy in 2013 and beyond. The COO Area continued to focus on the enhancement of customer experi- ence as one of the Bank’s key objectives in multiple areas including the brand- ing of branches and providing service and quality measurement tools across 16 Annual Report 2012 the network. In addition, the COO Area focused on aspects of Human Capi- staff-development tal Management, through effective training, enhancing performance management and apply- ing employee engagement initiatives. Innovative Financial Solutions During 2012, CIB Operations Group managed not only to sustain its high level of productivity and efficiency, but also took further steps towards being a proactive business partner. Multiple initiatives were undertaken to improve customer experience. These included launching non-negotiable standards, CIB Way and key service indicators, as well as standardizing multiple opera- tion procedures and customer forms to provide a consistent, smooth experi- ence for our customers. Standard pro- cessing times were also set in place for Our commitment to the country in which we live and operate is an integral part of our business culture. productivity enhancement. To support GTS customer transactions, an addi- tional 12 service hubs were added to our branch network along with a dedicated GTS operations unit. Improving the ef- ficiency of alternate channels was also a key development during this year. In 2012, CIB increased the efficiency and availability of ATM’s and conducted a soft-launch of a new online banking ap- plication to support customers’ evolv- ing needs. The new Bank-wide “Cross Selling” initiative was off to a solid start, with Consumer Banking staff making 650 referrals to Institutional Banking and IB staff referring 547 transactions to CB as of December 2012. CIB Premises Projects Department also undertook a number of key strate- gic initiatives that positively impacted the Bank’s external and internal cus- tomers in 2012. One of these initiatives was the “Easy Branch” concept, a teller- less branch model located in high-end premises mainly focusing on sales and using alternative cash channels. Five Easy Branches were opened in up-mar- ket residential areas by December 2012. CIB also expanded its distribution net- work, establishing 12 new branches, as well as enhancing its image and cus- tomer experience through the renova- tion of more than 10 branches and 40 wealth lounges with the new ‘wealth’ image. Focus on People CIB’s HR strategy for 2012 was to re- main focused on the Bank’s employees, working to increase both productiv- ity and motivation. With this in mind, a number of initiatives and projects were put in place. Through the “Focus on People” framework, CIB has dem- onstrated leadership and expertise in attracting top talent while promoting a highly engaged and motivating work environment. Recruitment During 2012, CIB continued to hire different levels of staff in various areas of the Bank, despite the country’s po- litical and economic situation. In total, 559 new employees were hired in 2012, compared with 295 new hires in 2011. Seventy per cent of all new hires in 2012 headed to Consumer Banking and branches. Moreover, the Recruitment Department participated in several ca- reer fairs and campus visits, aiming to attract the country’s best talent from its top universities. We have continued to seek the right prospects and to attract talent from top schools. CIB participated in the Har- vard Business School MENA conference and annual Employment Fair for the second year in a row. This participation has been with a view towards brand- ing CIB as an employer of choice for Egyptian students studying at top-tier universities. CIB is sought as an attrac- tive employer in Egypt for its valuable learning experience, modern culture, sustainability and leadership. Eleven Egyptian candidates have been identi- fied during the event and showed an interest in joining CIB. The department also played a significant role in selecting the 60 interns who joined our new Sum- mer Internship Program, which aims to attract the best candidates from the best universities to join the CIB team. On the corporate side, CIB ran its second Employee Engagement Sur- vey through Hay Group. About 80% of staff responded and provided feedback with their impressions of the work en- vironment. Survey findings showed a remarkably positive improvement over 2011 results. Presentations of the new findings have taken place with high- lights on areas of opportunity. Training In terms of training, 2012 moved in a more strategic direction in provid- ing training to staff. Our Management Training Programs were once again a great success. Training became more targeted by concentrating on key areas. New programs were introduced. Some of the programs were conducted by external vendors while others were de- veloped in-house and conducted by our own trainers. In 2012, the Training Department’s focus was to identify gaps in the knowl- edge and skills of staff and to deliver the appropriate educational courses to bridge these gaps. To achieve this objec- tive, the Training Department worked on a plan to provide educational pro- grams related to technical, management and business skills. Our highlight for the year was the number of programs that were developed and delivered by senior staff to enhance overall banking knowledge across all levels. A total of 4,500 staff members attended the differ- ent programs. A total of 49 participants from vari- ous areas in Consumer Banking and Operations enrolled in the Leadership and Development Program for Con- sumer Banking (LDP). The Leadership and Management Program for Senior Officers — which aims to create a sense of synergy and a unified vision for all senior management within CIB — con- tinued this year as well, with fifty par- ticipants attending and successfully completing the program. Also in 2012, our Credit Course was revamped by ex- ternal consultants and upgraded with new case studies and updated course material. Some of the new programs that were introduced this year includ- ed: Wealth Management, Supervisory Skills and a number of middle manage- ment programs. Some of the activities also includ- ed providing specialized training for Wealth Managers, Road to Manage- ment for first time supervisors, Middle Management training, Finance for Line Managers, Advanced Consumer Risk, Advanced Sales Management, Product Knowledge, and specialized programs in Operations. These programs, as well as training programs on soft skills like skills, presentation communication skills and advanced negotiation skills, provided a vast array of training oppor- tunities to select from. These efforts were recognized by staff and management and evident in the Employee Engagement Survey which showed a marked improvement as compared to 2011. We look forward to a more exciting 2013 as we introduce more programs such as the Basic Bank- ing Program for new hires, Job-Family- based series of training programs, and targeted technical training programs. Organizational Development In order to increase employee interac- tion and ensure their voices are heard, HR administered several initiatives to maintain communication with employ- ees, including the Employee Engagement Survey, the Salary Surveys and various Town Hall meetings. Salary Surveys were conducted to assess compensation and benefits across the market, with more emphasis on critical / executive po- sitions to ensure that the Bank is aligned with current market levels. The Standardization of Job Families initiative was also launched to ensure employees have a clear understanding of their roles in achieving the Bank’s strategy and mission. Corporate Social Responsibility Our commitment to the country in which we live and operate is an integral part of our business culture. Contribut- ing to our country’s prosperity and wel- fare has always been among CIB’s top priorities. CIB always works on trans- lating its social responsibility commit- ments into actions. We are immensely proud of supporting Egypt during these turbulent times and are proud of the broad impact that our time, effort and resources have had on our community. CIB Foundation Now in its third year of operations, the CIB Foundation has successfully expe- rienced exponential growth in its activ- ities. Following the success of the CIB Foundation in 2011, CIB shareholders generously agreed to increase the per- centage of CIB’s net annual profit to the Foundation from 1% to 1.5%. This translated into more than EGP 26 mil- lion being allocated to the CIB Foun- dation in 2012. It is with this funding that the CIB Foundation is making valuable contributions in the areas of child health and nutrition through vari- ous multi-faceted initiatives, includ- ing renovating and upgrading hospital infrastructure, purchasing medical equipment for hospitals and providing surgical and medicinal treatment to un- derprivileged children. Additionally, the CIB Foundation ac- tively supports its initiatives with con- tributions made to its dedicated fund raising account. Fully 100% of the do- nations made to the account go towards the implementation of development projects for children. Through the coor- dinated efforts of both CIB Foundation staff and dedicated CIB volunteers, the Foundation ensures its resources are spent efficiently and reach the greatest number of beneficiaries. In January 2012 the Foundation ful- filled its annual commitment to the Children’s Cancer Hospital 57357. This donation is part of a five-year partner- ship that began in 2009 in which the hospital receives EGP 2 million in fund- ing per year to be used for general op- erational purposes. Numerous CIB volunteers also par- ticipated in two events sponsored by the Children’s Cancer Hospital 57357, including the hospital’s five-year an- Annual Report 2012 17 Board of Directors’ Report niversary where volunteers distributed gifts to visiting cancer survivors and current hospital patients, as well as the third annual Terry Fox Run in Egypt, supporting children’s cancer research at the hospital. The Magdi Yacoub Heart Founda- tion (MYHF) has been a long-standing partner of both CIB and the CIB Foun- dation. In January 2011, a protocol of cooperation was signed between the two foundations for the development and outfitting of a Pediatric Intensive Care Unit (PICU) in Building 2 of the Aswan Heart Centre. The new EGP 13 million PICU will provide state-of-the- art postoperative care to neonates, in- fants and children ranging in age from new-born to 16 years free of charge. The CIB Foundation’s donation covered the costs associated with the Unit’s medi- cal and non-medical equipment. The PICU had a soft opening in November 2012, and is expected to celebrate its grand opening in the first half of 2013. In August 2012, the CIB Foundation al- located EGP 2 million to MYHF for the full sponsorship of the children’s play- room in Building 2 of the Aswan Heart Centre. In the same month, EGP 6 mil- lion was allocated to MYHF to cover the costs associated with 100 children’s open-heart surgeries. The donation is being disbursed in two equal tranches, with the first tranche of EGP 3 million distributed in September 2012. Moreover, in August 2012, an EGP 2 million Cooperation Agreement was signed with the Friends of Abou El Reesh Children’s Hospitals Organi- zation to cover the annual operating expenses of the new ICU. The annual donation will be used to support staff salaries and incentives, medical and ad- ministrative supplies, infection control and for the provision of computers and other ICU equipment. This was not the only donation to the Friends of Abou El Reesh Children’s Hospitals Organization: In 2011, the Friends of Abou El Reesh Children’s Hospitals Organization turned to the CIB Foundation for support in renovat- ing El Mounira Hospital’s Blood Clinic. The CIB Foundation’s EGP 800,000 donation was used to upgrade the 18 Annual Report 2012 roughly 700-square-meter Blood Clinic by restructuring it to streamline move- ment, prevent overcrowding, provide adequate space for beds and chairs for blood transfusions as well as providing a waiting area for family members. The donation also covered the costs of ad- ditional computers to develop an elec- tronic patient database and supporting blood donation campaigns to offset the current supply deficit across Egypt. The renovated Blood Clinic opened its doors in January 2013. Through the Rotary Kasr El Nile orga- nization, the CIB Foundation commit- ted EGP 1.5 million to fund 1,000 eye surgeries for children through the Chil- dren’s Right to Sight (CRTS) program. Operational for the past six years, CRTS is dedicated to eradicating blindness by supporting children and infants requir- ing immediate eye surgery. Through partnerships with the El Nour Eye Hos- pital in Mohandiseen and the Eye Care Hospital in Maadi, the CRTS team will oversee 1,000 cataract and glaucoma operations for underprivileged chil- dren. The CIB Foundation and CIB staff are proud to partner and volunteer with Rotary Kasr El Nile on this project. Pay- ment for the first round of surgeries was completed in November 2012. In 2012, the CIB Foundation reaf- firmed its partnership with the Gozour Foundation for Development, the non- governmental arm of the Centre for Development Services (CDS). In Au- gust 2012, the Foundation donated EGP 478,170 to fund 10 eye exam caravans for public elementary schools in Cairo, Alexandria and Minya through the 6/6 Eye Exam Caravan Program. Through a partnership with the Alnoor Magrabi Foundation, the caravans are designed to provide public school students with eye exams, eyeglass frames and lenses, eye medication and in-depth eye exams at private hospitals for complex cases. Each caravan is fully equipped with eye exam machines; 15-20 doctors, nurses and co- ordinators; a fully equipped pharmacy; and an eyeglasses shop. Each one-day caravan targeted 450 children, with a total of 4,500 children receiving free eye exams and care by the end of the project. The project also presented valuable opportunities to volunteers from the CIB family to engage with the local community and spend quality time with the less privileged. Volunteers from head offices, regional offices and branches across the three governorates actively participated in the program. In December 2012, the CIB Founda- tion donated EGP 1 million to the Ya- hiya Arafa Foundation for the upkeep of the three Pediatric Units at the Ain Shams University Hospital. The Yahiya Arafa Foundation has been instrumen- tal in purchasing high-end equipment, as well as training the nurses and doc- tors working in these units. The CIB Foundation strongly believes in ensur- ing the sustainability of its projects, and believes that supporting the Yahiya Arafa Foundation in its operations will ensure the smooth running of the pre- viously supported units. The donation will be used to cover human resources, equipment maintenance, operating costs and academic research. In line with CIB and the CIB Foun- dation’s commitment to community fostering quality development and in educational opportunities in post- revolution Egypt the CIB Foundation established the ‘CIB Foundation Fel- lowship for Science and Technology’ at Zewail University. In the first phase of this partnership with the Zewail City of Science and Technology, the CIB Foundation Fellowship will support 50 Egyptian public school graduates pursuing degrees in the sciences and engineering, at a total cost of roughly EGP 5 million. Going forward, the CIB Foundation seeks to continue its commitment to en- hancing health services for underprivi- leged children in Egypt, supporting mega projects in the health sector and providing world-class educational op- portunities. The Foundation also seeks to expand its volunteer activities and more actively involve CIB employees in its community development projects. Social Development Throughout its history, CIB has been committed to engaging all its stake- holders in a sustainable and responsible manner. CIB is one of the most active CIB's highly engaging and motivational environment continues to attract top talent Key Figures from 2012 Balance Sheet (in EGP billions) a. Standalone CIB Total Assets Contingent Liabilities and Commitments Loans and Advances to Banks and Customers Investments Treasury Bills and Other Governmental Notes Due to Customers Other Provisions Total Equity Balance as of 31/12/2012 94.4 Balance as of 31/12/2011 85.6 % Change 10.28% 14.9 41.9 27.8 8.0 78.8 0.3 11.3 12.6 18.24% 41.1 17.1 9.2 71.6 0.3 8.9 1.95% 62.44% -13.28% 10.06% 17.36% 26.97% b. Consolidated CIB and CI-CH Total Assets Contingent Liabilities and Commitments Loans and Advances to Banks and Customers Investments Treasury Bills and Other Governmental Notes Due to Customers Other Provisions Total Equity Balance as of 31/12/2012 94.0 Balance as of 31/12/2011 85.5 % Change 9.96% 14.9 41.9 27.2 8.0 78.7 0.3 10.8 12.6 18.24% 41.1 16.4 1.98% 65.92% 9.3 -13.80% 71.5 0.3 8.7 10.07% 16.24% 24.39% Income Statement (in EGP millions) a. Standalone CIB Interest and Similar Income Interest and Similar Expense Net Income from Fee and Commission Net Profit After Tax Jan.1, 2012 to Dec.31, 2012 Jan.1, 2011 to Dec.31, 2011 % Change 7,846 5,459 43.72% -3,945 -2,781 41.86% 836 2,203 778 7.37% 1,749 25.94% b. Consolidated CIB and CI-CH Interest and Similar Income Interest and Similar Expense Net Income from Fee and Commission Net Profit After Tax Net Profit After Tax and Minority Interest Jan.1, 2012 to Dec.31, 2012 Jan.1, 2011 to Dec.31, 2011 % Change 7,859 5,471 43.65% -3,946 -2,781 41.88% 926 2,227 2,226 843 9.85% 1,614 1,615 37.98% 37.84% CIB's Corporate Credit Training Program has become a key competitive advantage for the bank. financial institutions to support the community via a clear Corporate Social Responsibility (CSR) strategy. In the last year, CIB focused on devel- oping aspects of society that will ultimate- ly lead to the betterment of our commu- nity. These aspects include human, child, health and economic development. Originating from a conviction that education is key to a sustainable soci- ety and that the quality of education tremendously impacts a community, the Bank supports several educational institutions via charitable donations and event sponsorship. Sponsoring pro- grams that aim to build tomorrow’s na- tional leaders such as Enactus (formerly Students In Free Enterprise - SIFE) and its one-day National Competition — where an array of teams from Egypt’s most prominent universities compete for a chance to represent Egypt at the annual Enactus World Cup — will un- questionably improve Egypt’s future by creating new leaders, who will promote further solutions and sustainable im- provements to the living standards of disadvantaged communities. Moreover, CIB’s ongoing support of environmental initiatives was aug- mented last year with the implementa- tion of the CIB Going Green Program at our head offices. The program aims to encourage environmentally friendly attitudes among CIB employees by promoting awareness on how to save paper, water, electricity and other con- sumables while encouraging positive changes in employees’ habits. Our con- servation efforts this year also included the introduction of energy-saving lights and water-flow restrictors. Addition- ally, our Going Green drive in 2012 saw the introduction of an initiative at our Smart Village premises ensuring that all corporate branding displays are printed with eco-friendly ink along with all façade exhibits at CIB branches. CIB is also working on instigating various other sustainability initiatives based on its continued commitment to environ- mentally-aware practices. Furthermore, the Bank is honored to have supported local artists over the years as part of its CSR focus on the promotion of arts and culture. In 2012 CIB collabo- rated with the Fine Arts Division at the Egyptian Ministry of Culture to endorse a new generation of young, talented art- ists. In this effort, a national art competi- tion was organized to exhibit a collection of their artworks under the patronage of CIB. Inspired by the artwork in the competition, a book entitled “Egypt the Promise, Edition 2” was designed and published by CIB to commemorate the event. Further CIB support for the Arts during the year came through the Bank’s sponsorship of the Egyptian Philharmon- ic Society to back Egyptian musicians performing classical music. The Bank also continued its efforts to boost community health campaigns by collaborating with the Children’s Can- cer Hospital 57357 and the Canadian Embassy. Volunteers from the Bank participated in the four kilometer Terry Fox Run around the AUC campus. All proceeds from the event went towards children’s cancer research at the 57357 Hospital. Additionally, CIB has been taking part in blood donation programs to help meet blood transfusion needs in Egypt. In a continuation of this effort, and under the supervision of the Min- istry of Health, CIB conducted a three- day blood donation campaign earlier this year at a number of its branches around Egypt to encourage staff mem- bers to donate. Annual Report 2012 21 2012 Review 2012 Review Institutional Banking Corporate Banking Group Known across the Egyptian market for its strong credit culture, the Corporate Banking Group is CIB’s financing and underwriting arm that provides best- in-class financial structures and advi- sory services to its clients. The Group caters to the financing needs of large companies with annual sales figures above EGP 150 million. Yet, realizing the important role of medium size com- panies in the Egyptian economy, the Group has also, over the past few years, broadened its scope to include services for these companies. The Corporate Banking Group’s fore- most goal is closely aligned to advanc- ing the nation’s economic development. Accordingly, it is committed to closely monitoring the performance of the projects and economic entities that CIB finances to ensure their viability. The Group believes that economic viability on the micro level is certain to contrib- ute to — and promote — macroeco- nomic welfare. The Group’s mission is to enhance its position as the top corpo- rate bank in the Egyptian market, while maximizing value for its shareholders, employees and the community. the Corporate Banking Group’s competitive advantages include: • Strong corporate business model. • Highly experienced staff reinforced by continuous training to keep pace with latest industry and technical know-how. • Strong customer base with a healthy and diversified portfolio that is well- positioned in primary growth indus- tries including, but not limited to: Oil and Gas, Power, Petrochemicals, Infrastructure, Food and Agribusi- ness, Tourism, Shipping and Ports, and Real Estate. • Ability to provide a wide and innova- tive array of financing schemes. ating potential future growth oppor- tunities for the Group. 2012 Key Achievements • Continued to be the primary con- tributor to CIB’s bottom line profit- ability, generating almost 70% of the Institutional Banking Group’s prof- its. • Increased Group cross-selling activi- ties to enhance CIB’s share of wallet to reach 23% in 2012. • Helped alleviate the effects of adverse market conditions by expanding lo- cal currency lending to clients, giving special attention to working capital finance. The Debt Capital Markets team continues to play a unique role in the local market by structuring and placing complex securitization structures. • Introduced more innovative distri- bution channels to its customer base, such as e-banking, with 50% of cor- porate clients now using CIB’s online services. In 2013, CIB’s Corporate Banking Group will pursue the following objectives: • Increase focus on cross-selling activi- ties to capture new business and ex- pand CIB’s market share. • Expand CIB’s loan portfolio with em- phasis on financing mid-cap projects. • Grow trade business services in or- der to enhance the Bank’s fee income stream. • Expanded scope of corporate bank- ing to include companies with sales revenues above EGP 50 million, cre- • Promote uptake of the e-trade plat- form and CIB’s online portals to cov- er 70% of our corporate client base. • Enhance the Business Enhancement Unit to better service corporate and mid-cap clients. • Roll-out the electronic credit approv- al system (e-Cam). Debt Capital Markets Division The Debt Capital Markets Division has an unprecedented track record and un- paralleled experience in underwriting, structuring and arranging large-scale project finance, syndicated loans, bond issues and securitization transactions, all of which are supported by a dedi- cated agency desk. Despite continued turbulence wit- nessed across the market in 2012, the Debt Capital Markets team success- fully executed five prime deals worth more than EGP 12.4 billion — up from EGP 10 billion worth of deals in 2011 — while also focusing on restructur- ing and refinancing existing deals. The 2012 financing deals were primarily in Petrochemicals, Oil and Gas, Telecom- munications and Real Estate. Building on its reputation for excellence in the field of structuring and arranging deals, CIB played key roles as initial mandated lead arranger, agent, security agent and / or book runner in the majority of these transactions. The Debt Capital Markets team has also laid the foundation for fu- ture income generation with a pipeline of deals totaling EGP 38.4 billion. The Debt Capital Markets team also continues to play a unique role in the local market by structuring and placing complex securitization structures. In 2012, the division structured and placed the only local securitization deal for non-bank financial institutions in the market, with a total issue size of EGP 158 million, while working on another mandated transaction worth EGP 3.2 billion that is expected to close in 2013. As an ongoing strategy, Debt Capital Markets aims to: • Continue playing a vital role in eco- nomic development by mobilizing 24 Annual Report 2012 CIB is Egypt's leading institutional bank Net income for Institutional Banking increased 18% to EGP 1.5 billion in 2012, representing 61% of CIB's total profitability. 2012 Review funds for large ticket project finance deals and syndication transactions. • Position itself to raise the required debt to fund Egypt’s substantial In- frastructure and Power investments whether implemented by public sec- tor companies, or via IPP or PPP pro- grams. • Introduce new financial tools to lead the development of capital markets in Egypt. • Continue to support client needs for diversified funding sources through innovation in asset-backed securities. Financial Institutions Group The Financial Institutions Group offers a variety of quality products and ser- vices through three divisions, including the Correspondent Banking Division (CBD), Non-Banking Financial Insti- tutions Division (NBFI) and Finance Programs & International Donor Funds Division (FP & IDF). Correspondent Banking Division (CBD) CBD is the point of contact for local and foreign banks working with CIB. The division is responsible for: • Securing outgoing business for CIB. • Monitoring and directing business to banks. • Attracting trade business and han- dling related negotiations. • Marketing and cross-selling CIB products. • Acting as liaison for solving prob- lems (if any) between banks world- wide and CIB’s departments in order to facilitate and improve workflow. • Offering support and new solutions to CIB clients through strategic al- liances with various correspondents under trade finance and cash ser- vices. • Supporting departments other through our role as Relationship Of- ficers for banks. • Searching for new business opportu- nities. • Explored new markets in Asia, Africa and Latin America. • Maintained a well-diversified forfeit- ing portfolio and continued expand- ing risk participations on both direct and contingent business. 2013 Strategy: • Continue to shift focus from West to East (China, India, S. Korea and Tur- key). • Maintain a focus on Egypt. • Consolidate and sustain our key rela- tionships in the West. • Introduce new revenue-generating products and expand our coverage into new markets. • Identify new quality bank relation- ships. • Minimize / rationalize exposure to PIIGS (Portugal, Italy, Ireland, Greece and Spain) non-Banking Financial Institutions Division (nBFI) NBFI is a credit-lending division under the Financial Institutions Group. It pro- vides credit facilities, liability products and services to all types of non-bank financial institutions. Targeted clients include leasing, insur- ance, securities brokerage, car finance, factoring and investment companies. Activities: • Identifying customer needs and as- sociating such needs with relevant facilities such as: short-term lending, long-term lending, contingent busi- ness, securitization transactions, etc. • Focusing on key market players with relatively moderate risk. Operating Strategy: • Regular contacts with existing and potential customers. • Stay updated with customers’ busi- ness needs. People: • Continuously invest in training for team members. 2012 Achievements: • Succeeded in controlling and main- taining portfolio risk at moderate levels and managed an effective col- lection of loan portfolio payments through the application of a well- controlled credit policy. • Grew its loan portfolio compared to 2011 despite market volatility and in- stability resulting from political con- ditions. • Established new limits for existing credit insurance companies and tar- geted new accounts to accommodate contingent business targeted in 2013. 2013 Strategy: • Maintaining our market share with existing relationships while targeting growth in auto finance and insur- ance. • Focus on the liability side through an aggressive marketing plan for the Bank’s attractive liability products. • Reinforce our cross-selling strategy to provide our customer base with global banking services through CIB’s innovative product mix. Finance programs & International Donor Funds Division (Fp & IDF) The Finance Programs and Internation- al Donor Funds (FP & IDF) Division manages development funds and credit lines provided by governmental entities and international agencies, as well as managing CIB’s microfinance portfolio. The Division is also engaged in environ- mental friendly projects designed for the preservation of natural resources. Main Functions • Agency Function: Handles the agency function for several funds, grants, and credit lines, by providing tailored op- erational mechanisms and prudent investment and fund promotion. • Participating Bank Function: A partic- ipating function in special programs that give CIB a competitive advan- tage among its peer group. 2012 Achievements: • Achieved higher trade finance vol- umes. • Maintain a strong database to stay updated with market trends and po- tential customers. • Microfinance Business: Manages CIB’s direct microfinance portfo- lio through a microfinance service company and indirect microfinance portfolio by lending to NGOs (Non- Governmental Organizations). 2012 Achievements: • Agency Function: Despite prevailing economic conditions, FP & IDF suc- ceeded in maintaining its lead posi- tion as an Agent bank in the market. • Participating Function: Preferential credit funds of around EGP 60 mil- lion were provided to CIB customers for agriculture as well as pollution abatement. • Loan Contract: A loan contract amounting to EGP 100 million sup- porting the poultry sector was signed with the Social Fund for Develop- ment (SFD). • Microfinance: CIB’s microfinance portfolio, disbursed through a ser- vice company and partially financed by the Spanish government, ap- proached EGP 100 million. • Cross Selling: The Division contrib- uted to cross-selling CIB’s various re- tail products, including credit cards, consumer loans, etc. 2013 Strategy: • Maintain our lead position as an Agent bank dominating donor funds. • Attract funds and participate in pro- grams. • Increase CIB’s microfinance market share. Direct Investment Group (DIG) "A Local Partner with International Standards" Business profile: The Direct Investment Group is CIB's investment arm, introducing equity fi- nance as an additional solution to ex- isting and potential clients. DIG's main focus is to identify, evaluate, acquire, monitor, administer and exit minority equity investments in privately owned companies that possess commercial value for CIB. Invested funds are sourced from CIB's own balance sheet, whereby the invest- ment process is governed by a clear and strict set of parameters and guidelines. Our primary objectives encompass generating risk-adjusted attractive, financial returns for our institution through dividend income and capital appreciation, as well as enabling CIB to offer a broad spectrum of funding alter- natives to support clients' growth. We commit to excellence by adopting industry best practices and creating a "win-win" situation for all stakeholders. This commitment is supported by our unique value proposition and experi- enced team. Highlights and Accomplishments: Direct Investment activities in Egypt experienced another challenging year in 2012. Political instability and a high de- gree of uncertainty were reflected in an CIB's 2013 strategy will see the bank introduce new revenue generating products and expand coverage into new markets. overall modest economic performance and a reduced investor appetite. Yet, DIG believes such market conditions cre- ate opportunities for local investors to reshuffle their portfolios and add qual- ity assets at reduced prices. Throughout the year, DIG remained supportive of its portfolio companies in order to maintain their market positions and to preserve solid balance sheets. The following rep- resent major accomplishments for 2012: • On the portfolio management front, DIG provided additional growth capital to three of its subsidiary com- panies. DIG also remained very sup- portive of its remaining portfolio companies through active participa- tion at the Board of Directors level. As always, DIG maintained ongoing dialogue and provided consistent professional advice to portfolio com- panies’ management teams. • Based on a solid pipeline of potential investments, DIG assessed the acqui- sition of a number of lucrative and sizable investment opportunities. Fi- nal agreements related to one sizable investment were signed in December, with deployment of funds expected to occur in January, 2013. • DIG successfully exited one of its portfolio companies and finalized the terms of exit from another portfolio company, generating returns for CIB. Strategy Going Forward: DIG plans to continue providing support to existing portfolio companies. Despite the prevailing restrained investment en- vironment, DIG remains positive on the long-term outlook based on a true belief in Egypt’s solid fundamentals. Accord- ingly, DIG plans to pursue growth in defensive sectors showing relative resil- ience to economic instability. Strategic Relations Group (SRG) Catering to approximately 70 of the world’s leading donor and development agencies, as well as the majority of their sovereign diplomatic missions, the Stra- tegic Relations Group is a unique func- tion amongst its peers in the banking industry. SRG is a small “focus group” of professionals dedicated to bridging the gaps between CIB’s streamlined ser- vices and the distinct expectations of its clients. SRG’s high-quality, individual- ized bouquet of services extends beyond standard banking to include innova- tive, tailor-made products and services designed to accommodate the unique business and operational needs of these institutional clients. During 2012, SRG’s client base was expanded beyond CIB’s prime institu- tional depositors, which constitute a substantial portion of CIB’s stable fund- ing. Through its “Japan Desk” initiative, SRG was able to attract substantial new FDI from major Japanese corporations and channel it to other areas of the Bank, namely Corporate Banking and Trade Finance. CIB remains committed to fostering these relationships by continuing to 26 Annual Report 2012 Annual Report 2012 27 render support to and sponsorship of SRG to ensure client satisfaction, as well as shareholder value. Treasury & Capital Markets (TCM) CIB’s Treasury & Capital Markets De- partment is a top profit center for the Bank, providing clients with a wide range of products and services. The department deals primarily with large corporate clients and mid-cap compa- nies as well as high-net-worth individu- als. TCM also deals with businesses that are connected to CIB branches as well as with financial institutions, including funds, insurance companies and others. TCM provides products including foreign exchange and money market trading activities, primary and second- ary government debt trading, manage- ment of interest rate gaps (with associ- ated hedging) and pricing of foreign and local currency deposits. Foreign exchange and interest rate products are used by our customers for both investment and hedging. Our wide range of products cover direct forwards and simple / plain vanilla options, in addition to a wide array of options structures such as premium embedded options, participating forwards, zero- cost cylinders, boosted call / put spread, interest rate swaps, interest rate caps / floors / structured products. The team provides the Bank’s clients with an incomparable quality of service around the clock including Fridays and holidays with daily market commen- tary, weekly technical analysis and an SMS service that displays rates of our main currencies. TCM promptly ac- commodates customer requests to help clients avoid market fluctuations. 2012 performance In 2012, TCM witnessed a notable in- crease in the volume of foreign exchange transactions from third counterparty trading. Third counterparty trading is a tool offered by CIB where importers pay their suppliers in the original country of the unconventional currency. Consum- ers and retailers use third counterparty trading if they need to transfer an un- The TCM team provides the Bank's clients with an incomparable quality of service around the clock including Fridays and holidays. conventional currency to their foreign bank account – e.g., Chinese yuan to their local bank in China. Asset and Liability Management (ALM) Part of the Treasury Group, the Asset and Liability Management Department is responsible for managing the Bank’s liquidity and interest rate risk within external and internal parameters, while complying with the Central Bank of Egypt’s (CBE) regulatory ratios and guidelines. The department is also re- sponsible for managing the Bank’s Nos- tro accounts, overseeing its proprietary book and setting loan and deposit pric- es. ALM’s main objectives are liquidity management, maximizing profitability and product development. 2012 performance Despite unfavorable market conditions prevailing post-revolution — as well as volatility in international markets — ALM was able to preserve its sound liquidity and interest rate levels. This allowed the department to seize mar- ket opportunities in order to enhance the Bank’s net interest income and net interest margin, all while maintain- ing healthy regulatory ratios as well as internal and Basel III measures. ALM actively encouraged and participated in aggressive deposit-gathering measures, which resulted in the growth of the Bank’s total deposit base. Additionally, the Bank’s loan portfolio experienced major growth during 2012. 2013 Strategy Looking forward to 2013, turbulence in both the local and global economic envi- Annual Report 2012 29 2012 Review ronments is expected to continue in the near term. Accordingly, ALM’s strategic initiatives will continue to include pru- dent and sound management of liquidity and interest rates through the diversifica- tion of funding options and investments, as well as through the introduction of new products. Further initiatives will in- clude enhancing the Bank’s performance and capital management framework. Global Transaction Services Group (GTS) An accelerated pace of technological change is significantly impacting the way business is conducted. By adopting new technologies, many businesses are looking to streamline and automate key processes and functions, resulting in improved con- trols and decreased internal costs. The Global Transaction Services Group within CIB has been formed to ensure that the ever-changing tech- nological demands of our clients are addressed efficiently. Accordingly, the Group has a mandate to introduce new channels and products to Corporate and Business Banking clients. GTS serves as a key product group within the Bank and oversees the product areas (and associated delivery channels) for trade finance, cash man- agement and payments, and global se- curities services. The Group’s primary objectives are to facilitate and minimize the turnaround time for executing transactions, as well as providing transparency, efficiency and value-added services to clients by offering a comprehensive range of transactional banking products and services, with a key focus on superior customer service and efficient transaction processing capabili- ties. These objectives include not only the enhancement of existing products or the development of new ones, but also focus on the delivery channels through which these products are offered and serviced. GTS is responsible for the product management, development and support associated with the three key businesses: trade Finance CIB is a market-leading and award-win- ning trade finance institution offering standardized trade service products (LCs, LGs, IDCs, etc.), as well as non-conven- tional trade finance solutions including forfeiting and structured trade finance. CIB also offers a range of channels through which clients can submit applications and associated documents, including dedi- cated trade hubs and an innovative online trade channel, CIB Trade Online. Cash Management & payments CIB provides both standardized and tai- lored cash management products and solutions that improve the management of incoming and outgoing payments, as well as streamlining reconciliation and information management, and en- hancing working capital efficiency. The product offering includes a number of innovative payments and payables prod- ucts, collection and receivables products, and standard and tailored information reporting delivered through a variety of channels including new online banking channels, CIB Cash Online and eACH. Global Securities Services (GSS) CIB Global Securities Services is a mar- ket-leading and award-winning sub- custodian bank, offering a broad range of custody and securities products and services to institutions, individuals and government entities. CIB is the sole sub-custodian for all Egyptian Deposi- tory Receipt programs and the leading provider of trustee services in the mar- ket. The offering includes local and in- ternational custody services, local sub- custody services for GDR programs and trustee services for securitization trans- actions. 2012 performance Launched CIB Trade Online CIB Trade Online is CIB’s market- leading online trade channel. The team spent 2011 analyzing the needs and re- quirements of CIB’s clients and reached two key conclusions: Clients are seeking more efficient ways to initiate their trade finance transactions and want faster turnaround times. CIB Trade Online addresses both of these requirements by allowing clients to submit all their trade finance transactions through a fully secured online channel which is seam- lessly integrated with CIB’s trade opera- tions for immediate execution. Achievements: • The total number of CIB Trade On- line subscribers jumped 159% Y-o-Y in December 2012. • The total number of CIB Trade On- line transactions jumped 319% Y-o- Y in December 2012. • The percentage of total Bank trans- actions made through CIB Trade Online jumped to 12% in December 2012, from 3% in December 2011. Introduced Dedicated Trade Hubs: CIB’s dedicated Trade Hubs are trade fi- nance centers of excellence in select high transaction volume zones for clients pre- ferring to use branches for their primary dealings with the Bank, rather than an on- line channel. These dedicated Trade Hubs are specifically designed to provide accel- erated turnaround times on trade finance transactions and to ensure a high level of service by employing well-trained trade specialists to execute client transactions. Achievements: • The total number of Trade Hubs in December 2012 was 25, up 92% from 13 in December 2011. • The percentage of total bank trans- actions made through Trade Hubs jumped to 68% in December 2012, from 39% in December 2011. • The percentage of total bank trans- actions made through CIB Trade Online and Trade Hubs combined amounted to 80% in December 2012. Launched CIB Cash Online: CIB Cash Online is the Bank’s new online banking channel, offering customers a ro- bust and comprehensive online view into all their banking activities while also pro- viding a channel to conduct transactions and communicate securely with the Bank. Achievements: • The percentage of total bank transac- tions made through CIB Cash Online reached 15.81% YTD in 2012. • 53% of corporate clients are now us- ing CIB Cash Online. • Successfully launched CIB Cash On- line phase II with more than 10 new features. Launched CIB eACH CIB eACH is a market-leading payment product and the first of its kind in the Egyptian market. A web-enabled pay- ables product, eACH allows clients to efficiently and automatically issue ACH payments (local EGP-denominated electronic payments) through a secure online channel and through ACH Di- rect Debit transactions. Achievements: • First bank in Egypt to launch the ACH Direct Debit corporate portal. New Corporate Ad-hoc Online Reports CIB launched two new Corporate On- line reports provided for corporate clients for better transparency and en- hanced cash management: • Corporate Integrated Post Dated Checks report. • Corporate Cash Collection report. Launched GTS Operations The GTS Operations unit was launched under the Centralized Payments Service Division to serve GTS customers and to handle their instructions through the Cash Online system. Maintained Custody Market Leadership: Maintained CIB market share leading custody position by 35% as of Decem- ber 2012. Executed New Custody Deals for a Total of EGP 6.5 billion Took Initial Steps in Implementing the DRIP program DRIP (Dividends Reinvestments Plan) is an equity option allowing investors to reinvest their cash dividends by pur- chasing additional shares. CIB is the first bank in Egypt to introduce this product. Received Prestigious Awards CIB was once again declared “Best Trade Finance Provider in Egypt” and “Best Sub-Custodian Bank in Egypt” in 2012 by Global Finance magazine; the Cash Management & Payments Depart- ment was also named “Best Foreign Ex- change Provider in Egypt” in 2012 for the fourth consecutive year by the same publication. Institutional Banking Legal Advisor & Asset Protection Group In May 2006, the Institutional Bank- ing Legal Advisor Department was launched with the purpose of having an in-house legal counsel to provide a tar- CIB Cash Online is the Bank’s new online banking channel, offering customers a robust and comprehensive online view into all their banking activities. geted and high level of legal advice for local and cross border transactions. The function serves the entire Insti- tutional Banking Department as well as other CIB subsidiaries and deals di- rectly with local and international law firms with regard to any technical and complex legal issues. The Institutional Banking’s Legal Advisor Department provides the busi- ness area with support on escrow agree- ments, medium-term loans, syndicated loans, project finance transactions and the conducting of legal due diligence. The function also plays a significant role in providing the business area with the requisite legal opinions for any special- ized case without resorting to outside legal counselors. Established in 2003, the Asset Pro- tection Group is responsible for assist- ing and completing Corporate Bank- ing Group (CBG I & CBG II) client documentation as well as ensuring that all corporate client documents are valid and enforceable, thereby protect- ing the Bank’s rights. The Asset Protec- tion Group became associated with the Institutional Banking Legal Advisor Department in 2007, yet maintains its separate workflow procedures. Since the association, the Asset Protection Group has successfully expanded the scope of its work to include the Suez and Canal Zone corporate documents in 2008; the Alexandria and Delta Zone in 2009; and established a new division in 2010 to handle mid-cap documentation. 2012 Highlights and Accomplishments • Generated a gross income to the Bank in addition to legal fees through legal advisory services and escrow agree- ments. • Contributed effectively and profes- sionally in finalizing the closure of several major transactions. • Professionally handled cases that were referred to the Department in the Middle East and Europe. • Positively affected the Bank’s reputa- tion by managing escrow agreements that were released to the media, which helped attract new clients. • Supported other lines of business / departments whenever needed. • Effectively handled cases relating to CI Capital Group. • Handled the majority of key interna- tional contracts relating to IB clients. • Safeguarded CIB's portfolio by moni- toring and facilitating the renewal of insurance policies to favor the Bank’s prior expiration dates and implementing rigid control measures to manage documentation more smoothly and efficiently. • Implemented best-in-class technical tools to better streamline the docu- mentation cycle. • Effectively absorbed the influx of credit customer accounts "new-to- bank-commitments" received by the Asset Protection Group while imple- menting a more systematic work- flow. 30 Annual Report 2012 Annual Report 2012 31 2012 Review Global Customer Relations Despite the turbulent post-revolution conditions faced by Egypt in 2012, the Global Customer Relations (GCR) Group remained bullish in its outlook as it looks to capitalize on opportu- nities brought about by such volatile economic and political changes. GCR therefore concentrated all its efforts this year on responding to these chang- es and taking full advantage of the ac- companying opportunities. As a result, and owing to its pivotal role across all of CIB’s business lines, we are proud to announce that 2012 marked another period of successful achievements for the GCR Group. The GCR business model also expand- ed in line with our Strategic Roadmap in 2012. Organizational and strategic ob- jectives were prioritized and addressed and the required resources and staff re- cruitments were deployed while adher- ing to our strategic objective of focusing on overall profitability rather than profit per product. In line with GCR’s strategic goals and KPIs, special focus was directed to- ward our facilitative inter-departmental role within the Bank to align objec- tives across all areas in order to imple- ment our overall profitability model for groups and clients under coverage. GCR also made diligent efforts this year to provide advisory services to support specific industries adversely af- fected by the current economic climate, especially Real Estate, Tourism, Con- struction and Building Materials. We also took a more active role in designing and developing tailor-made solutions to enhance, facilitate and im- prove Bank-wide products and services. Initiatives were undertaken to improve product offerings to better meet client expectations, deepening the Bank’s re- lationship with existing clients and en- hancing both growth and profits. Driven by ownership and account- ability over accounts under manage- ment, special focus was directed to: 1. Business development and portfolio enhancement through growth in the existing portfolio as well as new com- mitments. 2. Aggressive efforts towards recover- ing questionable and non-perform- ing loans to safeguard the quality of CIB’s asset portfolio. 3. Proactively solving potential client problems and identifying new busi- ness needs. 2012 Achievements: • Contributed to the growth of Cor- porate portfolio by EGP 2.5 billion through increasing CIB share of wal- let with 15 existing clients and four new-to-bank clients. • Contributed to the growth of corpo- rate profitability by 5.5%, reaching EGP 605.3 million as of December 31, 2012 up from EGP 573.9 million as of December 31, 2011. • Initiated and orchestrated the im- mediate recovery of EGP 20 million in non-performing loans this year, as well as regularizing EGP 97 million in NPLs which were already written off. • Aligned with the Bank’s overall strat- egy to expand its deposits and funds base. • Collaborated with other departments to introduce an amended cash deposit slip that accommodates the needs of corporate and non-corporate clients whose daily operations require keep- ing records of specific data for cash deposits, such as Etisalat and ABB Group. This is a clear example of a customized solution that meets client needs and which requires changes to standard operating procedures across a number of departments — one of GCR’s core competencies and prima- ry business objectives. Proving to be a valuable improvement, the amended cash deposit slip was eventually stan- dardized for all CIB clients. • Another notable operational im- provement has been the introduction of a custom-designed program under Global Transaction Services (GTS) that is uniquely designed to monitor the receivable support package of a specific client. • Effectively marketed a wide range of CIB products and services, the most important of which are: • Consumer Banking: • A 19.5% increase in the number of payroll accounts. • A 39.3% increase in the amount of personal loans. • A 37% increase in the amount of personal deposits. • Merchant Acquiring Services expanded, with GCR’s help, to cover all GCR clients that require them. The Bank managed to exclusively provide Point of Sale (POS) termi- nals throughout the new Americana Plaza complex in 6th of October City. In addition, 154 POS terminals were installed at a number of client outlets including: Etisalat, Emaar, Concrete, Mobinil, Vodafone and EuroMed in Egypt. ATMs were also installed at the Kempinski and Sheraton hotels at Soma Bay. • Custody Services contributed to the growth in CIB’s custody portfolio by attracting shares worth EGP 610 million from three leading corpora- tions in Egypt (Orascom Hotels and Development, Electrolux and New Giza). • Global Transaction Services successfully completed a total of 20 deals across the “CIB Cash Online” and “E-Trade” platforms. • CIB Affiliates: • Egypt Factors: Receivables factor- ing services increased by EGP 9.3 million. • Falcon: Falcon carried out Cash Transit Services for Emaar, Americana and Middle East for Glass (three of CIB’s major indus- trial corporate clients). 32 Annual Report 2012 Designing customer- focused solutions Global Customer Relations took a more active role in designing and developing tailor-made solutions to enhance, facilitate and improve Bank-wide products and services. 2012 Review Consumer and Business Banking Payroll The Payroll business performed well in 2012, growing by 42,631 accounts with active salaries as of December end — a 341% jump in payroll acquisi- tion compared to 2011 acquisition. As a significant channel for liabilities contribution, Payroll recorded EGP 2.2 billion in saving contributions in 2012, equivalent to an average saving balance of EGP 12,000 per customer. The year also showed significant progress in our goal to off-load the manual payroll burden from branches as we have automated 9,000 transac- tions — 81% of all manual payroll transactions — easing demands on staff time and eliminating the risk of introducing errors in our clients’ pay- rolls. E-Payments The E-Payments Department suc- ceeded in generating incremental fees from our branch network by collecting governmental payments through E-Fi- nance Company. This was our main tar- get: E-Finance Company is responsible for the collection of governmental pay- ments such as customs, taxes, charging customs account collections and Alex Port Authority collection through our branch network. In 2012 we faced chal- lenges from worker protests at various ports, but we retained our first place ranking in customs collections with a 46% market share and a 128% year- on-year increase in fees generated as of December 2012. This was achieved by offering our latest technology services throughout our branch network. We introduced our service in all Egyptian ports (Damietta, Sokhna, Alexandria, Dekheila, Shark El-Tafriea, Airport) giving us the advantage of cross sell- ing our banking products to new and existing customers. following a successful one-year pilot program, particularly among retail companies in the Egyptian market. It mainly serves small and midsize com- panies, which are the backbone of the Egyptian economy with a contribu- tion of almost 80% of total GDP. Financials & Achievements: The Business Banking Segment has witnessed a gratifying first year, with KPI achievements and financial re- sults that have encouraged the top management team to increase its focus on this segment and grow it more by end of 2013. Below are some financial analyses comparing the pilot launch year versus 2012 year end results: • Total Assets grew by EGP 226 mil- lion, an increase of 89%. • Customer Deposits grew 43% to EGP 7.6 billion, including a growth of EGP 779 million in DDAs and EGP 1.5 billion in TERMS. • Business Banking Revenue in- creased by EGP 92 million, a 66% increase that was driven primar- ily by a growth of EGP 63 million in Net Interest Income and EGP 30 million in fees. • Business Banking enrolled compa- nies increased by 37% and average client acquisition per month grew by 37%. • Average YTD Revenue per relation- ship manager showed a strong 55% increase, showing a big productiv- ity improvement of the dedicated Business Banking team. With the launch of the Business Bank- ing Unsecured Lending Program, CIB has once again confirmed its role as a key financial advisor to its clients. This comes as a natural progression of the Bank’s mission to remain one of Egypt’s biggest financial and com- mercial institutions supporting the Egyptian economy and push forward business and trade in Egypt. Wealth At CIB Wealth we achieve excellence by adopting industry best practices and fostering a “win-win” environ- ment for all stakeholders. During Financial Synopsis FY 2011 2012 Increase Total Assets: Secured Facilities 253,970 253,970 479,941 479,941 Customer Deposits: 5,341,516 7,645,462 Demand Deposits 2,460,022 3,238,894 Term 2,881,494 4,406,568 Total Revenue: 140,706 233,303 Net Interest Income Non-Interest Income 99,362 41,344 161,907 71,396 89% 89% 43% 32% 53% 66% 63% 73% Business Banking The Business Banking Segment was formally launched at the end of 2011 No of RMs Revenue / RM Strategic KPIs FY 2011 Number of New Companies 491 29 4,852 2012 671 31 7,526 Increase 37% 7% 55% 2012 Revenue Trend 17,679 19,128 19,279 18,441 22,139 19,639 21,038 22,376 17,267 17,645 18,133 20,540 25,000 20,000 15,000 10,000 5,000 0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Net Interest Income Not-Interest Income Total Revenue the past year, through undivided at- tention to customer needs and qual- ity services, the Wealth Management business has grown stronger, taking our Consumer Business to the next level and becoming leaders in one of the most critical retail businesses in local financial markets. We also created a designated seg- ment for high-net-worth clients, pro- viding them with beyond-wealth bene- fits. Our offering has evolved to include a hand-picked package of exclusive financial and non-financial services that open doors to new opportunities for clients. This is all supported by our unique value-added products package and a well-selected team of experi- enced and certified wealth managers. Liabilities Perhaps the best indicator of the li- abilities business success has been the growth in CIB Customer Deposits. In 2012, CIB Consumer Bank managed to grow Customer Liabilities by EGP 9.6 billion with a remarkable 25% in- crease over 2011. This translates to a total of EGP 59.1 billion of consumer deposits as an ending balance for the year of 2012. CIB’s growth has recorded an out- standing achievement in a market of 39 banks, and helped CIB to raise its foot print of overall deposits in the Egyptian banking system. Cards CIB Cards Business is a robust, full- fledged and profitable business offer- ing a full product suite of credit, debit, prepaid and POS. Our mission is to become the leader in processing non- cash financial transactions in Egypt, as well as a key enabler of the Egyp- tian economy. Overall 2012 was a strong year for CIB Cards Business. On the Cred- it Cards line, we achieved an ENR growth of 24% representing 125 mil- lion. In Acquiring, CIB maintained lead- ership position despite new entrants and strong competition from exist- ing acquirers, processing more than 9 million transactions worth EGP 5.18 billion 2013 will witness new product launches and enhancements such as DCC (Dynamic Currency Conver- sion) on acquiring and loyalty fea- ture on credit cards which will lead to more aggressive growth on both issu- ing and acquiring. Consumer Loans On the lending side, our Consumer Assets portfolios recorded growth of 29%, giving CIB the highest market share increase amongst peers in the consumer banking segment. During 2012, Assets portfolios began return- ing to business-as-usual after the re- turn to normal credit policies, which had been tightened earlier in 2011, and an overall improvement in eco- nomic stability during Q3 2012. This improvement resulted in better port- folio credit performance and a de- crease in overall delinquency ratios. Tourism, real estate, steel and cement are still restricted. Our Personal Loans portfolio grew by 43% FY 2012, recording ENR EGP 2.7 billion by by end of Q4 2012. The Personal Loans program range ex- panded during 2012 with the addition of several new product programs, with a strategic focus on improving port- folio NIM by shifting sourcing mix towards high yield loan segments. In keeping with this strategy, new pro- grams and initiatives will be added to the current product range on an ongoing basis throughout 2013. The Auto Loans segment began to regain its market leading position in Q3 after a return to BAU policies designed to increase portfolio growth and shorten the breakeven period, which had been delayed by 12 months due to 2011 po- litical events. An initial revamp of mortgage policy was completed, improving unsecured lending in order for CIB to capture a recognizable market share once an- ticipated changes to the legal frame- work of mortgages take place in 2013. The Secured Overdraft portfolio grew 34 Annual Report 2012 Annual Report 2012 35 2012 Review CIB's 24/7 Call Center is the main interaction hub for our current and prospective customers. further, reaching EGP 2 billion with a strong focus placed on changing the portfolio mix towards LCY lending to enhance spreads. Alternative Distribution Channels At CIB we believe that innovation is key to meeting ever-changing cus- tomer needs. Accordingly, in 2012 innovation continued to be a key dif- ferentiator for our services offering through: Intelligent ATM Network: More than 510 terminals equipped with state of the art technology for dis- pensing and accepting cash with real time effect on customer balances, in addition to a wide variety of addition- al services including Bill Payment, Transfer, Foreign Exchange, Mobile Top-Up, Cards Settlements, and many more. Moreover, to guarantee an out- standing level of customer experi- ence, we use geo-marketing research to guide ATM site selection, allowing us to best match the presence of CIB machines with our customer base. Call Center: CIB’s 24/7 Call Center is the main interaction hub for our cur- rent and prospective customers. The Call Center supports all inquiries, re- quests and financial transactions on more than 3 million calls per year. As a sign of our unwavering commitment to customer satisfaction, we increased our Call Center workforce by 45% in 2012, to a total of 145 agents. The third quar- ter of this year saw the launch of the new IVR (Integrated Voice Response Services) after a complete technology 36 Annual Report 2012 revamp designed to provide more val- ue-added services and personalize the navigation menu structure according to customer experience. Our customer care officers continue to receive inten- sive training courses as they often the first line of contact between CIB and our customers. Internet Banking: This year has also seen the launch of CIB’s Internet Banking service. The new interface ensures the continuity of all services available through the previous plat- form, but also offers improved servic- es with higher reliability, presenting consumer loan products and transac- tions in real time (as opposed to the previous batch-based mechanism). Internet Banking comes with in- novative features including allowing users to save beneficiaries for future transactions, save a drafted transaction to continue later, securely converse with a bank agent, and set forward and recurring transactions, as well as an easy-to-use authentication mechanism which allows customers to transfer funds outside their own accounts to other CIB clients or outside CIB. The new interface is also designed to allow future integration with other e-channels and to offer advanced ser- vices such as Mobile Banking, Bill Payment, Enterprise Alert, and a dif- ferentiated look and feel from a brand- ing point of view for the various client segments such as the Wealth segment. It will also provide access to e-bank- ing services for credit-card-only cli- ents and small companies. This is in addition to building more functions, which will support the migration of banking services from the Branch and Call Center to e-banking channels, improving customer satisfaction and decreasing operational costs. Channels outlook in 2013 The journey to strengthen the core ca- pabilities for all self-service and digi- tal channels will continue to evolve with the primary focus on providing a consistent, high quality experience to our customers across all distribution Implementing a consumer focused strategy 19.5% increase in the number of payroll accounts. 39.4% increase in the amount of personal loans. 37% increase in the amount of personal deposits. channels. This will also enable alterna- tive banking channels such as Mobile Banking, designed to give our custom- ers maximum flexibility to do business with CIB at any time, in any place. Insurance Business The CIB Insurance Business provides Life and General Insurance programs that generate non-interest revenues for CIB Consumer Banking (fees). Life Insurance provides a variety of products including Pure Life Insurance as well as Saving Plans, which suit the appetite of a wide range of consumers in Egypt through a referral-based model. The department began offering Gen- eral Insurance in 2011 with strong links to the best insurance providers in Egypt, to construct a competitive open architecture to find the best value and service for the Egyptian market. target Segment Due to the nature of insurance prod- ucts, periodic premiums are paid to cover undesired events. Our business targets all segments based on consumer income, health situation and need sat- isfaction. A number of new Life Insurance products were introduced in 2011, with improved benefits, including Term Life, Permanent, Endowment and Annu- ity Life Insurance products that cover nearly all consumer needs. Strategy • Insurance Business’ strategic goal is to increase revenue contribution to Consumer Banking to 10% in 2016. • Increase CIB customer base pen- etration. • Lead the market by introducing a wide range of products from the best insurance providers. 2012 Achievements 1. Life Insurance • A strong growth year, with written policy volumes up to 232 million from 152 million in 2011. • Remarkable net growth in fee in- come reached 135% from last year reaching EGP 37.6 million in 2012. 38 Annual Report 2012 • Introduced new Pure Life Insur- ance product with unique variety of benefits. 2. General Insurance • Credit Shield a bundled product for credit cards customers with a growth rate of 229% in administra- tive fees compared to 2011. • Family Protection Plan, an acci- dent protection product tailored for credit cards customers and geared for families. The product was soft- launched in August 2011. • Improve Bank Risk Management by reviewing bank insurance policies related to financed assets, with 50% completion of the project. Insuring a better future 135% growth in net fee income from life insur- ance in 2012. 229% growth in administrative fees from Credit Shield, a bundled general insurance product for credit card customers. World-class customer care More than 3 mn calls received in 2012 by our highly-quali- fied call center personnel. 45% increase in call center workforce in 2012. 2012 Review COO Area In 2012, the COO Area continued its efforts to implement its agenda for im- provement and standardization. Much progress was made in terms of people, processes, controls, service and quality, as well as infrastructure enhancement and strategic decision-making. The COO Area also continued this year to focus on the enhancement of customer experience, one of the Bank’s key objectives. The COO Area sup- ported this objective in multiple areas including the branding of branches and providing service and quality measure- ment tools across the network. Great strides were made to standardize and centralize multiple processes in order to enhance productivity and control. This year we were able to boost our distribution network by opening 12 new branches. We are also undertaking mul- tiple projects to enhance our safety and security measures based on our security assessment. Strategic decision support moved to another level; the quality of information across lines of business, products and customers was enhanced and helped all stakeholders in analysis and decision- making. Finance support from infor- mation management, regulatory and accounting perspectives added much value for the Bank in 2012. Hiring, developing and retaining tal- ent is one of the Bank’s key missions. This year, the COO Area focused on a variety of aspects of Human Capital Management, developing staff through effective training, enhancing perfor- mance management and applying em- ployee engagement initiatives. We ac- tively participated in employment fairs in universities across the country, in- creasing new hires by 264 this year over 2011. We introduced new training pro- grams that were attended by 4,500 staff members, provided staff with opportu- nities to develop their careers in other areas within the Bank, and conducted salary surveys to align our compensa- tion and salaries with current market 42 Annual Report 2012 levels in order to increase staff satisfac- tion and retain key talent. Internal communication processes were also enhanced through updating our intranet portal to include policies, procedures and selective course materi- al, as well as keeping staff updated with changes across the organization. Operations Group During 2012, the Operations Group managed not only to sustain its high level of productivity and efficiency, but also took further steps towards being a proactive business partner. The Group undertook formation and restructuring operations for multiple functions, including Institutional Op- erations, GTS Operations and Opera- Hiring, developing and retaining talent is one of the Bank's key missions. tional Excellence, with the objective of consolidating and standardizing opera- tions functions to increase productiv- ity and improve service quality — key focus areas on the Operations Group agenda for 2012. Multiple initiatives were undertaken to improve customer experience, in- cluding launching non-negotiable stan- dards, CIB Way and key service indica- tors, as well as standardizing multiple operation procedures and customer forms to provide a consistent, smooth experience for our customers. Standard processing times were also set in place for productivity enhancement. And to support GTS customer transactions, an additional 12 service hubs were added to our branch network along with a dedicated GTS Operations unit. Improving the efficiency of alternate channels was also a key development this year: In 2012 we managed to in- crease the efficiency and availability of our ATMs and conducted a soft-launch of a new online banking application to support customers’ evolving needs. While we work on our initiatives, controls are always the number-one pri- ority. With this in mind, we were able in 2012 to widen the scope of our Internal Control unit to cover several units in the Operations Group and a wider array of branches in order to reduce opera- tional risks and further embed the con- trols culture in different areas within the Bank. To support the resumption of our business during emergencies and dis- ruptions, our business continuity and crisis management planning were im- proved by establishing alternative re- covery locations. Finally, an award-winning 2012 add- ed another chapter to the CIB success story, with the Trade Finance Depart- ment winning the “Best Trade Finance Bank” from Global Finance magazine for the 7th year in a row. The Remittanc- es Department was also awarded “The Quality Recognition Award for Out- standing Achievement – Best-in-Class Book Transfer Rate” by JP Morgan. Premises Projects Department In 2012, the Premises Projects Depart- ment undertook a number of key stra- tegic initiatives that positively impacted the Bank’s external and internal cus- tomers. One of these initiatives was the “Easy Branch” concept, a teller-less branch model located in high-end premises mainly focusing on sales, and using alternative cash channels. Five Easy Branches had been opened in up-mar- ket residential areas by December 2012. We also expanded CIB’s distribution network, establishing 12 new branches, as well as enhancing CIB’s image and customer experience through the reno- vation of more than 10 branches and 40 wealth lounges with the new ‘wealth’ image. We also undertook a geo-marketing assessment of all CIB branches, pro- viding us with a scientific approach for assessing the current reach of our branches. Finally, the Premises Projects De- partment is preparing for 2013 with an aggressive expansion plan for our net- work, aiming to add 30 new branches. The department has already front-load- ed almost all the steps for this plan in order to expedite its completion within the designated timeframe. Finance Department In response to a mandate from the Bank’s leadership for the Finance De- partment to become a value-added and strategic financial partner to Business, Finance successfully changed its orga- nizational design in 2012. The resulting flatter and more entrepreneurial struc- ture — which now embraces global tal- ent — is more empowered and focused on shareholder value. Finance now has more involvement in strategic decision-making through the ability to call certain directions, disseminate quality information and conduct discussions with Senior Man- agement regarding key performance indicators, accounting standards, and regulations including taxation. This scope was expanded and now covers subsidiaries and associate companies in addition to the Bank itself. Management and financial informa- tion (in terms of details, analysis and timelines) have been enhanced this year to help the Bank better execute its strat- egy. The greater participation of the Fi- nance Department has been a key driver of many efficiency initiatives across the Bank such as cash management, cross selling, procures to pay infrastructure and core system migration. Corporate Service Department In continuation of the rationalization and enhancement projects that were initiated last year, the Corporate Ser- vices Department went the extra mile in 2012 to ensure the best services are provided for the cleaning, maintain- ing and managing of equipment. Some of the Corporate Service Department’s achievements this year included the new Digital Archiving & Microfilming project, which aims to transfer all of the Bank’s documents into digital files and microfilm. The Department also carried out a number of upgrades this year, which included Q-Matic system, cameras, DVRs, UPS devices, genera- tors for branches and Head Offices and firefighting systems for branches. Human Resources HR’s strategy for 2012 was to remain focused on the Bank’s employees, work- ing to increase both productivity and motivation. With this in mind, a num- ber of initiatives and projects were put in place: Recruitment During 2012, CIB continued to hire dif- ferent levels of staff in various areas of the Bank, despite the political and eco- nomic situation in the country. In total, 559 new employees were hired during 2012, compared with 295 new hires in 2011. Seventy percent of all new hires in 2012 headed to Consumer Banking and branches. Moreover, the Recruitment Department participated in several ca- reer fairs and campus visits, aiming to attract Egypt's best talent from its top universities. The Bank participated in the Harvard Arab Conference for the second year in a row, with a view toward branding CIB as an employer of choice for Egyptian students studying at top-tier universities. Eleven Egyptian candidates were iden- tified during the event and showed an interest in joining CIB. The Department also played a significant role in selecting the 60 interns who joined our new Sum- mer Internship Program, which aims to attract the best candidates from the best universities to join the CIB team. training In 2012, the Training Department’s fo- cus was to identify gaps in the knowl- edge and skills of staff and to deliver the appropriate educational courses to bridge these gaps. To achieve this objec- tive, the Training Department worked on a plan to provide educational pro- grams related to technical, management and business skills. Our highlight for the year was the number of programs that were developed and delivered by senior staff to enhance overall bank- ing knowledge across all levels. A total 4,500 staff attended the different pro- grams. Our Management Training Programs were once again a great success. A total of 49 participants from various areas in Consumer Banking and Operations en- rolled in the Leadership and Develop- ment Program for Consumer Banking (LDP). The Leadership and Management Program for Senior Officers — which aims to create a sense of synergy and a unified vision for all senior management within CIB — continued this year as well, with 50 participants attending and successfully completing the program. Also in 2012, our Credit Course was revamped by external consultants and upgraded with new case studies and up- dated course material. Some of the new programs that were introduced this year included: Wealth Management, Supervi- sory Skills and a number of middle man- agement programs. organizational Development In order to increase employee interac- tion and ensure their voices are heard, HR administered several initiatives to maintain communication with employ- ees, including the Employee Engage- ment Survey, the Salary Surveys and various Town Hall meetings. The Employee Engagement Survey was conducted for the second consecu- tive year, with this year’s response rate reaching 79%. Salary Surveys were con- ducted to assess compensation and ben- Annual Report 2012 43 efits across the market, with more em- phasis on critical / executive positions to ensure that the Bank is aligned with current market levels. The Standardization of Job Families initiative was also launched to ensure employees have a clear understanding of their roles in achieving the Bank’s strategy and mission. Marketing and Communication The Marketing and Communication Department has made major efforts this year to influence CIB’s brand equity as it builds strong bonds with both external and internal customers by encouraging loyalty, building trust and fostering an optimistic outlook. Alongside launching the “Bank to Trust” Tactical Campaign, the de- partment also launched the “Values & Dreams” advertising campaign during Q2 2012, as well as the thorough revi- sion of our Cairo Airport branding. CIB’s Airport branding helps maintain a strong and solid position for CIB in comparison with other banks while re- ceiving a wide range of publicity from customers. CIB has always been an avid sup- porter of the Arts. Working with the Ministry of Culture and the Fine Arts sector, CIB lent its support to talented young artists by sponsoring the Salon of Young Artists. The art pieces bought from the gallery were the inspiration behind CIB’s new book, “Egypt: The Promise,” featuring some of the artwork in CIB’s varied collection. As part of our overall marketing strat- egy this year, we focused on upgrading and standardizing the branding for all our branches. The purpose of this proj- ect was to project a consistent overall image to our customers. More than 60 CIB branches were enhanced in terms of branding during 2012, along with the implementation of a new theme in 30 of our Wealth Lounges. Recognizing the importance of the intranet as a communication tool among staff, the Marketing and Com- munication Department enhanced and upgraded the system to allow staff to endorse policies, procedures, forms, services, training programs, news and updates. Further developments are be- ing implemented featuring videos and online training programs. CIB Awards CIB has continued to receive global ac- knowledgment awards for the Bank’s exceptional performance and reputa- tion, acquiring a total of 12 awards dur- ing 2012: • “Best Bank in Egypt” for the 16th year, from Global Finance magazine. • “Best Sub-Custodian Bank in Egypt” for the fourth consecutive year, from Global Finance magazine. • “Best Foreign Exchange Provider Bank in Egypt” for the ninth year, from Global Finance magazine. • “Best Trade Finance Bank in Egypt” for the sixth year, from Global Finance magazine. • “Best Local Bank” for the fifth consec- utive year, from EMEA Finance. • “Best Asset Manager in Egypt” for the second consecutive year, from EMEA Finance. • “Best Asset Manager in Egypt” for the third consecutive year, from Global In- vestor ISF. • “Best FX Provider in the Middle East” for the second time, from Global Inves- tor ISF. • “The Quality Recognition Award MT 202” from JP Morgan. • “The Elite Quality Recognition Award MT 103” from JP Morgan. • “Best Trade Finance Bank in Egypt” for the 4th consecutive year, from Global Trade Review. • "STP awards for 2012 in USD and EUR,” from Deutsche Bank. Information Technology This year has been a milestone in our three-year IT overhaul, with the finaliza- tion of key technology upgrades, as well as the initiation of the final stages in the Bank’s three-year IT strategy. Our focus on improving overall customer experi- ence has continued to drive our strategy, and with the great strides made in tech- nology upgrades during 2012, we now move closer towards ensuring the stabil- ity and sustainability of all our systems. Annual Report 2012 45 Best Bank in Egypt for 16 consecutive years A total of 12 international and regional awards in 2012. 2012 Review This year we concentrated on man- aging changes across our technology environment, succeeding in finalizing the IT base. As a result, we now have the foundation to help us build the ad- vanced services that will better serve our business goals. Among the large number of projects completed in 2012, some of our key achievements include: • Moving the Retail Department to the New Core System: The move of all re- tail banking activities to our new core system — a key step towards providing 24/7 banking services — was complet- ed this year. This includes moving all our retail customer touch-points such as ATMs, POS machines, branches, internet banking, Automated Voice Response, etc., to the new system. • New Infrastructure for all Key Sys- tems: In order to improve perfor- mance and stability to handle the growing transaction volume, all key systems were migrated to the new infrastructure. This completes a key pre-requisite for managing our in- creasing business demand. • New Online Banking Portal: CIB in- vested in a completely new system in order to provide online banking ser- vices to our customers. Our new ser- vice offers not only improved func- tionality, but is also easily accessible through a variety of devices, ensur- ing customer ease and productivity. • Advanced Analytics and Report- ing: Continuing our data warehouse strategy, CIB is in an excellent posi- tion to make full use of the wealth of data at our fingertips. This has resulted in advanced analytics, ac- curate reporting, and improved fore- casting. We are also in the process of providing our business with cutting edge tools for end-user analytics and reporting. The next step in this area is to start providing near real-time feeds for further improved and up- We are focused on building upon our massive technological backbone by incorporating new and improved services to provide a better overall experience for our customers. to-date views into our customer data. • New Data Center: As part of our on- going strategy of embedding cutting edge IT services into the Bank, CIB has started work on a brand new data center to house our complete infra- structure. This investment will help us provide the full gamut of our IT services to clients 24/7 in a highly controlled and sustainable manner. The project has been fast-tracked for completion by mid-2013. • Improved Process Orchestration: An- other key project initiated this year was addressing process automation and centralization through the introduc- tion of a system for Business Process Orchestration. This aims at providing straight-through processing and work flow automation in order to improve customer turnaround times and the management of business processes. The first phase of this project will also be delivered next year. Going into 2013, we are focused on building upon our massive technologi- cal backbone, by incorporating new and improved services, and delivering wide- ly available and easily accessible infra- structure and world class system capa- bilities, all aimed at providing a better overall experience for our customers. 46 Annual Report 2012 2012 Review Risk Group The Risk Group (RG) provides indepen- dent oversight and support in the estab- lishment of the Enterprise Risk Man- agement (ERM) framework across the organization. RG proactively assists in recognizing potential adverse events and establishing appropriate risk responses, thereby reducing costs or losses associ- ated with unexpected business disrup- tions. The Group identifies, measures, monitors, controls and reports risk expo- sures against tolerance levels and limits to senior management and the Board of Directors. Risk Group’s strong disciplined frame- work has been essential in withstanding the uncertain economic environment in Egypt. As a result, CIB was able to deliver strong results, serve our clients well and maintain our reputation as a market lead- er, despite economic challenges. • Review business decisions adjusted for risk in order to optimize capital utiliza- tion and return on shareholders' value. Risk Group Objectives • Implement a robust Enterprise Risk Management framework that meets regulatory requirements and interna- tional best practices. • Work closely with business and sup- port groups in order to monitor port- folios and operations to provide inde- pendent risk analysis. • Raise efficiency to reduce expected losses, while maintaining adequate im- pairments coverage. • Provide projections for unexpected losses to maintain capital adequacy. Risk Organization The Chief Risk Officer (CRO) manages the Risk Group and has the overall day- to-day accountability for functions for the following key areas: credit and investment exposure management, consumer credit risk, credit and investment administra- tion, credit information, risk manage- ment, and remedials and recoveries. The CRO reports directly to the Chairman and has oversight of the enterprise risk management framework and fosters a strong risk culture throughout the orga- nization. Risk Group Chief Risk Officer (CRO) Credit & Investment Exposure Management Credit & Investment Administration / Credit Information Institutional Banking Credit Exposure Management Credit & Investment Administration Remedials & Recoveries Risk Management Consumer Credit Risk ALM Risk Credit Policy & Fraud Unit Non-Performing Exposure Management Credit Information Credit Risk & Risk Analytics Strategic Analytics Unit CBE Provisions & IFRS Impairments Investment Exposure Management 48 Annual Report 2012 Market Risk Account Fulfillment Unit Operational Risk Collection & Recovery Basel II Applications Fraud Business Banking Risk Key Management Risk Committees The CRO and other risk officers are key members of all credit, asset and liability management, consumer and operational risk committees. banking portfolio. CRC decisions are guided first and foremost by the cur- rent risk appetite of the Bank, as well as the prevailing market trends, while ensuring compliance with the stipu- lated guidelines set by the Consumer Risk Committees Chief Risk Officer (CRO) Asset & Liability Committee (ALCO) High Lending & Investment Committee (HLIC) Consumer Risk Committee (CRC) Operational Risk Committee (ORC) • The High Lending and Investment Committee (HLIC) is composed of senior executives of the Bank. The primary mandate is to manage the asset side of the balance sheet, while ensuring compliance with the Bank’s credit policies and CBE directives and guidelines. The HLIC reviews and ap- proves the Bank’s large credit facilities and equity investments, as well as fo- cuses on the asset quality, allocation and development, and adequacy of provisions coverage. • The objective of the Asset & Liabil- ity Committee (ALCO) is to optimize the allocation of assets and liabilities, given the expectations of future and potential impact of interest rate move- ments, liquidity constraints, foreign exchange exposure and capital ad- equacy. ALCO monitors the Bank’s liquidity and market risks, economic developments, market fluctuations and risk profile to ensure ongoing ac- tivities are compatible with the risk/ reward guidelines approved by the Board of Directors. • The Consumer Risk Committee's (CRC) overall responsibility is man- aging, approving and monitoring all aspects related to the quality and growth of the consumer and business Credit Policy Guide, as approved by the Board of Directors. • The Operational Risk Committee (ORC) supports the Bank by fulfilling its responsibility to oversee the opera- tional risk management functions and processes. The objective of the ORC is to oversee, approve and monitor all as- pects pertaining to the Bank’s compli- ance with the operational risk frame- work and regulatory requirements. Credit & Investment Exposure Management Group (Institutional Banking) Credit Risk is a loss from a borrower or counterparty that fails to meet its obliga- tion. The Bank is exposed to credit risk via a diversified client base, consisting of large corporate, institutional and in- dividual customers. Management and the Board of Directors have established key committees to review credit risk and concur with the overall policy. Under the Risk Group, credit risk is managed by the Credit and Investment Exposure Manage- ment Group and Consumer Credit Risk Group. These groups actively monitor and review exposure to ensure a well-diversi- fied portfolio in terms of customer base, geography, industry, tenor, currency and product. The Credit & Investment Exposure Management Group’s primary objective is to evaluate the lending and investment portfolios, using qualitative and quanti- tative analysis to properly build a quality portfolio, enhance the Bank’s seniority, and establish adequate protection, control and a solid provisioning process to ensure portfolios are adequately covered. This is achieved through continuous analysis, monitoring and close follow-up on port- folios, in addition to conducting periodic assessment of performance to detect early signals for possible distress or deteriora- tion and to set corrective measures for mitigation. The above measures — backed by the high portfolio quality — enabled the Bank to maneuver safely through a difficult pe- riod, reflected in a moderate increase in default ratio of 3.63% in 2012 as compared to 2.82% in 2011, coupled with a coverage ratio of 134.4% in 2012 as compared to 136.04% in 2011, in spite of the current po- litical and economic conditions, confirm- ing the Bank’s solid financial position. On the Correspondent Banking side, turbulence across Europe continues, how- ever the Bank continues to adopt a strate- gy of limiting exposures to counterparties in the affected countries, while confining exposures to financially strong and stable institutions that are able to emerge from the crisis. Going forward in 2013, CIB will con- tinue to support business growth through adoption of a prudent strategy built on risk mitigation and sound risk assessment. Credit & Investment Administration / Credit Information Group The Credit & Investment Administration function ensures administrative control on institutional and investment exposures and the compliance with both the Credit Policy Guidelines and CBE directives. The Credit and Investment Administra- tion Department represents a strong back up to the Institutional Banking Group by maintaining a quality control system Annual Report 2012 49 Maintaining a quality portfolio by balancing opportunities and risks 2012 Review that ensures CIB seniority, protection and control, which is processed through veri- fication of assigned collateral related to approved facilities prior to disbursement of funds, in addition to robust reporting that facilitates effective decision-making. The Credit Information Department conducts comprehensive market infor- mation reports per client, from various sources, for all corporate and mid-cap cli- ents, and is responsible for extracting all regulatory reports, in order to assist in the approval decision. Consumer Credit Risk Group Consumer Credit Risk Group is an inde- pendent governance group that manages the centralized risk function for all con- sumer asset products. The purview of this unit extends across the entire consumer credit cycle, including policy formula- tion, underwriting and credit assign- ment, collection and repayment, portfolio monitoring and analytics and application fraud. The overall objective is to maintain a quality portfolio, which is monitored through a robust analytics unit that fa- cilitates effective decision-making. The Group also ensures compliance with the Consumer and Business Banking Policies and Central Bank of Egypt directives. The Bank’s Consumer Asset portfolio consists primarily of Credit Cards, Auto Loans, Personal Loans, Secured Over- drafts, Residential Property Finance and newly launched Business Banking Segment. The Bank now has assumed a leadership position in the market on the Consumer Asset business. The Consumer Asset portfolio has exhibited relatively strong growth throughout the year with an increase of EGP 1.5 billion, represent- ing a growth rate of 29%. This growth can substantially be attrib- uted to the introduction of new programs and policy changes that give the bank a definite competitive edge in the market. The Consumer Credit Risk Group, in conjunction with the business units, have deepened the product line by rolling out multiple programs and product variants to attract the target segment envisaged to facilitate the growth. Over the past four years, CIB has built a sizeable Con- sumer Asset portfolio of more than EGP 6.8 billion with a strong portfolio quality carrying loss rate of 0.4%. This portfolio size and quality provides a high loss-ab- sorption capacity to the Consumer Asset portfolio, which has facilitated the launch of multiple programs to attract high-yield segments to further enhance the profit- ability of the Consumer Asset business. Furthermore, a dedicated Business Banking set-up has been institutionalized to attract the previously untapped seg- ment of customers in the EGP 5-50 mil- lion turnover range. This new business line should address the specific needs of this segment, and consequently, separate product programs have been launched. Also, a dedicated risk structure has been set-up to specifically address the associat- ed risks of this segment and fulfill the dif- ferent skill-set required to venture into it. The aggressive portfolio growth was achieved while improving portfolio quality — after the delinquency increases seen in 2011 — to levels witnessed prior to the Egyptian Revolution. The portfolio has exhibited a healthy trend with non- performing assets at 2.1% (compared to 3.3% in 2011 and 2.4% in 2010) and loss rates of 0.4% (compared to 0.6% in 2011 and 0.5% in 2010). The portfolio quality has been sustained by ensuring the right portfolio mix; with concentration caps across comparatively riskier segments; and a very rigorous portfolio manage- ment approach that identifies opportu- nities for growth and defines corrective actions that are then executed subse- quently. There are multiple coincident and lagged indicators instituted across the consumer credit life cycle to moni- tor and maintain the optimal portfolio quality. Portfolio monitoring begins with rigorous review of all early warning indicators, such as Through-The-Door (TTD) analysis, First Payment Defaults (FPD) and non-starters coupled with key coincident indicators, such as delinquen- cies, bucket movements and consequent flow rates, and Was-Is analysis across key segments. Segmented vintages and Month-On-Book (MOB) analysis are also employed to identify differentiated customer repayment patterns, which provides the fundamental base for all policy formulations and collection strat- egies. Loss recognition and provisioning methodologies have been implemented along IFRS guidelines, which ensure that the Bank is pragmatic in current risk as- sessment and forecasting future poten- tial losses. Remedials & Recoveries Department The Remedials & Recoveries Depart- ment aims to achieve the maximum re- covery rate from the Bank’s institutional written-off exposures via building solid remedial strategies. Comprehensive analysis is conducted with all related departments to avoid re- currence, including setting guidelines to avoid future write-offs, and to develop vi- able strategies to maximize the recovery prospects. The department further man- ages and reviews the remedial accounts’ performance and financial standing through a framework that entails active involvement in the management of the turnaround potentials via committees or board representations. In addition, it seeks reactivation of re- lationships with stagnant accounts and proposes settlements or turnaround plans. These tasks are accomplished while ensuring continuous update and renewal of the documentation, supports, and oth- er collaterals to maintain CIB’s seniority and control. Despite the difficult market conditions, recoveries amounted to EGP 19.2 million in 2012 versus EGP 15.7 million in 2011. Consolidated Portfolio Quality & Provisioning Total IFRS based Impairment Charges reached EGP 1.93 billion in 2012, as op- posed to EGP 1.45 billion in 2011, de- spite the write-off of EGP 186.3 million in 2012. The Bank’s General Coverage Ratio for Direct Exposure increased from 1.77% as of December 2011 to 2.32% as of December 2012. Risk Management Department The Risk Management Department (RMD) identifies, measures, monitors and controls the Asset and Liability Management (ALM), and Market and Operational Risk and ensures that the 50 Annual Report 2012 2012 Review 2009 2010 2011 2012 Gross Loans (000’s of EGP) 28,981,189 36,716,652 42,933,133 44,350,975 NPL (%) 2.97% 2.73% 2.82% 3.63% Charge-Offs to Date (000’s of EGP) 1,609,105 1,714,960 1,870,898 2,057,209 Recoveries to Date (000’s of EGP) 338,928 368,095 383,835 403,031 General Ratio (Direct Exposure only) Recoveries to Date / Charge-Offs to Date Basel II and risk analytics requirements are adequately managed and that the sta- tus is regularly reported to senior man- agement and the Board of Directors. Liquidity Risk is the risk that the Bank would find itself unable to meet its nor- mal business obligations and regulatory liquidity requirements. CIB has a compre- hensive Liquidity Policy and Contingency Funding Plan that supports the diversity of funding sources and maintains an ad- equate liquidity buffer with a substantial pool of liquid assets, as well as having less reliance on wholesale funding. To measure and control liquidity, CIB uses gaps, stress testing, net stable funding and liquidity coverage ratios, and regulatory and internal liquidity ratios. In 2012, the Bank maintained strong liquidity ratios and there was no need to execute the Con- tingency Funding Plan. Interest Rate Risk is defined as the potential loss from unexpected changes in interest rates, which can significantly alter the Bank’s profitability and eco- nomic value of equity. Interest Rate Risk primarily arises from the re-pricing maturity structure of interest-sensitive assets and liabilities and off-balance sheet instruments. CIB uses a range of complementary technical approaches to measure and control Interest rate risk including: Interest rate gaps, duration, duration of equity, and earnings-at-risk (EaR). In 2012, the balance sheet was strategi- cally positioned to benefit from the inter- est rate environment and CIB proactively managed this sensitivity to safeguard against adverse shocks. 52 Annual Report 2012 2.32% 2.19% 1.77% 2.32% 21.06% 21.46% 20.52% 19.59% Market Risk is the risk of loss result- ing from adverse movements in the value of financial instruments, arising from changes in the level or volatility of interest rates, foreign exchange rates, commodities, equities and other secu- rities, including derivatives. The Bank classifies market risk exposure into trading and non-trading activities. The Bank uses various measurement tech- niques including value-at-risk (VaR), stress testing and non-technical mea- sures, such as asset cap and profit and loss versus stop loss limits to monitor and control market risks. Despite the volatility in 2012, CIB maintained ad- equate market risk appetite levels. Operational Risk is the loss resulting from inadequate or failed internal pro- cesses, people and systems or from exter- nal events. CIB maintains an Operational Risk framework and comprehensive poli- cies and processes designed to provide a sound and well-controlled environment. The framework uses the following ap- proaches to measure and control Op- erational Risk: loss database, risk control self-assessment (RCSA), and key risk in- dicators (KRIs). In 2012, Operational Risk losses were at minimum tolerance levels and proactively monitored and managed. In 2012, CIB continued to participate in Basel II quantitative impact studies with the Central Bank of Egypt, and is well positioned to be compliant with the new regulations. 2012 Accomplishments • Embedded the understanding of our risk appetite across the enterprise and increased risk transparency. • Diligently monitored action plans that led to preservation of portfolio quality, evidenced by the NPL ratio of 3.63% and a coverage ratio of 134.40% in 2012. • Recoveries amounted to EGP 19.2 million, despite difficult conditions. consumer • Exceptional portfolio quality with non-performing asset rates at 2.1% and loss rates of 0.4%. • Enhanced portfolio monitoring with roll-out of Concierge Automated Risk Monitoring tool. • Launch of varied innovative pro- facilitate asset growth grams to through extensive usage of the Credit Bureau. • Set-up of dedicated and independent business banking risk structure. quality • Enhanced • Independent assurance checks and subsequent process im- provements to improve efficiencies and additional controls. efficiencies collection through building greater coverage and reach. • Re-engineered to achieve cost-savings and processing efficiencies, which resulted in credit assessment of greater numbers of applications during the year despite head-count savings. underwriting • Enhanced models. liquidity measurement • Conducted Basel II Quantitative Im- pact Studies for the CBE and in po- sition to be fully compliant with the new regulations. • Encouraged continuous learning through our Risk Group profession- als by designing and offering educa- tional training programs. Compliance CIB’s Compliance Department was es- tablished in March 2007 as an indepen- dent entity guarding the Bank and all its stakeholders against a full spectrum of compliance risks, including regula- tory, governance, legal, fraud, reputa- tion, money laundering and terrorism financing. The department works con- sistently to achieve the highest possible standard of compliance. The Compliance Department in- cludes four divisions: 1. Policies and Procedures This Division is responsible for ensur- ing the Bank’s compliance with poli- cies, regulations, laws, and procedures (including CBE rules and regulations). This entails reviewing, updating and approving policies and standard oper- ating procedures. The Division reviews new products and services, related ads, and other means of communication to ensure compliance with CBE in terms of transparency and proper disclosure of terms and conditions for products and services. It also assesses compli- ance risks and related tools of control to ensure that all business lines are com- plying with existing regulations. In 2012, the Division’s main focus was on providing recommendations for improved controls and processes, an effort that will continue Bank-wide through 2013. 2. Anti-Money Laundering and Terrorism Financing This Division is directly involved in monitoring transactions with branches and other business areas to ensure that all account opening requirements are obtained, Know Your Client (KYC) data are sufficient for new clients and that KYC information is updated for the ex- isting customer base. During 2012, spot checks were conducted on 21 branches, in coordination with Operations, to test the adequacy of the Bank’s Anti Money Laundering Compliance Program and to address any identified gaps. This shall continue throughout 2013. In doing so, the Division implemented a risk-based approach to assess customer profiles and their related transactions. In order to conduct more accurate analysis, CIB has invested in an advanced automated AML solution that will be in place by Q2 2013. This Division is also responsible for screening customer transactions, in- cluding incoming and outgoing pay- ments for individuals and entities that are negatively listed and between sanc- tioned countries. In 2013, the Division will be responsible for handling the preparation for FATCA (Foreign Ac- Mitigating risk EGP 19.2 mn in non-performing loan recoveries. EGP 6.8 bn CIB's consumer asset portfolio, which carries a loss rate of only 0.4%. 21 CIB branches were spot- checked to test Anti-Mon- ey Laundering compliance. count Tax Compliance Act) require- ments for US individuals and entities in coordination with other areas in the Bank that will be in effect by January 2014. 3. Corporate Governance and Code of Conduct This Division continues to work hard to build a sound corporate governance model that is commensurate with CIB’s status as a leading financial institu- tion. In 2012, the Division drafted the Bank Code of Corporate Governance in alignment with CBE guidelines and international standards, in addition to three related policies: Whistle Blow- ing, Conflict of Interest, and Disclo- sure, which were all endorsed by the Board. The Division continues to provide regular updates and awareness to all staff according to CIB ethics standards and regulations in conjunction with the Bank’s core values, and investigates cases related to breaches of the Bank’s code of conduct. In 2012, through the Bank Fraud Committee, it succeeded in putting several precautionary measures in place to minimize external and inter- nal fraud risks, thus safeguarding cus- tomer accounts and bank assets from such acts. 4. Complaints Investigation This Division was established in 2010 and is responsible for investigating in- quiries and complaints received from CBE and the Chairman’s Office. It co- ordinates with the Customer Care Unit, which is in charge of all customer com- plaints, to investigate the root causes of such complaints and client dissatisfac- tion, and to initiate remedial action. Based on the analysis of the root causes in 2012, work flow systems were enhanced and processes improved in order to continuously decrease the volume of customer complaints and to achieve the Bank’s ultimate goal of cus- tomer satisfaction. Annual Report 2012 53 Strategic Subsidiaries Strategic Subsidiaries CI Capital Holding CI Capital is CIB’s wholly-owned, full- service investment banking division, offering a range of capital markets so- lutions through its platforms for securi- ties brokerage, asset management, and investment banking advisory, all sup- ported by a strong research arm. Business lines Securities Brokerage CI Capital Securities is a top-ranked Egyptian brokerage house that offers its services through two fully-owned bro- kerage companies serving a wide range of global clients: Commercial Interna- tional Brokerage Company (CIBC) ca- ters to institutions and high net worth individuals, while Dynamic Securities Brokerage focuses on retail clients. 2012 Accomplishments: • Ranking: CI Capital Securities has successfully propelled both of its bro- kerage arms into the upper echelons of the Egyptian securities market. In 2012, CIBC was the top-ranked brokerage firm in Egypt (excluding OTC and irregular transactions) and ranked third overall. Dynamic Secu- rities made steady progress through- out the year, moving up strongly from the top 50 to secure a place as one of the top 15 brokers in the coun- try. • Market Share: In 2012, CI Capital Se- curities added 1.8% to its overall mar- ket share across both brokerage firms to reach 8.9% (CIBC, 7.1%; Dynamic, 1.8%), up from 7.1% in 2011. The firm recorded a total trading value of EGP 25.9 billion in 2012. • Revenue Diversification: Through- out 2012, CI Capital Securities has focused on revenue diversification through the continued expansion of its trading platform. Execution capa- bilities have been expanded beyond the local market by offering clients quality access to international equity markets in Europe, the US and the GCC. Asset Management CI Asset Management (CIAM) is a lead- ing institutional asset management firm in Egypt, with total assets under man- agement reaching EGP 7 billion (as of December 2012). CIAM manages seven diverse funds: • Osoul: One of the largest and best- performing money market funds in Egypt, with assets under manage- ment of over EGP 6 billion. • Istethmar: CIAM’s first equity fund (launched in 2006), with assets under management of EGP 142 million. • Aman: A Sharia-compliant fund launched in 2006 in cooperation with CIB and Faisal Islamic Bank of Egypt, with assets under manage- ment of EGP 38 million. • BLOM: A money market fund launched in 2009, with assets under management of EGP 270 million. • Hemaya: A capital-protected fund launched in 2010, with assets under management of EGP 41 million. • Thabat: A CIB fixed income fund launched in 2011, with current assets under management of EGP 173 mil- lion. • Rakhaa: United Bank of Egypt’s Shar- ia-compliant money market fund, launched in 2012 as the first of its kind on the Egyptian market, with current assets under management of EGP 318 million. CIAM also provides portfolio manage- ment services for a wide array of CIB and CI Capital clients, offering discre- tionary services to high-net-worth indi- viduals and institutional investors. Cli- ents are provided with comprehensive personalized services tailored to their investment and reporting requirements. 2012 Accomplishments: Ranking and awards: • CIAM was named “Best Asset Man- ager in Egypt” at the Global Investor Awards for the third year in a row. 56 Annual Report 2012 A transformative year across CI's platform EGP 7 bn in total AUM as of December 2012 Strategic Subsidiaries • CIAM was named “Best Asset Man- ager in Egypt” by EMEA Finance for the second year running on the back of its focus and innovation in launch- ing Rakhaa and maintaining Osoul’s leading performance during 2012. • Osoul maintained its position among the top 3 money market funds in Egypt for the fifth consecutive year. • The BLOM money market fund maintained its first place ranking among all money market funds in Egypt for the second consecutive year. • Thabat ranked first in its category of fixed income funds. Diversification in products and client base: • CIAM’s range of funds and portfo- lios cover nearly every asset class in the Egyptian market, including equi- ty (Islamic and non-Islamic), money market (Islamic and non-Islamic), fixed income and capital protected. • CIAM currently manages funds and portfolios on behalf of a wide range of clients, including public and pri- vate banks, governmental institution, insurance companies and corporate entities. • Launch of Rakhaa, the first Sharia- compliant money market fund in Egypt, with a 2.7x covering ratio and EGP 318 million in assets under management as of year-end 2012. • Added EGP 450 million in assets un- der management through a new fixed income portfolio. dition that dates back to 1991, CI Capi- tal Investment Banking (CIIB) offers some of the most focused, experienced and professional advisory and execu- tion capabilities in Egypt. As CIB’s investment banking arm, CIIB enjoys a unique position in terms of access to deal flow, unparalleled sec- tor, industry and company knowledge, and the ability to access, raise and structure equity and debt capital. CIIB’s investment banking services include: Equity Capital Markets (ECM) • Private placements • Initial public offerings • Follow-on offerings • ADR / GDR listings • Valuation advisory The business underwent a significant restructuring exercise that centered on bolstering the senior leadership team. Mergers & Acquisitions (M&A) • Buy-side advisory • Sell-side advisory • Asset disposal programs and divesti- tures • New fixed income launched by Q1 2013. fund to be • Management and leveraged buy-outs Internal operational enhancements: • Disaster recovery and business conti- nuity plans were implemented during 2012, preparing CIAM to perform its responsibilities and provide the best service to clients under any circum- stances. • Applied for ISAE 3402 (International Standards on Assurance Engage- ment). Investment Banking Building on an investment banking tra- Debt Advisory (in collaboration with CIB) • Securitizations • Corporate bonds • Debt raising advisory 2012 Accomplishments: Despite the challenges facing equity and debt capital markets and other investment banking activity in Egypt during 2012, CIIB had a transforma- tive year during which the business underwent a significant restructuring exercise that centered on bolstering the senior leadership team. Two managing directors were hired to lead the trans- formation of the franchise, bringing a combined 27 years of experience at top-ranked regional and international financial institutions. With a new leadership in place, cou- pled with important enhancements across the CI Capital platform, CIIB has repositioned itself as the leading investment bank in Egypt, targeting high profile and complex transactions and establishing new relationships with key corporate clients. During the year, CIIB was selected as lead advisor on a number of landmark M&A and ECM transactions, including several cross-border deals. In addition, CIIB is in the final stages of closing two trans- actions with completion projected dur- ing Q1 2013. CIIB aims to develop its franchise as the market leader in M&A and ECM transactions, while continuing to en- hance its transactions pipeline with high quality mandates and leveraging the relationship with CIB to offer cli- ents one-stop-shop financial solutions and strategic financial counseling at the highest level. CI Capital Research The Research Department was founded in 1998 for the purpose of producing equity research reports covering listed Egyptian entities for our institutional and retail clients. In 2005, the unit was renamed CI Capital Research (CICR) and integrated into CI Capital Hold- ing. The CICR team comprises some of the most experienced equity analysts in the region, with a cumulative 48 years of experience in equity research in the MENA area. Our team covers various industries in Egypt and the GCC coun- tries, specializing in comprehensive industry reports and company-specific notes that aim to generate profitable investment ideas for our clientele. In addition, the macro and strategy team tracks, analyzes and forecasts macro- economic indicators, and identifies in- vestment opportunities across sectors and countries. Egypt Factors Profile Egypt Factors (EGF) is a joint venture between Commercial International Bank (CIB) and Malta-based FIMBank plc. Each entity owns 40% of the joint venture, with the International Finance Corporation (IFC) — a member of the World Bank Group — holding the remaining 20%. EGF is the first non- banking financial institution in Egypt to purely specialize in factoring, and is the first registered company on the Egyp- tian Register for Factoring Companies. product type With a clear focus on non-traditional trade finance instruments, Egypt Fac- tors is committed to supporting and promoting cross-border and domestic trade in Egypt. To that end, Egypt Fac- tors provides a comprehensive package of receivables management services that consist of the following: • Administration & Commercial Col- lection: EGF will undertake all debtor book-keeping and collection measures, as well as monitoring and following up on all outstanding in- voices. With the company’s cover- age extending to over 80 countries around the world, including Egypt, EGF is able to bridge differences in culture, language, market habits and legal environment through a com- prehensive network of more than 390 correspondents worldwide. • Funding: EGF will advance up to 90% of all covered receivables. This turns sales on credit terms into cash sales. As cash flows improve, client flexibility increases. • Debt Protection: EGF guarantees 100% payment up to a limit estab- lished for each buyer, and will settle covered undisputed receivables if not paid after a defined period from the due date. Buyers are under periodic evaluation to make sure that upcom- ing risks are recognized on time. Target Market The company targets producers / manufacturers, traders and service providers who conduct transactions based on short-term deferred pay- ments. EGF also offers services to domestic buyers from local or foreign sources, which benefit from the in- creased purchasing power without ty- ing up banking facilities. For large corporations, factoring is advantageous in that it provides value- added services and non-recourse fund- ing to improve risk position, business efficiency and financial ratios. Factoring is also considered highly beneficial to mid-cap companies in terms of liquid- ity and growth. 2012 Accomplishments Despite the turbulence that rocked both the global markets and Egypt’s econo- my over the past two years, Egypt Fac- tors has succeeded in maintaining its business portfolio and achieving almost 100% growth during FY 2012. The company managed to capitalize on current circumstances by divest- ing and replacing more than 40% of its portfolio to minimize risk and enhance profitability. According to Factors Chain Inter- national (FCI) statistics, EGF has, for the fourth consecutive year, achieved the highest volume of international trade handled through the FCI network among all Egyptian factoring compa- nies. Ongoing Forward Strategy With a positive outlook for domestic growth and stability and a more con- genial global environment expected over the coming year, Egypt Factors aims to double its volume while focus- ing on providing value-added services to its clients. Long-term, Egypt Fac- tors aims to become a leading com- mercial finance hub in the MENA region. 58 Annual Report 2012 Annual Report 2012 59 Strategic Subsidiaries Commercial International Life Insurance Company Commercial International Life Insurance Company (CIL) seeks to meet the sav- ings and protection needs of individual and corporate customers in Egypt with insurance products that offer excellent value-for-money. CIL was a pioneer in introducing unit-linked products to the Egyptian market and remains the leader in this segment today. Leveraging on the combined strength of its two respected shareholders, UK’s Legal & General and Egypt’s Commercial International Bank, CIL delivers a suc- cessful banc-assurance sales model. The company has risen to become one of the largest players in the Egyptian life insur- ance industry. 2012 performance CIL currently insures the lives and pro- vides retirement savings programs for more than 389,000 and 21,000 individu- als respectively. Revenue increased sig- nificantly in 2012 despite tough market conditions and distressed circumstances. Moreover, a range of system and process enhancements were implemented to im- prove customer service and transparency. Forward Strategy Going forward, CIL is determined to maintain its strategy to: • Build a strong and vibrant company through sustained growth in the sale of profitable products to individual and corporate customers. • Deliver innovative value-for-money protection and savings products, aimed at satisfying the needs of clients. • Provide exceptional customer ser- vice, professional growth and fulfill- ment of employees, and improved quality of life in the community. • Contribute materially to CIB’s rev- enue base with strong sales growth, high policy persistency and maximi- zation of synergies with CIB affiliate companies. Falcon Group Falcon Group is a joint venture be- tween CIB, the CIB Employees Fund, Al Ahly for Marketing and Services and other private entities. CIB owns 40%, the Employees Fund 16%, Al Ahly for Marketing and Services 6%, while other shareholders own the remaining 38%. Products Falcon Group includes six companies: Falcon Security Services Company • Properties and Premises Protection • Public Event Security • Personal Protection • Security Dogs • Corporate Security Training Courses • Female Guards • Safety Training • Industrial Security Falcon tech. for technical Services and Security • Security Surveillance Equipment • Counter Surveillance Equipment • Access Control Equipment • Fire Systems • Safety Equipment • Security Fences Falcon for Money transfer Services • Cash Management and Transit • ATM Services • Money Processing • Valuables Transfer Falcon Blue for touristic Services • Booking International and Domestic Flights • Booking International and Domestic Hotels • Visa Handling • Meet and Assist • Medical Insurance for Travel • Assistance in Tracing Lost Baggage • Tour Arrangement for Groups and Individuals • Haaj and Omrah Falcon for public Services and project Management • Cleaning and Housekeeping • Pest Control • Planting and Trimming • Maintenance Falcon for Investment and Sports Marketing • Organizing tournaments and event conferences, festivals, exhibitions and a wide range of sports, cultural, social, artistic and religious activities. • Preparing events and supplying equipment and supplies such as sports equipment, stationery and any other supplies needed by Falcon Clients. Target Market In order to better meet security and ser- vice needs, organizations are increas- ingly considering the use of managed service providers for some or all of their activities. Companies operating in di- verse sectors of the economy, including tourism, banking, commerce and pub- lic services view security and property management as essential components of their day-to-day operations. Falcon Group has developed a unique bouquet of high-quality services to meet diverse market needs. Every year, Falcon Group expands its service offering to ensure cli- ents remain fully satisfied and confident that Falcon is the number one choice in terms of efficiency and customer service. Falcon has developed a long-standing, positive relationship with governmental authorities and entities and is licensed by the Ministry of State for Administrative Development to provide Concierge and Governmental Services such as national IDs, passports and drivers licenses. Expanded Market Presence Falcon aspires to maintain its market leadership by growing both organically and through acquisitions. With an eye on local and regional expansion, Falcon plans to establish operations in at least two new locations annually. Expansions have taken place primarily in the Delta and Upper Egypt, but plans are cur- rently underway to further expand Fal- con’s footprint in the coming four years within Greater Cairo, which we consider a cash intensive area with a large number of high-growth financial institutions that will be in need of cash handling solutions. 2012 Group Accomplishments Falcon currently represents 28% of the money transfer market in Egypt. In 2012, our monthly transferred volume of cash reached over EGP 7 billion, our monthly transferred valuables were worth more than EGP 46 million and our daily sorting and counting operations covered more than EGP 250 million. We also provided ATM replenishment and maintenance services for 350 ATMs throughout Egypt. In the area of Public Services and Proj- ect Management, Falcon holds a market share of 9%, serving a large client base out of 201 different locations in 2012. Our Se- curity Services Group has a 25% market share, and continues to be a trustworthy provider to clients in 475 locations, de- spite the increased political tension and heightened security situation in Egypt. We have opened two new branches, one in Maadi and another cash center in the Fifth Settlement. Our total turnover increased by 47% to reach EGP 144.3 million. Strategy Going Forward Decentralization: Falcon has opened two new branches in 2012 and will open an additional four by the end of 2013. This decentralization will help us achieve greater control over costs, thereby ensur- ing our ability to continue providing high quality services at competitive prices. Falcon is developing a uniform for all operations staff to improve employee appearance and increase efficiency and productivity. Falcon also provides in- centive training to maintain a high level of service and to keep up to date with the latest developments in Egypt. Falcon’s call center will operate 24/7, analyzing client data and administer- ing satisfaction surveys to guarantee a maximum level of client satisfaction. Superior Corporate Governance Group organization is characterized by a decentralized structure where each division is held responsible for its own performance with respect to both prof- itability and business development. We are continuously working to improve the efficiency and profitability of our branch offices, with a clear target to increase ser- vice revenues by 2014. Falcon is committed to safeguarding the well-being of its employees. We have created a well-functioning structure and utilized systematic procedures for iden- tifying and minimizing the risk of em- ployee harm. 60 Annual Report 2012 Annual Report 2012 61 Strategic Subsidiaries Corporate Leasing Company (Egypt) SAE – CORPLEASE CORPLEASE, established in 2004, is one of the top three financial leasing companies in Egypt. The company pro- vides classic finance and operating lease products to the SME sector as well as to the corporate sector at large. COR- PLEASE also provides fleet manage- ment and vendor finance products as well as structured leasing products. The company covers all of Egypt through its offices in Cairo, Alexandria, Mansoura, Assiut, Hurghada and Suez (the last two in early 2013). In addition, the Compa- ny established a fully owned subsidiary in Dubai, incorporated in the Dubai In- ternational Financial Center (DIFC). While 2011 saw CORPLEASE achieve robust new lease bookings, volumes in 2012 were impacted by the political and economic circumstances, which led to increased credit risk and to lower demand for medium and long term fi- nancing. Despite these developments, the company retained a robust and healthy portfolio and has a strong pipe- line going into 2013. CORPLEASE en- acted another capital increase in 2012, in line with its established policy of an- nual equity increases, and continues to enjoy a strong financial position with favorable coverage, liquidity, capitaliza- tion and funding ratios. CORPLEASE continues to place sig- nificant emphasis on developing its automation, risk and internal controls. The company invests continuously in the development and training of its professional staff through dedicated in-house and outside training activities and the company believes that the qual- ity of its people, operating practices and controls are the best in the industry. 62 Annual Report 2012 Fostering productivity and innovation More than 4,500 staff members participated in new training programs. Corporate Governance Corporate Governance We at CIB firmly believe that good gov- ernance is a cornerstone of our success as it assures the alignment of interests of shareholders and managers and the monitoring of management through the dissemination of information and transparent reporting. Corporate gov- ernance is the underlying framework within which our five-year plan is be- ing implemented. As such, we have de- veloped a sound reporting system that guarantees timely, transparent and accurate disclosure of material mat- ters regarding the Bank, its ownership, operations and financial performance. The Bank also advocates the equal treatment of all shareholders and the protection of their voting rights. We take pride in our strong cor- porate governance structures, which include an experienced team of pro- fessional executive directors and se- nior management, competent board committees, as well as a distinguished group of non-executive directors who truly believe that, while business re- quires mandated laws and rules, these can never substitute for ethical behav- ior and voluntary compliance. CIB’s highly qualified Board of Di- rectors is supported by internal and external auditors, as well as other in- ternal control functions (Risk, Com- pliance, and Internal Audit), and ef- fectively utilizes the work carried out by those functions to ensure that the Bank adheres to international best practices in corporate governance. CIB also changes auditors every five years to ensure objectivity and exposure to new practices. In line with new Central Bank of Egypt directives on corporate gov- ernance as well as international best practices that increasingly separate the roles of chairman and chief executive officer, and in view of the Bank’s up- coming aggressive growth plan, CIB’s Board decided to appoint a managing director to be responsible for manag- ing the Bank’s business lines and en- 66 Annual Report 2012 suring smooth day-to-day running of operations and execution of the strat- egy approved by the Board. In 2011, Mr. Hisham Ramez Abdel Hafez was appointed as Vice Chair- man and Managing Director of the Bank to carry out the aforementioned responsibilities creating greater capac- ity for the Chairman to focus on the strategic direction of the Bank. Mr. Ramez remained with CIB until early in Q1 2013, participating actively in the Bank's corporate governance. He has since left the Bank to serve as Governor of the Central Bank of Egypt. Good governance is a cornerstone of our success as it assures the alignment of interests of shareholders and managers and the monitoring of management through the dissemination of information and transparent reporting. The Board of Directors: One of our key strengths is our prominent Board of Directors, which is the ul- timate decision-making body of the Bank. The Board is composed of nine members; two are executive and seven non-executive members with a diverse knowledge base and a balanced skill set that gives CIB a distinct competi- tive edge. The Board primarily focuses on long-term financial returns and the best interest of all CIB’s stakeholders: customers, shareholders and employ- ees of the Bank, as well as the com- munities in which the Bank operates. Moreover, the Board’s role is to set the Bank’s values, strategy and key poli- cies, along with pursuing and main- taining its long-term success. Such role is accomplished through providing en- trepreneurial leadership, sound strate- gies and risk management oversight to ensure that risks are assessed and properly managed. The Directors meet at least six times per year for discus- sions on matters that are important to shareholders. Over the course of 2012, CIB’s Board met six times. Being the single largest shareholder in CIB, Actis — an emerging market private equity specialist — currently owns 9.14% of CIB’s shares and has a representative on the Board. Mr. Hisham Ezz Al-Arab Chairman and Managing Director Mr. Hisham Ezz Al-Arab has been leading CIB since 2002 as Chairman and Managing Director. Under his leadership, CIB expanded its leading position, grew its market capitaliza- tion from $200 million to $4 billion and evolved from a wholesale lender into the full fledged financial institu- tion it is today. His vision transcended financial performance to include the adoption of best practices in corporate governance, risk management and in- stilling of a modern banking culture. Prior to joining CIB, Mr. Ezz Al- Arab led a distinguished banking career as Managing Director in inter- national investment banks in London (Deutsche Bank, JP Morgan and Mer- rill Lynch), Bahrain, New York and Cairo. In 1999, Mr. Ezz Al-Arab joined CIB as Deputy Managing Director re- sponsible for leading the Bank's mod- ernization and restructuring efforts aimed at protecting its leading market position in the face of future changes. In 2002, he was promoted to the role of Chairman. Mr. Ezz Al-Arab is a member of nu- merous organizations, including the Federation of Egyptian Industries, the American Chamber of Commerce in Egypt and the Board of Trustees of AUC. He is also a member of Master Card’s South Asia, Middle East and Af- rica Region Advisory Board and serves as Chairman of the Board of Trustees of CIB Foundation. Mr. Hisham Ramez Abdel Hafez Vice Chairman and Managing Director Mr. Ramez has over 30 of years’ expe- rience in international banking, with a strong background in asset and li- ability management, investment bank- ing and risk management. He joined CIB in December 2011 as Vice Chair- man and Managing Director and has brought to the role a considerable wealth of knowledge gained from a distinguished career with various local and international banks. Prior to joining CIB, Mr. Ramez was Deputy Governor and Vice Chairman of the Central Bank of Egypt (CBE) from July 2008 to November 2011. His professional career began in 1982 as a foreign exchange and money market trader with Bank of America in Cairo. From there he moved on to become a senior trader with Bank of America in Bahrain before assuming the post of Vice President of the Arab Banking Corporation, also in Bahrain. In 1996, Mr. Ramez returned to Egypt, where he became the General Manger and later CEO of the Egyptian Gulf Bank, a post he held until 2006. Afterwards, he assumed the role of Chairman and Managing Director of the Suez Canal Bank until June 2008. Mr. Ramez is a board member of the Arab Monetary Fund (AMF), the Egyptian American Business Council, the Egyptian Financial Supervisory Authority (EFSA), the Egyptian Ex- change (EGX), the National Bank for Investment, the Coordinating Council of the Government of Egypt, the Cen- tral Bank of Egypt’s (CBE) Anti Money Laundering Unit and Monetary Policy Committee, the National Organization for Social Insurance, and the Egyptian Banking Institute. Mr. Ramez is also the non-executive Chairman of the Arab International Bank. Dr. William Mikhail Non-Executive Board Member Dr. Mikhail is a professor of Econo- metrics at the American University in Cairo (AUC). He obtained his PhD from the London School of Economics, in 1969. He served as an associate pro- fessor of Statistics and Econometrics at Cairo University in 1970s. In addition to his academic career, Dr. Mikhail worked at the Ministry of Planning, London School of Econom- ics, Dar Al-Handasah Consultants in Rabat, Morocco and in Amman, Jordan, Techno-Economics Division of Kuwait Institute for Scientific Re- search, UN Development Program, and UNDESD. Dr. Mikhail has pub- lished extensively on econometric theory and applied econometrics in international journals, and supervised many PhD and MA theses both at Cai- ro University and AUC. Mr. Mahmoud Fahmy Non-Executive Board Member Counsellor Fahmy is a renowned Egyp- tian lawyer, an international arbitrator and an Attorney at Law admitted to the Bar of Civil, Commercial and Criminal Cassation Courts, the Supreme Ad- ministrative Court and the Supreme Constitutional Court. He is also a member of the General Assembly of Public Sector’s Banks at the Central Bank of Egypt, a member of the Egyp- tian Businessmen’s Association and head of its Investment and Economic Legislation Committee, Chairman of the Egyptian Legal Association, Chair- man of Corporate Leasing Co. Egypt (CORPLEASE) and Chairman of The Egyptian Leasing Association. He pre- viously served as the Chairman of the Capital Market Authority. Currently Mr. Fahmy is the founder of Fahmy’s Law Office for Legal Profes- sion, Legal Consultation, Arbitration, Investment and Capital Markets. Dr. Nadia Makram Ebeid Non-Executive Board Member Dr. Nadia Makram Ebeid is the Ex- ecutive Director of the Centre for En- vironment and Development for the Arab Region and Europe (CEDARE), an international diplomatic position which she has held since January 2004. For a period of five years beginning in 1997, Dr. Ebeid served as Egypt’s first Minister of Environment, the first woman to assume this position in the Arab World. Early in her career, Dr. Ebeid held several managerial posts with the United Nations Development Program (UNDP), the United Nations Food and Agriculture Organization’s Regional Office for the Near East, and the Coun- cil for Environment and Development Research. In recognition of her role in environmental policy and advocacy, Dr. Ebeid has been awarded numerous awards and distinctions from local and international NGOs, leading institu- tions and associations. Dr. Medhat Hassanein Non-Executive Board Member Dr. Medhat Hassanein, Egypt’s for- mer Minister of Finance (1999-2004), is a professor of Banking and Finance with the Management Department of the School of Business, Economics & Communication at the American Uni- versity in Cairo. Dr. Hassanein is a senior policy ana- lyst with long experience in institu- tional building, macro-policy analysis, financial economics, corporate finance and international financial manage- ment. He has previously served as advisor to government, high-level ad- visory bodies and the donor commu- Annual Report 2012 67 Corporate Governance nity. During his term as Minister of Finance, he developed and instituted the second generation of fiscal public policy reforms for the Government of Egypt. Dr. Hassanein has also served as Chairman and Board Member in pub- lic holding companies, private corpo- rations and many respected banks in Egypt, last of which was HSBC Egypt (2004-May 2009) where he chaired its Audit Committee. Dr. Hassanein obtained his BA in Economics from Cairo University (with Honors), an MBA from New York University (with Distinction) and a PhD from Wharton School of Busi- ness, University of Pennsylvania, USA. Mr. Paul Fletcher Non-Executive Board Member Mr. Fletcher is a Senior Partner of Ac- tis, leading the firm, which he joined in 2000, from its London headquar- ters. Originally a banker with Cargill, Banker’s Trust and Swiss Bank Corpo- ration, Mr. Fletcher transitioned into corporate finance in the early 1990s with a role at Citibank. At Citibank, he led the East African operations, becoming Head of Emerg- ing Markets Strategic Planning. With two decades of experience in emerg- ing markets, Mr. Fletcher’s career has spanned Kenya, Tokyo, New York and London. Mr. Fletcher is a Founding Director of the Emerging Markets Private Eq- uity Association (EMPEA). He holds a Masters in Geography from Oxford University. Mr. Robert Willumstad Non-Executive Board Member Mr. Willumstad is the Co-founder and Partner of Brysam Global Partners since 2007. –From 2007 to 2008, he served as the Non-Executive Chairman and the CEO of American Internation- al Group (AIG). In October 1998, Mr. Willumstad joined Citigroup, where he played a critical role in its creation. He was named Citigroup’s president in 2002, joined its Board of Directors and became Citigroup’s Chief Operating Officer until July 2005. Prior to Citigroup, Mr. Willumstad spent 20 years with Chemical Bank and 11 years with Commercial Credit and its successor companies. Mr. Willumstad is a Director of S.C Johnson & Son, Inc. and a trustee of both the American Scandinavian Foundation and Adelphi University. Mr. Essam El Wakil Non Executive Board Member Mr. El Wakil is a renowned banker with over 36 years of experience in the financial industry, including Treasury & Capital Markets, Corporate Finance, Project Finance, Trade Finance, Islam- ic Banking and Investment Banking. Mr. El Wakil served in various prom- inent banks such as: National Bank of Egypt, Arab International Bank-Egypt and Arab Banking Corporation (ABC) Group in Egypt, Singapore, New York, London and Bahrain, where he spent almost 28 years. He also held several senior banking positions and director- ships in both Islamic and Commercial banks throughout the MENA region. In 2008 Mr. El Wakil joined CIB as CEO for Institutional Banking. In May 2009, he was appointed to lead, as a Non Executive Chairman, CI Capital (the CIB Investment Arm). In October 2011, Mr. El Wakil became a Non-Ex- ecutive Board Member in CIB. The Board of Directors’ Committees CIB’s Board of Director’s has five stand- ing committees that assist the Board in fulfilling its responsibilities. According- ly, the Board is provided with all neces- sary resources to enable them to carry out their duties in an effective manner. Each committee operates under a writ- ten charter that sets out its responsibili- ties and composition requirements. Committee Members Key Responsibilities Audit Committee Supervising the quality and integrity of CIB’s financial reporting Chair: William Mikhail Members: Mahmoud Fahmy Medhat Hassanein The Committee’s mandate is to ensure compliance with the highest levels of professional conduct, reporting practices, internal processes and controls. Consistent with the inter- ests of all stakeholders, the Audit Committee also insists on high standards of transparency and strict adherence to internal policies and procedures. In performing its critical functions, the Committee is cognizant of the important role CIB plays in the Egyptian financial sector as a leader in all of the aforementioned areas. The Audit Committee met five times in 2012. Committee Members Key Responsibilities the Governance and Compensation Committee Responsibility for corporate governance of CIB as well as Responsibility for the Board’s performance evaluation, compensation and succession planning Chair: Nadia Makram Ebeid Members: William Mikhail Mahmoud Fahmy Medhat Hassanein Paul Fletcher Robert Willumstad Essam El Wakil The Governance and Compensation Committee (GCC) is an integral part of the overall responsibilities of the Board of Directors. As such, and in line with CIB’s corporate gover- nance framework, the GCC is responsible for establishing corporate governance standards, providing assessment of Board effectiveness and determining the compensation of members of the Board. The Committee also determines the appropriate compensation levels for the Bank’s senior exec- utives and ensures that compensation is consistent with the Bank’s objectives, performance, and strategy and control environment. The Governance and Compensation Commit- tee (GCC) met two times in 2012. the Risk Committee Supervising the management of risk of CIB Chair: Robert Willumstad Members: Hisham Ramez Abdel Hafez Mark Richards Essam El Wakil The primary mission of the Risk Committee is to assist the Board in fulfilling its oversight risk responsibilities by es- tablishing, monitoring and reviewing internal control and risk management systems to ensure the Bank has the proper focus on risk. It also recommends to the Board the Bank’s risk strategy with all its associated limits. The Risk Commit- tee met four times in 2012. the Management Committee Responsibility for execution of the Bank’s strategy Chair: Hisham Ezz Al-Arab Members: Hisham Ramez Abdel Hafez the High lending and Investment Committee Responsibility for assets’ al- location, quality and develop- ment Chair: Hisham Ramez Members: Hisham Ramez Abdel Hafez The Management Committee is an Executive committee chaired by the Chairman and Managing Director and is composed of the Vice Chairman and Managing Director, CEO of Institutional Banking, CEO of Consumer Banking and the COO. The Management Committee is responsible for executing the Bank’s strategy as approved by the Board. It manages the day-to-day functions of the Bank to ensure alignment with strategy, effective controls, risk assessment and efficient use of resources in the Bank. The committee adheres to high ethical standards and ensures compliance with regulatory and internal CIB policies. The committee also provides the Board with regular updates regarding the Bank’s financial and business activity reports as well as any key issues. The Management Committee met twelve times in 2012. This committee is an Executive Committee chaired by the Vice Chairman and Managing Director and members of the Bank’s key senior executives. The High Lending and Invest- ment Committee is responsible for managing the assets side of the balance sheet; keeping an eye over assets allocation, quality and development. Per its mandate, the High Lend- ing and Investment Committee convened weekly through- out 2012. 68 Annual Report 2012 Annual Report 2012 69 A local bank with international standards 559 new employees hired by CIB in 2012 from top-tier universities in Egypt and abroad. Executive Management Executive Management Chief Executive Officers Mr. Hisham ezz Al-Arab 1 Chairman and Managing Director Mr. Hisham Ezz Al-Arab has been lead- ing CIB since 2002 as Chairman and Managing Director. Under his leader- ship, CIB expanded its leading bank- ing position by increasing its market capitalization from USD 200 million to USD 4 billion and growing from a wholesale lender into the full-fledged financial institution that it is today. His vision was not just confined to finan- cial performance. Mr. Ezz Al-Arab also spearheaded the wholesale adoption of best practices in corporate governance, risk management and the instilling of a modern banking culture at CIB. Prior to joining CIB, Mr. Ezz Al-Arab led a distinguished banking career as Managing Director at leading inter- national investment banks in London (Deutsche Bank, JP Morgan and Merrill Lynch), Bahrain, New York and Cairo. In 1999, Mr. Ezz Al-Arab joined CIB as Deputy Managing Director. In that role, he was responsible for leading the Bank’s modernization and restructur- ing efforts aimed at protecting its lead- ing market position in the face of indus- try changes. In 2002, he was promoted to the role of Chairman. Mr. Ezz Al-Arab is a member of nu- merous organizations, including the Federation of Egyptian Industries, the American Chamber of Commerce in Egypt and the Board of Trustees of the American University in Cairo (AUC). He is also a member of MasterCard’s South Asia, Middle East and Africa Region Advisory Board, and serves as Chairman of the Board of Trustees of the CIB Foundation. Mr. Hisham Ramez 2 Vice Chairman and Managing Director Mr. Ramez has over 30 of years’ experi- ence in international banking, with a strong background in asset and liability 72 Annual Report 2012 management, investment banking and risk management. He joined CIB in De- cember 2011 as Vice Chairman and Man- aging Director and has brought to the role a considerable wealth of knowledge gained from a distinguished career with various local and international banks. Prior to joining CIB, Mr. Ramez was Deputy Governor and Vice Chairman of the Central Bank of Egypt (CBE) from July 2008 to November 2011. His profes- sional career began in 1982 as a foreign exchange and money market trader with Bank of America in Cairo. From there he moved on to become a senior trader with Bank of America in Bahrain before CIB's world class executive management provides the Bank the unwavering leadership and strategic vision that has allowed it to maintain its position as Egypt's number one private sector bank. assuming the post of Vice President of the Arab Banking Corporation, also in Bahrain. In 1996, Mr. Ramez returned to Egypt, where he became the General Manger and later CEO of the Egyptian Gulf Bank, a post he held until 2006. Af- terwards, he assumed the role of Chair- man and Managing Director of the Suez Canal Bank until June 2008. Mr. Ramez is a board member of the Arab Monetary Fund (AMF), the Egyptian American Business Council, the Egyptian Financial Supervisory Authority (EFSA), the Egyptian Ex- change (EGX), the National Bank for Investment, the Coordinating Council of the Government of Egypt, the Cen- tral Bank of Egypt’s (CBE) Anti Money Laundering Unit and Monetary Policy Committee, the National Organization for Social Insurance, and the Egyptian Banking Institute. Mr. Ramez is also the non-executive Chairman of the Arab International Bank. Mr. Mohamed Abdel Aziz el toukhy 3 Chief Executive Officer, Consumer Banking Mr. Mohamed Abdel Aziz El Toukhy is leading the transformation of the organization into a modern Consumer Banking franchise. Mr. Toukhy began his career with CIB’s Trade Finance Department in 1979. He has risen through the ranks, assuming positions in Operations, Branch Management and Corporate Banking. In July 2006, he was promot- ed to General Manager of Consumer Banking and has since led the CIB Branch Network and Retail Banking areas to unprecedented success. During his tenure, CIB branches have grown in number to 156, covering all key governorates in Egypt. Moreover, all of the Bank’s Asset and Liabilities busi- nesses are on solid growth trajectories, with CIB taking leadership positions in credit cards, auto loans, personal loans, current and saving accounts, time de- posits, certificates of deposit and invest- ment / insurance products. In terms of profitability, the Consumer Bank has increased its share of the Bank’s net in- come from only 10% in 2006 to over 37% in 2012. Under Mr. Toukhy’s leader- ship, CIB’s Branch Network and Retail Banking Group grew its 2012 Consumer Banking balance sheet (B/E) to over EGP 60.9 billion in customer deposits. Mr. Hussein Abaza 4 Chief Executive Officer, Institutional Banking Mr. Hussein Abaza assumed his duties as CEO of Institutional Banking in October 4 1 3 5 2 2011. Prior to his current role, Mr. Abaza was CIB’s Chief Operating Officer, Chair- man of CIAM and a member of the High Lending and Investment Committee, the Board Risk Committee, and the Board of the CI Capital Holding Company. In addition to these positions, he has a long history with CIB where, as General Manager and Chief Risk Officer, he was responsible for Bank-wide Credit, Market and Operational Risk, and Investor Rela- tions. Outside CIB, Mr. Abaza worked as Head of Research at EFG Hermes Asset Management from March 1995 until Oc- tober 1999. He began his career at (Chase National Bank of Egypt), the forerunner to CIB. He holds a BA in Business Ad- ministration from the American Univer- sity in Cairo (AUC). Mr. omar Khan 5 Chief Operating Officer Mr. Omar Khan joined CIB in 2008 and currently holds the position of Chief Operating Officer. Mr. Khan has brought to CIB his considerable and diversified banking experience in Branch Management, Service and Quality, Treasury, Asset and Liability Management, Market Risk, and Stra- tegic Planning and Finance. He has worked in the Middle East, Europe and Asia with leading institutions includ- ing Citibank. During his tenure with CIB, Mr. Khan has been responsible for implementing the Change Man- agement agenda for the COO Area. This included Strategic Management, Process Re-Engineering, Service and Quality, Infrastructure Upgrades, Fi- nance, as well as the implementation of the Bank’s People Agenda. Annual Report 2012 73 Developing our human resources More than 100 CIB managers and senior officers participated in the Bank's re- nowned management develop- ment programs in 2012. Community Development Community Development Throughout 2012, CIB continued its strong commitment to Corporate Social Responsibility (CSR) as evidenced by the wide range of CSR endeavors that the Bank undertook during the year. Sponsoring Talent In 2012 CIB collaborated with the Fine Arts Division at the Egyptian Ministry of Culture to endorse a new generation of young, talented artists. In this effort, a national art competition was organized to exhibit a collection of their artworks under the patronage of CIB. Portraying artwork from the competition, a book entitled “Egypt the Promise, Edition 2” was designed and published by CIB to commemorate the competition. Other CIB support for the Arts during the year came from the Bank’s sponsorship of the Egyptian Philharmonic Society to sup- port Egyptian musicians performing classical music. enactus For the seventh consecutive year, CIB continued its long-standing partner- ship with Enactus (formerly Students in Free Enterprise-SIFE) to promote entre- preneurial solutions aimed at achieving sustainable improvements to the living standards of disadvantaged communi- ties. Driven by students, academics and business leaders, business concepts are applied to socioeconomic problems – a process that not only helps the under- privileged, but also aids participating students’ in the development of their teamwork, presentation, leadership, interper- communication and other sonal skills. While cultivating a sense of service and responsibility towards their communities, students also get to devel- op their business and leadership skills. This year CIB sponsored both the En- actus special competition on “Business Ethics” as well as the one-day National Competition, where an array of teams from Egypt’s most prominent universi- ties competed for a chance to represent Egypt at the annual Enactus World Cup. We are pleased to announce that the En- actus Egypt team from the French Uni- versity in Egypt came in second at the 2012 World Cup held in Washington, DC. Community Health In collaboration with the Children’s Cancer Hospital 57357 and the Cana- dian Embassy, volunteers from the Bank participated in the four kilometer Terry Fox Run around the AUC campus. All proceeds from the event went towards children’s cancer research at the 57357 Hospital. On a similar note, CIB has been tak- ing part in blood donation campaigns for a number of years to help meet blood transfusion needs in Egypt. Under the supervision of the Ministry of Health, CIB conducted a three day blood dona- tion campaign at a number of its branch- es around Egypt and encouraged staff members to donate. Environmental Awareness On the environmental front, our main objective in 2012 was to ensure the im- plementation of the CIB Going Green Program at our head offices. The pro- gram aims to encourage environmen- tally friendly attitudes among CIB em- ployees by promoting awareness on how to save paper, water, electricity and other consumables while encouraging posi- tive changes in employees’ habits. Our conservation efforts also included the introduction of energy saving lights and water-flow restrictors. Additionally, our Going Green drive in 2012 introduced an initiative at our Smart Village prem- ises to ensure that all corporate branding displays are printed with eco-friendly ink along with all façade exhibits at CIB branches. CIB is also working on launching various other sustainability initiatives based on its continued commitment to environmentally-friendly practices. Employee Development In the area of training and develop- ment, we focused on enhancing mana- gerial skills for all executive levels. This involved the launching of two new pro- grams: 1- The First Time Supervisors Program is designed to equip newly promoted managers with key principles and teamwork dynamics in order to per- form effectively as supervisors. 2- The Middle Management Develop- ment Program emphasizes manag- ing change, strengthening leadership skills and enabling middle managers to strategically align their thinking with CIB’s vision and mission. These newly-launched initiatives are now running alongside our two other management programs: the Consumer Banking Leadership Program that is spe- cifically designed to bolster new talent in the Egyptian consumer banking sector, and the Leadership and Management Program (LAMP),, which aims at devel- oping the leadership and management skills of senior managers. Code of Conduct CIB believes in creating an equal op- portunity environment for all Bank employees, which is clearly reflected in our Code of Conduct. In addition to en- couraging nondiscriminatory practices, our policies also prohibit any forms of harassment and intimidation. This is evident in the adoption of a whistle- blowing policy that provides the highest levels of confidentiality and indemnity when raising concerns about any ir- regularities. Customer Experience Management Managing and monitoring the quality of customers’ experiences continues to grow in importance. Achieving success here has required a holistic approach with focus on: 76 Annual Report 2012 • Delivery of Operational Excellence • Focusing on Customer Experience • Building Bank Capabilities To enhance Operational Excellence we created and managed a framework for exceeding customer expectations through the monitoring and improve- ment of key processes. Close attention was paid to organizational enablers to- gether with creating an environment that fosters customer satisfaction. A service quality training was provided in three phases as part of staff orientation at the departmental and customer service levels. The training has positively impact- ed customers’ experiences. Various meth- ods have been adopted to collect customer feedback and document customer service throughout different areas of the Bank. Customer satisfaction is a top prior- ity for CIB. Complaints are investigated with utmost care through our Customer Care Unit and Complaints Investiga- tion Division, which is managed by the Compliance Group. All shortcomings are promptly identified and resolved to ensure customer satisfaction. Meeting Shareholder Expectations CIB’s Board consists of seven non-exec- utives and two executive directors. The diverse backgrounds and experiences of the Board members presents added value and reflects the Bank’s culture. The Board is regularly updated on Bank activities and assesses performance against set strategic objectives. Prompt disclosure of financial and non-financial data is regularly provided in order to reinforce CIB’s commitment to all of its stakeholders. In conclusion, it is worth noting that CIB’s well-established corporate gov- ernance policies, which ensure the in- dependence of its compliance and risk functions, have demonstrated high levels of compliance with the new CBE Corpo- rate Governance Guidelines for Egyp- tian Banks. CIB Foundation CIB Foundation Now in its third year of operations, the CIB Foundation has successfully expe- rienced exponential growth in its activi- ties. Established in 2010 as a non-profit organization dedicated to enhancing health and nutritional services for un- derprivileged children in Egypt, and reg- istered under the Ministry of Social Soli- darity as per the Ministry’s Decree No. 588 of 2010, the Foundation focuses on sustainable development initiatives that result in positive long-term outcomes. The CIB Foundation is governed by a seven-member Board of Trustees: gical and medicinal treatment to under- privileged children. Additionally, the CIB Foundation ac- tively supports its initiatives with con- tributions made to its dedicated fund raising account. Fully 100% of the do- nations made to the account go towards the implementation of development projects for children. Through the co- ordinated efforts of both CIB Founda- tion staff and dedicated CIB volunteers, the Foundation ensures its resources are used efficiently in order to reach the greatest number of beneficiaries. Over the course of 2012, the Founda- tion’s partnerships and initiatives in- cluded: foundations for the development and outfitting of a 10-bed Pediatric Inten- sive Care Unit (PICU) in Building 2 of the Aswan Heart Centre. The EGP 13 million PICU provides state-of-the-art post-operative care to neonates, infants and children up to 16 years old, free of charge. The CIB Foundation’s dona- tion covered the costs associated with the Unit’s medical and non-medical equipment and, in return, was awarded with exclusive naming rights to the Unit. The PICU had a soft opening in November 2012, and the new building of the Aswan Heart Centre is expected to celebrate its grand opening in early 2013. Mr . Hisham Ezz Al-Arab Chairman Mr . Rafik Madkour Treasurer Ms . Maha El-Shahed Secretary General Dr . Nadia Makram Ebeid Member Mr . Essam El Wakil Member Mr . Hossam Abou Moussa Member Ms . Pakinam Essam El Din Mahmoud Member Following the success of the CIB Foun- dation in 2011, CIB shareholders gener- ously agreed to increase the percentage of CIB’s net annual profit to the Foun- dation from 1% to 1.5%. This translated into a budget of over EGP 26 million be- ing allocated to the CIB Foundation in 2012. With this funding, the CIB Foun- dation is making valuable contributions in the area of child health and nutrition through various multi-faceted initia- tives, including renovating and upgrad- ing hospital infrastructure, purchasing medical equipment and providing sur- 78 Annual Report 2012 1. Children’s Cancer Hospital 57357: Annual Donation In 2009, CIB entered into a five-year partnership with the Children’s Can- cer Hospital 57357, under which EGP 2 million is donated to the hospital each year. In January 2012, the Foundation fulfilled its fourth year commitment to the hospital. The funds have been used for general operational purposes. Numerous CIB volunteers also par- ticipated in two events sponsored by the Children’s Cancer Hospital 57357, includ- ing the hospital’s five-year anniversary, where volunteers distributed gifts to visit- ing cancer survivors and current hospital patients, as well as the third annual Terry Fox Run in Egypt, where all proceeds from the event went towards supporting children’s cancer research at the hospital. 2. Magdi Yacoub Heart Foundation: pediatric Intensive Care unit The Magdi Yacoub Heart Foundation has been a long-standing partner of both CIB and the CIB Foundation. In January 2011, a Cooperation Agree- ment was signed between the two 3. Friends of Abou el Reesh Children’s Hospitals organization: Intensive Care unit In November 2010, a Cooperation Agreement was signed between the CIB Foundation and the Friends of Abou El Reesh Children’s Hospitals Organiza- tion for the establishment of an Inten- sive Care Unit (ICU) at the Abou El Reesh El Mounira Children’s Hospital. The Foundation’s donation was used to develop an 11-bed unit, doubling the hospital’s capacity to serve critical pa- tients. The new ICU operates alongside the existing ICU, and provides quality service and care to patients from across the country. The new ICU celebrated its official opening in February 2012. In August 2012, an EGP 2 million Cooperation Agreement was signed with the Friends of Abou El Reesh Children’s Hospitals Organization to cover the annual operating expenses of the Foundation-funded ICU. The an- nual donation is used to support staff compensation, medical and adminis- trative supplies, infection control, and for the provision of computers and other ICU equipment. 4. Rotary Kasr el nile: one thousand eye Surgeries Through the Rotary Kasr El Nile orga- nization, the CIB Foundation has com- mitted EGP 1.5 million to fund 1,000 eye surgeries for children through the Chil- dren’s Right to Sight (CRTS) program. Operational for the past six years, CRTS is dedicated to eradicating blindness by supporting children and infants requir- ing immediate eye surgery. Through partnerships with the El Nour Eye Hos- pital in Mohandiseen and the Eye Care Hospital in Maadi, the CRTS team will oversee 1,000 various ophthalmological operations for underprivileged children. Payments for the first and second round of surgeries were completed in Novem- ber and December 2012. 5. Gozour Foundation for Development: eye exam Caravans In 2012, the CIB Foundation reaf- firmed its partnership with the Gozour Foundation for Development, the non- governmental arm of the Center for Development Services (CDS). In Au- gust 2012, the Foundation donated EGP 478,170 to fund 10 eye exam caravans at public elementary schools in Cairo, Alexandria and Minya through the 6/6 Eye Exam Caravan Program. Through a partnership with the Alnoor Magrabi Foundation, the caravans are designed to provide public school students with eye exams, eyeglass frames and lenses, eye medication and in-depth eye-exams and referrals at private hospitals for complex cases. Each caravan is fully equipped with eye exam machines, 15- 20 doctors, nurses, coordinators, a fully equipped pharmacy and an eyeglass shop. Each one-day caravan targeted 450 children, with a total of 4,500 chil- dren receiving free eye exams and care by the end of the project. The caravans also presented valu- able opportunities for volunteers from the CIB family to engage with the lo- cal community and spend quality time with the less privileged. Volunteers from head offices, regional offices and branches across the three governorates actively participated in the program. CIB shareholders generously agreed to increase the percentage of CIB’s net annual profit to the Foundation from 1% to 1.5%. This translated into a budget of over EGP 26 million being allocated to the CIB Foundation in 2012. 6. Magdi Yacoub Heart Foundation: Children’s playroom In August 2012, the CIB Foundation allocated EGP 2 million to the Magdi Yacoub Heart Foundation for the full sponsorship of the children’s playroom in Building 2 of the Aswan Heart Cen- tre. The room will be used by children during their pre-and post-operation pe- riod, and will be an area where parents can visit with their children. This part- nership compliments the CIB Founda- tion’s donation to support the Pediatric Intensive Care Unit located in the same building of the Centre. 7. Magdi Yacoub Heart Foundation: 100 open-Heart Surgeries In August 2012, the CIB Foundation allocated EGP 6 million to the Magdi Yacoub Heart Foundation to cover the costs associated with the open-heart surgeries of 100 children. Through this donation, the CIB Foundation was able to cover the costs for almost all children that had been on the open-heart surgery waiting list. The donation is being dis- bursed in two equal tranches, with the first tranche of EGP 3 million distrib- uted in September 2012. 8. Friends of Abou el Reesh Children’s Hospitals organization: Blood Clinic In 2011, the Friends of Abou El Reesh Children’s Hospitals Organization turned to the CIB Foundation for sup- port in renovating El Mounira Hospi- tal’s Blood Clinic. The CIB Founda- tion’s EGP 800,000 donation was used to upgrade the roughly 700m2 Blood Clinic by restructuring it to streamline movement, prevent overcrowding, pro- vide adequate space for beds and chairs for blood transfusions, and provide a waiting area for family members. The donation also covered the costs of ad- ditional computers to develop an elec- tronic patient database as well as sup- porting blood donation campaigns to offset the current blood supply deficit across Egypt. The renovated Blood Clinic is expected to open its doors in March 2013. 9. Yahiya Arafa Children’s Charity Foundation: Annual Donation The Yahiya Arafa Children’s Charity Foundation is a long-standing partner of the CIB Foundation. In December 2012, the CIB Foundation donated EGP Annual Report 2012 79 1 million to the Yahiya Arafa Founda- tion for the upkeep of three previously- supported Pediatric Units at the Ain Shams University Hospital. The Yahiya Arafa Foundation has been instrumen- tal in purchasing high-end equipment, as well as training the nurses and doc- tors working in these units. The CIB Foundation strongly believes in ensur- ing the sustainability of its projects, and believes that supporting the operations of the Yahiya Arafa Foundation will en- sure the smooth running of the other supported units. The donation will be used to cover human resources, equip- ment maintenance, operating costs and academic research. 10. Zewail City of Science and technology: undergraduate Fellowship In line with CIB and the CIB Foun- dation’s commitment to community development and fostering quality in educational opportunities in post- revolution Egypt, the CIB Foundation established the ‘CIB Foundation Fel- lowship for Science and Technology’ at Zewail University. In the first phase of this partnership with the Zewail City of Science and Technology, the CIB Foun- dation Fellowship will support 50 of the top Egyptian public school gradu- ates pursuing degrees in the sciences and engineering, at a total cost of EGP 5 million. 11. Bank Al-Kesaa: one Million Blankets Campaign The One Million Blankets Campaign was initiated in 2012 in collaboration with Amr Adib’s ‘Cairo Today’ talk show, Bank Al-Kesaa (Clothing Bank), Dar El Orman, and the Misr El Khair Foundation, in order to ensure that no Upper Egyptian went to sleep cold. In December 2012, the CIB Foundation made a contribution of EGP 500,000 to the national campaign through Bank Al Kesaa, a trusted organization with lengthy experience and success working in Upper Egypt, to provide 10,000 blan- kets to the children of the area. Going forward, the CIB Foundation seeks to continue its commitment to en- hancing health services for underprivi- leged children in Egypt, supporting mega projects in the health sector and providing world-class educational op- portunities. The Foundation also seeks to expand its volunteer activities, and more actively involve CIB employees in its community development projects. To read more about the projects that the CIB Foundation has helped support and ways in which you can contribute, please visit www.cibfoundationegypt.org or www.facebook.com/cibfoundation. Annual Report 2012 81 Separate Financials: Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . 84 Balance Sheet  . . . . . . . . . . . . . . . . . . . . . . . . . 86 Income Statement  . . . . . . . . . . . . . . . . . . . . . . 87 Cash Flow  . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Changes in Shareholder’s Equity  . . . . . . . . . . . . . . 90 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Consolidated Financials: Auditors’ Report  . . . . . . . . . . . . . . . . . . . . . . 138 Balance Sheet  . . . . . . . . . . . . . . . . . . . . . . . . 140 Income Statement  . . . . . . . . . . . . . . . . . . . . . 141 Cash Flow  . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Shareholder’s Equity  . . . . . . . . . . . . . . . . . . . . 144 Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Financial StatementsFinancial Statements: Separate 84 Annual Report 2012 Annual Report 2012 85 Financial Statements: Separate Commercial International Bank (Egypt) S.A.E Separate balance sheet on December 31, 2012 Commercial International Bank (Egypt) S.A.E Separate income statement for the year ended on December 31, 2012 » Interest and similar income » Interest and similar expense Net interest income » Fee and commission income » Fee and commission expense Net income from fee and commission » Dividend income » Net trading income » Profit (Losses) from financial investments » Administrative expenses » Other operating (expenses) income » Impairment (charge) release for credit losses Net profit before tax » Income tax expense » Deferred tax Net profit of the year Earning per share » Basic » Diluted Dec. 31, 2012 EGP 7,845,913,494 (3,945,237,550) 3,900,675,944 942,867,320 (107,365,742) 835,501,578 32,234,196 565,727,965 (116,514,246) (1,444,645,467) (109,790,791) (609,971,077) 3,053,218,102 (884,498,673) 33,991,482 2,202,710,911 Notes 6 7 8 9 22 10 11 12 13 33 & 13 14 Dec. 31, 2011 EGP 5,459,248,277 (2,780,703,161) 2,678,545,116 865,620,940 (87,451,431) 778,169,509 59,921,078 368,912,520 19,799,495 (1,336,701,608) (68,220,065) (320,648,863) 2,179,777,182 (446,414,136) 15,485,032 1,748,848,078 3.53 3.47 2.43 2.39 Hisham Ezz El-Arab Chairman and Managing Director Assets » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Loans and advances to banks » Loans and advances to customers » Derivative financial instruments Financial investments » Available for sale » Held to maturity » Investments in subsidiary and associates » Investment property » Other assets » Deferred tax » Property, plant and equipment Total assets Liabilities and equity Liabilities » Due to banks » Due to customers » Derivative financial instruments » Other liabilities » Long term loans » Other provisions Total liabilities Equity » Issued and paid in capital » Reserves » Reserve for employee stock ownership plan (ESOP) » Retained earnings Total equity » Net profit of the period / year after tax Total equity and net profit for period / year Total liabilities and equity Notes Dec. 31, 2012 EGP Dec. 31, 2011 EGP 15 16 17 18 19 20 21 22 22 23 24 25 33 26 27 28 21 30 29 31 32 32 5,393,974,124 7,957,710,034 7,978,030,413 1,472,281,763 1,178,867,739 40,698,313,773 137,459,761 21,161,884,032 4,205,753,328 938,033,700 10,395,686 2,459,025,844 129,133,209 684,527,896 94,405,391,302 1,714,862,716 78,834,726,890 119,099,260 2,034,351,571 80,495,238 310,648,113 83,094,183,788 5,972,275,410 2,970,458,093 164,761,121 1,001,979 9,108,496,603 2,202,710,911 11,311,207,514 94,405,391,302 7,492,064,510 8,449,298,705 9,213,390,067 561,084,273 1,395,594,609 39,669,785,864 146,544,656 15,412,566,069 29,092,920 995,595,778 12,774,686 1,518,509,876 95,141,726 636,775,294 85,628,219,033 3,340,794,517 71,574,047,530 114,287,990 1,313,785,436 99,333,376 264,625,909 76,706,874,758 5,934,562,990 1,085,472,868 137,354,419 15,105,920 7,172,496,197 1,748,848,078 8,921,344,275 85,628,219,033 Contingent liabilities and commitments » Letters of credit, guarantees and other commitments 37 14,897,789,005 12,559,603,516 The accompanying notes are an integral part of these financial statements . Hisham Ezz El-Arab Chairman and Managing Director 86 Annual Report 2012 Annual Report 2012 87 Cash flow from financing activities » Increase (decrease) in long term loans » Dividend paid » Capital increase Net cash generated from (used in) financing activities » Net increase (decrease) in cash and cash equivalent » Beginning balance of cash and cash equivalent Cash and cash equivalent at the end of the period Cash and cash equivalent comprise: » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Obligatory reserve balance with CBE » Due from banks (time deposits) more than three months » Treasury bills with maturity more than three months Total cash and cash equivalent Dec. 31, 2012 EGP Dec. 31, 2011 EGP (18,838,138) (806,206,521) 37,712,420 (787,332,239) (2,545,054,108) 8,081,134,203 5,536,080,095 5,393,974,124 7,957,710,034 7,978,030,413 (3,093,283,199) (4,637,273,016) (8,063,078,261) 5,536,080,095 (29,944,867) (841,922,204) 33,119,390 (838,747,681) 302,190,161 7,778,944,041 8,081,134,202 7,492,064,510 8,449,298,705 9,213,390,067 (3,014,779,811) (5,237,471,784) (8,821,367,485) 8,081,134,202 Financial Statements: Separate Commercial International Bank (Egypt) S.A.E Separate cash flow for the year ended on December 31, 2012 Cash flow from operating activities » Net profit before tax Adjustments to reconcile net profit to net cash provided by operating activities » Depreciation » Impairment charge for credit losses » Other provisions charges » Trading financial investments revaluation differences » Available for sale and held to maturity investments exchange revaluation differences » Financial investments impairment charge (release) » Utilization of other provisions » Other provisions no longer used » Exchange differences of other provisions » Profits from selling property, plant and equipment » Profits from selling financial investments » Profits from selling associates » Exchange differences of long term loans » Shares based payments » Investments in subsidiary and associates revaluation » Real estate investments impairment charges (release) Operating profits before changes in operating assets and liabilities Net decrease (increase) in assets and liabilities » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Derivative financial instruments » Loans and advances to banks and customers » Other assets » Due to banks » Due to customers » Other liabilities Net cash provided from operating activities Cash flow from investing activities » Purchase of subsidiary and associates » Proceeds from selling subsidiary and associates » Purchases of property, plant and equipment » Redemption of held to maturity financial investments » Purchases of held to maturity financial investments » Purchases of available for sale financial investments » Proceeds from selling available for sale financial investments » Proceeds from selling real estate investments Net cash generated from (used in) investing activities Dec. 31, 2012 EGP Dec. 31, 2011 EGP 3,053,218,102 2,179,777,182 167,225,901 609,971,077 51,616,932 (78,642,848) 185,074,214 322,276,483 4,217,707 61,887,578 (60,242,239) (60,380,784) 7,902,478 (12,294,615) (531,054) 7,230,941 (2,387,583) (519,013) - - 79,068,829 89,736,000 (371,000) (58,080,987) (3,412,238) (48,748,110) 2,329,620 (2,716,747) (37,608,880) (1,873,813) 164,818 77,459,887 18,430,000 400,000 3,910,981,908 2,639,195,930 521,695,379 758,289,224 (832,554,642) 13,896,165 (1,421,772,116) (948,385,056) (1,625,931,801) 7,260,679,360 (163,932,538) 7,472,965,883 (32,173,922) - (204,721,832) - (4,176,660,408) (10,163,193,809) 5,343,312,219 2,750,000 (9,230,687,752) (1,857,455,963) (1,729,254,403) 799,066,990 (6,543,758) (6,213,116,023) (92,518,310) 2,018,514,608 8,094,163,906 (261,547,906) 3,390,505,071 (16,834,427) 1,000,000 (153,108,029) 271,802,813 (5,000,000) (4,535,816,259) 2,172,867,695 15,520,978 (2,249,567,229) 88 Annual Report 2012 Annual Report 2012 89 Financial Statements: Separate l a t o T P G E r o f e v r e s e R e e y o p m e l k c o t s i p h s r e n w o n a p l t fi o r p t e N r a e y e h t f o i g n k n a B s k s i r e v r e s e r e v r e s e R . S F. A r o F s t n e m t s e v n i n o i t a u a v e r l . f f i d l i a c e p S e v r e s e r i d e n a t e R i s g n n r a e ) s e s s o l ( l a r e n e G e v r e s e r l a g e L e v r e s e r l a t i p a C 1 1 0 2 , 1 3 . c e D 1 1 3 , 5 9 8 , 8 0 6 , 8 9 5 8 , 0 2 5 , 9 4 1 9 1 1 , 2 7 6 , 0 1 0 , 2 5 1 5 , 2 9 9 , 6 5 1 ) 1 3 6 , 4 1 0 8 1 , ( 0 9 3 , 9 1 1 , 3 3 - - ) 4 0 2 , 2 2 9 , 1 4 8 ( - 8 7 0 , 8 4 8 , 8 4 7 , 1 ) 7 8 1 , 6 5 0 , 5 0 7 ( - - - - ) 1 ( ) 7 2 3 , 6 2 6 , 9 8 ( ) 3 9 2 , 5 7 8 , 3 7 1 , 1 ( ) 6 0 9 , 0 9 6 , 1 2 8 ( - 8 7 0 , 8 4 8 , 8 4 7 , 1 ) 4 0 1 , 7 9 6 , 4 2 1 ( 7 8 8 , 9 5 4 , 7 7 7 8 8 , 9 5 4 , 7 7 - - - ) 0 2 9 , 5 0 1 , 5 1 ( - - 4 0 1 , 7 9 6 , 4 2 1 - - - - - - - - - - - - ) 7 8 1 , 6 5 0 5 0 7 , ( - - - - - - - , 9 6 5 6 5 3 4 8 1 , , 6 4 7 4 7 5 1 , - - , 8 9 2 1 3 2 0 2 , ) , 8 9 2 1 3 2 0 2 , ( - - - - , 0 2 9 5 0 1 5 1 , 5 7 2 , 4 4 3 , 1 2 9 , 8 9 1 4 , 4 5 3 , 7 3 1 5 7 9 , 0 5 1 , 4 2 6 , 1 9 1 6 , 9 8 6 , 1 8 2 ) 8 1 8 , 0 7 0 3 2 7 ( , , 5 1 3 1 3 9 5 8 1 , , 0 2 9 5 0 1 5 1 , , 6 4 6 4 6 5 8 7 , , 7 3 3 8 2 1 5 2 1 , - - , 4 1 3 0 1 7 5 5 1 1 , , , 9 5 5 6 1 2 6 0 1 , - - - - - - - - - - - - , 0 6 9 4 7 2 4 3 2 1 , , , 6 9 8 4 4 3 1 3 2 , - - - - - - - 0 9 3 , 9 1 1 , 3 3 0 0 6 , 3 4 4 , 1 0 9 , 5 0 9 9 , 2 6 5 , 4 3 9 , 5 s e v r e s e r o t d e r r e f s n a r T » e s a e r c n i l a t i p a C » l e c n a a b g n n n g e B » i i i d a p d n e d v D » i i n o i t a u a v e r l t n e m t s e v n i l i a c n a n fi m o r f n o i t i d d A » r a e y e h t f o t fi o r p t e N » k n a b o t d e r r e f s n a r T » e v r e s e r k s i r s e e y o p m e l r o f e v r e s e R » i l n a p p h s r e n w o k c o t s i g n g n a h c f o t c e f f e e h T » s e c i i l o p g n i t n u o c c a f o d n e e h t t a e c n a a B l r a e y e h t ) P O S E ( 1 1 0 2 , 1 3 r e b m e c e D n o d e d n e r a e y e h t r o f y t i u q e ’ s r e d l o h e r a h s n i s e g n a h c f o t n e m e t a t s e t a r a p e S . E A S . ) t p y g E ( k n a B l a n o i t a n r e t n I l i a c r e m m o C l a t o T P G E r o f e v r e s e R e e y o p m e l k c o t s i p h s r e n w o n a p l t fi o r p t e N r a e y e h t f o i g n k n a B s k s i r e v r e s e r e v r e s e R . S F. A r o F s t n e m t s e v n i n o i t a u a v e r l . f f i d l i a c e p S e v r e s e r i d e n a t e R i s g n n r a e ) s e s s o l ( l a r e n e G e v r e s e r l a g e L e v r e s e r l a t i p a C 2 1 0 2 , 1 3 . c e D 2 1 0 2 , 1 3 r e b m e c e D n o d e d n e r a e y e h t r o f y t i u q e ’ s r e d l o h e r a h s n i s e g n a h c f o t n e m e t a t s e t a r a p e S . E A S . ) t p y g E ( k n a B l a n o i t a n r e t n I l i a c r e m m o C 0 2 4 , 2 1 7 , 7 3 - - - ) 1 2 5 , 6 0 2 , 6 0 8 ( - - 1 1 9 , 0 1 7 , 2 0 2 , 2 9 9 5 , 7 7 5 , 6 7 8 ) 7 2 1 , 2 6 6 , 1 5 ( ) 4 7 3 , 0 5 0 , 3 3 8 ( - - - - - ) 1 0 6 , 0 0 1 , 1 9 7 ( - - 7 8 6 , 2 7 9 , 7 7 1 1 1 9 , 0 1 7 , 2 0 2 , 2 - - - - - - ) 7 8 6 , 2 7 9 , 7 7 1 ( 9 2 8 , 8 6 0 , 9 7 9 2 8 , 8 6 0 , 9 7 - - - - - - - 5 7 2 , 4 4 3 , 1 2 9 , 8 9 1 4 , 4 5 3 , 7 3 1 5 7 9 , 0 5 1 , 4 2 6 , 1 9 1 6 , 9 8 6 , 1 8 2 ) 8 1 8 , 0 7 0 3 2 7 , ( - - 9 9 5 , 7 7 5 6 7 8 , - - - - - - - - - - - - , 5 1 3 1 3 9 5 8 1 , , 0 2 9 5 0 1 5 1 , , 0 6 9 4 7 2 4 3 2 1 , , , 6 9 8 4 4 3 1 3 2 , - , 7 4 7 6 1 7 2 , - - - - , 7 8 1 9 8 6 4 9 7 , , 7 6 5 6 0 3 7 8 , - - ) , 6 9 4 2 4 8 0 7 , ( - , 9 7 9 1 0 0 1 , ) , 0 2 9 5 0 1 5 1 , ( - - - - , 5 2 2 3 4 1 8 , , 2 9 2 7 9 6 1 6 , - - - - - - - 0 2 4 , 2 1 7 , 7 3 0 9 9 , 2 6 5 , 4 3 9 , 5 s e v r e s e r o t d e r r e f s n a r T » e s a e r c n i l a t i p a C » i d a p d n e d v D » i i r a e y e h t f o t fi o r p t e N » l i a c e p s m o r f r e f s n a r T » e v r e s e r n o i t a u a v e r l t n e m t s e v n i l i a c n a n fi m o r f n o i t i d d A » k n a b o t d e r r e f s n a r T » e v r e s e r k s i r s e e y o p m e l r o f e v r e s e R » l i n a p p h s r e n w o k c o t s l e c n a a b g n n n g e B » i i 4 1 5 , 7 0 2 , 1 1 3 , 1 1 1 2 1 , 1 6 7 , 4 6 1 8 9 5 , 3 8 6 , 0 8 3 , 2 2 3 9 , 6 1 7 , 3 0 1 1 8 7 , 6 0 5 3 5 1 , , 6 6 5 5 0 8 7 1 1 , , 9 7 9 1 0 0 1 , , 2 7 3 7 0 1 7 3 0 2 , , , 5 5 7 8 4 3 0 8 3 , 0 1 4 , 5 7 2 , 2 7 9 , 5 f o d n e e h t t a e c n a a B l r a e y e h t ) P O S E ( 90 Annual Report 2012 Annual Report 2012 91 Financial Statements: Separate Notes to the separate financial statements for the year ended on December 31, 2012 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 112 branches, and 44 units employing 4867 employees on the balance sheet date. Commercial International Bank (Egypt) S.A.E. was formed as a commercial bank under the investment law no. 43 of 1974. The address of its registered head office is as follows: Nile tower, 21/23 Charles de Gaulle Street-Giza. The Bank is listed in the Egyptian stock exchange. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation The separate financial statements have been prepared in accordance with Egyptian financial reporting standards issued in 2006 and its amendments and in accordance with the Central Bank of Egypt regulations approved by the Board of Direc- tors on December 16, 2008. The separate financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities classified as trading or held at fair value through profit or loss, available for sale invest- ment and all derivatives contracts. The separate and consolidated financial statements of the Bank and its subsidiaries have been prepared in accordance with the relevant domestic laws and the Egyptian financial reporting standards, the affiliated companies are entirely included in the consolidated financial statements and these companies are the companies that the Bank - directly or indirectly – has more than half of the voting rights or has the ability to control the financial and operating policies, regardless of the type of activity, the Bank’s consolidated financial statements can be obtained from the Bank’s management. The Bank accounts for investments in subsidiaries and associate companies in the separate financial statements at cost minus impairment loss. The separate financial statements of the Bank should be read with its consolidated financial statements, for the period ended on December 31, 2012 to get complete information on the Bank’s financial position, results of operations, cash flows and changes in ownership rights. 2.2. Subsidiaries and associates 2.2.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Bank has owned directly or indirectly the control to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank has the ability to control the entity or not. 2.2.2. Associates Associates are all entities over which the Bank has significant influence but do not reach to the extent of control, generally accompanying a shareholding between 20% and 50% of the voting rights. The acquisition method of accounting is used to account for the purchase of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed, plus any costs directly related to the acquisition. The excess of the cost of an acquisition over the Bank share of the fair value of the iden- tifiable net assets acquired is recorded as goodwill. A gain on acquisition is recognized in profit or loss if there is an excess of the Bank’s share of the fair value of the identifiable net assets acquired over the cost of the acquisition. The cost method is applied to account for investments in subsidiaries and associates, whereby, investments are recorded based on the acquisition cost including any goodwill, deducting any impairment losses, and dividends are recorded in the income statement in the adoption of the distribution of these profits and evidence of the Bank right to collect them. 2.3. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments. 2.4. Foreign currency translation 2.4.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank’s functional and presentation currency. 2.4.2. Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pound. Transactions in foreign currencies during the period are translated into the Egyptian pound using the prevailing exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: • Net trading income from held-for-trading assets and liabilities. • Other operating revenues (expenses) from the remaining assets and liabilities. Changes in the fair value of investments in debt instruments; which represent monetary financial instruments, denomi- nated in foreign currencies and classified as available for sale assets are analyzed into valuation differences resulting from changes in the amortized cost of the instrument, differences resulting from changes in the applicable exchange rates and differences resulting from changes in the fair value of the instrument. Valuation differences resulting from changes in the amortized cost are recognized and reported in the income statement in ‘income from loans and similar revenues’ whereas differences resulting from changes in foreign exchange rates are rec- ognized and reported in ‘other operating revenues (expenses)’. The remaining differences resulting from changes in fair value are deferred in equity and accumulated in the ‘revaluation reserve of available-for-sale investments’. Valuation differences resulting from the non-monetary items include gains and losses of the change in fair value of such equity instruments held at fair value through profit and loss, as for recognition of the differences of valuation resulting from equity instruments classified as financial investments available for sale within the fair value reserve in equity. 2.5. Financial assets The Bank classifies its financial assets in the following categories: • Financial assets designated at fair value through profit or loss. • Loans and receivables. • Held to maturity investments. • Available for sale financial investments. Management determines the classification of its investments at initial recognition. 2.5.1. Financial assets at fair value through profit or loss This category has two sub-categories: • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repur- chasing in the short term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit making. Derivatives are also categorized as held for trading unless they are designated as hedging instruments. Financial instruments, other than those held for trading, are classified as financial assets designated at fair value through profit and loss if they meet one or more of the criteria set out below: • When the designation eliminates or significantly reduces measurement and recognition inconsistencies that would arise from measuring financial assets or financial liabilities, on different bases. Under this criterion, an accounting 92 Annual Report 2012 Annual Report 2012 93 Financial Statements: Separate mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related deriva- tives are measured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instruments designated by the Bank are loans and advances and long-term debt issues. • Applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their perfor- mance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis. • Relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments, including certain debt issues and debt securities held. Any financial derivative initially recognized at fair value can't be reclassified during the holding period. Re-classification is not allowed for any financial instrument initially recognized at fair value through profit and loss. 2.5.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • Those that the Bank intends to sell immediately or in the short term, which is classified as held for trading, or those that the Bank upon initial recognition designates as at fair value through profit and loss. • Those that the Bank upon initial recognition designates and available for sale; or • Those for which the holder may not recover substantially all of its initial investment, other than credit deterioration. 2.5.3. Held to maturity financial investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturi- ties that the Bank’s management has the positive intention and ability to hold till maturity. If the Bank has to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale un- less in necessary cases subject to regulatory approval. 2.5.4. Available for sale financial investments 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, exchange rates or equity prices. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank transfers substantially all risks and rewards of the ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently measured at fair value. Loans, receivables and held-to-maturity investments are subsequently measured at amortized cost. Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation mod- els commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instruments classified available for sale, value is measured at cost less any impairment in value. Available for sale investments that would have met the definition of loans and receivables at initial recognition may be reclassified out to loans and advances or financial assets held to maturity. In all cases, when the Bank has the intent and ability to hold these financial assets in the foreseeable future or till maturity. The financial asset is reclassified at its fair value on the date of reclassifica- tion, and any profits or losses that have been recognized previously in equity, are treated based on the following: • If the financial asset has a fixed maturity, gains or losses are amortized over the remaining life of the investment using the effective interest rate method. In case of subsequent impairment of the financial asset, the previously recognized unrealized gains or losses in equity are recognized directly in the profits and losses. • In the case of financial asset which has infinite life, any previously recognized profit and loss in equity will remain until the sale of the asset or its disposal, in the case of impairment of the value of the financial asset after the re-classification, any gain or loss previously recognized in equity is recycled to the profits and losses. • If the Bank adjusts its estimates of payments or receipts of a financial asset that in return adjusts the carrying amount of the asset (or group of financial assets) to reflect the actual cash inflows, the carrying value is recalculated based on the present value of estimated future cash flows at the effective yield of the financial instrument and the differences are recognized in profit and loss. • In all cases, if the Bank re-classifies financial asset in accordance with the above criteria and increases its estimate of the proceeds of future cash flow, this increase adjusts the effective interest rate of this asset only without affecting the investment book value. 2.6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. Agreements of repos & reverse repos are shown by the net in the financial statement in treasury bills and other governmental notes. 2.7. Derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as sepa- rate derivatives when their economic characteristics and risks are not closely related to those of the host contract, provided that the host contract is not classified as at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognized in income statement unless the Bank chooses to designate the hybrid contract as at fair value through net trading income through profit and loss. The timing method of recognition in profit and loss, of any gains or losses arising from changes in the fair value of deriva- tives, depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. The Bank designates certain derivatives as: • Hedging instruments of the risks associated with fair value changes of recognized assets or liabilities or firm com- mitments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable fore- cast transaction (cash flow hedge) • Hedge accounting is used for derivatives designated in a hedging relationship when the following criteria are met. At the inception of the hedging relationship, the Bank documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge trans- actions. Furthermore, at the inception of the hedge, and on ongoing basis, the Bank documents whether the hedging instrument is expected to be highly effective in offsetting changes in fair values of the hedged item attributable to the hedged risk. 94 Annual Report 2012 Annual Report 2012 95 Financial Statements: Separate 2.7.1. Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in profit and loss immediately together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. The effective portion of changes in the fair value of the interest rate swaps and the changes in the fair value of the hedged item attributable to the hedged risk are recognized in the ‘net interest income’ line item of the income state- ment. Any ineffectiveness is recognized in profit and loss in ‘net trading income’. When the hedging instrument is no longer qualified for hedge accounting, the adjustment to the carrying amount of a hedged item, measured at amortized cost, arising from the hedged risk is amortized to profit and loss from that date using the effective interest method. 2.7.2. Derivatives that do not qualify for hedge accounting All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in the income statement. These gains and losses are reported in ‘net trading income’, except where deriva- tives are managed in conjunction with financial instruments designated at fair value , in which case gains and losses are reported in ‘net income from financial instruments designated at fair value’. Interest income and expense 2.8. Interest income and expense for all financial instruments except for those classified as held-for-trading or designated at fair value are recognized in ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appro- priate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepay- ment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that represents an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once loans or debts are classified as nonperforming or impaired, the revenue of interest income will not be recognized and will be recorded off balance sheet, and are recognized as income subsequently based on a cash basis according to the following: • When all arrears are collected for consumer loans, personnel mortgages and micro-finance loans. • When calculated interest for corporate are capitalized according to the rescheduling agreement conditions until paying 25% from rescheduled payments for a minimum performing period of one year, if the customer continues to perform, the calculated interest will be recognized in interest income (interest on the performing rescheduling agreement balance) without the marginalized before the rescheduling agreement which will be recognized in inter- est income after the settlement of the outstanding loan balance. 2.9. Fee and commission income Fees charged for servicing a loan or facility that is measured at amortized cost, are recognized as revenue as the service is provided. Fees and commissions on non-performing or impaired loans or receivables cease to be recognized as income and are rather recorded off balance sheet. These are recognized as revenue, on a cash basis, only when interest income on those loans is recognized in profit and loss, at that time, fees and commissions that represent an integral part of the effective interest rate of a financial asset, are treated as an adjustment to the effective interest rate of that financial asset. Commitment fees and related direct costs for loans and advances where draw down is probable are deferred and recog- nized as an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognized at the maturity of the term of the commitment. Fees are recognized on the debt instruments that are measured at fair value through profit and loss on initial recognition and syndicated loan fees received by the Bank are recognized when the syndication has been completed and the Bank does not hold any portion of it or holds a part at the same effective interest rate used for the other participants portions. Commission and fee arising from negotiating, or participating in the negotiation of a transaction for a third party such as the arrangement of the acquisition of shares or other securities and the purchase or sale of properties are recognized upon completion of the underlying transaction in the income statement . Other management advisory and service fees are recognized based on the applicable service contracts, usually on accrual basis. Financial planning fees related to investment funds are recognized steadily over the period in which the service is provided. The same principle is applied for wealth management; financial planning and custody services that are provided on the long term are recognized on the accrual basis also. 2.10. Dividend income Dividends are recognized in the income statement when the right to collect it is declared. 2.11. Sale and repurchase agreements Securities may be lent or sold according to a commitment to repurchase (Repos) are reclassified in the financial state- ments and deducted from treasury bills balance. Securities borrowed or purchased according to a commitment to resell them (Reverse Repos) are reclassified in the financial statements and added to treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. 2.12. Impairment of financial assets 2.12.1. Financial assets carried at amortised cost The Bank assesses on each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event/s’) and that loss event/s has an impact on the estimated future cash flows 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 an impairment loss include: • Cash flow difficulties experienced by the borrower ( e.g, equity ratio, net income percentage of sales). • Violation of the conditions of the loan agreement such as non-payment. • Initiation of bankruptcy proceedings. • Deterioration of the borrower’s competitive position. • The Bank for reasons of economic or legal financial difficulties of the borrower by granting concessions may not agree with the Bank granted in normal circumstances. • Deterioration in the value of collateral or deterioration of the creditworthiness of the borrower. The objective evidence of impairment loss for a group of financial assets is observable data indicating that there is a meas- urable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, for instance an increase in the default rates for a particular banking product. The Bank estimates the period between a losses occurring and its identification for each specific portfolio. In general, the periods used vary between three months to twelve months. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individu- ally significant, and individually or collectively for financial assets that are not individually significant and in this field the following are considered: • If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment according to historical default ratios. • If the Bank determines that an objective evidence of financial asset impairment exist that is individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effec- tive interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or held to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract when there is objective evidence for asset impairment. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. 96 Annual Report 2012 Annual Report 2012 97 Financial Statements: Separate The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. Computers and core systems Fixtures and fittings 3/10 years 3 years For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the con- tractual terms of the assets being evaluated. For the purposes of evaluation of impairment for a group of a financial assets according to historical default ratios future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should be reflected together with changes in related observ- able data from period to period (e.g. changes in unemployment rates, property prices, payment status, or other indicative factors of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank. 2.12.2. Available for sale investments The Bank assesses on each balance sheet date whether there is objective evidence that a financial asset or a group of finan- cial assets classify under available for sale is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. During periods start from first of January 2009, the decrease consider significant when it became 10% from the book value of the financial instrument and the decrease consider to be extended if it continues for period more than 9 months, and if the mentioned evidences become available then any cumulative gains or losses previously recog- nized in equity are recognized in the income statement , in respect of available for sale equity securities, impairment losses previously recognized in profit and loss are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impair- ment loss is reversed through the income statement to the extent of previously recognized impairment charge from equity to income statement. 2.13. Real estate investments The real estate investments represent lands and buildings owned by the Bank in order to obtain rental returns or capital gains and therefore do not include real estate assets which the Bank exercised its work through or those that have owned by the Bank as settlement of debts. The accounting treatment is the same used with property, plant and equipment. 2.14. Property, plant and equipment Lands and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less de- preciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their residual values over estimated useful lives, as follows: Buildings Leasehold improvements Furniture and safes Typewriters, calculators and air-conditions Transportations 20 years. 3 years, or over the period of the lease if less 5 years. 8 years 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, on each balance sheet date. Depreciable as- sets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be re- covered. An asset’s carrying amount is written down immediately to its recoverable value if the asset’s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing the selling proceeds with the asset carrying amount and charged to other operating expenses in the income statement. 2.15. Impairment of non-financial assets Assets that have an indefinite useful life are not amortized -except goodwill- and are tested annually for impairment. As- sets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Assets are tested for impair- ment with reference to the lowest level of cash generating unit(s). A previously recognized impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset’s recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount that the original impairment not been recognized. 2.16. Leases The accounting treatment for the finance lease is complied with law 95/1995, if the contract entitles the lessee to purchase the asset at a specified date and predefined value, or the current value of the total lease payments representing at least 90% of the value of the asset. The other leases contracts are considered operating leases contracts. 2.16.1. Being lessee Finance lease contract recognizes the lease cost, including the cost of maintenance of the leased assets in the income state- ment for the period in which they occurred. If the Bank decides to exercise the right to purchase the leased asset the leased assets are capitalized and included in ‘property, plant and equipment’ and depreciated over the useful life of the expected remaining life of the asset in the same manner as similar assets. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of return on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients’ accounts is transferred to the in the income state- ment until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depreci- ated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 2.17. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 98 Annual Report 2012 Annual Report 2012 99 Financial Statements: Separate 2.18. Other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income (expenses). Provisions for obligations, other than those for credit risk or employee benefits, due within more than 12 months from the balance sheet date are recognized based on the present value of the best estimate of the consideration required to settle the present obligation on the balance sheet date. An appropriate pretax discount rate that reflects the time value of money is used to calculate the present value of such provisions. For obligations due within less than twelve months from the balance sheet date, provisions are calculated based on undiscounted expected cash outflows unless the time value of money has a significant impact on the amount of provision, then it is measured at the present value. 2.19. Share based payments The Bank applies an equity-settled, share-based compensation plan. The fair value of equity instruments recognized as an expense over the vesting period using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. The vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. Vesting conditions include service conditions, performance conditions and market performance conditions are taken into account when estimating the fair value of equity instruments on the date of grant. On each balance sheet date the number of options that are expected to be exercised are estimated. Recognizes esti- mate changes, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 2.20. Income tax Income tax on the profit and loss for the period and deferred tax are recognized in the income statement except for income tax relating to items of equity that are recognized directly in equity. Income tax is recognized based on net taxable profit using the tax rates applicable on the date of the balance sheet in ad- dition to tax adjustments for previous years. Deferred taxes arising from temporary time differences between the book value of assets and liabilities are recognized in accordance with the principles of accounting and value according to the foundations of the tax, this is determining the value of deferred tax on the expected manner to realize or settle the values of assets and liabilities, using tax rates applicable on the date of the balance sheet. Deferred tax assets of the Bank recognized when there is likely to be possible to achieve profits subject to tax in the future to be possible through to use that asset, and is reducing the value of deferred tax assets with part of that will come from tax benefit expected during the following years, that in the case of expected high benefit tax, deferred tax assets will increase within the limits of the above reduced. 2.21. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost also any difference between proceeds net of transaction costs and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 2.22. Dividends Dividends on ordinary shares and profit sharing are recognized as a charge of equity upon the general assembly approval. Profit sharing includes the employees’ profit share and the Board of Directors’ remuneration as prescribed by the Bank’s articles of incorporation and the corporate law. 2.23. Comparatives Comparative figures have been adjusted to conform with changes in the presentation of the current period where necessary. 3. Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and manage- ment of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and rewards and minimize potential adverse effects on the Bank’s financial performance. The most important types of financial risks are credit risk, market risk, liquidity risk and other operating risks. Also market risk includes exchange rate risk, rate of return risk and other prices risks. The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and con- trols, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by risk department under policies approved by the Board of Directors. Bank treasury identi- fies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as for- eign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. Credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three com- ponents (i) the ‘probability of default’ by the client or counterparty on its contractual obligations (ii) current exposures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’). These credit risk measurements, which reflect expected loss (the ‘expected loss model’) are required by the Basel committee on banking regulations and the supervisory practices (the Basel committee), and are embedded in the Bank’s daily operational man- agement. The operational measurements can be contrasted with impairment allowances required under EAS 26, which are based on losses that have been incurred on the balance sheet date (the ‘incurred loss model’) rather than expected losses (note 3.1). The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various catego- ries of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate. Clients of the Bank are segmented into four rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank’s rating 1 2 3 4 Description of the grade Performing loans Regular watching Watch list Non-performing loans Loss given default or loss severity represents the Bank expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation. 3.1.1.2. Debt instruments and treasury and other bills For debt instruments and bills, external rating such as standard and poor’s rating or their equivalents are used for man- aging of the credit risk exposures, and if this rating is not available, then other ways similar to those used with the credit 100 Annual Report 2012 Annual Report 2012 101 Financial Statements: Separate customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time. 3.1.2. Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to indi- vidual counterparties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counterparties, product, and industry sector and by country are approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off- balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange con- tracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below: 3.1.2.1. Collateral The Bank sets a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Mortgages over residential properties. • Mortgage business assets such as premises, and inventory. • Mortgage financial instruments such as debt securities and equities. Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimize the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instru- ment. Debt securities, treasury and other governmental securities are generally unsecured, with the exception of asset- backed securities and similar instruments, which are secured by portfolios of financial instruments. 3.1.2.2. Derivatives The Bank maintains strict control limits on net open derivative positions (i.e., the difference between purchase and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the Bank (i.e., assets with positive fair value), which in relation to derivatives is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties. Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a cor- responding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank market transactions on any single day. 3.1.2.3. Master netting arrangements The Bank further restricts its exposure to credit losses by entering into master netting arrangements with counterpar- ties with which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with favorable contracts is reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Bank overall exposure to credit risk on derivative instruments subject to master netting arrangements can change substantially within a short period, as it is af- fected by each transaction subject to the arrangement. 3.1.2.4. Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guar- antees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit stand- ards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Impairment and provisioning policies 3.1.3. The internal rating system described in Note 3.1.1 focus on the credit-quality mapping from the lending and investment activities perspective. Conversely, for only financial reporting purposes impairment losses are recognized for that has been incurred on the balance sheet date when there is an objective evidence of impairment. Due to the different method- ologies applied, the amount of incurred impairment losses in balance sheet are usually lower than the amount determined from the expected loss model that is used for internal operational management and CBE regulation purposes. The impairment provision reported in balance sheet at the end of the period is derived from each of the four internal credit risk ratings. However, the majority of the impairment provision is usually driven by the last two rating degrees. The fol- lowing table illustrates the proportional distribution of loans and advances reported in the balance sheet for each of the four internal credit risk ratings of the Bank and their relevant impairment losses: Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing loans December 31, 2012 December 31, 2011 Loans and advances (%) Impairment provision (%) Loans and advances (%) Impairment provision (%) 90.00 5.89 0.48 3.63 40.85 8.56 2.01 48.58 91.13 4.32 1.74 2.81 42.26 4.70 3.70 49.34 The internal rating tools assists management to determine whether objective evidence of impairment exists under EAS 26, based on the following criteria set by the Bank: • Cash flow difficulties experienced by the borrower or debtor • Breach of loan covenants or conditions • Initiation of bankruptcy proceedings • Deterioration of the borrower’s competitive position • Bank granted concessions may not be approved under normal circumstances due to economic, legal reasons and financial difficulties facing the borrower • Deterioration of the collateral value • Deterioration of the credit situation The Bank’s policy requires the review of all financial assets that are above materiality thresholds at least annually or more regularly when circumstances require. Impairment provisions on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date, and are applied to all significant accounts individually. The assess- ment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collective impairment provisions are provided portfolios of homogenous assets by using the available historical loss experience, experienced judgment and statistical techniques. 3.1.4. Pattern of measuring the general banking risk In addition to the four categories of the Bank’s internal credit ratings indicated in note 3.1.1, management classifies loans and advances based on more detailed subgroups in accordance with the CBE regulations. Assets exposed to credit risk in these cat- egories are classified according to detailed rules and terms depending heavily on information relevant to the customer, his activ- ity, financial position and his repayment track record. The Bank calculates required provisions for impairment of assets exposed 102 Annual Report 2012 Annual Report 2012 103 Financial Statements: Separate to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the provision required for impairment losses as per CBE credit worthiness rules exceeds the required provisions by the application used in balance sheet preparation in accordance with EAS. That excess shall be debited to retained earnings and carried to the general banking risk reserve in the equity section. Such reserve is always adjusted, on a regular basis, by any increase or decrease so, that reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution. Below is a statement of institutional worthiness according to internal ratings compared with CBE ratings and rates of provisions needed for assets impairment related to credit risk: CBE Rating 1 2 3 4 5 6 7 8 9 10 Categorization Low risk Average risk Satisfactory risk Reasonable risk Acceptable risk Marginally acceptable risk Watch list Substandard Doubtful Bad debts Provision% Internal rating 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 Categorization Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk » Treasury bills and other governmental notes Trading financial assets: » Debt instruments » Gross loans and advances to banks » Less:Impairment provision Gross loans and advances to customers Individual: » Overdraft » Credit cards » Personal loans » Mortgages » Other loans Corporate: » Overdraft » Direct loans » Syndicated loans » Other loans » Unamortized bills discount » Impairment provision » Unearned interest » Derivative financial instruments Financial investments: » Debt instruments » Investments in subsidiary and associates Total Off balance sheet items exposed to credit risk » Financial guarantees » Customers acceptances » Letter of credit » Letter of guarantee Total Dec. 31, 2012 EGP 11,153,742,074 Dec. 31, 2011 EGP 10,653,390,067 1,138,056,688 1,208,166,369 (29,298,630) 353,860,497 1,433,545,112 (37,950,503) 1,220,222,219 660,932,044 3,616,553,758 463,833,879 20,045,324 4,288,571,348 23,196,204,054 9,588,649,990 87,795,754 (22,277,973) (1,901,222,402) (520,994,222) 137,459,761 24,849,111,471 938,033,700 80,093,585,206 2,276,369,133 1,176,928,870 933,297,936 12,787,562,199 17,174,158,138 952,982,877 575,672,905 2,659,469,004 419,990,050 40,265,000 4,239,213,684 24,265,367,037 8,245,001,963 101,625,796 (45,231,397) (1,419,409,102) (365,161,953) 146,544,656 14,898,586,881 995,595,778 68,113,358,352 2,219,596,241 542,833,642 753,154,858 11,263,615,016 14,779,199,757 The above table represents the Bank Maximum exposure to credit risk on December 31, 2012, before taking account of any held collateral. For assets recognized on balance sheet, the exposures set out above are based on net carrying amounts as reported in the balance sheet. As shown above 52.46% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 32.45%. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk resulting from both its loans and advances portfolio and debt instruments based on the following: • 95.88% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.37% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 1,609,976,311. • The Bank has implemented more prudent processes when granting loans and advances during the financial period ended on December 31, 2012. • 94.29% of the investments in debt Instruments are Egyptian sovereign instruments. 3.1.6. Loans and advances Loans and advances are summarized as follows: Dec.31, 2012 EGP Dec.31, 2011 EGP Loans and advances to customers 40,779,399,095 785,027,964 1,578,381,311 43,142,808,370 Loans and advances to banks Loans and advances to customers 1,176,571,369 39,842,142,236 478,696,381 1,178,749,699 1,208,166,369 41,499,588,316 - 31,595,000 Loans and advances to banks 1,403,385,688 - 30,159,424 1,433,545,112 1,901,222,402 22,277,973 520,994,222 40,698,313,773 29,298,630 - - 1,419,409,102 45,231,397 365,161,953 1,178,867,739 39,669,785,864 37,950,503 - - 1,395,594,609 » Neither past due nor impaired » Past due but not impaired » Individually impaired Gross Less: » Impairment provision » Unamortized bills discount » Unearned interest Net Impairment provision losses for loans and advances reached EGP 1,930,521,032. During the period the Bank’s total loans and advances increased by 3.30% . In order to minimize the propable exposure to credit risk, the Bank focuses more on the business with large enterprises,banks or retail customers with good credit rating or sufficient collateral. 104 Annual Report 2012 Annual Report 2012 105 Financial Statements: Separate P G E e t a r o p r o C l i a u d v d n i I : s k n a b d n a s r e m o t s u c o t s e c n a v d a d n a s n a o l t e N l a t o T l a t o T s k n a b s r e m o t s u c d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a r e h t O s n a o l d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 2 1 0 2 , 1 3 . c e D 2 1 1 , 2 1 3 , 8 6 1 , 1 7 2 9 , 3 9 2 , 5 5 9 , 7 3 4 5 7 , 7 8 0 , 2 8 0 7 6 , 7 4 0 , 4 3 6 , 8 2 8 1 , 3 2 7 , 4 1 7 9 1 , - - 1 3 9 , 4 0 9 , 7 7 1 - 1 4 7 , 5 5 8 , 6 4 4 , 2 1 9 9 , 9 7 4 0 7 , 0 8 6 , 1 3 4 6 9 2 , 3 4 0 , 5 3 1 - 8 0 7 , 5 5 2 , 2 6 7 1 , 7 2 6 , 5 5 5 , 0 1 9 6 3 , 1 3 5 , 1 6 6 1 0 1 , 6 2 5 6 1 7 , 9 0 3 , 1 5 5 2 2 , 9 0 2 , 7 7 4 9 3 7 , 7 6 8 , 8 7 1 , 1 8 6 9 , 5 8 5 , 1 4 2 , 1 4 6 4 8 , 3 9 6 , 2 8 6 8 3 , 1 8 0 , 2 5 2 , 9 5 1 1 , 8 8 1 , 4 5 9 1 2 , P G E e t a r o p r o C , 1 3 2 6 6 0 8 2 8 3 , , , 3 5 8 7 0 1 1 , , 4 8 4 3 8 1 9 4 4 , , 3 5 6 2 0 5 9 5 4 3 , , , 8 7 0 7 5 5 8 , , 5 4 2 8 4 8 4 9 , - 2 5 3 7 8 8 , , 5 6 5 8 4 5 7 4 1 , , 8 8 1 9 5 9 6 1 , - - , 5 3 5 3 7 2 1 , , 6 2 6 5 9 3 5 3 , , 2 1 4 1 4 4 0 2 , , 3 1 5 8 7 7 6 2 , , 9 1 1 0 2 0 9 7 0 4 , , , 3 9 3 4 5 9 8 1 , , 9 1 0 7 5 4 0 5 4 , , 4 0 2 8 1 1 2 4 5 3 , , 8 6 6 , 1 8 8 , 3 3 6 1 3 4 , 3 9 6 , 2 5 1 , 1 s n a o l i g n m r o f r e P » 8 0 1 , 0 6 9 , 2 1 1 5 8 , 5 7 9 , 9 3 i g n h c t a w l r a u g e R » 8 0 5 , 0 4 9 , 3 7 3 6 , 2 2 9 , 9 9 2 4 , 1 2 8 , 1 3 5 2 , 7 7 8 , 6 3 1 7 , 3 0 6 , 2 5 6 2 7 1 , 9 6 4 , 9 0 2 , 1 i g n m r o f r e p - n o N » t s i l h c t a W » s n a o l l a t o T : s e d a r G l i a u d v d n i I l a t o T l a t o T s k n a b s r e m o t s u c d n a s n a o l d n a s n a o l o t s e c n a v d a o t s e c n a v d a r e h t O s n a o l d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O s n a o l r e h t O s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 1 1 0 2 , 1 3 . c e D 7 8 1 , 6 5 4 , 2 4 9 7 , 4 6 2 , 2 8 7 , 1 2 0 1 , 1 0 1 , 5 1 8 2 , 0 1 2 , 8 5 5 8 4 , 3 9 1 , 6 9 4 1 , 4 6 0 , 2 6 3 , 7 7 3 , 1 3 5 8 , 7 1 9 , 1 3 1 , 7 3 4 8 3 , 9 8 6 , 4 9 0 5 3 , 5 9 3 , 1 5 7 , 7 4 9 2 , 5 3 4 , 6 7 0 1 2 , - 2 2 9 , 1 0 9 , 1 9 6 6 2 5 , 1 0 1 - 6 5 3 , 4 2 6 , 6 4 6 8 5 3 , 6 7 7 , 5 1 5 4 6 , 4 9 0 , 4 7 4 6 4 0 , 7 4 6 6 6 , 7 6 7 , 8 2 1 9 2 1 , 6 1 3 , 5 5 2 9 0 6 , 4 9 5 , 5 9 3 , 1 4 1 2 , 9 7 1 , 0 8 0 , 0 4 8 5 0 , 9 3 9 , 9 9 7 9 2 , 3 7 3 , 8 3 9 , 7 4 6 2 , 9 6 5 , 4 7 4 3 2 , , 5 1 1 4 3 3 2 2 , , 5 6 0 0 8 9 6 3 1 , - , 5 9 0 1 4 2 7 3 , - - , 7 8 3 8 7 2 8 2 , , 7 7 5 6 5 3 1 1 , , 2 4 1 6 3 6 4 6 8 3 , , 7 5 2 7 5 2 , , 6 0 7 8 7 3 5 0 4 , , 0 6 7 0 8 7 0 2 5 2 , , , 8 6 9 7 0 6 7 4 , , 6 1 7 2 7 1 1 , , 7 4 0 5 3 7 2 , , 9 0 8 0 5 5 2 2 , , 0 9 2 8 5 5 1 7 0 4 , , , 8 6 0 1 7 6 8 3 , , 3 5 7 3 1 1 8 0 4 , , 3 3 5 6 6 9 2 8 5 2 , , 9 8 0 , 5 4 2 , 4 0 5 0 7 8 , 9 9 0 , 4 1 9 s n a o l i g n m r o f r e P » 0 5 9 , 8 7 2 , 3 3 4 8 , 8 9 7 , 0 1 6 3 5 , 1 6 4 , 9 8 9 3 , 6 0 2 , 8 5 0 8 , 9 5 0 , 5 1 9 5 4 , 7 3 8 7 8 6 , 2 8 3 , 3 3 5 3 6 2 , 5 0 6 , 2 3 9 i g n h c t a w l r a u g e R » i g n m r o f r e p - n o N » t s i l h c t a W » s n a o l l a t o T : s e d a r G e t a r o p r o C l i a u d v d n i I P G E . t n e m r i a p m i f o e c n e d i v e e v i t c e j b o n a s i e r e h t s s e l n u , d e r i a p m i d e r e d i s n o c t o n e r a e u d t s a p s y a d 0 9 n a h t s s e l s e c n a v d a d n a s n a o L : d e r i a p m i t o n t u b e u d t s a p s e c n a v d a d n a s n a o L e t a r o p r o C l i a u d v d n i I l a t o T d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M l a n o s r e P s n a o l s d r a c t i d e r C s t f a r d r e v O 2 1 0 2 , 1 3 . c e D , 0 3 1 7 0 8 1 1 , - , 8 8 7 4 7 3 7 , , 2 4 3 2 3 4 4 , , 2 6 4 0 4 4 2 2 2 , , 3 4 0 2 0 9 5 0 1 , , 5 6 1 8 9 8 3 8 , , 3 5 2 0 4 6 2 3 , , 9 5 5 2 7 5 7 5 , , 1 5 6 1 8 8 1 , , 1 8 5 0 8 8 4 2 , , 8 2 3 0 1 8 0 3 , , 2 5 1 0 2 8 1 9 2 , , 4 9 6 3 8 7 7 0 1 , , 5 3 5 3 5 1 6 1 1 , , 3 2 9 2 8 8 7 6 , 7 0 7 , 6 8 4 , 9 1 4 5 9 9 , 0 0 7 0 9 8 , 8 4 4 , 1 1 2 7 4 , 1 3 8 , 6 3 1 2 6 9 , 3 0 5 , 6 5 3 4 1 , 7 1 2 , 7 1 2 1 8 , 7 0 2 , 3 9 4 6 2 6 , 1 9 0 0 4 , 0 1 1 1 2 0 , 3 0 9 5 3 0 , 5 8 5 , 2 7 6 2 , 5 9 1 , 2 0 9 0 , 4 9 7 , 4 3 9 5 , 0 9 6 , 3 1 2 9 1 , 9 2 2 , 6 1 5 5 1 , 6 1 3 , 5 5 1 , 8 0 7 6 3 1 0 4 , , 0 5 3 5 0 5 0 7 2 , , 6 8 3 7 1 1 0 1 , , 4 4 4 9 5 7 0 2 3 , s y a d 0 3 o t p u e u d t s a P » s y a d 0 6 - 0 3 e u d t s a P » s y a d 0 9 - 0 6 e u d t s a P » l a t o T , 2 0 4 3 3 9 7 , , 5 6 9 7 5 9 7 1 , , 5 8 0 0 0 5 3 0 1 , , 2 5 4 1 9 3 9 2 1 , - - - - , 5 8 0 0 0 5 3 0 1 , - 5 0 2 , 8 0 2 , 2 1 3 6 7 2 , 1 1 2 , 1 , 6 2 8 7 7 0 8 , , 9 3 1 0 8 8 9 , , 7 1 8 3 4 2 1 , , 5 8 5 9 8 6 6 , , 8 2 7 1 2 8 2 1 1 , , 4 2 7 9 6 5 6 1 , 9 7 8 , 4 2 2 , 3 2 5 4 8 , 1 7 8 , 3 1 9 9 4 , 4 9 1 1 5 , 9 5 9 2 9 , 4 0 3 , 9 4 3 6 8 2 , 5 6 3 , 1 l a t o T d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M 9 8 6 , 9 0 5 , 3 0 3 6 , 0 3 8 , 1 0 3 7 , 3 6 2 , 1 9 4 0 , 4 0 6 , 6 l a n o s r e P s n a o l s d r a c t i d e r C s t f a r d r e v O 1 1 0 2 , 1 3 . c e D 9 9 0 , 4 8 9 , 3 1 2 2 , 4 7 4 , 1 1 1 0 3 , 9 0 5 , 6 0 1 1 2 6 , 7 6 9 , 1 2 1 , 5 0 5 4 6 5 8 , , 9 2 5 5 2 8 9 , , 9 3 9 7 7 9 0 0 2 , , 3 7 9 7 6 3 9 1 2 , s y a d 0 3 o t p u e u d t s a P » s y a d 0 6 - 0 3 e u d t s a P » s y a d 0 9 - 0 6 e u d t s a P » l a t o T P G E : s w o l l o f s a e r a , k n a B e h t y b d l e h l a r e t a l l o c d e t a l e r f o e u l a v r i a f e h t h t i w g n o l a , t c u d o r p y b s e c n a v d a d n a s n a o l d e r i a p m i y l l a u d i v i d n i f o t n u o m a s s o r g e h t f o n w o d k a e r b e Th . 1 1 3 , , , 6 7 9 9 0 6 1 P G E d e l a t o t e r a s e e t n a r a u g m o r f s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l i a u d v d n i I , 1 1 3 6 7 9 9 0 6 1 , , , 1 7 1 0 8 4 3 , , 0 7 6 4 9 9 9 7 1 , , 0 4 4 0 7 7 5 6 0 1 , , , 1 5 4 2 6 4 , 8 3 2 0 7 2 , 4 4 2 , 1 3 2 7 , 6 8 0 , 1 1 8 1 8 , 7 3 0 , 9 8 6 3 4 , 2 1 4 , 6 , 2 3 3 7 8 4 4 1 , s n a o l d e r i a p m i y l l i a u d v d n i I » e t a r o p r o C l i a u d v d n i I l a t o T r e h t O s n a o l d e t a c d n y S i s n a o l t c e r i D s n a o l t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 2 1 0 2 , 1 3 . c e D e t a r o p r o C l i a u d v d n i I l a t o T r e h t O s n a o l d e t a c d n y S i s n a o l t c e r i D s n a o l t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 1 1 0 2 , 1 3 . c e D , 3 2 1 9 0 9 8 0 2 1 , , 4 2 9 6 2 1 , , 3 5 6 4 7 0 6 2 3 , , 6 8 6 0 1 3 7 5 5 , , 1 1 4 7 8 2 , 7 5 1 8 9 9 , 1 1 4 , 1 4 2 8 , 0 2 0 , 1 1 8 0 0 , 7 9 1 , 6 8 0 6 3 , 1 0 1 , 2 5 , 9 5 2 8 7 3 7 1 , s n a o l d e r i a p m i y l l i a u d v d n i I » 106 Annual Report 2012 Annual Report 2012 107 Financial Statements: Separate • Loans and advances restructured Restructuring activities include reschaduling arrangements, obligatory management programs, modification and deferral of payments. The application of restructuring policies are based on indicators or criteria of credit performance of the borrower that is based on the personal judgment of the management, indicate that payment will most likely continue. Restructuring is commonly applied to term loans, specially customer loans. Renegotiated loans totaled at the end of the period Dec.31, 2012 Dec.31, 2011 Loans and advances to customer Corporate » Direct loans Total 2,924,873,000 2,924,873,000 2,780,557,000 2,780,557,000 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial period, based on Standard & Poor’s ratings or their equivalent: EGP Dec.31, 2012 » AAA » AA- to AA+ » A- to A+ » Lower than A- » Unrated Total Treasury bills and other gov. notes - - - - 7,978,030,413 7,978,030,413 Total Trading financial debt instruments - - - 9,194,145 Non-trading financial debt instruments 1,058,879,243 1,058,879,243 140,720,779 140,720,779 227,946,980 227,946,980 945,853,162 936,659,017 1,128,862,543 22,484,905,452 31,591,798,408 1,138,056,688 24,849,111,471 33,965,198,573 3.1.8. Concentration of risks of financial assets with credit risk exposure 3.1.8.1. Geographical sectors Following is a breakdown of the Bank’s main credit exposure at their book values categorized by geographical region at the end of the current period. The Bank has allocated exposures to regions based on the country of domicile of its counterparties. Dec.31, 2012 Cairo Alex, Delta and Sinai Upper Egypt Total EGP 1,138,056,688 1,208,166,369 (29,298,630) 750,010,323 660,932,044 2,401,536,267 373,157,230 18,722,593 » Treasury bills and other governmental notes 11,153,742,074 Trading financial assets: » Debt instruments » Gross loans and advances to banks » Less:Impairment provision Gross loans and advances to customers Individual: » Overdrafts » Credit cards » Personal loans » Mortgages » Other loans Corporate: » Overdrafts » Direct loans » Syndicated loans » Other loans » Unamortized bills discount » Impairment provision » Unearned interest » Derivative financial instruments Financial investments: » Debt instruments » Investments in subsidiary and associates Total 3,451,485,639 16,641,174,813 8,933,686,091 77,751,440 (22,277,973) (1,901,222,402) (403,955,322) 137,459,761 24,849,111,471 938,033,700 70,376,272,176 - - - - - 11,153,742,074 - - - 1,138,056,688 1,208,166,369 (29,298,630) 447,045,445 - 1,107,474,070 81,891,354 1,322,731 835,548,706 6,518,007,292 654,963,899 10,044,314 - - (115,616,300) - 23,166,451 - 107,543,421 8,785,295 - 1,220,222,219 660,932,044 3,616,553,758 463,833,879 20,045,324 1,537,003 4,288,571,348 37,021,949 23,196,204,054 9,588,649,990 87,795,754 (22,277,973) (1,901,222,402) (520,994,222) 137,459,761 - - - - (1,422,600) - - - 9,540,681,511 - 24,849,111,471 938,033,700 - 176,631,519 80,093,585,206 s r o t c e s y r t s u d n I . 2 . 8 . 1 . 3 . s e i t i v i t c a s r e m o t s u c k n a B e h t y b d e z i r o g e t a c e u l a v k o o b r i e h t t a e r u s o p x e t i d e r c n i a m s ’ p u o r G e h t s i s y l a n a e l b a t g n w o i l l o f e Th P G E l a t o T l i a u d v d n i I s e i t i v i t c a r o t c e s r e h t O t n e m n r e v o G l e a s e o h W l e d a r t l i a t e r d n a e t a t s e l a e R g n i r u t c a f u n a M , 4 7 0 2 4 7 3 5 1 1 1 , , , 8 8 6 6 5 0 8 3 1 1 , , , 9 6 3 6 6 1 8 0 2 1 , , , ) 0 3 6 8 9 2 9 2 ( , , 9 1 2 2 2 2 0 2 2 1 , , - - - - , 9 1 2 2 2 2 0 2 2 1 , , , 4 4 0 2 3 9 0 6 6 , , 4 4 0 2 3 9 0 6 6 , , 4 2 3 5 4 0 0 2 , , 4 2 3 5 4 0 0 2 , , 9 7 8 3 3 8 3 6 4 , , 9 7 8 3 3 8 3 6 4 , , 8 5 7 3 5 5 6 1 6 3 , , , 8 5 7 3 5 5 6 1 6 3 , , - - - - - - - - - , 4 7 0 2 4 7 , 3 5 1 , 1 1 - - - - - - - - , 8 8 6 6 5 0 , 8 3 1 , 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - , 8 4 3 1 7 5 8 8 2 4 , , , 4 5 0 4 0 2 6 9 1 3 2 , , , 0 9 9 9 4 6 8 8 5 9 , , , 4 5 7 5 9 7 7 8 , , ) 3 7 9 7 7 2 2 2 ( , , ) 2 2 2 4 9 9 0 2 5 ( , , ) 2 0 4 2 2 2 1 0 9 1 ( , , , 1 6 7 9 5 4 7 3 1 , , 0 0 7 3 3 0 8 3 9 , , 1 7 4 1 1 1 9 4 8 4 2 , , - - - - - - ) , 0 9 9 5 1 0 4 3 , ( ) , 5 8 5 4 4 2 2 3 2 , ( - - - , 0 7 4 4 6 5 , 4 6 3 , 3 2 - - - ) 0 7 9 , 0 1 ( - - - - - - - ) 2 4 8 , 7 9 4 , 2 4 2 ( - - - - - ) , 8 7 9 5 4 5 3 2 1 , ( ) , 2 2 6 3 3 9 4 2 8 , ( ) , 1 3 4 9 1 0 , 3 1 ( ) 5 6 4 , 6 4 2 , 7 ( ) 7 3 0 , 1 8 1 , 9 3 ( ) 0 6 5 , 6 1 7 , 4 6 7 ( , 8 2 2 4 3 4 2 4 3 1 , , , 5 4 8 2 5 3 , 5 1 7 3 2 , 3 0 5 , 6 3 4 5 1 7 , 6 4 9 , 3 3 4 , 1 7 7 4 , 3 2 4 , 1 4 0 , 1 6 4 8 , 0 1 9 , 8 1 - , 4 5 8 6 9 6 3 2 , , 5 4 7 6 2 3 7 9 0 4 , , , 7 3 0 5 4 0 2 2 8 0 1 , , - - - - - - , 1 8 3 3 6 9 , 5 3 2 , 1 0 7 2 , 6 6 4 , 3 3 2 - - 2 7 5 , 9 5 3 , 1 9 1 8 5 1 , 6 0 4 , 9 3 6 0 0 9 , 8 9 0 , 4 6 7 8 0 , 7 1 9 , 1 5 8 , 4 - - 4 3 6 , 0 6 7 , 5 3 9 , 9 0 6 1 , 9 0 6 , 7 7 7 - ) 3 7 9 , 7 7 2 , 2 2 ( , 6 0 2 5 8 5 3 9 0 0 8 , , , 6 5 2 5 2 0 4 2 8 5 , , , 7 5 6 4 2 3 8 2 2 5 1 , , , 8 2 0 0 6 6 , 4 9 8 , 6 3 2 7 0 , 2 1 7 , 2 6 6 8 0 4 , 1 3 5 , 5 2 2 , 2 6 9 6 , 5 8 9 , 5 8 8 , 4 1 9 8 0 , 6 4 3 , 2 7 3 , 4 ) 5 3 8 , 4 2 2 , 2 1 ( ) 9 0 3 , 9 7 5 , 8 2 1 ( 1 6 7 , 9 5 4 , 7 3 1 s t n e m u r t s n i l i a c n a n fi e v i t a v i r e D » 0 0 7 , 3 3 0 , 8 3 9 0 0 0 , 7 4 5 , 4 8 4 , 1 d n a i y r a d s b u s i n i s t n e m t s e v n I » i s e t a c o s s a l a t o T : s t n e m t s e v n i l i a c n a n F i s t n e m u r t s n i t b e D » l i a c n a n F i s n o i t u t i t s n i - - 9 6 3 , 6 6 1 , 8 0 2 , 1 ) 0 3 6 , 8 9 2 , 9 2 ( - - - - - - n r e v o g r e h t o d n a s l l i b y r u s a e r T » s e t o n l a t n e m 2 1 0 2 , 1 3 . c e D o t s e c n a v d a d n a s n a o l s s o r G » s t n e m u r t s n i t b e D » : s t e s s a l i a c n a n fi g n d a r T i o t s e c n a v d a d n a s n a o l s s o r G s r e m o t s u c s n a o l l a n o s r e P » s d r a c t i d e r C » s t f a r d r e v O » s e g a g t r o M » s n a o l r e h t O » : e t a r o p r o C s t f a r d r e v O » s n a o l t c e r i D » s n a o l i d e t a c d n y S » : l i a u d v d n i I t n u o c s d s i l l i b d e z i t r o m a n U » s n a o l r e h t O » i i n o s v o r p t n e m r i a p m I » t s e r e t n i d e n r a e n U » i i n o s v o r p t n e m r i a p m I : s s e L » s k n a b 108 Annual Report 2012 Annual Report 2012 109 Financial Statements: Separate 3.2. Market risk Market risk represnted as fluctuations in fair value or future cash flow, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices will reduce the Bank’s income or the value of its portfolios. The Bank separates exposures to market risk into trading or non-trading portfolios. Market risks are measured, monitored and controlled by the market risk management department. In addition, regular reports are submitted to the Asset and Liability Management Committee (ALCO), Board Risk Committee and the heads of each business unit. Trading portfolios include positions arising from market-making, position taking and others designated as marked-to- market. Non-trading portfolios include positions that primarily arise from the interest rate management of the group’s retail and commercial banking assets and liabilities, financial investments designated as available for sale and held-to-maturity. 3.2.1. Market risk measurement techniques As part of the management of market risk, the Bank undertakes various hedging strategies. The Bank also enters into interest rate swaps to match the interest rate risk associated with the fixed-rate long-term debt instrument and loans to which the fair value option has been applied. 3.2.1.1. Value at Risk The Bank applies a “Value at Risk” methodology (VaR) to its trading and non-trading portfolios, to estimate the market risk of positions held and the maximum losses expected under normal market conditions, based upon a number of as- sumptions for various changes in market conditions. VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’ amount the Bank might lose , but only to a certain level of confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed (1 Day). The Bank is assessing the historical movements in the mar- ket prices based on volatilities and correlations data for the past five years. The use of this approach does not prevent losses outside of these limits in the event of more significant market movements. As VaR constitutes an integral part of the Bank’s market risk control regime, the Market Risk Management set Soft VaR Limits, trading book, which have been approved by the board, and are monitored and reported on a daily basis to the Senior Management. In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal models used to calculate VaR and are not approved yet by the central bank as the regulator is still applying Basel I in parallel basis with the standardized market risk approach in Basel II. 3.2.1.2. Stress tests Stress tests provide an indication of the potential size of losses that could arise under extreme market conditions. There- fore, bank computes on a daily basis trading Stress VaR, combined with trading Normal VaR to capture the abnormal movements in financial markets and to give more comprehensive picture of risk. The results of the stress tests are reviewed by the ALCO on a monthly basis and the board risk committee on a quarterly basis. 3.2.2. Value at risk (VaR) Summary • Total VaR by risk type Medium 41,293 69,880,113 63,018,453 6,861,659 199,809 345,860 69,926,059 Dec.31, 2012 High 175,325 81,920,976 72,607,499 9,313,477 253,871 465,524 81,958,286 Low 5,847 58,491,659 52,982,174 5,509,485 149,646 282,380 58,537,533 Medium 275,822 19,970,380 9,752,494 13,919,605 1,659,204 921,509 20,406,187 Dec.31, 2011 High 798,293 25,574,668 11,883,218 16,474,199 1,762,596 1,057,998 26,002,691 EGP Low 22,715 15,047,233 7,638,408 11,866,315 1,488,630 798,571 15,490,695 » Foreign exchange risk » Interest rate risk » For non trading purposes » For trading purposes » Equities risk » Investment fund Total VaR 110 Annual Report 2012 • Trading portfolio VaR by risk type » Foreign exchange risk Interest rate risk » For trading purposes » Equities risk » Investment fund Total VaR Medium 41,293 Dec.31, 2012 High 175,325 Low Medium 5,847 275,822 Dec.31, 2011 High 798,293 Low 22,715 6,861,659 199,809 345,860 7,268,816 9,313,477 253,871 465,524 9,360,357 5,509,485 13,919,605 16,474,199 11,866,315 1,488,630 798,571 5,546,276 14,382,231 15,076,004 13,832,710 1,659,204 921,509 1,762,596 1,057,998 149,646 282,380 • Non trading portfolio VaR by risk type Medium Dec.31, 2012 High Low Medium Dec.31, 2011 High Low Interest rate risk » For non trading purposes Total VaR 63,018,453 72,607,499 52,982,174 63,018,453 72,607,499 52,982,174 9,752,494 11,883,218 9,752,494 11,883,218 7,638,408 7,638,408 The aggregate of the trading and non-trading VaR results does not constitute the Bank’s VaR due to correlations and con- sequent diversification effects between risk types and portfolio types. 3.2.3. Foreign exchange risk The Bank’s financial position and cash flows are exposed to fluctuations in foreign currency exchange rates. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are moni- tored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk and Bank’s financial instruments at carrying amounts, categorized by currency. Dec.31, 2012 Financial assets » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Gross loans and advanc- es to banks » Gross loans and advanc- es to customers » Derivative financial instru- ments Financial investments » Available for sale » Held to maturity » Investments in subsidiary and associates Total financial assets Financial liabilities » Due to banks » Due to customers » Derivative financial instru- ments » Long term loans Total financial liabilities Net on-balance sheet financial position EGP USD EUR GBP Other Total Equivalent EGP 4,547,889,733 649,709,912 128,385,584 24,385,266 43,603,629 5,393,974,124 53,493,996 5,049,101,786 2,401,041,621 402,155,264 51,917,368 7,957,710,034 4,733,513,339 3,472,922,400 241,653,085 1,447,209,884 9,194,145 - - 1,170,995,566 37,170,803 - - - - 8,448,088,824 15,877,734 1,472,281,763 - 1,208,166,369 25,149,379,935 17,249,717,628 698,370,716 37,776,260 7,563,832 43,142,808,370 34,317,819 98,258,816 4,883,126 19,852,236,705 1,309,647,328 - 4,205,753,328 901,067,550 36,966,150 - - - - - - - - 137,459,761 - 21,161,884,032 4,205,753,328 - - 938,033,700 60,924,862,289 29,046,513,730 3,511,504,934 464,316,790 118,962,562 94,066,160,307 650,505 1,362,866,273 48,030,144,773 26,846,823,314 3,403,851,868 351,304,112 41,825 453,989,690 - 1,714,862,716 99,917,245 78,834,726,890 12,295,409 102,612,684 4,191,167 - - 119,099,260 80,495,238 - 49,485,801,694 27,300,740,110 3,408,693,540 - - 454,031,515 - 80,495,238 99,917,245 80,749,184,104 11,439,060,595 1,745,773,620 102,811,394 10,285,275 19,045,318 13,316,976,202 Annual Report 2012 111 Financial Statements: Separate 3.2.4. Interest rate risk The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but profit may decrease in the event that unexpected movements arise.The Board sets limits on the gaps of interest rate repricing that may be undertaken, which is monitored by bank’s Risk Management Department. The table below summarizes the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at car- rying amounts, categorized by the earlier of repricing or contractual maturity dates. Dec.31, 2012 Financial assets » Cash and bal- ances with Central Bank » Due from banks » Treasury bills and other govern- mental notes* » Trading financial assets » Gross loans and advances to banks » Gross loans and advances to customers » Derivatives finan- cial instruments (including IRS notional amount) Financial in- vestments » Available for sale » Held to maturity » Investments in subsidiary and associates Total financial assets Financial liabili- ties » Due to banks » Due to custom- ers » Derivatives finan- cial instruments (including IRS notional amount) » Long term loans Total financial liabilities Total interest re-pricing gap Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total - - - 3,724,249,373 4,039,063,382 41,664,325 (2,392,490,261) 2,359,738,000 8,480,841,085 - - - - - - 5,393,974,124 5,393,974,124 152,732,954 7,957,710,034 - 8,448,088,824 318,347,333 - - 918,121,244 219,935,445 15,877,741 1,472,281,763 72,394,428 751,920,402 383,851,539 - - 23,384,335,335 8,056,916,417 7,335,797,152 3,512,242,033 853,517,433 - - 1,208,166,369 43,142,808,370 601,968,669 589,566,465 859,582,784 3,306,273,019 379,393,905 103,141,940 5,839,926,782 1,322,522,351 - - - - - 4,017,903,710 11,736,956,304 3,636,620,842 - 15,732,123 4,190,021,205 447,880,825 - 21,161,884,032 4,205,753,328 - - - 938,033,700 938,033,700 27,031,327,228 15,797,204,666 21,135,372,718 23,663,613,805 5,089,467,625 7,051,641,284 99,768,627,326 1,360,467,819 - - - - 354,394,897 1,714,862,716 25,075,487,093 12,100,430,806 8,222,585,000 20,807,578,680 470,785,000 12,157,860,312 78,834,726,890 2,175,142,530 2,703,939,377 132,811,540 153,115,055 549,753,928 106,803,850 5,821,566,280 - - 59,508,571 20,986,667 - - 80,495,238 28,611,097,442 14,804,370,183 8,414,905,111 20,981,680,402 1,020,538,928 12,619,059,059 86,451,651,124 (1,579,770,214) 992,834,483 12,720,467,607 2,681,933,403 4,068,928,697 (5,567,417,775) 13,316,976,202 * After deducting Repos. 112 Annual Report 2012 3.3. Liquidity risk Liquidity risk is the risk that the Bank does not have sufficient financial resources to meet its obligations arises from its financial liabilities as they fall due or to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill lending commitments. 3.3.1. Liquidity risk management process the Bank’s liquidity management process, is carried by the assets and Liabilities Management Department and monitored independently by the Risk Management Department, which includes: Projecting cash flows by major currency under vari- ous stress scenarios and considering the level of liquid assets necessary in relation thereto: • The Bank maintains an active presence in global money markets to enable this to happen. • Maintaining a diverse range of funding sources with back-up facilities. • Monitoring balance sheet liquidity and advances to core funding ratios against internal and Central Bank of Egypt regulations. • Managing the concentration and profile of debt maturities. • Monitoring and reporting takes the form of cash flow measurement and projections for the next day, week and month re- spectively, as these are key periods for liquidity management. The starting point for those assets projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets. Bank’s Risk Management Department also monitors unmatched medium-term 3.3.2. Funding approach Sources of liquidity are regularly reviewed jointly by the Bank’s Assets & Liabilities Management Department and Con- sumer Banking to maintain a wide diversification within currencies, geographical area, depositors, products and tenors. 3.3.3. Non-derivative cash flows The table below presents the undiscounted cash flows payable by the Bank under non-derivative financial liabilities by remain- ing contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec.31, 2012 Financial liabilities » Due to banks » Due to customers » Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (contractual and non con- tractual maturity dates) Dec.31, 2011 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP 1,714,862,716 1,714,862,716 11,526,810,962 9,736,841,059 20,452,119,693 35,809,584,757 1,309,370,420 78,834,726,890 80,495,238 59,508,571 20,986,667 - - - - - - - 13,241,673,678 9,736,841,059 20,511,628,264 35,830,571,424 1,309,370,420 80,630,084,844 9,874,255,24212,497,060,088 22,097,635,946 39,608,844,700 9,940,640,568 94,018,436,544 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP - - 125,931 3,340,794,517 3,340,794,517 12,876,722,334 8,576,616,724 17,868,791,406 30,859,028,066 1,392,889,000 71,574,047,530 99,333,376 Financial liabilities » Due to banks » Due to customers » Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (contractual and non con- tractual maturity dates) Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, due from CBE and due from banks, treasury bills, other government notes , loans and advances to banks and customers. 16,217,642,782 8,578,138,228 17,951,548,347 30,873,957,066 1,392,889,000 75,014,175,423 14,753,504,167 11,100,069,868 20,844,934,425 28,478,165,923 10,614,870,781 85,791,545,163 82,756,941 14,929,000 1,521,504 - - - In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. Annual Report 2012 113 Financial Statements: Separate In addition, debt instrument and treasury bills and other governmental notes have been pledged to secure liabilities. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources such as asset-backed markets. 3.3.4. Derivative cash flows Derivatives settled on a net basis the Bank’s derivatives that will be settled on a net basis include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards currency options. Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures. The table below analyses the Bank’s derivative undiscounted financial liabilities that will be settled on a net basis into maturity groupings based on the remaining period of the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows: Dec.31, 2012 Liabilities Derivatives financial instruments » Foreign exchange derivatives » Interest rate derivatives Total Off balance sheet items Dec.31, 2012 » Letters of credit, guarantees and other commitments Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP 2,518,555 - 2,518,555 1,956,292 189,039 2,145,330 7,819,636 1,584,638 9,404,274 - 7,178,710 7,178,710 927 12,295,410 97,717,438 106,669,824 97,718,365 118,965,234 Up to 1 year 1-5 years Over 5 years Total 10,332,483,593 3,239,319,148 1,325,986,263 14,897,789,005 EGP Total 10,332,483,593 3,239,319,148 1,325,986,263 14,897,789,005 3.4. Fair value of financial assets and liabilities 3.4.1. Financial instruments not measured at fair value The table below summarizes the book value and fair value of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value. Book value Fair value Dec.31, 2012 Dec.31, 2011 Dec.31, 2012 Dec.31, 2011 7,957,710,034 8,449,298,705 7,957,710,034 8,449,298,705 1,208,166,369 1,433,545,112 1,208,166,369 1,433,545,112 5,981,587,224 37,161,221,146 4,648,379,836 36,851,208,480 5,981,587,224 37,161,221,146 4,648,379,836 36,851,208,480 4,205,753,328 56,514,438,101 29,092,920 51,411,525,053 4,205,753,328 56,514,438,101 29,092,920 51,411,525,053 1,714,862,716 78,834,726,890 80,495,238 80,630,084,844 3,340,794,517 71,574,047,530 99,333,376 75,014,175,423 1,714,862,716 78,834,726,890 80,495,238 80,630,084,844 3,340,794,517 71,574,047,530 99,333,376 75,014,175,423 Financial assets » Due from banks » Gross loans and advances to banks Gross loans and advances to customers » Individual » Corporate Financial investments » Held to Maturity » Total financial assets Financial liabilities » Due to banks » Due to customers » Long term loans Total financial liabilities 114 Annual Report 2012 Due from banks 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 flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks represented in loans do not considering bank placing. The expected fair value of the loans and advances represents the discounted value of future cash flows expected to be collected. Cash flows are discounted us- ing the current market rate to determine fair value. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity assets classified as available for sale are meas- ured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers 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 quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5 Capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and other parties dealing with the bank. • Maintaining a strong capital base to enhance growth of the Bank’s operations. Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a quarterly basis. Central Bank of Egypt requires the following: • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 10%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank. Tier one: Tier one, comprised of paid-in capital (after deducting the book value of treasury shares), retained earnings and reserves resulting from the distribution of profits except the banking risk reserve and deducting previously recognized goodwill and any retained losses Tier two: Represents the gone concern capital which comprised of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt for to the maximum of 1.25% risk weighted assets and contingent liabili- ties, subordinated loans with more than five years to maturity (amortizing 20% of its carrying amount in each year of the remaining five years to maturity) and 45% of the increase in fair value than book value for available for sale , held to maturity , subsidiaries and associates investments. When calculating the numerator of capital adequacy ratio, the rules set limits of total tier 2 to no more than tier 1 capital and also limits the subordinated to no more than 50% of tier1. Annual Report 2012 115 Financial Statements: Separate Assets risk weight scale ranging from zero to 100% based on the counterparty risk to reflect the related credit risk scheme, taking into considration the cash collatrals. Similar criteria are used for off balance sheet items after adjusting it to reflect the nature of contingency and the potential loss of those amounts. The Bank has complied with all local capital adequacy requirements for the current year. The tables below summarizes the compositions of teir 1, teir 2 and the capital adequacy ratio . According to Basel I : Dec.31, 2012 In thousands EGP Dec.31, 2011 In thousands EGP Tier 1 capital » Share capital (net of the treasury shares) » General reserves » Legal reserve » Other reserve » Retained Earnings Total qualifying tier 1 capital Tier 2 capital » General risk provision » 45% of the Increase in fair value than the book value for available for sale and held to maturity investments Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities » Risk weighted assets » Contingent liabilities Total *Capital adequacy ratio (%) * Based on separate financial statement figures According to Basel II : 5,972,275 2,037,107 380,349 203,498 1,002 8,594,231 689,829 147,873 837,702 9,431,933 50,040,545 5,145,814 55,186,359 17.09% Restated 5,934,563 2,054,762 318,651 (474,528) - 7,833,448 692,088 - 692,088 8,525,536 50,175,825 5,191,197 55,367,022 15.40% Tier 1 capital » Share capital (net of the treasury shares) » Reserves » Retained Earnings » Total deductions from tier 1 capital Common Equity Total qualifying tier 1 capital Tier 2 capital » 45% of special reserve » 45% of the Increase in fair value than the book value for available for sale and held to maturity investments » Impairment provision for loans and regular contingent liabilities Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities » Total credit risk » Total market risk » Total operational risk Total *Capital adequacy ratio (%) Dec.31, 2012 In thousands EGP 5,972,275 2,502,995 (510,946) (4,701) 7,959,623 53,011 147,873 708,329 909,213 8,868,836 56,794,762 1,994,960 6,460,913 65,250,635 13.59% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. 116 Annual Report 2012 4. Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next finan- cial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expecta- tions of future events that are believed to be reasonable under the circumstances and available information. Impairment losses on loans and advances 4.1. The Bank reviews its loan portfolios to assess impairment on monthly basis a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or national or local eco- nomic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and tim- ing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5% Impairment of available for-sale equity investments 4.2. The Bank determines that available-for-sale equity investments are impaired when there has been a significant or pro- longed decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impair- ment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. 4.3. Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (as models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 4.4. Held-to-Maturity investments The non-derivative financial assets with fixed or determinable payments and fixed maturity are being classified held to maturity. This requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circum- stances – for example, selling an insignificant amount close to maturity it will be required to reclassify the entire category as available for sale. The investments would therefore be measured at fair value not amortized cost. 5. Segment analysis 5.1. By business segment The Bank is divided into main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Include other banking business, such as Assets Management. • Transactions between the business segments are on normal commercial terms and conditions. Annual Report 2012 117 Corporate banking SME’s Investment banking Retail banking EGP Total 3,302,588,319 731,332,747 (273,334,474) 1,610,326,906 5,370,913,498 (1,124,760,077) (308,458,766) (25,353,002) (859,123,551) (2,317,695,396) 6. Net interest income Interest and similar income » Banks » Clients Financial Statements: Separate Dec.31, 2012 » Revenue according to business segment » Expenses according to business segment Profit before tax » Tax Profit for the year Total assets Dec.31, 2011 » Revenue according to business segment » Expenses according to business segment Profit before tax » Tax Profit for the year Total assets 2,177,828,242 (552,626,343) 1,625,201,899 751,203,355 3,053,218,102 (298,687,476) (190,591,442) (850,507,191) - 560,611,913 2,202,710,911 (298,687,476) 80,952,435,040 2,626,503,517 1,451,894,947 9,374,557,798 94,405,391,302 422,873,981 (107,289,406) 315,584,575 Corporate banking SME’s Investment banking Retail banking Total 2,226,050,418 597,635,091 (75,724,924) 1,278,100,557 4,026,061,142 (777,096,428) (255,290,741) (25,181,851) (788,714,940) (1,846,283,960) 1,448,953,990 (273,777,928) 1,175,176,062 489,385,617 2,179,777,182 (100,906,775) (92,466,940) (430,929,104) - 396,918,677 1,748,848,078 (100,906,775) 74,621,790,612 2,143,523,905 1,533,773,854 7,329,130,662 85,628,219,033 342,344,350 (64,684,236) 277,660,114 5.2. By geographical segment Dec.31, 2012 » Revenue according to geographical seg- ment » Expenses according to geographical seg- ment Profit before tax » Tax Profit for the year Total assets Dec.31, 2011 » Revenue according to geographical seg- ment » Expenses according to geographical seg- ment Profit before tax » Tax Profit for the year Total assets Cairo Alex, Delta & Sinai Upper Egypt Total 4,334,514,952 887,705,321 148,693,225 5,370,913,498 EGP (1,834,683,705) (399,008,070) (84,003,621) (2,317,695,396) 2,499,831,247 (696,353,609) 1,803,477,638 64,689,604 3,053,218,102 (18,020,186) (850,507,191) 46,669,418 2,202,710,911 84,065,156,225 9,048,557,087 1,291,677,989 94,405,391,302 488,697,251 (136,133,396) 352,563,855 Cairo Alex, Delta & Sinai Upper Egypt Total 3,056,055,933 835,887,927 134,117,282 4,026,061,142 (1,335,361,487) (405,117,905) (105,804,568) (1,846,283,960) 1,720,694,446 (340,172,340) 1,380,522,106 430,770,022 (85,159,580) 345,610,442 75,287,082,794 9,812,046,055 28,312,714 2,179,777,182 (5,597,184) (430,929,104) 22,715,530 1,748,848,078 529,090,184 85,628,219,033 » Treasury bills and bonds » Reverse repos » Financial investments in held to maturity and available for sale debt instruments » Other Total Interest and similar expense » Banks » Clients » Financial instruments purchased with a commitment to re-sale (Repos) » Other Total Net interest income 7. Net income from fee and commission Fee and commission income » Fee and commissions related to credit » Custody fee » Other fee Total Fee and commission expense » Other fee paid Total Net income from fee and commission 8. Dividend income » Trading securities » Available for sale securities » Subsidiaries and associates Total Dec.31, 2012 EGP Dec.31, 2011 EGP 132,463,454 3,523,926,754 3,656,390,208 4,013,129,815 17,423,270 142,055,284 2,900,254,722 3,042,310,006 2,229,154,572 22,223,513 158,941,017 165,313,561 29,184 7,845,913,494 246,625 5,459,248,277 181,169,862 3,449,311,643 3,630,481,505 188,421,651 2,567,289,984 2,755,711,635 310,995,070 22,306,090 3,760,975 3,945,237,550 3,900,675,944 2,685,436 2,780,703,161 2,678,545,116 Dec.31, 2012 EGP Dec.31, 2011 EGP 470,471,721 40,798,715 431,596,884 942,867,320 107,365,742 107,365,742 835,501,578 431,874,322 37,706,902 396,039,716 865,620,940 87,451,431 87,451,431 778,169,509 Dec.31, 2012 EGP Dec.31, 2011 EGP 578,098 27,138,391 4,517,707 32,234,196 874,720 45,773,632 13,272,726 59,921,078 118 Annual Report 2012 Annual Report 2012 119 Financial Statements: Separate 9. Net trading income 14. Earning per share » Profit (losses) from foreign exchange » Profit (losses) from revaluations of trading assets and liabilities in foreign currencies » Profit (Loss) from forward foreign exchange deals revaluation » Profit (Loss) from interest rate swaps revaluation » Profit (Loss) from currency swap deals revaluation » Trading debt instruments » Trading equity instruments Total 10. Administrative expenses Staff costs » Wages and salaries » Social insurance » Other benefits » Other administrative expenses Total 11. Other operating (expenses) income » Profits (Losses) from non-trading assets and liabilities revaluation » Profits (losses) from selling property, plant and equipment » Release (charges) of other provisions » Others Total 12. Impairment (charge) release for credit losses » Loans and advances to customers » Held to maturity financial investments Total 13. Adjustments to calculate the effective tax rate » Profit before tax » * Tax settlement for prior years » Profit after settlement » Tax rate Income tax based on accounting profit Add / (Deduct) » Non-deductible expenses » Tax exemptions » Effect of provisions » Effect of depreciation Income tax Effective tax rate **Tax claims for the year ended on December.31, 2011 Dec.31, 2012 EGP 249,583,425 Dec.31, 2011 EGP 293,331,214 2,045,486 6,341,379 6,669,087 212,030 (2,963,355) 311,074,819 (893,527) 565,727,965 16,779,398 (19,845) 548,800 52,845,534 (913,960) 368,912,520 Dec.31, 2012 EGP Dec.31, 2011 EGP 684,521,699 30,542,233 30,941,993 698,639,542 1,444,645,467 Dec.31, 2012 EGP 36,631,170 2,387,583 (51,085,880) (97,723,664) (109,790,791) Dec.31, 2012 EGP (609,971,077) - (609,971,077) Dec.31, 2012 EGP 3,053,218,102 (65,137,014) 2,988,081,089 24.98% 746,520,272 22,716,152 (77,772,622) 88,495,041 5,411,335 785,370,178 26.28% 599,054,292 24,707,497 38,341,470 674,598,349 1,336,701,608 Dec.31, 2011 EGP (53,338,683) 2,716,747 45,511,985 (63,110,114) (68,220,065) Dec.31, 2011 EGP (322,276,483) 1,627,620 (320,648,863) Dec.31, 2011 EGP 2,179,777,182 - 2,179,777,182 From20%to25% 544,444,295 24,155,850 (183,887,532) 46,216,491 - 430,929,104 19.77% » Net profit for the period available for distribution » Board member’s bonus » Staff profit sharing Profits shareholders’ Stake » Number of shares Basic earning per share By issuance of ESOP earning per share will be: » Number of shares including ESOP shares Diluted earning per share 15. Cash and balances with Central Bank » Cash Obligatory reserve balance with CBE » Current accounts Total Non-interest bearing balances 16. Due from banks » Current accounts » Deposits Total » Central banks » Local banks » Foreign banks Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances Total 17. Treasury bills and other governmental notes » 91 Days maturity » 182 Days maturity » 364 Days maturity » Unearned interest Total 1 » Repos - treasury bills Total 2 Net Dec.31, 2012 EGP 2,379,297,994 (35,689,470) (237,929,799) 2,105,678,724 597,227,541 3.53 Dec.31, 2011 EGP 1,636,540,147 (24,548,102) (163,654,015) 1,448,338,030 597,227,541 2.43 607,261,107 3.47 605,482,218 2.39 Dec.31, 2012 EGP 1,744,700,680 3,649,273,444 5,393,974,124 5,393,974,124 Dec.31, 2012 EGP 227,153,819 7,730,556,215 7,957,710,034 3,093,850,399 500,586,325 4,363,273,310 7,957,710,034 152,732,954 7,804,977,080 7,957,710,034 7,957,710,034 7,957,710,034 Dec.31, 2012 EGP 3,142,959,400 4,022,757,000 4,458,084,085 (470,058,411) 11,153,742,074 (3,175,711,661) (3,175,711,661) 7,978,030,413 Dec.31, 2011 EGP 1,891,659,489 5,600,405,021 7,492,064,510 7,492,064,510 Dec.31, 2011 EGP 197,047,111 8,252,251,594 8,449,298,705 3,031,574,198 155,171,707 5,262,552,800 8,449,298,705 149,987,713 8,299,310,992 8,449,298,705 8,449,298,705 8,449,298,705 Dec.31, 2011 EGP 1,866,250,000 2,559,925,000 6,861,223,570 (634,008,503) 10,653,390,067 (1,440,000,000) (1,440,000,000) 9,213,390,067 120 Annual Report 2012 Annual Report 2012 121 Financial Statements: Separate 18. Trading financial assets Debt instruments » Governmental bonds Total Equity instruments » Foreign company shares » Mutual funds Total Total financial assets for trading 19. Loans and advances to banks » Time and term loans » Less:Impairment provision Total » Current balances » Non-current balances Total Analysis for impairment provision of loans and advances to banks » Bgining balance » Charge (release) during the year » Write off during the year » Exchange revaluation difference Ending balance Dec.31, 2012 EGP 37,950,503 (11,450,369) - 2,798,496 29,298,630 Dec.31, 2012 EGP Dec.31, 2011 EGP 1,138,056,688 1,138,056,688 15,877,741 318,347,334 334,225,075 1,472,281,763 Dec.31, 2012 EGP 1,208,166,369 (29,298,630) 1,178,867,739 1,172,317,036 6,550,703 1,178,867,739 353,860,497 353,860,497 18,677,035 188,546,741 207,223,776 561,084,273 Dec.31, 2011 EGP 1,433,545,112 (37,950,503) 1,395,594,609 1,304,111,350 91,483,259 1,395,594,609 Dec.31, 2011 EGP 2,694,538 34,736,518 - 519,447 37,950,503 20. Loans and advances to customers Individual » Overdraft » Credit cards » Personal loans » Mortgages » Other loans Total 1 Corporate » Overdraft » Direct loans » Syndicated loans » Other loans Total 2 Total Loans and advances to customers (1+2) Less: » Unamortized bills discount » Impairment provision » Unearned interest Net loans and advances to customers Distributed to » Current balances » Non-current balances Total Dec.31, 2012 EGP Dec.31, 2011 EGP 1,220,222,219 660,932,044 3,616,553,758 463,833,879 20,045,324 5,981,587,224 4,288,571,348 23,196,204,054 9,588,649,990 87,795,754 37,161,221,146 43,142,808,370 (22,277,973) (1,901,222,402) (520,994,222) 40,698,313,773 16,908,542,925 23,789,770,848 40,698,313,773 952,982,877 575,672,905 2,659,469,004 419,990,050 40,265,000 4,648,379,836 4,239,213,684 24,265,367,037 8,245,001,963 101,625,796 36,851,208,480 41,499,588,316 (45,231,397) (1,419,409,102) (365,161,953) 39,669,785,864 17,307,625,654 22,362,160,210 39,669,785,864 Analysis for impairment provision of loans and advances to customers Individual Dec.31, 2012 Overdraft Credit cards Personal loans 20,377,614 42,290,218 76,502,471 Real estate loans 11,876,297 Other loans Total 1,593,932 152,640,532 » Beginning balance » Charged (Released) dur- ing the year » Write off during the year » Recoveries from written off debts Ending balance (9,624,567) (8,977,018) 68,706 1,500,562 (503,001) (17,535,318) - - (29,454,339) (2,135,623) 4,469,470 - - - - - (31,589,962) 4,469,470 10,753,047 8,328,331 74,435,554 13,376,859 1,090,931 107,984,722 Dec.31, 2012 » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts » Exchange revaluation difference Ending balance Overdraft Direct loans 790,797,773 420,954,828 - 14,726,449 15,536,889 209,551,228 1,242,015,939 167,655,394 39,209,960 - - 2,685,874 Corporate Syndicated loans 306,628,666 178,455,887 (154,721,287) - 6,205,339 336,568,605 Total Other loans 1,686,738 1,266,768,571 638,956,764 336,089 (154,721,287) - 14,726,449 - 3,079,081 27,507,183 5,101,908 1,793,237,680 122 Annual Report 2012 Annual Report 2012 123 Financial Statements: Separate Individual Dec.31, 2011 Overdraft Credit cards Personal loans 6,948,242 42,119,828 71,459,209 Real estate loans 8,888,164 13,400,430 142,815,873 Other loans Total » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts Ending balance 13,429,372 5,306,910 6,589,871 2,988,133 (11,806,498) 16,507,788 - - (8,858,433) (2,273,609) 3,721,913 727,000 - - - - (11,132,042) 4,448,913 20,377,614 42,290,218 76,502,471 11,876,297 1,593,932 152,640,532 Dec.31, 2011 » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts » Exchange revaluation difference Ending balance Overdraft 149,208,018 17,175,711 - - 1,271,665 167,655,394 Direct loans 759,961,827 154,370,230 (144,805,506) 11,291,492 9,979,730 790,797,773 Corporate Syndicated loans 200,640,880 100,360,788 - - 5,626,998 306,628,666 Total Other loans 2,561,291 1,112,372,016 271,032,176 (874,553) (144,805,506) - 11,291,492 - 16,878,393 - 1,686,738 1,266,768,571 21. Derivative financial instruments 21.1. Derivatives The Bank uses the following financial derivatives for non hedging purposes. Forward contracts represents commitments of buying foreign and local currencies including unexecuted spot transac- tions. Future contracts for foreign currencies and/or interest rates represents contractual commitments to receive or pay net on the basis of changes in foreign exchange rates or interest rates, and/or buying or selling foreign currencies or finan- cial instruments in a future date with a fixed contractual price under active financial market. Credit risk is considered low, and future interest rate contracts represents future exchange rate contracts negotiated for case by case, these contracts requires financial settlements of any differences in contractual interest rates and prevailing market interest rates on future interest rates on future dates based on contractual amount (nominal value) pre agreed upon. Foreign exchange and/or interest rate swap represents commitments to exchange cash flows, resulting from these con- tracts exchange of currencies or interest (fixed rate versus variable rate for example) or both (meaning foreign exchange and interest rate contracts)/ contractual amounts are not exchanged except for some foreign exchange contracts. Credit risk is represented in the expected cost of foreign exchange contracts that takes place if other parties default to fulfill their liabilities. This risk is monitored continuously through comparisons of fair value and contractual amount, and to control the outstanding credit risk, The Bank evaluates other parties using the same methods as in borrowing activities. Options contracts in foreign currencies and/or interest rates represents contractual agreements for the buyer (issuer) to seller (holders) as a right not an obligations whether to buy (buy option) or to sell (sell option) at a certain day or within certain period for a certain amount in foreign currency or interest rate. Options contracts are either traded in the market or negotiated between The Bank and one of its clients (Off balance sheet). The Bank exposed to credit risk for purchased options contracts only and in the line of its book cost which represent its fair value. The contractual value for some derivatives options considered a base to compare the realized financial instruments on the balance sheet, but it didn’t provide indicator on the projected cash flows of the fair value for current instruments, those amounts doesn’t reflects credit risk or interest rate risk. Derivatives in The Banks benefit represent (assets) conversely it represents (liabilities) as a result of the changes in foreign exchange prices or interest rates related to these derivatives. Contractual / expected total amounts of financial derivatives can fluctuate from time to time and also the range through which the financial derivatives can be in benefit of The Bank or conversely against its benefit and the total fair value of the financial derivatives in assets and liabilities. hereunder are the fair values of the booked financial derivatives. 21.1.1. For trading derivatives Dec.31, 2012 Dec.31, 2011 Notional amount Assets Liabilities Notional amount Assets Liabilities 1,996,990,255 16,812,998 959,570 1,324,589,420 14,828,172 5,643,831 1,258,600,443 770,698,823 9,781,221 7,723,601 34,317,820 3,612,239 1,408,305,712 509,022,896 7,723,601 12,295,410 54,023,412 2,251,502 71,103,086 13,909,846 2,251,502 21,805,179 859,324,209 12,149,920 12,630,731 12,630,731 134,026 134,026 8,739,696 1,124,316,614 8,739,696 134,026 134,026 128,045,173 15,667,505 15,667,505 870,385 870,385 11,842,172 11,842,172 870,385 870,385 47,082,577 21,169,132 87,640,976 34,517,736 Foreign derivatives » Forward foreign ex- change contracts » Currency swap » Options Total 1 Interest rate deriva- tives » Interest rate swaps Total 2 » Commodity Total 3 Total assets (li- abilities) for trading derivatives (1+2+3) 21.1.2. Fair value hedge Interest rate deriva- tives » Governmental debit instruments hedging » Customers depos- its hedging Total 4 Total financial de- rivatives (1+2+3+4) 549,753,000 - 97,708,858 524,775,300 - 78,514,812 4,293,389,812 90,377,184 221,270 3,661,135,640 58,903,680 1,255,442 90,377,184 97,930,128 58,903,680 79,770,254 137,459,761 119,099,260 146,544,656 114,287,990 21.2. Hedging derivatives 21.2.1. Fair value hedge The Bank uses interest rate swap contracts to cover part of the risk of potential decrease in fair value of its fixed rate gov- ernmental debt instruments in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 97,708,858 at the end of December, 2012 against EGP 78,514,812 at the end of December, 2011, Resulting in net loss form hedging instruments at the end of December, 2012 EGP 19,194,046 against net loss EGP 78,514,812 at the end of December, 2011. Gains arises from the hedged items at the end of December, 2012 reached EGP 14,842,228 against profits arises EGP 77,848,826 at the end of December, 2011. The Bank uses interest rate swap contracts to cover part of the risk of potential decrease in fair value of its fixed rate customers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 90,155,914 at the end of December, 2012 against EGP 57,648,238 at the end of December, 2011, Resulting in net profits form hedging instruments at the end of December, 2012 EGP 32,507,675 against net profit EGP 58,450,867 at the end of December, 2011. Losses arises from the hedged items at the end of December , 2012 reached EGP 27,731,731 against losses EGP 57,855,943 at the end of December, 2011. 124 Annual Report 2012 Annual Report 2012 125 Financial Statements: Separate 22. Financial investments Available for sale » Listed debt instruments » Listed equity instruments » Unlisted instruments Total » Held to maturity » Listed debt instruments » Unlisted instruments Total Total financial investment » Actively traded instruments » Not actively traded instruments Total » Fixed interest debt instruments » Floating interest debt instruments Total » Beginning balance on Jan.01, 2011 » Addition » Deduction (selling - redemptions) » Exchange revaluation differences » Profit (losses) from fair value difference » Impairment (charges) release Ending Balance Available for sale financial investments 13,605,347,030 4,535,816,258 (2,135,258,815) 55,264,416 (647,348,588) (1,254,232) 15,412,566,069 » Beginning balance on Jan.01, 2012 » Addition » Deduction (selling - redemptions) » Exchange revaluation differences » Profit (losses) from fair value difference » Impairment (charges) release Ending Balance 15,412,566,069 10,163,193,809 (5,342,793,206) 60,242,239 895,941,363 (27,266,242) 21,161,884,032 22.1. Profit (Losses) from financial investments » Profit (Loss) from selling available for sale financial instruments » Impairment release (charges) of available for sale equity instru- ments » Impairment release (charges) of available for sale debt instru- ments » Profit (Loss)from selling investments in subsidiaries and associ- ates » (Losses) from impairment of subsidiaries and associates » Profit (Loss) from selling held to maturity debt investments Dec.31, 2012 EGP Dec.31, 2011 EGP 20,607,710,266 84,923,090 469,250,676 21,161,884,032 4,144,677,917 61,075,411 4,205,753,328 25,367,637,360 23,745,724,106 1,621,913,254 25,367,637,360 23,611,233,775 1,237,877,696 24,849,111,471 Held to maturity financial investments 289,151,745 5,000,000 (271,802,813) 5,116,368 - 1,627,620 29,092,920 29,092,920 4,176,660,408 - - - - 4,205,753,328 14,533,886,080 79,748,671 798,931,318 15,412,566,069 1,580,420 27,512,500 29,092,920 15,441,658,989 13,301,628,105 2,140,030,884 15,441,658,989 12,978,748,170 1,919,838,711 14,898,586,881 Total EGP 13,894,498,775 4,540,816,258 (2,407,061,628) 60,380,784 (647,348,588) 373,388 15,441,658,989 15,441,658,989 14,339,854,217 (5,342,793,206) 60,242,239 895,941,363 (27,266,242) 25,367,637,360 Dec.31, 2012 EGP 519,013 Dec.31, 2011 EGP 37,608,880 (27,859,838) (1,254,232) 593,597 - (89,736,000) (31,018) (116,514,246) - 1,873,813 (18,430,000) 1,034 19,799,495 23. Investments in subsidiary and associates Dec.31, 2012 Subsidiaries » CI Capital Holding Associates » Commercial International Life Insurance » Corplease » Haykala for investment » Egypt Factors » International Co. for Security and Services (Falcon) Total Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value EGP Stake % Egypt 505,372,278 160,819,277 121,452,725 1,834,684 777,920,000 99.98 Egypt 1,768,401,6911,711,942,438 253,087,786 (969,320) 49,020,250 Egypt Egypt Egypt Egypt 1,539,490,3551,361,597,602 317,924,102 270,000 18,514,114 180,722 203,984,151 151,643,286 3,875,454 9,974,915 209,835 (3,608,534) 67,527,300 600,000 36,966,150 91,085,635 79,197,211 106,514,090 1,219,081 6,000,000 4,112,209,5643,465,380,536 817,762,817 8,660,660 938,033,700 45 40 40 39 40 Dec.31, 2011 Company’s Country Company’s Assets Company’s Liabilities (without equity) Company’s Revenues Company’s Net Profit Investment book value EGP Stake % Subsidiaries » CI Capital Holding Associates » Commercial International Life Insurance » Corplease » Haykala for Investment » Egypt Factors » International Co. for Security and Services (Falcon) Total 24. Investment property * Egypt 494,679,584 152,092,327 87,475,153 (37,629,469) 867,656,000 99.98 Egypt 1,532,549,363 1,469,720,530 108,295,223 791,813 44,520,250 Egypt Egypt Egypt 1,418,875,386 1,271,498,831 162,014,580 270,000 18,440,302 307,737 165,064,735 3,595,277 179,815,258 6,762,407 103,358 (6,533,187) 60,000,000 600,000 18,819,528 Egypt 62,511,444 46,751,684 71,809,412 (2,721,265) 4,000,000 3,692,026,312 3,105,435,844 448,304,670 (39,226,343) 995,595,778 45 40 40 39 40 Dec.31, 2012 EGP Dec.31, 2011 EGP » Commercial unit number f 35 in arkadia mall (14 elbahr st. Bou- lak kornish el nile ) » Appartment no. 70 in the third floor building 300 meters elgom- horia st. Port said » 338.33 meters on a land and building the property number 16 elmakrizi st. Heliopolis » Villa number 113 royal hills 6th of october » Land area with 1468.85 meters elsaidi basin -markaz nabrouh eldakahlia » Land and a bulding in elmansoura elnahda street 766.3 meters » Agricultural area 1 feddan 14t and 17.25 shares near el azazi fakous elsharkia » Agriculutral area - markaz shebin eldakahlia Total 432,000 - 700,000 - 1,121,965 3,463,000 161,000 4,517,721 10,395,686 - 750,000 700,000 2,000,000 1,121,965 3,463,000 222,000 4,517,721 12,774,686 * Including non rigestred by EGP 6,500,686 which were acquired against settlement of the debts mentioned above. 126 Annual Report 2012 Annual Report 2012 127 Financial Statements: Separate 25. Other assets » Accrued revenues » Prepaid expenses » Advances to purchase of fixed assets » Accounts receivable and other assets » Assets acquired as settlement of debts Total 26. Property, plant and equipment Dec.31, 2012 EGP 1,637,781,937 75,319,597 96,120,400 640,826,581 8,977,329 2,459,025,844 Dec.31, 2011 EGP 898,844,761 75,649,940 103,989,488 433,844,754 6,180,933 1,518,509,876 Dec.31, 2012 Land Premises IT Vehicles Fitting -out Machines and equipment Furniture and furnishing Total EGP 60,575,261 423,794,894 741,229,919 46,898,333 267,239,246 256,827,447 106,136,591 1,902,701,691 - 1,066,148 93,576,242 4,873,978 80,196,178 27,330,516 7,935,441 214,978,503 60,575,261 424,861,042 834,806,161 51,772,311 347,435,424 284,157,963 114,072,032 2,117,680,194 - - - 161,870,230 576,418,710 25,815,491 240,994,064 188,525,308 72,302,594 1,265,926,397 19,129,849 68,318,634 5,688,921 35,822,477 28,319,117 9,946,903 167,225,901 181,000,079 644,737,344 31,504,412 276,816,541 216,844,425 82,249,497 1,433,152,298 60,575,261 243,860,963 190,068,817 20,267,899 70,618,883 67,313,538 31,822,535 684,527,896 60,575,261 261,924,664 164,811,209 21,082,842 26,245,182 68,302,139 33,833,997 636,775,294 %5 %20 %20 %33.3 %33.3 %20 » Beginning gross assets (1) » Additions (deduc- tions) during the year Ending gross assets (2) » Accu.depreciation at beginning of the year (3) » Current period depreciation Accu.depreciation at end of the year (4) Ending net assets (2-4) Beginning net as- sets (1-3) Depreciation rates Net fixed assets value on the balance sheet date includes EGP 21,769,393 non registered assets while their registrations proce- dures are in process. 27. Due to banks » Current accounts » Deposits Total » Central banks » Local banks » Foreign banks Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances » Non-current balances Total 128 Annual Report 2012 Dec.31, 2012 EGP 369,862,716 1,345,000,000 1,714,862,716 7,546,231 1,362,363,985 344,952,500 1,714,862,716 354,394,897 1,360,467,819 1,714,862,716 369,862,716 1,345,000,000 1,714,862,716 Dec.31, 2011 EGP 493,794,517 2,847,000,000 3,340,794,517 46,941,713 2,905,759,685 388,093,119 3,340,794,517 398,317,328 2,942,477,189 3,340,794,517 493,794,517 2,847,000,000 3,340,794,517 28. Due to customers » Demand deposits » Time deposits » Certificates of deposit » Saving deposits » Other deposits Total » Corporate deposits » Individual deposits Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances » Non-current balances Total 29. Long term loans » Financial Investment & Sector Cooperation (FISC) » Support to Private Sector Indus- try Environmental Protection II (KFW) » Agricultural Research and Devel- opment Fund (ARDF) » Social Fund for Development (SFD) » Spanish Cooperation Microfi- nance Fund (SCMF) Total 30. Other liabilities » Accrued interest payable » Accrued expenses » Accounts payable » Income tax » Other credit balances Total Dec.31, 2012 EGP 17,034,550,714 24,133,038,485 24,299,048,221 12,106,727,204 1,261,362,266 78,834,726,890 36,764,106,988 42,070,619,902 78,834,726,890 12,157,860,312 66,676,866,578 78,834,726,890 51,976,518,051 26,858,208,839 78,834,726,890 Dec.31, 2011 EGP 17,048,122,359 24,532,817,359 18,819,931,329 9,484,866,150 1,688,310,333 71,574,047,530 37,227,665,007 34,346,382,523 71,574,047,530 10,855,512,526 60,718,535,004 71,574,047,530 50,607,367,855 20,966,679,675 71,574,047,530 Interest rate % Maturity date Maturing through next year EGP Balance on Dec.31, 2012 EGP Balance on Dec.31, 2011 EGP 3.5 - 5.5 depends on maturity date 3-5 years 17,428,571 19,095,238 13,697,721 9 - 10.5 2012 - - 3,285,048 3-5 years 42,080,000 61,400,000 78,570,000 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which more 0.5 2012 - - - - 167,326 3,613,282 59,508,571 80,495,238 99,333,376 Dec.31, 2012 EGP 436,723,614 242,231,936 467,830,762 819,361,660 68,203,599 2,034,351,571 Dec.31, 2011 EGP 263,654,637 162,930,130 345,917,454 446,414,136 94,869,079 1,313,785,436 Annual Report 2012 129 Financial Statements: Separate 31. Other provisions Dec.31, 2012 » Provision for income tax claims » Provision for legal claims » Provision for contin- gent » * Provision for other claim Total Dec.31, 2011 » Provision for income tax claims » Provision for legal claims » Provision for contin- gent » Provision for other claim Total Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 6,909,685 - - - - 6,909,685 35,171,959 4,668,841 11,983 (10,958,065) (531,054) 28,363,664 210,103,042 40,594,505 7,202,883 - 12,441,223 6,353,586 16,075 (1,336,550) - - 257,900,430 17,474,334 264,625,909 51,616,932 7,230,941 (12,294,615) (531,054) 310,648,113 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 6,909,685 - 33,150,547 2,021,413 - - - - - - Ending balance EGP 6,909,685 35,171,959 256,708,900 - 2,321,223 (178,971) (48,748,110) 210,103,042 13,469,799 2,196,294 8,397 (3,233,267) - 12,441,223 310,238,930 4,217,707 2,329,620 (3,412,238) (48,748,110) 264,625,909 * Provision for other claim formed on December 31, 2012 amounted to 6,353,586 EGP to face the potential risk of banking operations against amount 2,196,294 EGP on December 31, 2011 . 32. Equity 32.1. Capital The authorized capital reached EGP 20 billion according to the extraordinary general assembly decision on March 17, 2010. Issued and Paid in Capital reached EGP 5,972,275,410 to be divided on 597,227,541 shares with EGP 10 par value for each share based on: • Increase issued and Paid up Capital by amount EGP 25,721,800 on April 21, 2010 in according to Board of Directors deci- sion on November 11,2009 by issuance of first trench for E.S.O.P program. • Increase issued and Paid up Capital by amount EGP 2,950,721,800 on July 15, 2010 according to Board of Directors deci- sion on May 12 ,2010 by distribution of one share for every outstanding share by capitalizing on the General Reserve and part of the Legal Reserve. • Increase issued and Paid up Capital by amount EGP 33,119,390 on July 31, 2011 in according to Board of Directors decision on November 10,2010 by issuance of second trench for E.S.O.P program. • Increase issued and Paid up Capital by amount EGP 37,712,420 on April 9, 2012 in according to Board of Directors deci- sion on December 22,2011 by issuance of third trench for E.S.O.P program. The Extraordinary General Assembly approved in the meeting of June 26, 2006 to activate a motivating and rewarding program for the Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a maxi- mum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2006 and delegated the Board of Direc- tors to establish the rewarding terms and conditions and increase the paid in capital according to the program. The Extraordinary General Assembly approved in the meeting of April 13,2011 continue to activate a motivating and re- warding program for The Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a maximum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2011 and delegated the Board of Directors to establish the rewarding terms and conditions and increase the paid in capital according to the program. Dividend deducted from shareholders’ equity in the Year that the General Assembly approves the dispersment the share- holders of this dividend, which includes staff profit share and remuneration of the Board of Directors stated in the law. 32.2. Reserves According to The Bank status 5% of net profit is to increase legal reserve until it reaches 50% of The Bank’s issued and paid in capital. Central Bank of Egypt concurrence for usage of special reserve is required. 33. Deferred tax Deferred tax assets and liabilities are attributable to the following: » Fixed assets (depreciation) » Other provisions (excluded loan loss, contingent liabilities and income tax provisions) » Other investments impairment » Reserve for employee stock ownership plan (ESOP) Total Dec.31, 2012 Assets (Liabilities) EGP Dec.31, 2011 Assets (Liabilities) EGP (18,477,693) (12,780,032) 10,998,616 98,979,194 37,633,092 129,133,209 9,522,636 69,148,702 29,250,420 95,141,726 34. Share-based payments According to the extraordinary general assembly meeting on June 26, 2006, The Bank launched new Employees Share Own- ership Plan (ESOP) scheme and issued equity-settled share-based payments. Eligible employees should complete a term of 3 years of service in The Bank to have the right in ordinary shares at face value (right to share) that will be issued on the vest- ing date, otherwise such grants will be forfeited. Equity-settled share-based payments are measured at fair value at the grant date, and expensed on a straight-line basis over the vesting period (3 years) with corresponding increase in equity based on estimated number of shares that will eventually vest(True up model). The fair value for such equity instruments is measured using of Black-Scholes pricing model. Details of the rights to share outstanding during the period are as follows: » Outstanding at the beginning of the period » Granted during the period » Forfeited during the period » Exercised during the period Outstanding at the end of the period Details of the outstanding tranches are as follows: Maturity date » 2013 » 2014 » 2015 Total Dec.31, 2012 No. of shares 12,676,036 7,208,355 (673,567) (3,771,242) 15,439,582 EGP Exercise price 10 10 10 EGP Fair value 21.70 21.25 9.98 Dec.31, 2011 No. of shares 10,550,825 5,844,356 (407,206) (3,311,939) 12,676,036 No. of shares 2,934,838 5,487,194 7,017,550 15,439,582 130 Annual Report 2012 Annual Report 2012 131 Financial Statements: Separate The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 36. Cash and cash equivalent » Exercise price » Current share price » Expected life (years) » Risk free rate % » Dividend yield% » Volatility% 6th tranche 5th tranche 10 18.7 3 16.15% 5.35% 38% 10 31.15 3 11.60% 3.21% 34% Volatility is calculated based on the daily standard deviation of returns for the last three years. 35. Reserves and retained earnings » Legal reserve » General reserve » Retained earnings (losses) » Special reserve » Reserve for A.F.S investments revaluation difference » Banking risks reserve Total 35.1. Banking risks reserve » Beginning balance » Transferred from profits Ending balance 35.2. Legal reserve » Beginning balance » Transfer from special reserve » Transferred from previous year profits Ending balance 35.3. Reserve for A.F.S investments revaluation difference » Beginning balance » Unrealized gains (losses) from A.F.S investment revaluation Ending balance 35.4. Retained earnings (losses) » Beginning balance » Dividend previous year » Transferred from special reserve » The effect of changing accounting policies Ending balance Dec.31, 2012 EGP 380,348,755 2,037,107,372 1,001,979 117,805,566 153,506,781 103,716,932 2,793,487,384 Dec.31, 2012 EGP 281,689,619 (177,972,687) 103,716,932 Dec.31, 2012 EGP 231,344,896 61,697,292 87,306,567 380,348,755 Dec.31, 2012 EGP (723,070,818) 876,577,599 153,506,781 Dec.31, 2012 EGP 15,105,920 (15,105,920) 1,001,979 - 1,001,979 Dec.31, 2011 EGP 231,344,896 1,234,274,960 15,105,920 185,931,315 (723,070,818) 281,689,619 1,225,275,891 Dec.31, 2011 EGP 156,992,515 124,697,104 281,689,619 Dec.31, 2011 EGP 125,128,337 - 106,216,559 231,344,896 Dec.31, 2011 EGP (18,014,631) (705,056,187) (723,070,818) Dec.31, 2011 EGP 20,231,298 (20,231,298) - 15,105,920 15,105,920 » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Obligatory reserve balance with CBE » Due from banks (time deposits) more than three months » Treasury bills with maturity more than three months Total Dec.31, 2012 EGP 5,393,974,124 7,957,710,034 7,978,030,413 (3,093,283,199) (4,637,273,017) (8,063,078,261) 5,536,080,095 Dec.31, 2011 EGP 7,492,064,510 8,449,298,705 9,213,390,067 (3,014,779,811) (5,237,471,784) (8,821,367,485) 8,081,134,202 37. Contingent liabilities and commitments 37.1. Legal claims There are a number of existing cases filed against the bank on December.31, 2012 without provision as it’s not expected to make any losses from it. 37.2. Capital commitments 37.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 199,123,121 as fol- lows: » Available for sale financial investments Investments value EGP 322,671,851 Paid EGP 123,548,730 Remaining EGP 199,123,121 37.2.2. Fixed assets and branches constructions The value of commitments for the purchase of fixed assets contracts and branches constructions that have not been imple- mented till the date of financial statement amounted to EGP 14,922,669. 37.3. Letters of credit, guarantees and other commitments » Letters of guarantee » Letters of credit (import and export) » Customers acceptances Total 38. Mutual funds Osoul fund Dec.31, 2012 EGP 12,787,562,199 933,297,936 1,176,928,870 14,897,789,005 Dec.31, 2011 EGP 11,263,615,016 753,154,858 542,833,642 12,559,603,516 • The Bank established an accumulated return mutual fund under license no.331 issued from capital market authority on February 22, 2005 CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 32,294,160 with redeemed value EGP 6,272,494,697. • The market value per certificate reached EGP 194.23 on December 31, 2012. • The Bank portion got 1,612,914 certificates with redeemed value EGP 313,276,286. Istethmar fund • CIB bank established the second accumulated return mutual fund under license no.344 issued from capital market au- thority on February 26, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 2,332,745 with redeemed value EGP 141,644,276. • The market value per certificate reached EGP 60.72 on December 31, 2012. • The Bank portion got 194,744 certificates with redeemed value EGP 11,824,856. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • The Bank and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capi- tal market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. 132 Annual Report 2012 Annual Report 2012 133 Financial Statements: Separate • The number of certificates issued reached 884,496 with redeemed value EGP 37,290,351 . • The market value per certificate reached EGP 42.16 on December 31, 2012. • The Bank portion got 71,943 certificates with redeemed value EGP 3,033,117. Hemaya fund • CIB bank established an accumulated return mutual fund under license no.585 issued from financial supervisory Author- ity on June 23, 2010. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 344,619 with redeemed value EGP 40,737,412. • The market value per certificate reached EGP 118.21 on December 31, 2012. • The Bank portion got 50,000 certificates with redeemed value EGP 5,910,500. • Several resolutions were issued to amend some income tax laws and were published in the official newspaper on December 6, 2012. which will take effect as of the next day of publication and these amendments are as follows: • Amend certain regulations of the Income Tax Law issued by Act No. 91 of 2005 • Amend certain regulations of the Sales Tax Law issued by Act No. 11 of 1991 • Amend certain regulations of the tax law on property built issued by Act No. 196 of 2008 • Amend certain regulations of the Stamp Tax Law issued by Act No. 111 of 1980 • Presidential instructions were issued to freeze those laws and so, the financial statements hadn’t been affected by those amendments. • The impact of those laws on the bank if applied has been calculated from the date of their publication in the official news- paper. • This had resulted in a total liability within the limit of L.E 3.1 million. • The bank’s external auditors had verified the calculation of this commitment. Thabat fund • CIB bank established an accumulated return mutual fund under license no.613 issued from financial supervisory author- 41. Main currencies positions ity on September 13, 2011. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 1,479,698 with redeemed value EGP 173,006,290. • The market value per certificate reached EGP 116.92 on December 31, 2012. • The Bank portion got 52,404 certificates with redeemed value EGP 6,127,076. 39. Transactions with related parties All banking transactions with related parties are conducted in accordance with the normal banking practices and regulations applied to all other customers without any discrimination. » Egyptian pound » US dollar » Sterling pound » Japanese yen » Swiss franc » Euro Dec.31, 2012 In thousand EGP Dec.31, 2011 In thousand EGP 12,800 (10,376) 1,670 (67) 179 8,598 8,068 24,134 408 (53) 118 7,481 39.1. Loans, advances, deposits and contingent liabilities » Loans and advances » Deposits » Contingent liabilities EGP 660,440,043 243,759,055 114,859,635 39.2. Other transactions with related parties » International Co. for Security & Services » Corplease Co. » Commercial International Life Insurance Co. » Commercial International Brokerage Co. » Dynamics Company » Egypt Factors » CI Assets Management » Commercial International Capital Holding Co. » Haykala for Investment » CI Capital Researches 40. Tax status Income EGP 1,328,326 66,903,581 3,469,611 11,403,131 1,148,345 10,436,589 119,733 1,144,024 14,985 8,346 Expenses EGP 65,837,521 52,183,938 2,448,968 5,892,856 679,078 8,126,601 35,370 114,132 1,372 881 • The Bank’s corporate income tax position has been examined and settled with the tax authority from the start up of opera- tions up to the end of year 1984. • Corporate income tax for the years from 1985 up to 2000 were paid according to the tax appeal committee decision and the disputes are under discussion in the court of law. • The Bank’s corporate income tax position has been examined and settled with the tax authority from Year 2001 up to Year 2004. • Corporate income tax for the years 2005-2006 has been examined from the tax authority and paid. • The Bank pays salary tax according to concerning domestic regulations and laws, and the disputes are under discussion in the court of low The Bank pay stamp duty tax according to concerning domestic regulations and laws, and the disputes are under discussion in the court of law . 134 Annual Report 2012 Annual Report 2012 135 Financial Statements: Consolidated Financial Statements: Consolidated 138 Annual Report 2012 Annual Report 2012 139 Financial Statements: Consolidated Commercial International Bank (Egypt) S.A.E Consolidated balance sheet on December 31, 2012 Commercial International Bank (Egypt) S.A.E Consolidated income statement for the year ended on December 31, 2012 Assets » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Loans and advances to banks » Loans and advances to customers » Derivative financial instruments Financial investments » Available for sale » Held to maturity » Investments in associates » Brokers - debit balances » Reconciliation accounts- debit balances » Investment property » Other assets » Goodwill » Intangible Assets » Deferred tax » Property, plant and equipment Total assets Liabilities and equity Liabilities » Due to banks » Due to customers » Brokers- credit balances » Reconciliation accounts - credit balances » Derivative financial instruments » Other liabilities » Long term loans » Other provisions Total liabilities Equity » Issued and paid in capital » Reserves » Reserve for employee stock ownership plan (ESOP) » Retained earnings Total equity » Net profit of the period / year after tax Total equity and net profit for period / year » Minority interest Total minority interest and equity and net profit for period / year Total liabilities , equity and minority interest Contingent liabilities and commitments » Letters of credit, guarantees and other commitments Notes Dec. 31, 2012 EGP Dec. 31, 2011 EGP 15 16 17 18 19 20 21 22 22 23 24 25 40 40 33 26 27 28 21 30 29 31 32 32 5,393,974,124 8,047,820,388 8,017,754,432 1,515,325,502 1,178,867,739 40,698,313,773 137,459,761 21,177,427,597 4,215,787,960 165,198,634 134,944,510 - 10,395,686 2,474,945,065 - 33,422,415 129,356,874 683,455,846 94,014,450,306 1,714,862,716 78,729,121,488 124,759,011 1,664,718 119,099,260 2,059,005,013 80,495,238 315,488,382 83,144,495,826 5,972,275,410 2,970,163,921 164,761,121 (510,946,406) 8,596,254,046 2,226,180,503 10,822,434,549 47,519,931 7,492,064,510 8,528,229,519 9,260,842,183 675,325,450 1,395,594,609 39,669,785,864 146,544,656 15,421,546,277 39,159,520 106,676,167 24,185,525 42,507,905 12,774,686 1,534,819,491 120,280,337 309,353,104 96,018,092 630,508,089 85,506,215,984 3,340,794,517 71,467,935,259 111,851,855 - 114,287,990 1,342,736,040 99,333,376 270,801,909 76,747,740,946 5,934,562,990 1,387,842,060 137,354,418 (362,379,298) 7,097,380,170 1,614,738,322 8,712,118,492 46,356,546 10,869,954,480 8,758,475,038 94,014,450,306 85,506,215,984 37 14,897,739,005 12,559,553,516 The accompanying notes are an integral part of these financial statements. Hisham Ezz El-Arab Chairman and Managing Director » Interest and similar income » Interest and similar expense Net interest income » Fee and commission income » Fee and commission expense Net income from fee and commission » Dividend income » Net trading income » Profit (Losses) from financial investments » Goodwill Amortization » Administrative expenses » Other operating (expenses) income » Impairment (charge) release for credit losses » Intangible Assets Amortization » Bank’s share in the profits of associates Net profit before tax » Income tax expense » Deferred tax Net profit of the year » Minority interest Bank shareholders Earning per share » Basic » Diluted Notes 6 7 8 9 22 10 11 12 Last 9 Months Dec. 31, 2012 EGP 7,859,311,839 (3,945,685,636) 3,913,626,203 1,033,628,014 (107,365,742) 926,262,272 33,110,823 574,575,176 (26,909,306) (10,426,511) (1,559,401,781) (103,307,092) (609,971,077) (82,990,084) 26,348,545 3,080,917,168 Last 9 Months Dec. 31, 2011 EGP 5,470,990,831 (2,781,039,268) 2,689,951,563 930,569,533 (87,622,734) 842,946,799 61,506,980 381,692,480 38,669,156 (40,093,445) (1,449,718,695) (72,539,394) (320,648,863) (67,467,240) (7,859,808) 2,056,439,533 13 33 & 13 (887,265,476) 33,338,781 2,226,990,473 (448,586,285) 6,374,868 1,614,228,116 809,970 2,226,180,503 (510,206) 1,614,738,322 14 3.53 3.47 2.43 2.39 Hisham Ezz El-Arab Chairman and Managing Director 140 Annual Report 2012 Annual Report 2012 141 Financial Statements: Consolidated Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2012 Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2012 Cash flow from financing activities » Increase (decrease) in long term loans » Dividend paid » Capital increase Net cash generated from (used in) financing activities Dec. 31, 2012 EGP Dec. 31, 2011 EGP (18,838,138) (806,206,518) 37,712,420 (787,332,236) (29,944,868) (844,414,580) 33,119,390 (841,240,058) » Net increase (decrease) in cash and cash equivalent » Beginning balance of cash and cash equivalent Cash and cash equivalent at the end of the period (2,541,602,667) 8,207,517,133 5,665,914,465 149,390,638 8,058,126,497 8,207,517,135 Cash and cash equivalent comprise: » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Obligatory reserve balance with CBE » Due from banks (time deposits) more than three months » Treasury bills with maturity more than three months Total cash and cash equivalent 5,393,974,124 8,047,820,388 8,017,754,432 (3,093,283,199) (4,637,273,016) (8,063,078,264) 5,665,914,465 7,492,064,510 8,528,229,519 9,260,842,183 (3,014,779,811) (5,237,471,783) (8,821,367,483) 8,207,517,135 Cash flow from operating activities » Net profit before tax Adjustments to reconcile net profit to net cash provided by operating activities » Depreciation » Impairment charge for credit losses » Other provisions charges » Trading financial investments revaluation differences » Intangible assets amortization » Goodwill amortization » Available for sale and held to maturity investments exchange revaluation differences » Financial investments impairment charge (release) » Utilization of other provisions » Other provisions no longer used » Exchange differences of other provisions » Profits from selling property, plant and equipment » Profits from selling financial investments » Profits from selling associates » Exchange differences of long term loans » Shares based payments » Investments in associates revaluation » Real estate investments impairment charges Operating profits before changes in operating assets and liabilities Net decrease (increase) in assets and liabilities » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Derivative financial instruments » Loans and advances to banks and customers » Other assets » Due to banks » Due to customers » Other liabilities Net cash provided from operating activities Cash flow from investing activities » Purchase of subsidiary and associates » Proceeds from selling subsidiary and associates » Purchases of property, plant and equipment » Redemption of held to maturity financial investments » Purchases of held to maturity financial investments » Purchases of available for sale financial investments » Proceeds from selling available for sale financial investments » Proceeds from selling real estate investments Net cash generated from (used in) investing activities Dec. 31, 2012 EGP Dec. 31, 2011 EGP 3,080,917,168 2,056,439,533 168,382,905 609,971,077 51,872,777 (86,525,026) 82,990,084 10,426,511 188,125,507 322,276,483 4,217,707 49,692,862 67,467,240 40,093,445 (60,242,239) (60,380,784) 8,033,536 (13,886,192) (531,054) 7,230,941 (2,387,583) (519,013) - - 79,068,829 - (371,000) (373,389) (4,068,833) (50,567,704) 2,329,620 (2,716,747) (100,273,310) (1,873,813) 164,819 77,459,887 7,151,567 400,000 3,934,431,721 2,595,564,090 521,695,379 758,289,224 (753,475,026) 13,896,165 (1,421,772,116) (1,015,446,313) (1,625,931,801) 7,261,186,229 (156,424,620) 7,516,448,842 (58,522,467) - (211,873,420) - (4,176,628,441) (10,169,757,165) 5,343,312,219 2,750,000 (9,270,719,274) (1,851,562,990) (1,729,254,403) 860,729,523 (6,543,758) (6,213,116,023) 21,744,773 2,018,514,608 8,103,757,981 (560,452,284) 3,239,381,517 (18,000,000) 1,000,000 (157,632,289) 270,207,161 (5,000,000) (4,536,303,691) 2,181,457,020 15,520,978 (2,248,750,821) 142 Annual Report 2012 Annual Report 2012 143 Financial Statements: Consolidated l a t o T P G E y t i r o n M i t s e r e t n I - e r a h S l a t o T s r e d o h l y t i u q E e v r e s e R - m e r o f e e y o p l k c o t s i p h s r e n w o n a p l f o t fi o r p t e N r a e y e h t i g n k n a B s k s i r e v r e s e r e v r e s e R . S F A . r o F n o i t a u a v e r l . f f i d - t s e v n i s t n e m l i a c e p S e v r e s e r i l e b g n a t n I i d e n a t e R i s g n n r a e ) s e s s o l ( s t e s s a r o f e u a v l e r a h s k n a b e r o f e b n o i t i s u q c a i l a r e n e G e v r e s e r l a g e L e v r e s e r l a t i p a C 1 1 0 2 , 1 3 . c e D 4 5 7 , 2 0 9 , 3 1 6 , 8 9 3 6 , 5 6 9 , 6 4 5 1 1 , 7 3 9 , 6 6 5 , 8 8 5 8 , 0 2 5 , 9 4 1 0 0 7 , 1 1 3 , 0 9 8 , 1 , 5 1 5 2 9 9 , 6 5 1 ) 6 3 7 , 8 1 4 , 8 1 ( 9 6 5 , 6 5 3 , 4 8 1 ) 0 1 6 , 4 0 6 , 3 0 2 ( 1 2 4 , 4 9 7 , 2 0 3 2 6 4 , 2 1 4 , 8 7 7 3 3 , 8 2 1 , 5 2 1 0 0 6 , 3 4 4 , 1 0 9 , 5 l e c n a a b g n n n g e B i i 1 1 0 2 , 1 3 r e b m e c e D n o d e d n e r a e y e h t r o f y t i u q e ’ s r e d l o h e r a h s n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C . E A S . ) t p y g E ( k n a B l a n o i t a n r e t n I l i a c r e m m o C 0 9 3 , 9 1 1 , 3 3 - - - - 0 9 3 , 9 1 1 , 3 3 e s a e r c n i l a t i p a C - - 0 9 3 , 9 1 1 , 3 3 - - - ) 0 8 5 , 4 1 4 , 4 4 8 ( - ) 0 8 5 , 4 1 4 , 4 4 8 ( 6 1 1 , 8 2 2 , 4 1 6 , 1 ) 2 0 4 , 5 9 8 , 0 3 ( ) 6 0 2 , 0 1 5 ( ) 7 8 8 , 8 9 ( 2 2 3 , 8 3 7 , 4 1 6 , 1 ) 5 1 5 , 6 9 7 , 0 3 ( ) 7 2 1 , 5 2 9 , 4 0 7 ( - ) 7 2 1 , 5 2 9 , 4 0 7 ( - - - - - - - - - ) 7 2 3 , 6 2 6 , 9 8 ( 5 9 7 , 2 5 8 , 2 2 1 ) 3 9 2 , 5 7 8 , 3 7 1 , 1 ( ) 2 8 2 , 3 8 1 , 4 2 8 ( - - 2 2 3 , 8 3 7 , 4 1 6 , 1 ) 4 0 1 , 7 9 6 , 4 2 1 ( - - 7 8 8 , 9 5 4 , 7 7 - - - 7 8 8 , 9 5 4 , 7 7 7 8 8 , 9 5 4 , 7 7 - - - ) 0 2 9 , 5 0 1 , 5 1 ( - - - - - - - - - - - - - ) , 7 2 1 5 2 9 4 0 7 , ( - - 4 0 1 , 7 9 6 4 2 1 , - - - - , 6 4 7 4 7 5 1 , - - - - - - - - - - ) , 5 9 7 2 5 8 2 2 1 , ( ) , 8 9 2 1 3 2 0 2 , ( - ) , 5 1 5 6 9 7 0 3 , ( - - - , 0 2 9 5 0 1 5 1 , - - - - - - - - - - - - - - - - - - - - - - - - - - , , 4 1 3 0 1 7 5 5 1 , 1 9 5 5 , 6 1 2 , 6 0 1 - - - - - - - - - i s g n n r a e d e n a t e r i o t d e r r e f s n a r T » ) s e s s o l ( e h t f o t fi o r p t e N r a e y i d a p d n e d v D i i » » e h t g n i r u d e g n a h C » d o i r e p n o i t i d d A » e v r e s e r k s i r k n a b o t d e r r e f s n a r T » k c o t s s e e y o p m e l r o f e v r e s e R » t n e m t s e v n i n o i t a u a v e r l l i a c n a n fi m o r f i l n a p p h s r e n w o i g n g n a h c f o g n i t n u o c c a t c e f f e e h T » s e c i i l o p ) P O S E ( o t d e r r e f s n a r T s e v r e s e r » » 8 3 0 , 5 7 4 , 8 5 7 , 8 6 4 5 , 6 5 3 , 6 4 2 9 4 , 8 1 1 , 2 1 7 , 8 8 1 4 , 4 5 3 , 7 3 1 9 1 2 , 1 4 0 , 0 9 4 , 1 9 1 6 , 9 8 6 , 1 8 2 ) 3 6 8 , 3 4 3 , 3 2 7 ( 5 1 3 , 1 3 9 , 5 8 1 ) 8 9 2 , 9 7 3 , 2 6 3 ( 1 2 4 , 4 9 7 , 2 0 3 6 7 7 , 2 2 1 , 4 3 2 , 1 6 9 8 , 4 4 3 , 1 3 2 0 9 9 , 2 6 5 , 4 3 9 , 5 d n e e h t t a e c n a a B l r a e y e h t f o l a t o T P G E y t i r o n M i t s e r e t n I l - d o h e r a h S k c o t s y t i u q E s r e i p h s r e n w o l a t o T r o f e v r e s e R e e y o p m e l n a p l f o t fi o r p t e N r a e y e h t i g n k n a B s k s i r e v r e s e r e v r e s e R S F. A . r o F - t s e v n i s t n e m n o i t a u a v e r l . f f i d l i e b g n a t n I l i a c e p S e v r e s e r i d e n a t e R i s g n n r a e ) s e s s o l ( s t e s s a r o f e u a v l e r a h s k n a b e r o f e b n o i t i s u q c a i l a r e n e G e v r e s e r l a g e L e v r e s e r l a t i p a C 2 1 0 2 , 1 3 . c e D 2 1 0 2 , 1 3 r e b m e c e D n o d e d n e r a e y e h t r o f y t i u q e ’ s r e d l o h e r a h s n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C . E A S . ) t p y g E ( k n a B l a n o i t a n r e t n I l i a c r e m m o C 8 3 0 , 5 7 4 , 8 5 7 , 8 6 4 5 , 6 5 3 , 6 4 2 9 4 , 8 1 1 , 2 1 7 , 8 8 1 4 , 4 5 3 , 7 3 1 9 1 2 , 1 4 0 , 0 9 4 , 1 9 1 6 , 9 8 6 , 1 8 2 ) 3 6 8 , 3 4 3 , 3 2 7 ( 5 1 3 , 1 3 9 , 5 8 1 ) 8 9 2 , 9 7 3 , 2 6 3 ( 1 2 4 , 4 9 7 , 2 0 3 6 7 7 , 2 2 1 , 4 3 2 1 , , 6 9 8 4 4 3 1 3 2 , , 0 9 9 2 6 5 4 3 9 5 , , - - 0 2 4 , 2 1 7 , 7 3 - - - - - ) 8 1 5 , 6 0 2 , 6 0 8 ( - ) 8 1 5 , 6 0 2 , 6 0 8 ( 4 7 4 , 0 9 9 , 6 2 2 , 2 1 7 9 , 9 0 8 3 0 5 , 0 8 1 , 6 2 2 , 2 - - - - 4 1 4 , 3 5 3 ) 4 1 4 , 3 5 3 ( - 7 5 6 , 8 0 7 , 6 7 8 - - - - - - - ) 7 2 1 , 2 6 6 , 1 5 ( ) 4 7 3 , 0 5 0 , 3 3 8 ( 3 5 7 , 9 0 1 , 4 3 1 ) 8 9 5 , 0 0 1 , 1 9 7 ( 3 0 5 , 0 8 1 , 6 2 2 , 2 - - - 7 8 6 , 2 7 9 , 7 7 1 - - - - - - - - ) 7 8 6 , 2 7 9 , 7 7 1 ( 0 2 4 , 2 1 7 , 7 3 - - - 7 5 6 , 8 0 7 , 6 7 8 9 2 8 , 8 6 0 , 9 7 ) 1 2 4 , 4 9 7 , 2 0 3 ( - - - - ) 1 2 4 , 4 9 7 , 2 0 3 ( - 9 2 8 , 8 6 0 , 9 7 9 2 8 , 8 6 0 , 9 7 - - - - - - - - - - - - - - 7 5 6 , 8 0 7 , 6 7 8 - 7 4 7 , 6 1 7 , 2 - - - - - ) 6 9 4 , 2 4 8 , 0 7 ( - - - - - ) 3 5 7 , 9 0 1 , 4 3 1 ( - 9 7 9 , 1 0 0 , 1 ) 0 2 9 , 5 0 1 , 5 1 ( ) 4 1 4 , 3 5 3 ( - - - - - - - - - - - - - - ) 1 2 4 , 4 9 7 , 2 0 3 ( 7 8 1 , 9 8 6 , 4 9 7 - - - 5 2 2 , 3 4 1 , 8 - - - - - - - - , 7 6 5 6 0 3 7 8 , , 2 9 2 7 9 6 1 6 , - - - - - - - - - - - - - - - - - , 0 2 4 2 1 7 7 3 , , , , 0 8 4 4 5 9 9 6 8 0 1 1 3 9 , 9 1 5 , 7 4 9 4 5 , 4 3 4 , 2 2 8 , 0 1 1 2 1 , 1 6 7 , 4 6 1 9 8 1 , 3 5 1 , 4 0 4 , 2 2 3 9 , 6 1 7 , 3 0 1 4 9 7 , 4 6 3 , 3 5 1 6 6 5 , 5 0 8 , 7 1 1 ) 6 0 4 , 6 4 9 , 0 1 5 ( - 8 8 1 , 5 5 9 , 6 3 0 2 , , 5 5 7 8 4 3 0 8 3 , , 0 1 4 5 7 2 2 7 9 5 , , l e c n a a b g n n n g e B i i e s a e r c n i l a t i p a C o t d e r r e f s n a r T » » o t d e r r e f s n a r T » s e v r e s e r i s g n n r a e d e n a t e r i ) s e s s o l ( e h t f o t fi o r p t e N r a e y i d a p d n e d v D i i » » m o r f r e f s n a r T » e v r e s e r l i a c e p s g n i r u d e g n a h C » d o i r e p e h t m o r f n o i t i d d A » - t s e v n i l i a c n a n fi n o i t a u a v e r l t n e m e v r e s e r k s i r k n a b o t d e r r e f s n a r T » k c o t s s e e y o p m e l r o f e v r e s e R » l i n a p p h s r e n w o ) P O S E ( s t e s s a e b g n a t n l i I f o t n e m e l t t e s » k n a b r o f e u a v l e r o f e b e r a h s n o i t i s u q c a i e h t t a e c n a a B l r a e y e h t f o d n e 144 Annual Report 2012 Annual Report 2012 145 Financial Statements: Consolidated Notes to the consolidated financial statements for the year ended on December 31, 2012 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 112 branches, and 44 units employing 4867 employees at the balance sheet date. Commercial international Bank (Egypt) S.A.E. was formed as a commercial bank under the investment law no. 43 of 1974. The address of its registered head office is as follows: Nile tower, 21/23 Charles de Gaulle Street-Giza. The Bank is listed in the Egyptian stock exchange. CI Capital Holding Co S.A.E it was established as a joint stock company on April 9th, 2005 under the capital market law no. 95 of 1992 and its executive regulations. Financial register no. 166798 on April 10th, 2005 and the company have been licensed by the Capital Market Authority to carry out its activities under license no. 353 on May 24th, 2006. As of December 31, 2012 the Bank directly owns 54,988,500 shares representing 99.98% of CI Capital Holding Company’s capital and on December 31, 2012 CI Capital Holding Co. Directly owns the following shares in its subsidiaries: Company name · CIBC Co. · CI Assets Management · CI Investment Banking Co. · CI for Research Co. · Dynamic Brokerage Co. No. of shares 579,570 478,577 481,578 448,500 3,393,500 Ownership% 96.60 95.72 96.30 96.32 99.97 Indirect Share% 96.58 95.70 96.28 96.30 99.95 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation The consolidated financial statements have been prepared in accordance with Egyptian financial reporting standards is- sued in 2006 and its amendments and in accordance with the instructions of the Central Bank of Egypt approved by the Board of Directors on December 16, 2008 consistent with the principles referred to. voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank has the ability to control the entity or not. 2.2.2. Associates Associates are all entities over which the Bank has significant influence but do not reach to the extent of control, generally accompanying a shareholding between 20% and 50% of the voting rights. The acquisition method of accounting is used to account for the purchase of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed, plus any costs directly related to the acquisition. The excess of the cost of an acquisition over the Bank share of the fair value of the iden- tifiable net assets acquired is recorded as goodwill. A gain on acquisition is recognized in profit or loss if there is an excess of the Bank’s share of the fair value of the identifiable net assets acquired over the cost of the acquisition. The cost method is applied to account for investments in subsidiaries and associates, whereby, investments are re- corded based on the acquisition cost including any goodwill, deducting any impairment losses, and dividends are recorded in the income statement in the adoption of the distribution of these profits and evidence of the Bank right to collect them. 2.3. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments. 2.4. Foreign currency translation 2.4.1. Functional and presentation currency The financial statements are presented in Egyptian pound, which is the Bank’s functional and presentation currency. 2.4.2. Transactions and balances in foreign currencies The Bank maintains its accounting records in Egyptian pound. Transactions in foreign currencies during the period are translated into the Egyptian pound using the prevailing exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the end of reporting period at the prevailing exchange rates. Foreign exchange gains and losses resulting from settlement and translation of such transac- tions and balances are recognized in the income statement and reported under the following line items: The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of trading, financial assets and liabilities held at fair value through profit or loss, available for sale and all derivatives contracts. • Net trading income from held-for-trading assets and liabilities. • Other operating revenues (expenses) from the remaining assets and liabilities. 2.1.1. Basis of consolidation The method of full consolidation is the basis of the preparation of the consolidated financial statement of the Bank, given that the Bank’s acquisition proportion is 99.98 % (full control) in CI Capital Holding. Consolidated financial statements consist of the financial statements of Commercial International Bank and consolidated financial statements of CI Capital Holding and its subsidiaries. Control is achieved through the Bank’s ability to control the financial and operational policies of the companies that the Bank invests in it in order to obtain benefits from its activi- ties. The basis of the consolidation is as follows: • Eliminating all balances and transactions between the Bank and group companies. • The cost of acquisition of subsidiary companies is based on the company's share in the fair value of assets acquired and obligations outstanding on the acquisition date. • Minority shareholders represent the rights of others in subsidiary companies. • Proportional consolidation is used in consolidating method for companies under joint control. 2.2. Subsidiaries and associates 2.2.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Bank has owned directly or indirectly the control to govern the financial and operating policies generally accompanying a shareholding of more than one half of the Changes in the fair value of investments in debt instruments; which represent monetary financial instruments, denomi- nated in foreign currencies and classified as available for sale assets are analyzed into valuation differences resulting from changes in the amortized cost of the instrument, differences resulting from changes in the applicable exchange rates and differences resulting from changes in the fair value of the instrument. Valuation differences resulting from changes in the amortized cost are recognized and reported in the income statement in ‘income from loans and similar revenues’ whereas differences resulting from changes in foreign exchange rates are rec- ognized and reported in ‘other operating revenues (expenses)’. The remaining differences resulting from changes in fair value are deferred in equity and accumulated in the ‘revaluation reserve of available-for-sale investments’. Valuation differences resulting from the non-monetary items include gains and losses of the change in fair value of such equity instruments held at fair value through profit and loss, as for recognition of the differences of valuation resulting from equity instruments classified as financial investments available for sale within the fair value reserve in equity. 2.5. Financial assets The Bank classifies its financial assets in the following categories: • Financial assets designated at fair value through profit or loss. • Loans and receivables. 146 Annual Report 2012 Annual Report 2012 147 Financial Statements: Consolidated • Held to maturity investments. • Available for sale financial investments. Management determines the classification of its investments at initial recognition. 2.5.1. Financial assets at fair value through profit or loss This category has two sub-categories: • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or re- purchasing in the short term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit making. Derivatives are also categorized as held for trading unless they are designated as hedging instruments. Financial instruments, other than those held for trading, are classified as financial assets designated at fair value through profit and loss if they meet one or more of the criteria set out below: • When the designation eliminates or significantly reduces measurement and recognition inconsistencies that would arise from measuring financial assets or financial liabilities, on different bases. under this criterion, an accounting mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related deriva- tives are measured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instruments designated by the Bank are loans and advances and long-term debt issues. • Applies to groups of financial assets, financial liabilities or combinations thereof that are managed, and their perfor- mance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about the groups of financial instruments is reported to management on that basis. • Relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments, including certain debt issues and debt securities held. Any financial derivative initially recognized at fair value can't be reclassified during the holding period. Re-classification is not allowed for any financial instrument initially recognized at fair value through profit and loss. 2.5.2. Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • Those that the Bank intends to sell immediately or in the short term, which is classified as held for trading, or those that the Bank upon initial recognition designates as at fair value through profit or loss. • Those that the Bank upon initial recognition designates as available for sale; or • Those for which the holder may not recover substantially all of its initial investment, other than credit deterioration. 2.5.3. Held to maturity financial investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturi- ties that the Bank’s management has the positive intention and ability to hold till maturity. If the Bank has to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale un- less in necessary cases subject to regulatory approval. 2.5.4. Available for sale financial investments 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, exchange rates or equity prices. The following are applied in respect to all financial assets: Debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair value, are classified as available-for-sale or held-to-maturity. Financial investments are recognized on trade date, when the group enters into contractual arrangements with counterparties to purchase securities. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank transfers substantially all risks and rewards of the ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale, held–for-trading and financial assets designated at fair value through profit and loss are subsequently mea- sured at fair value. Loans and receivables and held-to-maturity investments are subsequently measured at amortized cost. Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valu- ation models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instruments classified available for sale, value is measured at cost less any impairment in value. Available for sale investments that would have met the definition of loans and receivables at initial recognition may be reclas- sified out to loans and advances or financial assets held to maturity. In all cases, when the Bank has the intent and ability to hold these financial assets in the foreseeable future or till maturity. The financial asset is reclassified at its fair value on the date of reclassification, and any profits or losses that has been recognized previously in equity, is treated based on the following: • If the financial asset has a fixed maturity, gains or losses are amortized over the remaining life of the investment using the effective interest rate method. In case of subsequent impairment of the financial asset, the previously rec- ognized unrealized gains or losses in equity are recognized directly in the profits and losses. • In the case of financial asset which has infinite life, any previously recognized profit or loss in equity will remain until the sale of the asset or its disposal, in the case of impairment of the value of the financial asset after the re- classification, any gain or loss previously recognized in equity is recycled to the profits and losses. • If the Bank adjusts its estimates of payments or receipts of a financial asset that in return adjusts the carrying amount of the asset (or group of financial assets) to reflect the actual cash inflows, the carrying value is recalculated based on the present value of estimated future cash flows at the effective yield of the financial instrument and the differences are recognized in profit and loss. • In all cases, if the Bank re-classifies financial asset in accordance with the above criteria and increases its estimate of the proceeds of future cash flow, this increase adjusts the effective interest rate of this asset only without affecting the investment book value. 2.6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to be settled on a net basis. 2.7. Derivative financial instruments and hedge accounting Derivatives are recognized initially, and subsequently, at fair value. Fair values of exchange traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models. Derivatives are classified as assets when their fair value is positive and as liabilities when their fair value is negative. Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as sepa- rate derivatives when their economic characteristics and risks are not closely related to those of the host contract, provided that the host contract is not classified as at fair value through profit and loss. These embedded derivatives are measured at fair value with changes in fair value recognized in income statement unless the Bank chooses to designate the hybrid contact as at fair value through net trading income in profit or loss. 148 Annual Report 2012 Annual Report 2012 149 Financial Statements: Consolidated The timing of recognition in profit and loss, of any gains or losses arising from changes in the fair value of derivatives, depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. The Bank designates certain derivatives as: • Hedging instruments of the risks associated with fair value changes of recognized assets or liabilities or firm com- mitments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable fore- cast transaction (cash flow hedge) • Hedge accounting is used for derivatives designated in a hedging relationship when the following criteria are met. At the inception of the hedging relationship, the Bank documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, At the inception of the hedge, and on ongoing basis, the Bank documents whether the hedging instrument is expected to be highly effective in offsetting changes in fair values of the hedged item attributable to the hedged risk. 2.7.1. Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in profit or loss immediately together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The effective portion of changes in the fair value of the interest rate swaps and the changes in the fair value of the hedged item attributable to the hedged risk are recognized in the ‘net interest income’ line item of the income state- ment. Any ineffectiveness is recognized in profit or loss in ‘net trading income’. When the hedging instrument is no longer qualified for hedge accounting, the adjustment to the carrying amount of a hedged item, measured at amortized cost, arising from the hedged risk is amortized to profit or loss from that date using the effective interest method. 2.7.2. Derivatives that do not qualify for hedge accounting All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in the income statement. These gains and losses are reported in ‘net trading income’, except where deriva- tives are managed in conjunction with financial instruments designated at fair value , in which case gains and losses are reported in ‘net income from financial instruments designated at fair value’. Interest income and expense 2.8. Interest income and expense for all financial instruments except for those classified as held-for-trading or designated at fair value are recognized in ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that ex- actly discounts estimated future 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 or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that represents an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once loans or debts are classified as nonperforming or impaired, the revenue of interest income will not be recognized and will be recorded off balance sheet, and are recognized as income subsequently based on a cash basis according to the following: • When all arrears are collected for consumer loans, personnel mortgages and micro-finance loans. • When calculated interest for corporate are capitalized according to the rescheduling agreement conditions until paying 25% from rescheduled payments for a minimum performing period of one year, if the customer continues to perform, the calculated interest will be recognized in interest income (interest on the performing rescheduling agreement balance) without the marginalized before the rescheduling agreement which will be recognized in inter- est income after the settlement of the outstanding loan balance. 2.9. Fee and commission income Fees charged for servicing a loan or facility that is measured at amortized cost, are recognized as revenue as the service is provided. Fees and commissions on non-performing or impaired loans or receivables cease to be recognized as income and are rather recorded off balance sheet. These are recognized as revenue, on a cash basis, only when interest income on those loans is recognized in profit and loss, at that time, fees and commissions that represent an integral part of the effective interest rate of a financial asset, are treated as an adjustment to the effective interest rate of that financial asset. Commitment fees and related direct costs for loans and advances where draw down is probable are deferred and recog- nized as an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognized at the maturity of the term of the commitment. Fees are recognized on the debt instruments that are measured at fair value through profit and loss on initial recognition and syndicated loan fees received by the Bank are recognized when the syndication has been completed and the Bank does not hold any portion of it or holds a part at the same effective interest rate used for the other participants portions. Commission and fee arising from negotiating, or participating in the negotiation of a transaction for a third party such as the arrangement of the acquisition of shares or other securities or the purchase or sale of properties are recognized upon completion of the underlying transaction in the income statement . Other management advisory and service fees are recognized based on the applicable service contracts, usually on accrual basis. Financial planning fees related to investment funds are recognized steadily over the period in which the service is provided. The same principle is applied for wealth management; financial planning and custody services that are provided on the long term are recognized on the accrual basis also. Operating revenues in the holding company are: • Commission income is resulting from purchasing and selling securities to a customer account upon receiving the transaction confirmation from the Stock Exchange. • Mutual funds and investment portfolios management which is calculated as a percentage of the net value of assets under management according to the terms and conditions of agreement. These amounts are credited to the assets management company’s revenue pool on a monthly accrual basis. 2.10. Dividend income Dividends are recognized in the income statement when the right to collect is established. 2.11. Sale and repurchase agreements Securities may be lent or sold subject to a commitment to repurchase (Repos) are reclassified in the financial statements and deducted from treasury bills balance. Securities borrowed or purchased subject to a commitment to resell them (Re- verse Repos) are reclassified in the financial statements and added to treasury bills balance. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. 2.12. Impairment of financial assets 2.12.1. Financial assets carried at amortised cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired only if there is objective evidence of impair- ment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event/s’) and that loss event/s has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reli- ably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: • Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales) • Violation of the conditions of the loan agreement such as non-payment. • Initiation of Bankruptcy proceedings. • Deterioration of the borrower’s competitive position. • The Bank for reasons of economic or legal financial difficulties of the borrower by granting concessions may not agree with the Bank granted in normal circumstances. • Deterioration in the value of collateral or deterioration of the creditworthiness of the borrower. 150 Annual Report 2012 Annual Report 2012 151 Financial Statements: Consolidated The objective evidence of impairment loss for a group of financial assets is observable data indicating that there is a mea- surable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, for instance an increase in the default rates for a particular Banking product. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impair- ment loss is reversed through the income statement to the extent of previously recognized impairment charge from equity to income statement. The Bank estimates the period between a losses occurring and its identification for each specific portfolio. In general, the periods used vary between three months to twelve months. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individu- ally significant, and individually or collectively for financial assets that are not individually significant and in this field the following are considered: • If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment according to historical default ratios. • If the Bank determines that an objective evidence of financial asset impairment exist that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of esti- mated future cash flows (excluding future credit losses that have 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 and the amount of the loss is recognized in the income statement. If a loan or held to maturity investment has a variable inter- est rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract when there is objective evidence for asset impairment. As a practical expedient, the Bank may measure impair- ment on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by Being indicative of the debtors’ ability to pay all amounts due according to the con- tractual terms of the assets being evaluated. For the purposes of evaluation of impairment for a group of a financial assets according to historical default ratios future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other indicative factors of changes in the probability of losses in the Bank and their magnitude. The methodol- ogy and assumptions used for estimating future cash flows are reviewed regularly by the Bank. 2.12.2. Available for sale investments The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets classify under available for sale is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. During periods start from first of January 2009, the decrease consider significant when it became 10% from the book value of the financial instrument and the decrease consider to be extended if it continues for period more than 9 months, and if the mentioned evidences become available then any cumulative gains or losses previously recognized in equity are recognized in the income statement , in respect of available for sale equity securities, impairment losses previously recognized in profit or loss are not reversed through the income statement. 2.13. Real estate investments The real estate investments represent lands and buildings owned by the Bank in order to obtain rental returns or capital gains and therefore do not include real estate assets which the Bank exercised its work through or those that have owned by the Bank as settlement of debts. The accounting treatment is the same used with property, plant and equipment. 2.14. Property, plant and equipment Land and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less de- preciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred. Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their residual values over estimated useful lives, as follows: Buildings Leasehold improvements Furniture and safes Typewriters, calculators and air-conditions Transportations Computers and core systems Fixtures and fittings 20 years. 3 years, or over the period of the lease if less 5 years. 8 years 5 years 3/10 years 3 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Depre- ciable assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recovered. An asset’s carrying amount is written down immediately to its recoverable value if the asset’s car- rying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing the selling proceeds with the asset carrying amount and charged to other operating expenses in the income statement. 2.15. Impairment of non-financial assets Assets that have an indefinite useful life are not amortized -except goodwill- and are tested annually for impairment. As- sets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Assets are tested for impair- ment with reference to the lowest level of cash generating unit/s. A previously recognized impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed asset’s recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount that it would have been had the original impairment not been recognized. 2.15.1. Goodwill Goodwill is capitalized and represents the excess of acquisition cost over the fair value of the Bank’s share in the acquired entity’s net identifiable assets on the date of acquisition. For the purpose of calculating goodwill, the fair values of acquired assets, liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash flows. Goodwill is included in the cost of investments in associates and subsidiaries in the Bank’s separate financial statements. Goodwill is tested for impairment, impairment loss is charged to the income statement. 152 Annual Report 2012 Annual Report 2012 153 Financial Statements: Consolidated Goodwill is allocated to the cash generating units for the purpose of impairment testing. The cash generating units repre- sented in the Bank main segments. 2.15.2. Other intangible assets Is the intangible assets other than goodwill and computer programs (trademarks, licenses, contracts for benefits, the ben- efits of contracting with clients). Other intangible assets that are acquired by the Bank are recognized at cost less accumulated amortization and impair- ment losses. Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible asset with definite life. Intangible assets with indefinite life are not amortized and tested for impairment. 2.16. Leases The accounting treatment for the finance lease is complied with law 95/1995, if the contract entitles the lessee to purchase the asset at a specified date and predefined value, or the current value of the total lease payments representing at least 90% of the value of the asset. The other leases contracts are considered operating leases contracts. 2.16.1. Being lessee Finance lease contract recognizes the lease cost, including the cost of maintenance of the leased assets in the income state- ment for the period in which they occurred. If the Bank decides to exercise the right to purchase the leased asset the leased assets are capitalized and included in ‘property, plant and equipment’ and depreciated over the useful life of the expected remaining life of the asset in the same manner as similar assets. Operating lease payments leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘general and administrative expenses’. 2.16.2. Being lessor For finance lease, assets are recorded in the property, plant and equipment in the balance sheet and amortized over the expected useful life of this asset in the same manner as similar assets. Lease income is recognized on the basis of rate of return on the lease in addition to an amount corresponding to the cost of depreciation for the period. The difference between the recognized rental income and the total finance lease clients’ accounts is transferred to the in the income statement until the expiration of the lease to be reconciled with a net book value of the leased asset. Maintenance and insurance expenses are charged to the income statement when incurred to the extent that they are not charged to the tenant. In case there is objective evidence that the Bank will not be able to collect the of financial lease obligations, the finance lease payments are reduced to the recoverable amount. For assets leased under operating lease it appears in the balance sheet under property, plant and equipment, and depreci- ated over the expected useful life of the asset in the same way as similar assets, and the lease income recorded less any discounts given to the lessee on a straight-line method over the contract period. 2.17. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with Central Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. Other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. In case of similar obligations, the related cash outflow should be determined in order to settle these obligations as a group. The provision is recognized even in case of minor probability that cash outflow will occur for an item of these obligations. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating income (expenses). Provisions for obligations, other than those for credit risk or employee benefits, due within more than 12 months from the balance sheet date are recognized based on the present value of the best estimate of the consideration re- quired to settle the present obligation at the balance sheet date. An appropriate pretax discount rate that reflects the time value of money is used to calculate the present value of such provisions. For obligations due within less than twelve months from the balance sheet date, provisions are calculated based on undiscounted expected cash outflows unless the time value of money has a significant impact on the amount of provision, then it is measured at the pres- ent value. 2.19. Share based payments The Bank applies an equity-settled, share-based compensation plan. The fair value of equity instruments recognized as an expense over the vesting period using appropriate valuation models, taking into account the terms and conditions upon which the equity instruments were granted. The vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. Vesting conditions include service conditions and performance conditions and market performance conditions are taken into account when estimating the fair value of equity instruments at the date of grant. At each balance sheet date the number of options that are expected to be exer- cised are estimated. Recognizes estimate changes, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 2.20. Income tax Income tax on the profit or loss for the period and deferred tax are recognized in the income statement except for income tax relating to items of equity that are recognized directly in equity. Income tax is recognized based on net taxable profit using the tax rates applicable at the date of the balance sheet in addi- tion to tax adjustments for previous years. Deferred taxes arising from temporary time differences between the book value of assets and liabilities are recognized in accordance with the principles of accounting and value according to the foundations of the tax, this is determining the value of deferred tax on the expected manner to realize or settle the values of assets and liabilities, using tax rates appli- cable at the date of the balance sheet. Deferred tax assets of the Bank recognized when there is likely to be possible to achieve profits subject to tax in the future to be possible through to use that asset, and is reducing the value of deferred tax assets with part of that will come from tax benefit expected during the following years, that in the case of expected high benefit tax, deferred tax assets will increase within the limits of the above reduced. 2.21. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost also any difference between proceeds net of transaction costs and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 2.22. Dividends Dividends on ordinary shares and profit sharing are recognized as a charge of equity upon the general assembly approval. Profit sharing includes the employees’ profit share and the Board of Directors’ remuneration as prescribed by the Bank’s articles of incorporation and the corporate law. 2.23. Comparatives Comparative figures have been adjusted to conform to changes in presentation in the current period where necessary. 3. Financial risk management The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and rewards and minimize potential adverse effects on the Bank’s financial performance. The most important types of financial risks are credit risk, market risk, liquidity risk and other operating risks. Also market risk includes exchange rate risk, rate of return risk and other prices risks. 154 Annual Report 2012 Annual Report 2012 155 Financial Statements: Consolidated The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by risk department under policies approved by the Board of Directors. Bank treasury identi- fies, evaluates and hedges financial risks in close co-operation with the Bank’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial in- struments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. Credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in Bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components: • The ‘probability of default’ by the client or counterparty on its contractual obligations • Current exposures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default. • The likely recovery ratio on the defaulted obligations (the ‘loss given default’). These credit risk measurements, which reflect expected loss (the ‘expected loss model’) are required by the Basel commit- tee on banking regulations and the supervisory practices (the Basel committee), and are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under EAS 26, which are based on losses that have been incurred at the balance sheet date (the ‘incurred loss model’) rather than expected losses (note 3.1). The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judg- ment and are validated, where appropriate. Clients of the Bank are segmented into four rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predic- tive power with regard to default events. Bank’s rating 1 2 3 4 description of the grade performing loans regular watching watch list non-performing loans Loss given default or loss severity represents the Bank expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation. 3.1.1.2. Debt instruments and treasury and other bills For debt instruments and bills, external rating such as standard and poor’s rating or their equivalents are used for man- aging of the credit risk exposures, and if this rating is not available, then other ways similar to those used with the credit customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time. 3.1.2. Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to indi- vidual counterparties and banks, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a re- volving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by individual, counterparties, product, and industry sector and by country are approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off- balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange con- tracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below: 3.1.2.1. Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Mortgages over residential properties. • Mortgage business assets such as premises, and inventory. • Mortgage financial instruments such as debt securities and equities. Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimize the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instru- ment. Debt securities, treasury and other governmental securities are generally unsecured, with the exception of asset- backed securities and similar instruments, which are secured by portfolios of financial instruments. 3.1.2.2. Derivatives The Bank maintains strict control limits on net open derivative positions (i.e., the difference between purchase and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the Bank (i.e., assets with positive fair value), which in relation to derivatives is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties. Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a cor- responding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank market transactions on any single day. 3.1.2.3. Master netting arrangements The Bank further restricts its exposure to credit losses by entering into master netting arrangements with counterpar- ties with which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with favorable contracts is reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Bank overall exposure to credit risk on 156 Annual Report 2012 Annual Report 2012 157 3.1.4. Pattern of measuring the general banking risk In addition to the four categories of the Bank’s internal credit ratings indicated in note 3.1.1, management classifies loans and advances based on more detailed subgroups in accordance with the CBE regulations. Assets exposed to credit risk in these categories are classified according to detailed rules and terms depending heavily on information relevant to the customer, his activity, financial position and his repayment track record. The Bank calculates required provisions for impairment of assets exposed to credit risk, including commitments relating to credit on the basis of rates determined by CBE. In case, the provision required for impairment losses as per CBE credit worthiness rules exceeds the required provi- sions by the application used in balance sheet preparation in accordance with EAS. That excess shall be debited to retained earnings and carried to the general banking risk reserve in the equity section. Such reserve is always adjusted, on a regular basis, by any increase or decrease so, that reserve shall always be equivalent to the amount of increase between the two provisions. Such reserve is not available for distribution. Below is a statement of institutional worthiness according to internal ratings compared with CBE ratings and rates of provisions needed for assets impairment related to credit risk: CBE Rating 1 2 3 4 5 6 7 8 9 10 Categorization Low risk Average risk Satisfactory risk Reasonable risk Acceptable risk Marginally acceptable risk Watch list Substandard Doubtful Bad debts Provision% Internal rating 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% 1 1 1 1 1 2 3 4 4 4 Categorization Performing loans Performing loans Performing loans Performing loans Performing loans Regular watching Watch list Non performing loans Non performing loans Non performing loans Financial Statements: Consolidated derivative instruments subject to master netting arrangements can change substantially within a short period, as it is af- fected by each transaction subject to the arrangement. 3.1.2.4. Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guar- antees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit stan- dards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Impairment and provisioning policies 3.1.3. The internal rating system described in Note 3.1.1 focus on the credit-quality mapping from the lending and invest- ment activities perspective. Conversely, for only financial reporting purposes impairment losses are recognized for that has been incurred at the balance sheet date when there is an objective evidence of impairment. Due to the different methodologies applied, the amount of incurred impairment losses in balance sheet are usually lower than the amount determined from the expected loss model that is used for internal operational management and CBE regulation pur- poses. The impairment provision reported in balance sheet at the end of the period is derived from each of the four internal credit risk ratings. However, the majority of the impairment provision is usually driven by the last two rating degrees. The fol- lowing table illustrates the proportional distribution of loans and advances reported in the balance sheet for each of the four internal credit risk ratings of the Bank and their relevant impairment losses: Bank’s rating 1-Performing loans 2-Regular watching 3-Watch list 4-Non-Performing Loans December 31, 2012 December 31, 2011 Loans and advances (%) 90.00 5.89 0.48 3.63 Impairment provision (%) 40.85 8.56 2.01 48.58 Loans and advances (%) 91.13 4.32 1.74 2.81 Impairment provision (%) 42.26 4.70 3.70 49.34 The internal rating tools assists management to determine whether objective evidence of impairment exists under EAS 26, based on the following criteria set by the Bank: • Cash flow difficulties experienced by the borrower or debtor • Breach of loan covenants or conditions • Initiation of bankruptcy proceedings • Deterioration of the borrower’s competitive position • Bank granted concessions may not be approved under normal circumstances due to economic, legal reasons and financial difficulties facing the borrower • Deterioration of the collateral value • Deterioration of the credit situation The Bank’s policy requires the review of all financial assets that are above materiality thresholds at least annually or more regularly when circumstances require. Impairment provisions on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date, and are applied to all significant accounts individually. The assess- ment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collective impairment provisions are provided portfolios of homogenous assets by using the available historical loss experience, experienced judgment and statistical techniques. 158 Annual Report 2012 Annual Report 2012 159 3.1.6. Loans and advances Loans and advances are summarized as follows: Dec. 31, 2012 EGP Dec. 31, 2011 EGP Loans and advances to customers 40,779,399,095 785,027,964 1,578,381,311 43,142,808,370 Loans and advances to banks Loans and advances to customers 1,176,571,369 39,842,142,236 478,696,381 1,178,749,699 1,208,166,369 41,499,588,316 - 31,595,000 Loans and advances to banks 1,403,385,688 - 30,159,424 1,433,545,112 1,901,222,402 22,277,973 520,994,222 40,698,313,773 29,298,630 - - 1,419,409,102 45,231,397 365,161,953 1,178,867,739 39,669,785,864 37,950,503 - - 1,395,594,609 » Neither past due nor impaired » Past due but not impaired » Individually impaired Gross Less: » Impairment provision » Unamortized bills discount » Unearned interest Net Impairment provision losses for loans and advances reached EGP 1,930,521,032. During the period the Bank’s total loans and advances increased by 3.30% . In order to minimize the propable exposure to credit risk, the Bank focuses more on the business with large enterprises,banks or retail customers with good credit rating or sufficient collateral. Financial Statements: Consolidated 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk » Treasury bills and other governmental notes Trading financial assets: » Debt instruments Gross loans and advances to banks Less:Impairment provision Gross loans and advances to customers Individual: » Overdraft » Credit cards » Personal loans » Mortgages » Other loans Corporate: » Overdraft » Direct loans » Syndicated loans » Other loans » Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: » Debt instruments » Investments in associates Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letter of credit Letter of guarantee Total Dec. 31, 2012 EGP 11,193,466,093 Dec. 31, 2011 EGP 10,700,842,183 1,181,100,426 1,208,166,369 (29,298,630) 468,101,674 1,433,545,112 (37,950,503) 1,220,222,219 660,932,044 3,616,553,758 463,833,879 20,045,324 4,288,571,348 23,196,204,054 9,588,649,990 87,795,754 (22,277,973) (1,901,222,402) (520,994,222) 137,459,761 952,982,877 575,672,905 2,659,469,004 419,990,050 40,265,000 4,239,213,684 24,265,367,037 8,245,001,963 101,625,796 (45,231,397) (1,419,409,102) (365,161,953) 146,544,656 24,859,146,103 165,198,634 79,413,552,530 14,908,653,481 106,676,167 67,396,198,634 2,276,369,133 1,176,928,870 933,297,936 12,787,512,199 17,174,108,138 2,219,596,241 542,833,642 753,154,858 11,263,565,016 14,779,149,757 The above table represents the Bank Maximum exposure to credit risk on December 31, 2012, before taking account of any held collateral. For assets recognized on balance sheet, the exposures set out above are based on net carrying amounts as reported in the balance sheet. As shown above 52.91% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 32.79%. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk resulting from both its loans and advances portfolio and debt instruments based on the following: • 95.88% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.37% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 1,609,976,311. • The Bank has implemented more prudent processes when granting loans and advances during the financial period ended on December 31, 2012. • 94.29% of the investments in debt Instruments are Egyptian sovereign instruments. 160 Annual Report 2012 Annual Report 2012 161 Financial Statements: Consolidated - - 7 2 6 , 5 5 5 , 0 1 1 3 9 , 4 0 9 , 7 7 1 9 6 3 , 1 3 5 , 1 6 6 - 6 9 2 , 3 4 0 , 5 3 1 - 1 0 1 , 6 2 5 6 1 7 , 9 0 3 , 1 5 5 2 2 , 9 0 2 , 7 7 4 1 4 7 , 5 5 8 , 6 4 4 , 2 1 9 9 , 9 7 4 0 7 , 0 8 6 , 1 3 4 8 0 7 , 5 5 2 , 2 6 7 1 , 2 1 1 , 2 1 3 , 8 6 1 , 1 7 2 9 , 3 9 2 , 5 5 9 , 7 3 4 5 7 , 7 8 0 , 2 8 0 7 6 , 7 4 0 , 4 3 6 , 8 2 8 1 , 3 2 7 , 4 1 7 9 1 , , 8 7 0 7 5 5 8 , , 5 4 2 8 4 8 4 9 , - 2 5 3 7 8 8 , , 5 6 5 8 4 5 7 4 1 , , 1 3 2 6 6 0 8 2 8 3 , , , 3 5 8 7 0 1 1 , , 8 8 1 9 5 9 6 1 , - - , 4 8 4 3 8 1 9 4 4 , , 5 3 5 3 7 2 1 , , 6 2 6 5 9 3 5 3 , , 2 1 4 1 4 4 0 2 , , 3 1 5 8 7 7 6 2 , , 3 5 6 2 0 5 9 5 4 3 , , 8 0 5 , 0 4 9 , 3 9 2 4 , 1 2 8 , 1 7 3 6 , 2 2 9 , 9 3 5 2 , 7 7 8 , 6 8 0 1 , 0 6 9 , 2 1 1 5 8 , 5 7 9 , 9 3 8 6 6 , 1 8 8 , 3 3 6 1 3 4 , 3 9 6 , 2 5 1 , 1 9 3 7 , 7 6 8 , 8 7 1 , 1 8 6 9 , 5 8 5 , 1 4 2 , 1 4 6 4 8 , 3 9 6 , 2 8 6 8 3 , 1 8 0 , 2 5 2 , 9 5 1 1 , 8 8 1 4 5 9 , 1 2 , 9 1 1 , 0 2 0 , 9 7 0 , 4 3 9 3 , 4 5 9 , 8 1 9 1 0 , 7 5 4 , 0 5 4 4 0 2 , 8 1 1 , 2 4 5 , 3 , 3 1 7 3 0 6 , 2 5 6 2 7 1 , 9 6 4 , 9 0 2 , 1 P G E l a t o T l a t o T d n a s n a o l d n a s n a o l s e c n a v d a o t s e c n a v d a s k n a b o t s r e m o t s u c e t a r o p r o C l i a u d v d n i I r e h t O s n a o l d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O P G E l a t o T l a t o T d n a s n a o l d n a s n a o l s e c n a v d a o t s e c n a v d a s k n a b o t s r e m o t s u c e t a r o p r o C l i a u d v d n i I r e h t O s n a o l d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 2 1 0 2 , 1 3 . c e D : s k n a b d n a s r e m o t s u c o t s e c n a v d a d n a s n a o l t e N - 8 5 3 , 6 7 7 , 5 1 2 2 9 , 1 0 9 , 1 9 6 5 4 6 , 4 9 0 , 4 7 4 6 4 0 , 7 4 6 2 5 , 1 0 1 6 6 6 , 7 6 7 , 8 2 1 9 2 1 , 6 1 3 , 5 5 2 - 6 5 3 , 4 2 6 , 6 4 6 7 8 1 , 6 5 4 , 2 4 9 7 , 4 6 2 , 2 8 7 , 1 2 0 1 , 1 0 1 , 5 1 8 2 , 0 1 2 , 8 5 5 8 4 , 3 9 1 , 6 9 4 1 , 4 6 0 , 2 6 3 , 7 7 3 , 1 3 5 8 , 7 1 9 , 1 3 1 , 7 3 4 8 3 , 9 8 6 , 4 9 0 5 3 , 5 9 3 , 1 5 7 , 7 4 9 2 , 5 3 4 , 6 7 0 1 2 , , 5 1 1 4 3 3 2 2 , , 5 6 0 0 8 9 6 3 1 , , 2 4 1 6 3 6 4 6 8 3 , , - 7 5 2 7 5 2 , , 5 9 0 1 4 2 7 3 , - - , 7 8 3 8 7 2 8 2 , , 7 7 5 6 5 3 1 1 , , 6 0 7 8 7 3 5 0 4 , , 0 6 7 0 8 7 0 2 5 2 , , 3 4 8 , 8 9 7 , 0 1 6 3 5 , 1 6 4 , 9 0 5 9 , 8 7 2 , 3 8 9 3 , 6 0 2 , 8 9 8 0 , 5 4 2 , 4 0 5 0 7 8 , 9 9 0 , 4 1 9 , 8 6 9 7 0 6 7 4 , , 6 1 7 2 7 1 1 , , 7 4 0 5 3 7 2 , , 9 0 8 0 5 5 2 2 , 5 0 8 , 9 5 0 , 5 1 9 5 4 , 7 3 8 s n a o l i g n m r o f r e p - n o N » 9 0 6 , 4 9 5 , 5 9 3 , 1 4 1 2 , 9 7 1 , 0 8 0 , 0 4 8 5 0 , 9 3 9 , 9 9 7 9 2 , 3 7 3 , 8 3 9 , 7 4 6 2 , 9 6 5 4 7 4 , 3 2 , 0 9 2 , 8 5 5 , 1 7 0 , 4 8 6 0 , 1 7 6 , 8 3 3 5 7 , 3 1 1 , 8 0 4 3 3 5 , 6 6 9 , 2 8 5 , 2 7 8 6 , 2 8 3 , 3 3 5 3 6 2 , 5 0 6 , 2 3 9 l a t o T . t n e m r i a p m i f o e c n e d i v e e v i t c e j b o n a s i e r e h t s s e l n u , d e r i a p m i d e r e d i s n o c t o n e r a e u d t s a p s y a d 0 9 n a h t s s e l s e c n a v d a d n a s n a o L : d e r i a p m i t o n t u b e u d t s a p s e c n a v d a d n a s n a o L , 0 3 1 7 0 8 1 1 , - , 8 8 7 4 7 3 7 , , 2 4 3 2 3 4 4 , , 2 6 4 0 4 4 2 2 2 , , 3 4 0 2 0 9 5 0 1 , , 5 6 1 8 9 8 3 8 , , 3 5 2 0 4 6 2 3 , , 9 5 5 2 7 5 7 5 , , 1 5 6 1 8 8 1 , , 1 8 5 0 8 8 4 2 , , 8 2 3 0 1 8 0 3 , , 2 5 1 0 2 8 1 9 2 , , 4 9 6 3 8 7 7 0 1 , , 5 3 5 3 5 1 6 1 1 , , 3 2 9 2 8 8 7 6 , 7 0 7 , 6 8 4 , 9 1 4 5 9 9 , 0 0 7 0 9 8 , 8 4 4 , 1 1 2 7 4 , 1 3 8 , 6 3 1 2 6 9 , 3 0 5 , 6 5 3 4 1 , 7 1 2 , 7 1 2 1 8 , 7 0 2 , 3 9 4 6 2 6 , 1 9 0 0 4 , 0 1 1 1 2 0 , 3 0 9 5 3 0 , 5 8 5 , 2 7 6 2 , 5 9 1 , 2 0 9 0 , 4 9 7 , 4 3 9 5 , 0 9 6 , 3 1 2 9 1 , 9 2 2 , 6 1 5 5 1 , 6 1 3 , 5 5 1 , 0 5 3 5 0 5 0 7 2 , , 8 0 7 6 3 1 0 4 , , 6 8 3 7 1 1 0 1 , , 4 4 4 9 5 7 0 2 3 , e t a r o p r o C l i a u d v d n i I l a t o T d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M l a n o s r e P s n a o l s d r a c t i d e r C s t f a r d r e v O e t a r o p r o C l i a u d v d n i I , 2 0 4 3 3 9 7 , , 5 6 9 7 5 9 7 1 , , 5 8 0 0 0 5 3 0 1 , , 2 5 4 1 9 3 9 2 1 , - - - - , 5 8 0 0 0 5 3 0 1 , - 5 0 2 , 8 0 2 , 2 1 3 6 7 2 , 1 1 2 , 1 , 6 2 8 7 7 0 8 , , 9 3 1 0 8 8 9 , , 7 1 8 3 4 2 1 , , 5 8 5 9 8 6 6 , , 8 2 7 1 2 8 2 1 1 , , 4 2 7 9 6 5 6 1 , 9 7 8 , 4 2 2 , 3 2 5 4 8 , 1 7 8 , 3 1 9 9 4 , 4 9 1 1 5 , 9 5 9 2 9 , 4 0 3 , 9 4 3 6 8 2 , 5 6 3 , 1 l a t o T d e t a c d n y S i s n a o l s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M 9 8 6 , 9 0 5 , 3 0 3 6 , 0 3 8 , 1 0 3 7 , 3 6 2 , 1 9 4 0 , 4 0 6 , 6 l a n o s r e P s n a o l s d r a c t i d e r C s t f a r d r e v O 9 9 0 , 4 8 9 , 3 1 2 2 , 4 7 4 , 1 1 1 0 3 , 9 0 5 , 6 0 1 1 2 6 , 7 6 9 , 1 2 1 , 5 0 5 4 6 5 8 , , 9 2 5 5 2 8 9 , , 9 3 9 7 7 9 0 0 2 , , 3 7 9 7 6 3 9 1 2 , s y a d 0 3 o t p u e u d t s a P » s y a d 0 6 - 0 3 e u d t s a P » s y a d 0 9 - 0 6 e u d t s a P » l a t o T 2 1 0 2 , 1 3 . c e D s y a d 0 3 o t p u e u d t s a P » s y a d 0 6 - 0 3 e u d t s a P » s y a d 0 9 - 0 6 e u d t s a P » l a t o T 1 1 0 2 , 1 3 . c e D , 1 1 3 6 7 9 9 0 6 1 , , , 1 7 1 0 8 4 3 , , 0 7 6 4 9 9 9 7 1 , , 0 4 4 0 7 7 5 6 0 1 , , 1 5 4 , 2 6 4 , 8 3 2 0 7 2 , 4 4 2 , 1 3 2 7 , 6 8 0 , 1 1 8 1 8 , 7 3 0 , 9 8 6 3 4 , 2 1 4 , 6 , 2 3 3 7 8 4 4 1 , s n a o l d e r i a p m i y l l i a u d v d n i I » l a t o T r e h t O s n a o l e t a r o p r o C d e t a c d n y S i s n a o l l i a u d v d n i I s n a o l t c e r i D t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 2 1 0 2 , 1 3 . c e D l a t o T , 3 2 1 9 0 9 8 0 2 1 , , 4 2 9 6 2 1 , r e h t O s n a o l e t a r o p r o C d e t a c d n y S i s n a o l l i a u d v d n i I s n a o l t c e r i D t f a r d r e v O r e h t O s n a o l s e g a g t r o M l a n o s r e P s n a o l t i d e r C s d r a c s t f a r d r e v O 1 1 0 2 , 1 3 . c e D , 3 5 6 4 7 0 6 2 3 , , 6 8 6 0 1 3 7 5 5 , 1 1 4 , 7 8 2 , 7 5 1 8 9 9 , 1 1 4 , 1 4 2 8 , 0 2 0 , 1 1 8 0 0 , 7 9 1 , 6 8 0 6 3 , 1 0 1 , 2 5 , 9 5 2 8 7 3 7 1 , s n a o l d e r i a p m i y l l i a u d v d n i I » : s w o l l o f s a e r a , k n a B e h t y b d l e h l a r e t a l l o c d e t a l e r f o e u l a v r i a f e h t h t i w g n o l a , t c u d o r p y b s e c n a v d a d n a s n a o l d e r i a p m i y l l a u d i v i d n i f o t n u o m a s s o r g e h t f o n w o d k a e r b e Th . 1 1 3 , , , 6 7 9 9 0 6 1 P G E d e l a t o t e r a s e e t n a r a u g m o r f s w o fl h s a c n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w d e s s e s s a y l l a u d i v i d n i s e c n a v d a d n a s n a o L s n a o l d e r i a p m i y l l i a u d v d n i I s n a o l i g n m r o f r e p - n o N » l a t o T s n a o l i g n m r o f r e P i g n h c t a w l r a u g e R t s i l h c t a W » » » : s e d a r G 1 1 0 2 , 1 3 . c e D s n a o l i g n m r o f r e P i g n h c t a w l r a u g e R » » t s i l h c t a W » : s e d a r G 162 Annual Report 2012 Annual Report 2012 163 Financial Statements: Consolidated • Loans and advances restructured Restructuring activities include reschaduling arrangements, obligatory management programs, modification and deferral of payments. The application of restructuring policies are based on indicators or criteria of credit performance of the borrower that is based on the personal judgment of the management, indicate that payment will most likely continue. Restructuring is commonly applied to term loans, specially customer loans. Renegotiated loans totaled at the end of the period Loans and advances to customer Corporate » Direct loans Total Dec. 31, 2012 Dec. 31, 2011 2,924,873,000 2,924,873,000 2,780,557,000 2,780,557,000 3.1.7. Debt instruments, treasury bills and other governmental notes The table below presents an analysis of debt instruments, treasury bills and other governmental notes by rating agency designation at end of financial period, based on Standard & Poor’s ratings or their equivalent: EGP Dec. 31, 2012 » AAA » AA- to AA+ » A- to A+ » Lower than A- » Unrated Total Treasury bills and other gov. notes - - - - 8,017,754,432 8,017,754,432 Total Trading financial debt instruments Non-trading financial debt instruments 1,058,879,243 1,058,879,243 140,720,779 140,720,779 227,946,980 227,946,980 936,659,017 988,896,900 1,128,862,543 22,494,940,084 31,641,557,059 1,181,100,426 24,859,146,104 34,058,000,962 - - - 52,237,883 3.1.8. Concentration of risks of financial assets with credit risk exposure 3.1.8.1. Geographical sectors Following is a breakdown of the Bank’s main credit exposure at their book values categorized by geographical region at the end of the current period. The Bank has allocated exposures to regions based on the country of domicile of its counterparties. Dec. 31, 2012 Cairo Alex, Delta and Sinai Upper Egypt Total - - - - - 11,193,466,093 - - - 1,181,100,426 1,208,166,369 (29,298,630) 750,010,323 660,932,044 1,181,100,426 1,208,166,369 (29,298,630) » Treasury bills and other governmental notes 11,193,466,093 » Trading financial assets: » Debt instruments » Gross loans and advances to banks » Less:Impairment provision Gross loans and advances to customers Individual: » Overdrafts » Credit cards » Personal loans » Mortgages » Other loans Corporate: » Overdrafts » Direct loans » Syndicated loans » Other loans » Unamortized bills discount » Impairment provision » Unearned interest » Derivative financial instruments Financial investments: » Debt instruments » Investments in associates Total 8,933,686,091 77,751,440 (22,277,973) (1,901,222,402) (403,955,322) 137,459,761 24,859,146,103 165,198,634 447,045,445 - 2,401,536,267 1,107,474,070 81,891,354 1,322,731 373,157,230 18,722,593 3,451,485,639 835,548,706 16,641,174,813 6,518,007,292 654,963,899 10,044,314 - - (115,616,300) - - - 69,696,239,500 9,540,681,511 - 23,166,451 1,220,222,219 660,932,044 107,543,421 3,616,553,758 463,833,879 20,045,324 8,785,295 - 1,537,003 4,288,571,348 37,021,949 23,196,204,054 9,588,649,990 87,795,754 (22,277,973) (1,901,222,402) (520,994,222) 137,459,761 (1,422,600) - - - - - - 24,859,146,103 - 165,198,634 176,631,519 79,413,552,530 s r o t c e s y r t s u d n I . 2 . 8 . 1 . 3 P G E l a t o T l 3 9 0 , 6 6 4 , 3 9 1 , 1 1 6 2 4 , 0 0 1 , 1 8 1 , 1 9 6 3 , 6 6 1 , 8 0 2 , 1 ) 0 3 6 , 8 9 2 , 9 2 ( - - - - 8 4 3 , 1 7 5 , 8 8 2 , 4 4 5 0 , 4 0 2 , 6 9 1 , 3 2 0 9 9 , 9 4 6 , 8 8 5 , 9 4 5 7 , 5 9 7 , 7 8 ) 3 7 9 , 7 7 2 , 2 2 ( - - - - - 9 1 2 , 2 2 2 , 0 2 2 , 1 9 1 2 , 2 2 2 , 0 2 2 , 1 4 4 0 , 2 3 9 , 0 6 6 4 4 0 , 2 3 9 , 0 6 6 8 5 7 , 3 5 5 , 6 1 6 , 3 8 5 7 , 3 5 5 , 6 1 6 , 3 4 2 3 , 5 4 0 , 0 2 9 7 8 , 3 3 8 , 3 6 4 4 2 3 , 5 4 0 , 0 2 9 7 8 , 3 3 8 , 3 6 4 i a u d v d n i I s e i t i v i t c a r o t c e s r e h t O t n e m n r e v o G l e a s e o h W l e d a r t l i a t e r d n a e t a t s e l a e R g n i r u t c a f u n a M - - - - - - - - - - - - - - - - 3 9 0 , 6 6 4 3 9 1 , , 1 1 6 2 4 , 0 0 1 1 8 1 , , 1 - - - - - - - - - - - - - - - - - - 8 2 2 , 4 3 4 , 2 4 3 , 1 5 4 8 , 2 5 3 , 5 1 7 3 2 , 3 0 5 6 3 4 , 5 1 7 , 6 4 9 3 3 4 , - 4 5 8 , 6 9 6 , 3 2 5 4 7 , 6 2 3 , 7 9 0 , 4 - - - - - - 7 3 0 , 5 4 0 , 2 2 8 , 0 1 1 8 3 , 3 6 9 5 3 2 , , 1 0 7 2 , 6 6 4 3 3 2 , - - 2 7 5 , 9 5 3 1 9 1 , 8 5 1 , 6 0 4 , 9 3 6 - - - - - - - - - , 1 7 7 4 4 3 6 , 3 2 4 1 4 0 , , 0 6 7 5 3 9 , - - - - - , 1 , 9 6 4 8 , 0 1 9 , 8 1 0 6 1 , 9 0 6 , 7 7 7 0 0 9 8 9 0 , , 4 6 7 8 0 7 1 9 , , 1 5 8 4 , - - - ) 3 7 9 , 7 7 2 , 2 2 ( l i a c n a n F i s n o i t u t i t s n i - - ) 0 3 6 , 8 9 2 , 9 2 ( , 9 6 3 6 6 1 , 8 0 2 , 1 - n r e v o g r e h t o d n a s l l i b y r u s a e r T » s e t o n l a t n e m 2 1 0 2 , 1 3 . c e D o t s e c n a v d a d n a s n a o l s s o r G » s t n e m u r t s n i t b e D » : s t e s s a l i a c n a n fi g n d a r T i o t s e c n a v d a d n a s n a o l s s o r G s r e m o t s u c s n a o l l a n o s r e P » s d r a c t i d e r C » s t f a r d r e v O » s e g a g t r o M » s n a o l r e h t O » : e t a r o p r o C s t f a r d r e v O » s n a o l t c e r i D » s n a o l i d e t a c d n y S » : l i a u d v d n i I i i n o s v o r p t n e m r i a p m I : s s e L » s k n a b t n u o c s d s i l l i b d e z i t r o m a n U » s n a o l r e h t O » . s e i t i v i t c a s r e m o t s u c k n a B e h t y b d e z i r o g e t a c e u l a v k o o b r i e h t t a e r u s o p x e t i d e r c n i a m s ’ p u o r G e h t s i s y l a n a e l b a t g n w o i l l o f e Th ) 2 0 4 , 2 2 2 , 1 0 9 , 1 ( ) 8 7 9 , 5 4 5 , 3 2 1 ( ) 2 2 6 , 3 3 9 , 4 2 8 ( ) 1 3 4 , 9 1 0 3 1 , ( ) 5 6 4 , 6 4 2 7 , ( ) 7 3 0 1 8 1 , , 9 3 ( ) 0 6 5 , 6 1 7 4 6 7 , ( ) 9 0 3 , 9 7 5 , 8 2 1 ( i i n o s v o r p t n e m r i a p m I » 1 6 7 , 9 5 4 , 7 3 1 4 3 6 , 8 9 1 , 5 6 1 3 0 1 , 6 4 1 , 9 5 8 , 4 2 - - - - - - ) 2 2 2 , 4 9 9 , 0 2 5 ( ) 0 9 9 , 5 1 0 , 4 3 ( ) 5 8 5 , 4 4 2 , 2 3 2 ( - - - 0 7 4 , 4 6 5 4 6 3 , , 3 2 - - - ) 0 7 9 0 1 , ( - - - - 0 3 5 , 2 5 5 , 3 1 4 , 9 7 6 5 2 , 5 2 0 , 4 2 8 , 5 7 5 6 , 4 2 3 , 8 2 2 , 5 1 4 8 7 , 7 2 4 7 7 9 , , 6 3 2 7 0 , 2 1 7 2 6 6 , 8 0 4 , 1 3 5 5 2 2 , - - - , 2 6 9 6 , 5 8 9 , 5 8 8 4 1 , 4 3 6 , 8 9 1 , 5 6 1 3 3 6 , 1 8 5 , 4 9 4 , 1 , 6 5 6 5 4 5 , 9 0 6 , 3 d n a i i y r a d s b u s n i s t n e m t s e v n I » i s e t a c o s s a l a t o T : s t n e m t s e v n i l i a c n a n F i s t n e m u r t s n i t b e D » 1 6 7 , 9 5 4 , 7 3 1 s t n e m u r t s n i l i a c n a n fi e v i t a v i r e D » ) 2 4 8 , 7 9 4 2 4 2 , ( ) 5 3 8 , 4 2 2 , 2 1 ( t s e r e t n i d e n r a e n U » 164 Annual Report 2012 Annual Report 2012 165 Financial Statements: Consolidated 3.2. Market risk Market risk represnted as fluctuations in fair value or future cash flow, including foreign exchange rates and commodity prices, interest rates, credit spreads and equity prices will reduce the Bank’s income or the value of its portfolios. the Bank separates exposures to market risk into trading or non-trading portfolios. Market risks are measured, monitored and controlled by the market risk management department. In addition, regular reports are submitted to the Asset and Liability Management Committee (ALCO), Board Risk Committee and the heads of each business unit. Trading portfolios include positions arising from market-making, position taking and others designated as marked-to- market. Non-trading portfolios include positions that primarily arise from the interest rate management of the group’s retail and commercial banking assets and liabilities, financial investments designated as available for sale and held-to- maturity. 3.2.1. Market risk measurement techniques As part of the management of market risk, the Bank undertakes various hedging strategies. the Bank also enters into inter- est rate swaps to match the interest rate risk associated with the fixed-rate long-term debt instrument and loans to which the fair value option has been applied . 3.2.1.1. Value at Risk The Bank applies a “Value at Risk” methodology (VaR) to its trading and non-trading portfolios, to estimate the market risk of positions held and the maximum losses expected under normal market conditions, based upon a number of as- sumptions for various changes in market conditions. VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’ amount the Bank might lose , but only to a certain level of confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed ( 1 Day). The Bank is assessing the historical movements in the market prices based on volatilities and correlations data for the past five years. The use of this approach does not prevent losses outside of these limits in the event of more significant market movements. As VaR constitutes an integral part of the Bank’s market risk control regime, the Market Risk Management set Soft VaR Limits, trading book, which have been approved by the board, and are monitored and reported on a daily basis to the Senior Management. In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal models used to calculate VaR and are not approved yet by the central bank as the regulator is still applying Basel I in parallel basis with the standardized market risk approach in Basel II. 3.2.1.2. Stress tests Stress tests provide an indication of the potential size of losses that could arise under extreme market conditions. There- fore, bank computes on a daily basis trading Stress VaR, combined with trading Normal VaR to capture the abnormal movements in financial markets and to give more comprehensive picture of risk. The results of the stress tests are reviewed by the ALCO on a monthly basis and the board risk committee on a quarterly basis. 3.2.2. Value at risk (VaR) Summary Total VaR by risk type EGP Dec. 31, 2012 High 175,325 Dec. 31, 2011 High 798,293 Low 5,847 41,293 275,822 Medium Medium Low 22,715 69,880,113 81,920,976 58,491,659 19,970,380 25,574,668 15,047,233 63,018,453 72,607,499 52,982,174 7,638,408 9,752,494 11,883,218 5,509,485 13,919,605 16,474,199 11,866,315 9,313,477 1,488,630 253,871 798,571 465,524 69,926,059 81,958,286 58,537,533 20,406,187 26,002,691 15,490,695 6,861,659 199,809 345,860 1,659,204 921,509 1,762,596 1,057,998 149,646 282,380 » Foreign exchange risk Interest rate risk » For non trading purposes » For trading purposes » Equities risk » Investment fund Total VaR 166 Annual Report 2012 • Trading portfolio VaR by risk type Medium Dec. 31, 2012 High 175,325 Low Medium 5,847 275,822 Dec. 31, 2011 High 798,293 Low 22,715 41,293 Foreign exchange risk Interest rate risk » For trading purposes » Equities risk Investment fund Total VaR 6,861,659 199,809 345,860 7,268,816 9,313,477 253,871 465,524 9,360,357 5,509,485 13,919,605 16,474,199 11,866,315 1,488,630 798,571 5,546,276 14,382,231 15,076,004 13,832,710 1,659,204 921,509 1,762,596 1,057,998 149,646 282,380 • Non trading portfolio VaR by risk type Medium Dec. 31, 2012 High Low Medium Dec. 31, 2011 High Low Interest rate risk » For non trading purposes Total VaR 63,018,453 72,607,499 52,982,174 63,018,453 72,607,499 52,982,174 9,752,494 11,883,218 9,752,494 11,883,218 7,638,408 7,638,408 The aggregate of the trading and non-trading VaR results does not constitute the Bank’s VaR due to correlations and consequent diversification effects between risk types and portfolio types. 3.2.3. Foreign exchange risk The Bank’s financial position and cash flows are exposed to fluctuations in foreign currency exchange rates. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are moni- tored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk and Bank’s financial instruments at carrying amounts, categorized by currency. Equivalent EGP Dec. 31, 2012 Financial assets » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Trading financial assets » Gross loans and advanc- es to banks » Gross loans and advanc- es to customers » Derivative financial instru- ments Financial investments » - Available for sale » - Held to maturity » Investments in associates Total financial assets Financial liabilities » Due to banks » Due to customers » Derivative financial instru- ments » Long term loans Total financial liabilities Net on-balance sheet financial position EGP USD EUR GBP Other Total 4,547,889,733 649,709,912 128,385,584 24,385,266 43,603,629 5,393,974,124 143,604,350 5,049,101,786 2,401,041,621 402,155,264 51,917,368 8,047,820,388 4,773,237,358 3,472,922,400 241,653,085 1,490,253,622 9,194,145 - - 1,170,995,566 37,170,803 - - - - 8,487,812,843 15,877,734 1,515,325,501 - 1,208,166,369 25,149,379,935 17,249,717,628 698,370,716 37,776,260 7,563,832 43,142,808,370 34,317,819 98,258,816 4,883,126 - - 137,459,761 19,867,780,270 1,309,647,328 - 4,215,787,960 38,373,478 126,825,156 - - - 60,349,076,203 29,047,921,058 3,511,504,934 - - - 464,316,790 - 21,177,427,597 - 4,215,787,960 - 165,198,634 118,962,562 93,491,781,548 650,505 1,362,866,273 47,924,539,371 26,846,823,314 3,403,851,868 351,304,112 41,825 453,989,690 - 1,714,862,716 99,917,245 78,729,121,488 12,295,409 102,612,684 4,191,167 - - 119,099,260 80,495,238 - 49,380,196,292 27,300,740,110 3,408,693,540 - - 454,031,515 - 80,495,238 99,917,245 80,643,578,702 10,968,879,911 1,747,180,948 102,811,394 10,285,275 19,045,318 12,848,202,846 Annual Report 2012 167 Financial Statements: Consolidated 3.2.4. Interest rate risk The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but profit may decrease in the event that unexpected movements arise. The Board sets limits on the gaps of interest rate repricing that may be undertaken, which is monitored by bank’s Risk Management Department. The table below summarizes the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at car- rying amounts, categorized by the earlier of repricing or contractual maturity dates. Dec. 31, 2012 Financial assets » Cash and balances with Central Bank » Due from banks » Treasury bills and other govern- mental notes* » Trading financial assets » Gross loans and advances to banks » Gross loans and advances to customers » Derivatives finan- cial instruments (including IRS notional amount) Financial invest- ments » - Available for sale » - Held to maturity » Investments in associates Total financial assets Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total - - - 3,814,359,727 4,039,063,382 41,664,325 (2,392,490,261) 2,359,738,000 8,520,565,104 - - - - - - 5,393,974,124 5,393,974,124 152,732,954 8,047,820,388 - 8,487,812,843 361,391,071 - - 918,121,244 219,935,445 15,877,741 1,515,325,501 72,394,428 751,920,402 383,851,539 - - 23,384,335,335 8,056,916,417 7,335,797,152 3,512,242,033 853,517,433 601,968,669 589,566,465 859,582,784 3,306,273,019 379,393,905 - - - 1,208,166,369 43,142,808,370 5,736,784,842 1,322,522,351 15,543,565 4,017,903,710 11,736,95s6,304 3,636,620,842 447,880,825 21,177,427,597 - - - - 15,732,123 4,200,055,837 - - - - - 4,215,787,960 165,198,634 165,198,634 27,164,481,320 15,812,748,231 21,175,096,737 23,673,648,437 5,089,467,625 6,175,664,278 99,091,106,629 1,360,467,819 Financial liabilities - » Due to banks » Due to customers 24,969,881,691 12,100,430,806 » Derivatives finan- cial instruments (including IRS notional amount) » Long term loans Total financial li- abilities 28,505,492,040 14,804,370,183 2,175,142,530 2,703,939,377 - - - 8,222,585,000 20,807,578,680 - - 354,394,897 1,714,862,716 470,785,000 12,157,860,312 78,729,121,488 132,811,540 153,115,055 549,753,928 106,803,850 5,821,566,280 59,508,571 20,986,667 - - 80,495,238 8,414,905,111 20,981,680,402 1,020,538,928 12,619,059,059 86,346,045,722 Total interest re- pricing gap (1,341,010,720) 1,008,378,048 12,760,191,626 2,691,968,035 4,068,928,697 (6,443,394,781) 12,745,060,907 * After deducting Repos. 168 Annual Report 2012 3.3. Liquidity risk Liquidity risk is the risk that the Bank does not have sufficient financial resources to meet its obligations arises from its financial liabilities as they fall due or to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill lending commitments. 3.3.1. Liquidity risk management process The Bank’s liquidity management process, is carried by the assets and Liabilities Management Department and monitored independently by the Risk Management Department, which includes: Projecting cash flows by major currency under various stress scenarios and considering the level of liquid assets necessary in relation thereto: • The Bank maintains an active presence in global money markets to enable this to happen. • Maintaining a diverse range of funding sources with back-up facilities. • Monitoring balance sheet liquidity and advances to core funding ratios against internal and Central Bank of Egypt regulations. • Managing the concentration and profile of debt maturities. • Monitoring and reporting takes the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for liquidity management. The starting point for those assets projec- tions is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets. Bank’s Risk Management Department also monitors unmatched medium-term 3.3.2. Funding approach Sources of liquidity are regularly reviewed jointly by the Bank’s Assets & Liabilities Management Department and Con- sumer Banking to maintain a wide diversification within currencies, geographical area, depositors, products and tenors. 3.3.3. Non-derivative cash flows The table below presents the undiscounted cash flows payable by the Bank under non-derivative financial liabilities by remain- ing contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec. 31, 2012 Financial liabilities » Due to banks » Due to customers » Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (contractual and non con- tractual maturity dates) Dec. 31, 2011 Financial liabilities » Due to banks » Due to customers » Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (contractual and non con- tractual maturity dates) Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP 1,714,862,716 1,714,862,716 11,421,205,560 9,736,841,059 20,452,119,693 35,809,584,757 1,309,370,420 78,729,121,488 80,495,238 20,986,667 59,508,571 - - - - - - - 13,136,068,276 9,736,841,059 20,511,628,264 35,830,571,424 1,309,370,420 80,524,479,442 9,874,255,242 12,497,060,088 22,097,635,946 39,608,844,700 9,940,640,568 94,018,436,544 Upto 1month One to three months Three months to one year One year to five years Over five years Total EGP 3,340,794,517 3,340,794,517 12,770,610,063 8,576,616,724 17,868,791,406 30,859,028,066 1,392,889,000 71,467,935,259 99,333,376 14,929,000 82,756,941 1,521,504 125,931 - - - - - 16,111,530,511 8,578,138,228 17,951,548,347 30,873,957,066 1,392,889,000 74,908,063,152 14,753,504,167 11,100,069,868 20,844,934,425 28,478,165,923 10,614,870,781 85,791,545,163 Annual Report 2012 169 Financial Statements: Consolidated Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, due from CBE and due from banks, treasury bills, other government notes , loans and advances to banks and customers. In the normal course of business, a proportion of customer loans contractually repayable within one year will be extended. In addition, debt instrument and treasury bills and other governmental notes have been pledged to secure liabilities. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding sources such as asset-backed markets. 3.3.4. Derivative cash flows Derivatives settled on a net basis the Bank’s derivatives that will be settled on a net basis include: Foreign exchange derivatives: exchange traded options and over-the-counter (OTC) ,exchange traded forwards currency options. Interest rate derivatives: interest rate swaps, forward rate agreements, OTC and exchange traded interest rate options, other interest rate contracts and exchange traded futures . The table below analyses the Bank’s derivative undiscounted financial liabilities that will be settled on a net basis into maturity groupings based on the remaining period of the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows: EGP Up to one month One to three months Three months to one year One year to five years Over five years Total 2,518,555 - 2,518,555 1,956,292 189,039 2,145,330 7,819,636 1,584,638 9,404,274 - 12,295,410 7,178,710 97,717,438 106,669,824 7,178,710 97,718,365 118,965,234 927 Dec. 31, 2012 Liabilities Derivatives financial instru- ments » Foreign exchange derivatives » Interest rate derivatives Total Off balance sheet items Dec. 31, 2012 » Letters of credit, guarantees and other commitments Total 10,332,433,593 3,239,319,148 1,325,986,263 14,897,739,005 10,332,433,593 3,239,319,148 1,325,986,263 14,897,739,005 3.4. Fair value of financial assets and liabilities 3.4.1. Financial instruments not measured at fair value The table below summarizes the book value and fair value of those financial assets and liabilities not presented on the Bank’s balance sheet at their Book value Fair value Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011 8,047,820,388 8,528,229,519 8,047,820,388 8,528,229,519 1,208,166,369 1,433,545,112 1,208,166,369 1,433,545,112 5,981,587,224 37,161,221,146 4,648,379,836 36,851,208,480 5,981,587,224 37,161,221,146 4,648,379,836 36,851,208,480 4,215,787,960 56,614,583,087 39,159,520 51,500,522,467 4,215,787,960 56,614,583,087 39,159,520 51,500,522,467 1,714,862,716 78,729,121,488 80,495,238 80,524,479,442 3,340,794,517 71,467,935,259 99,333,376 74,908,063,152 1,714,862,716 78,729,121,488 80,495,238 80,524,479,442 3,340,794,517 71,467,935,259 99,333,376 74,908,063,152 Financial assets » Due from banks » Gross loans and advances to banks Gross loans and advances to customers » Individual » Corporate » Financial investments » Held to Maturity » Total financial assets Financial liabilities » Due to banks » Due to customers » Long term loans Total financial liabilities 170 Annual Report 2012 Due from banks 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 flows using prevailing money-market interest rates for debts with similar credit risk and similar maturity date. Loans and advances to banks Loans and advances to banks represented in loans do not considering bank placing. The expected fair value of the loans and advances represents the discounted value of future cash flows expected to be collected. Cash flows are discounted us- ing the current market rate to determine fair value. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity assets classified as available for sale are mea- sured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers 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 quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5. Capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a quarterly basis. Central Bank of Egypt requires the following: • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 10%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank. Tier one: Tier one, comprised of paid-in capital (after deducting the book value of treasury shares), retained earnings and reserves resulting from the distribution of profits except the banking risk reserve and deducting previously recognized goodwill and any retained losses Tier two: Represents the gone concern capital which comprised of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt for to the maximum of 1.25% risk weighted assets and contingent liabili- ties ,subordinated loans with more than five years to maturity (amortizing 20% of its carrying amount in each year of the remaining five years to maturity) and 45% of the increase in fair value than book value for available for sale , held to maturity, subsidiaries and associates investments. Annual Report 2012 171 Up to 1 year 1-5 years Over 5 years Total other parties dealing with the bank. Financial Statements: Consolidated When calculating the numerator of capital adequacy ratio, the rules set limits of total tier 2 to no more than tier 1 capital and also limits the subordinated to no more than 50% of tier1. Assets risk weight scale ranging from zero to 100% based on the counterparty risk to reflect the related credit risk scheme, taking into considration the cash collatrals. Similar criteria are used for off balance sheet items after adjusting it to reflect the nature of contingency and the potential loss of those amounts. The Bank has complied with all local capital adequacy requirements for the current year. The tables below summarizes the compositions of teir 1, teir 2 and the capital adequacy ratio . According to Basel I : Tier 1 capital » Share capital (net of the treasury shares) » General reserves » Legal reserve » Other reserve » Retained Earnings Total qualifying tier 1 capital Tier 2 capital » General risk provision » 45% of the Increase in fair value than the book value for available for sale and held to maturity investments Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities » Risk weighted assets » Contingent liabilities Total *Capital adequacy ratio (%) * Based on separate financial statement figures According to Basel II : Dec. 31, 2012 In thousands EGP Dec. 31, 2011 In thousands EGP Restated 5,972,275 2,037,107 380,349 203,498 1,002 8,594,231 689,829 147,873 837,702 9,431,934 50,040,545 5,145,814 55,186,358 17.09% 5,934,563 2,054,762 318,651 (474,528) - 7,833,448 692,088 - 692,088 8,525,536 50,175,825 5,191,197 55,367,022 15.40% Tier 1 capital » Share capital (net of the treasury shares) » Reserves » Retained Earnings » Total deductions from tier 1 capital Common Equity Total qualifying tier 1 capital Tier 2 capital » 45% of special reserve » 45% of the Increase in fair value than the book value for available for sale and held to maturity investments » Impairment provision for loans and regular contingent liabilities Total qualifying tier 2 capital Total capital 1+2 Risk weighted assets and contingent liabilities » Total credit risk » Total market risk » Total operational risk Total *Capital adequacy ratio (%) Dec. 31, 2012 In thousands EGP 5,972,275 2,502,995 (510,946) (4,701) 7,959,623 53,011 147,873 708,329 909,213 8,868,836 56,794,762 1,994,960 6,460,913 65,250,635 13.59% *Capital adequacy ratio (%) *Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. 4. Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expecta- tions of future events that are believed to be reasonable under the circumstances and available information. Impairment losses on loans and advances 4.1. The Bank reviews its loan portfolios to assess impairment on monthly basis a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or national or local eco- nomic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and tim- ing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5% Impairment of available for-sale equity investments 4.2. The Bank determines that available-for-sale equity investments are impaired when there has been a significant or pro- longed decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impair- ment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. 4.3. Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (as models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 4.4. Held-to-Maturity investments The non-derivative financial assets with fixed or determinable payments and fixed maturity are being classified held to maturity. This requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circum- stances – for example, selling an insignificant amount close to maturity it will be required to reclassify the entire category as available for sale. The investments would therefore be measured at fair value not amortized cost. 5. Segment analysis 5.1. By business segment The Bank is divided into main business segments on a worldwide basis: • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger and acquisitions advice. • Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, in- vestment savings products, custody, credit and debit cards, consumer loans and mortgages; • Others –Include other banking business, such as Assets Management. • Transactions between the business segments are on normal commercial terms and conditions. 172 Annual Report 2012 Annual Report 2012 173 Financial Statements: Consolidated Dec. 31, 2012 Corporate banking SME’s Investment banking Retail banking EGP Total » Revenue according to business segment » Expenses according to business segment Profit before tax » Tax Profit for the year Total assets 3,329,477,415 731,332,747 (273,334,474) 1,610,326,906 5,397,802,594 (1,124,760,077) (308,458,766) (25,353,002) (859,123,551) (2,317,695,396) 2,204,717,338 (556,045,847) 1,648,671,491 751,203,355 3,080,107,198 (298,687,476) (190,591,442) (853,926,695) - 560,611,913 2,226,180,503 (298,687,476) 80,561,494,045 2,626,503,517 1,451,894,947 9,374,557,798 94,014,450,306 422,873,981 (107,289,406) 315,584,575 Dec. 31, 2011 Corporate banking SME’s Investment banking Retail banking Total » Revenue according to business segment » Expenses according to business segment Profit before tax » Tax Profit for the year Total assets 2,103,222,975 597,635,091 (75,724,924) 1,278,100,557 3,903,233,699 (777,096,428) (255,290,741) (25,181,851) (788,714,940) (1,846,283,960) 1,326,126,547 (285,060,241) 1,041,066,306 74,527,747,169 342,344,350 (64,684,236) 277,660,114 2,143,523,905 (100,906,775) - (100,906,775) 1,533,773,854 489,385,617 (92,466,940) 396,918,677 2,056,949,739 (442,211,417) 1,614,738,322 7,329,130,662 85,534,175,590 5.2. By geographical segment Dec. 31, 2012 » Revenue according to geographical seg- ment » Expenses according to geographical seg- ment Profit before tax » Tax Profit for the year Total assets Dec. 31, 2011 » Revenue according to geographical seg- ment » Expenses according to geographical seg- ment Profit before tax » Tax Profit for the year Total assets Cairo Alex, Delta & Sinai Upper Egypt Total 4,361,404,048 887,705,321 148,693,225 5,397,802,594 EGP (1,834,683,705) (399,008,070) (84,003,621) (2,317,695,396) 2,526,720,343 (699,773,113) 1,826,947,230 64,689,604 3,080,107,198 (853,926,695) (18,020,186) 46,669,418 2,226,180,503 83,674,215,230 9,048,557,087 1,291,677,989 94,014,450,306 488,697,251 (136,133,396) 352,563,855 Cairo Alex, Delta & Sinai UpperEgypt Total 2,933,228,490 835,887,927 134,117,282 3,903,233,699 (1,335,361,487) (405,117,905) (105,804,568) (1,846,283,960) 1,597,867,003 (351,454,653) 1,246,412,350 430,770,022 (85,159,580) 345,610,442 75,193,039,351 9,812,046,055 28,312,714 2,056,949,739 (5,597,184) (442,211,417) 22,715,530 1,614,738,322 529,090,184 85,534,175,590 6. Net interest income Interest and similar income » Banks » Clients » Treasury bills and bonds » Reverse repos » Financial investments in held to maturity and available for sale debt instruments » Other Total Interest and similar expense » Banks » Clients » Financial instruments purchased with a commitment to re-sale (Repos) » Other Total Net interest income 7. Net income from fee and commission Fee and commission income » Fee and commissions related to credit » Custody fee » Other fee Total Fee and commission expense » Other fee paid Total Net income from fee and commission 8. Dividend income » Trading securities » Available for sale securities » Associates co. Total 9. Net trading income » Profit (losses) from foreign exchange » Profit (losses) from revaluations of trading assets and liabilities in foreign currencies » Profit (Loss) from forward foreign exchange deals revaluation » Profit (Loss) from interest rate swaps revaluation » Profit (Loss) from currency swap deals revaluation » Trading debt instruments » Trading equity instruments Total Dec. 31, 2012 EGP Dec. 31, 2011 EGP 132,463,454 3,523,926,754 3,656,390,208 4,021,144,937 17,423,270 142,055,284 2,900,254,722 3,042,310,006 2,233,508,080 22,223,513 164,324,240 172,702,607 29,184 7,859,311,839 246,625 5,470,990,831 181,169,862 3,449,759,729 3,630,929,591 310,995,070 3,760,975 3,945,685,636 3,913,626,203 188,421,651 2,567,626,091 2,756,047,742 22,306,090 2,685,436 2,781,039,268 2,689,951,563 Dec. 31, 2012 EGP Dec. 31, 2011 EGP 470,471,721 133,589,290 429,567,003 1,033,628,014 107,365,742 107,365,742 926,262,272 Dec. 31, 2012 EGP 578,098 28,015,018 4,517,707 33,110,823 554,737,120 103,680,402 272,152,011 930,569,533 87,622,734 87,622,734 842,946,799 Dec. 31, 2011 EGP 874,720 47,359,534 13,272,726 61,506,980 Dec. 31, 2012 EGP 249,583,425 Dec. 31, 2011 EGP 293,331,214 3,010,519 6,926,623 6,669,087 212,030 (2,963,355) 311,074,819 6,988,651 574,575,176 16,779,398 (19,845) 548,800 52,845,534 11,280,756 381,692,480 174 Annual Report 2012 Annual Report 2012 175 Financial Statements: Consolidated 10. Administrative expenses Staff costs » Wages and salaries » Social insurance » Other benefits Other administrative expenses Total 11. Other operating (expenses) income » Profits (Losses) from non-trading assets and liabilities revalua- tion » Profits (losses) from selling property, plant and equipment » Release (charges) of other provisions » Others Total 12. Impairment (charge) release for credit losses » Loans and advances to customers » Held to maturity financial investments Total 13. Adjustments to calculate the effective tax rate » Profit before tax » * Tax settlement for prior years » Profit after settlement » Tax rate Income tax based on accounting profit Add / (Deduct) » Non-deductible expenses » Tax exemptions » Effect of provisions » Depreciation Income tax Effective tax rate *Tax claims for the year ended on December.31, 2011 Dec. 31, 2012 EGP Dec. 31, 2011 EGP 761,672,607 30,542,233 30,941,993 736,244,948 1,559,401,781 682,034,211 24,707,497 38,341,470 704,635,517 1,449,718,695 Dec. 31, 2012 EGP Dec. 31, 2011 EGP 36,631,170 (53,338,683) 2,387,583 (47,537,825) (94,788,020) (103,307,092) 2,716,747 48,030,153 (69,947,611) (72,539,394) Dec. 31, 2012 EGP (609,971,077) - (609,971,077) Dec. 31, 2011 EGP (322,276,483) 1,627,620 (320,648,863) Dec. 31, 2012 EGP Dec. 31, 2011 EGP 3,080,917,168 (65,137,014) 3,015,780,155 24.98% 753,445,039 23,146,604 (82,115,715) 88,494,882 5,818,873 788,789,683 26.16% 2,056,439,533 - 2,056,439,533 From 20% to 25% 513,609,883 66,728,265 (184,124,927) 46,216,490 (218,295) 442,211,416 21.50% 14. Earning per share » Net profit for the period available for distribution » Board member’s bonus » Staff profit sharing * Profits shareholders’ Stake » Number of shares Basic earning per share By issuance of ESOP earning per share will be: » Number of shares including ESOP shares Diluted earning per share * Based on dividend of separate financial statements. 15. Cash and balances with Central Bank » Cash Obligatory reserve balance with CBE » Current accounts Total Non-interest bearing balances 16. Due from banks » Current accounts » Deposits Total » Central banks » Local banks » Foreign banks Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances Total 17. Treasury bills and other governmental notes » 91 Days maturity » 182 Days maturity » 364 Days maturity » Unearned interest Total 1 » Repos - treasury bills Total 2 Net Dec. 31, 2012 EGP 2,379,297,994 (35,689,470) (237,929,799) 2,105,678,725 597,227,541 3.53 Dec. 31, 2011 EGP 1,636,540,147 (24,548,102) (163,654,015) 1,448,338,030 597,227,541 2.43 607,261,107 3.47 605,482,218 2.39 Dec. 31, 2012 EGP 1,744,700,680 3,649,273,444 5,393,974,124 5,393,974,124 Dec. 31, 2012 EGP 317,264,173 7,730,556,215 8,047,820,388 3,093,850,399 590,696,679 4,363,273,309 8,047,820,387 152,732,954 7,895,087,434 8,047,820,388 8,047,820,388 8,047,820,388 Dec. 31, 2011 EGP 1,891,659,489 5,600,405,021 7,492,064,510 7,492,064,510 Dec. 31, 2011 EGP 275,977,925 8,252,251,594 8,528,229,519 3,031,574,198 234,102,521 5,262,552,800 8,528,229,519 149,987,713 8,378,241,806 8,528,229,519 8,528,229,519 8,528,229,519 Dec. 31, 2012 EGP 3,182,683,419 4,022,757,000 4,458,084,085 (470,058,411) 11,193,466,093 (3,175,711,661) (3,175,711,661) 8,017,754,432 Dec. 31, 2011 EGP 1,913,702,116 2,559,925,000 6,861,223,570 (634,008,503) 10,700,842,183 (1,440,000,000) (1,440,000,000) 9,260,842,183 176 Annual Report 2012 Annual Report 2012 177 Financial Statements: Consolidated 18. Trading financial assets 20. Loans and advances to customers Debt instruments » Governmental bonds » Other debt instruments Total Equity instruments » Foreign company shares » Mutual funds Total Dec. 31, 2012 EGP Dec. 31, 2011 EGP 1,138,056,688 43,043,738 1,181,100,426 15,877,741 318,347,334 334,225,076 353,860,497 114,241,177 468,101,674 18,677,035 188,546,741 207,223,776 Total financial assets for trading 1,515,325,502 675,325,450 19. Loans and advances to banks Dec. 31, 2012 EGP Dec. 31, 2011 EGP » Time and term loans 1,208,166,369 1,433,545,112 » Less:Impairment provision Total » Current balances » Non-current balances Total (29,298,630) 1,178,867,739 1,172,317,036 6,550,703 1,178,867,739 (37,950,503) 1,395,594,609 1,304,111,350 91,483,259 1,395,594,609 Individual » Overdraft » Credit cards » Personal loans » Mortgages » Other loans Total 1 Corporate » Overdraft » Direct loans » Syndicated loans » Other loans Total 2 Total Loans and advances to customers (1+2) Less: » Unamortized bills discount » Impairment provision » Unearned interest Net loans and advances to customers Distributed to » Current balances » Non-current balances Total Dec. 31, 2012 EGP Dec. 31, 2011 EGP 1,220,222,219 660,932,044 3,616,553,758 463,833,879 20,045,324 5,981,587,224 4,288,571,348 23,196,204,054 9,588,649,990 87,795,754 37,161,221,146 43,142,808,370 (22,277,973) (1,901,222,402) (520,994,222) 40,698,313,773 952,982,877 575,672,905 2,659,469,004 419,990,050 40,265,000 4,648,379,836 4,239,213,684 24,265,367,037 8,245,001,963 101,625,796 36,851,208,480 41,499,588,316 (45,231,397) (1,419,409,102) (365,161,953) 39,669,785,864 16,908,542,925 23,789,770,848 40,698,313,773 17,307,625,654 22,362,160,210 39,669,785,864 Analysis for impairment provision of loans and advances to banks Analysis for impairment provision of loans and advances to customers » Bgining balance » Charge (release) during the year » Exchange revaluation difference Ending balance Dec. 31, 2012 EGP 37,950,503 (11,450,369) 2,798,496 29,298,630 Dec. 31, 2011 EGP 2,694,538 34,736,518 519,447 37,950,503 Dec. 31, 2012 » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts Ending balance Individual Overdraft Credit cards Personal loans Real estate loans Other loans Total 20,377,614 42,290,218 76,502,471 11,876,297 1,593,932 152,640,532 (9,624,567) (8,977,018) 68,706 1,500,562 (503,001) (17,535,318) - - (29,454,339) (2,135,623) 4,469,470 - - - - - (31,589,962) 4,469,470 10,753,047 8,328,331 74,435,554 13,376,859 1,090,931 107,984,722 Dec. 31, 2012 » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts » Exchange revaluation difference Ending balance Overdraft 167,655,394 39,209,960 - - Direct loans 790,797,773 420,954,828 - 14,726,449 15,536,889 209,551,228 1,242,015,939 2,685,874 Corporate Syndicated loans 306,628,666 178,455,887 (154,721,287) - 6,205,339 336,568,605 Other loans Total 336,089 1,686,738 1,266,768,571 638,956,764 (154,721,287) 14,726,449 3,079,081 27,507,183 5,101,908 1,793,237,680 - - 178 Annual Report 2012 Annual Report 2012 179 Financial Statements: Consolidated Individual Dec. 31, 2011 » Beginning balance » Charged (Released) dur- ing the year » Write off during the year » Recoveries from written off debts Ending balance Overdraft 6,948,242 Credit cards 42,119,828 Personal loans 71,459,209 Real estate loans 8,888,164 Other loans Total 13,400,430 142,815,873 13,429,372 5,306,910 6,589,871 2,988,133 (11,806,498) 16,507,788 - - (8,858,433) (2,273,609) 3,721,913 727,000 - - - (11,132,042) - 4,448,913 20,377,614 42,290,218 76,502,471 11,876,297 1,593,932 152,640,532 Dec. 31, 2011 » Beginning balance » Charged (Released) during the year » Write off during the year » Recoveries from written off debts » Exchange revaluation difference Ending balance Overdraft 149,208,018 17,175,711 - - 1,271,665 167,655,394 Direct loans 759,961,827 154,370,230 (144,805,506) 11,291,492 9,979,730 790,797,773 Corporate Syndicated loans 200,640,880 100,360,788 - - 5,626,998 306,628,666 Other loans Total 2,561,291 1,112,372,016 271,032,176 (874,553) (144,805,506) - 11,291,492 - 16,878,393 - 1,686,738 1,266,768,571 21. Derivative financial instruments 21.1. Derivatives The Bank uses the following financial derivatives for non hedging purposes. Forward contracts represents commitments of buying foreign and local currencies including unexecuted spot transac- tions. Future contracts for foreign currencies and/or interest rates represents contractual commitments to receive or pay net on the basis of changes in foreign exchange rates or interest rates, and/or buying or selling foreign currencies or financial instruments in a future date with a fixed contractual price under active financial market. Credit risk is considered low, and future interest rate contracts represents future exchange rate contracts negotiated for case by case, these contracts requires financial settlements of any differences in contractual interest rates and prevailing market interest rates on future interest rates on future dates based on contractual amount (nominal value) pre agreed upon. Foreign exchange and/or interest rate swap represents commitments to exchange cash flows, resulting from these con- tracts exchange of currencies or interest (fixed rate versus variable rate for example) or both (meaning foreign exchange and interest rate contracts)/ contractual amounts are not exchanged except for some foreign exchange contracts. Credit risk is represented in the expected cost of foreign exchange contracts that takes place if other parties default to fulfill their liabilities. This risk is monitored continuously through comparisons of fair value and contractual amount, and to control the outstanding credit risk, The Bank evaluates other parties using the same methods as in borrowing activities. Options contracts in foreign currencies and/or interest rates represents contractual agreements for the buyer (issuer) to seller (holders) as a right not an obligations whether to buy (buy option) or to sell (sell option) at a certain day or within certain period for a certain amount in foreign currency or interest rate. Options contracts are either traded in the market or negotiated between The Bank and one of its clients (Off balance sheet). The Bank exposed to credit risk for purchased options contracts only and in the line of its book cost which represent its fair value. The contractual value for some derivatives options considered a base to compare the realized financial instruments on the balance sheet, but it didn’t provide indicator on the projected cash flows of the fair value for current instruments, those amounts doesn’t reflects credit risk or interest rate risk. Derivatives in The Banks benefit represent (assets) conversely it represents (liabilities) as a result of the changes in foreign exchange prices or interest rates related to these derivatives. Contractual / expected total amounts of financial derivatives can fluctuate from time to time and also the range through which the financial derivatives can be in benefit of The Bank or conversely against its benefit and the total fair value of the financial derivatives in assets and liabilities. hereunder are the fair values of the booked financial derivatives. 21.1.1. For trading derivatives Dec. 31, 2012 Dec. 31, 2011 Notional amount Assets Liabilities Notional amount Assets Liabilities 1,996,990,255 16,812,998 959,570 1,324,589,420 14,828,172 5,643,831 1,258,600,443 770,698,823 9,781,221 7,723,601 34,317,820 3,612,239 1,408,305,712 509,022,896 7,723,601 12,295,410 54,023,412 2,251,502 71,103,086 13,909,846 2,251,502 21,805,179 859,324,209 12,149,920 12,630,731 12,630,731 134,026 134,026 8,739,696 1,124,316,614 8,739,696 134,026 134,026 128,045,173 15,667,505 15,667,505 870,385 870,385 11,842,172 11,842,172 870,385 870,385 47,082,577 21,169,131 87,640,976 34,517,736 549,753,000 - 97,708,858 524,775,300 - 78,514,812 4,293,389,812 90,377,184 221,270 3,661,135,640 58,903,680 1,255,442 90,377,184 97,930,128 58,903,680 79,770,254 137,459,761 119,099,260 146,544,656 114,287,990 Foreign derivatives » Forward foreign exchange contracts » Currency swap » Options Total 1 Interest rate derivatives » Interest rate swaps Total 2 » Commodity Total 3 Total assets (liabilities) for trading derivatives (1+2+3) 21.1.2. Fair value hedge Interest rate derivatives » Governmental debit instruments hedging » Customers deposits hedging Total 4 Total financial derivatives (1+2+3+4) 21.2. Hedging derivatives 21.2.1. Fair value hedge The Bank uses interest rate swap contracts to cover part of the risk of potential decrease in fair value of its fixed rate gov- ernmental debt instruments in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 97,708,858 at the end of December, 2012 against EGP 78,514,812 at the end of December, 2011, Resulting in net loss form hedging instruments at the end of December, 2012 EGP 19,194,046 against net loss EGP 78,514,812 at the end of December, 2011. Gains arises from the hedged items at the end of December, 2012 reached EGP 14,842,228 against profits arises EGP 77,848,826 at the end of December, 2011. The Bank uses interest rate swap contracts to cover part of the risk of potential decrease in fair value of its fixed rate customers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 90,155,914 at the end of December, 2012 against EGP 57,648,238 at the end of December, 2011, Resulting in net profits form hedging instruments at the end of December, 2012 EGP 32,507,675 against net profit EGP 58,450,867 at the end of December, 2011. Losses arises from the hedged items at the end of December , 2012 reached EGP 27,731,731 against losses EGP 57,855,943 at the end of December, 2011. 180 Annual Report 2012 Annual Report 2012 181 Financial Statements: Consolidated 22. Financial investments Available for sale » Listed debt instruments » Listed equity instruments » Unlisted instruments Total Held to maturity » Listed debt instruments » Unlisted instruments Total Total financial investment » Actively traded instruments » Not actively traded instruments Total » Fixed interest debt instruments » Floating interest debt instruments Total » Beginning balance on Jan.01, 2011 » Addition » Deduction (selling - redemptions) » Exchange revaluation differences » Profit (losses) from fair value difference » Impairment (charges) release Ending Balance Available for sale financial investments 13,613,839,805 4,536,303,691 (2,135,258,815) 55,264,416 (647,348,588) (1,254,232) 15,421,546,277 » Beginning balance on Jan.01, 2012 » Addition » Deduction (selling - redemptions) » Exchange revaluation differences » Profit (losses) from fair value difference » Impairment (charges) release Ending Balance 15,421,546,277 10,169,757,165 (5,342,793,206) 60,242,239 895,941,363 (27,266,242) 21,177,427,596 22.1. Profit (Losses) from financial investments » Profit (Loss) from selling available for sale financial instru- ments » Impairment release (charges) of available for sale equity instruments » Impairment release (charges) of available for sale debt instruments » Profit (Loss)from selling investments in subsidiaries and associates » Profit (Loss) from selling held to maturity debt investments Dec. 31, 2012 EGP Dec. 31, 2011 EGP 20,607,710,266 84,923,090 484,794,241 21,177,427,597 4,154,712,549 61,075,411 4,215,787,960 25,393,215,556 23,771,302,303 1,621,913,253 25,393,215,556 23,621,268,407 1,237,877,696 24,859,146,103 Held to maturity financial investments 299,250,313 5,000,000 (271,834,782) 5,116,368 - 1,627,620 39,159,519 39,159,519 4,176,628,441 - - - - 4,215,787,960 14,533,886,080 79,748,671 807,911,526 15,421,546,277 11,647,020 27,512,500 39,159,520 15,460,705,797 13,320,674,913 2,140,030,884 15,460,705,797 12,988,814,770 1,919,838,711 14,908,653,481 Total EGP 13,913,090,118 4,541,303,691 (2,407,093,596) 60,380,784 (647,348,588) 373,388 15,460,705,797 15,460,705,797 14,346,385,606 (5,342,793,206) 60,242,239 895,941,363 (27,266,242) 25,393,215,556 Dec. 31, 2012 EGP Dec. 31, 2011 EGP 519,013 37,608,880 (27,859,838) (1,254,232) 593,597 - - (162,078) (26,909,306) 2,444,535 (130,027) 38,669,156 23. Investments in associates Dec. 31, 2012 Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value EGP Stake % Associates » Commercial International Life Insurance » Corplease » Haykala for investment » Egypt Factors » International Co. for Security and Services (Falcon) Total Egypt 1,768,401,691 1,711,942,438 253,087,786 (969,320) 49,456,444 Egypt Egypt Egypt Egypt 1,539,490,355 1,361,597,602 317,924,102 270,000 18,514,114 180,722 151,643,286 3,875,454 203,984,151 9,974,915 209,835 (3,608,534) 69,710,183 1,170,896 38,373,478 91,085,635 79,197,211 106,514,090 1,219,081 6,487,632 3,606,837,286 3,304,561,259 696,310,092 6,825,976 165,198,634 45 40 40 39 40 Dec. 31, 2011 Company’s Country Company’s Assets Company’s Liabilities (without equity) Company’s Revenues Company’s Net Profit Investment book value EGP Stake % Associates » Commercial International Life Insurance » Corplease » Haykala for Investment » Egypt Factors » International Co. for Security and Services (Falcon) Total 24. Investment property * Egypt 1,532,549,363 1,469,720,530 108,295,223 791,813 28,272,975 Egypt Egypt Egypt Egypt 1,418,875,386 1,271,498,831 162,014,580 270,000 18,440,302 307,737 165,064,735 3,595,277 179,815,258 6,762,407 103,358 (6,533,187) 64,950,622 1,801,978 5,752,704 62,511,444 46,751,684 71,809,412 (2,721,265) 5,897,888 3,197,346,728 2,953,343,517 360,829,517 (1,596,874) 106,676,167 45 40 40 39 40 » Commercial unit number f 35 in arkadia mall (14 elbahr st. Bou- lak kornish el nile) » Appartment no. 70 in the third floor building 300 meters elgom- horia st. Port said » 338.33 meters on a land and building the property number 16 elmakrizi st. Heliopolis » Villa number 113 royal hills 6th of october » Land area with 1468.85 meters elsaidi basin -markaz nabrouh eldakahlia » Land and a bulding in elmansoura elnahda street 766.3 meters » Agricultural area 1 feddan 14t and 17.25 shares near el azazi fakous elsharkia » Agriculutral area - markaz shebin eldakahlia Total Dec. 31, 2012 EGP 432,000 Dec. 31, 2011 EGP - - 750,000 700,000 - 1,121,965 3,463,000 161,000 4,517,721 10,395,686 700,000 2,000,000 1,121,965 3,463,000 222,000 4,517,721 12,774,686 * Including non rigestred by EGP 6,500,686 which were acquired against settlement of the debts mentioned above. 182 Annual Report 2012 Annual Report 2012 183 60,575,261 407,137,289 855,453,783 54,254,811 347,435,424 290,416,691 127,403,538 2,142,676,797 29. Long term loans Financial Statements: Consolidated 25. Other assets » Accrued revenues » Prepaid expenses » Advances to purchase of fixed assets » Accounts receivable and other assets » Assets acquired as settlement of debts Total 26. Property, plant and equipment Dec. 31, 2012 EGP 1,632,481,861 91,741,953 96,919,829 644,824,093 8,977,329 2,474,945,065 Dec. 31, 2011 EGP 894,579,720 91,415,711 103,989,488 438,653,639 6,180,933 1,534,819,491 Dec. 31, 2012 Land Premises IT Vehicles Fitting -out Machines and equipment Furniture and furnishing Total 60,575,261 406,071,141 758,054,062 48,990,833 267,239,246 262,543,541 117,872,051 1,921,346,135 - 1,066,148 97,399,721 5,263,978 80,196,178 27,873,150 9,531,487 221,330,662 - 161,870,230 588,329,670 26,821,878 240,994,064 191,798,840 81,023,364 1,290,838,046 - 19,129,849 68,083,994 5,365,491 35,822,477 29,041,921 10,939,173 168,382,905 - 181,000,079 656,413,664 32,187,369 276,816,541 220,840,761 91,962,537 1,459,220,951 60,575,261 226,137,210 199,040,119 22,067,442 70,618,883 69,575,930 35,441,001 683,455,846 60,575,261 244,200,911 169,724,392 22,168,955 26,245,182 70,744,701 36,848,687 630,508,089 %5 %20 %20 %33.3 %33.3 %20 » Beginning gross assets (1) » Additions (deductions) during the year Ending gross assets (2) » Accu.depreciation at beginning of the year (3) » Current period deprecia- tion Accu.depreciation at end of the year (4) Ending net assets (2-4) Beginning net assets (1-3) Depreciation rates Net fixed assets value on the balance sheet date includes EGP 21,769,393 non registered assets while their registrations proce- dures are in process. 27. Due to banks » Current accounts » Deposits Total » Central banks » Local banks » Foreign banks Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances » Non-current balances Total Dec. 31, 2012 EGP 369,862,716 1,345,000,000 1,714,862,716 7,546,231 1,362,363,985 344,952,500 1,714,862,716 354,394,897 1,360,467,819 1,714,862,716 369,862,716 1,345,000,000 1,714,862,716 Dec. 31, 2011 EGP 493,794,517 2,847,000,000 3,340,794,517 46,941,713 2,905,759,685 388,093,119 3,340,794,517 398,317,328 2,942,477,189 3,340,794,517 493,794,517 2,847,000,000 3,340,794,517 28. Due to customers » Demand deposits » Time deposits » Certificates of deposit » Saving deposits » Other deposits Total » Corporate deposits » Individual deposits Total » Non-interest bearing balances » Fixed interest bearing balances Total » Current balances » Non-current balances Total Dec. 31, 2012 EGP 16,928,995,312 24,133,038,485 24,299,048,221 12,106,727,204 1,261,312,266 78,729,121,488 36,658,501,586 42,070,619,902 78,729,121,488 18,190,307,578 60,538,813,910 78,729,121,488 51,870,912,649 26,858,208,839 78,729,121,488 Dec. 31, 2011 EGP 16,942,060,088 24,532,817,359 18,819,931,329 9,484,866,150 1,688,260,333 71,467,935,259 37,121,552,736 34,346,382,523 71,467,935,259 18,630,320,421 52,837,614,838 71,467,935,259 50,501,255,584 20,966,679,675 71,467,935,259 Interest rate % Maturity date Maturing through next year EGP Balance on Dec. 31, 2012 EGP Balance on Dec. 31, 2011 EGP 3.5 - 5.5 depends on maturity date 3-5 years 17,428,571 19,095,238 13,697,721 9 - 10.5 2012 - - 3,285,048 3-5 years 42,080,000 61,400,000 78,570,000 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which more 0.5 2012 - - - - 167,326 3,613,282 59,508,571 80,495,238 99,333,376 Dec. 31, 2012 EGP 430,377,730 256,350,678 478,367,052 819,361,660 74,547,893 2,059,005,013 Dec. 31, 2011 EGP 258,540,767 183,928,633 353,900,773 446,414,136 99,951,732 1,342,736,040 » Financial Investment & Sector Cooperation (FISC) » Support to Private Sector Indus- try Environmental Protection II (KFW) » Agricultural Research and Devel- opment Fund (ARDF) » Social Fund for Development (SFD) » Spanish Cooperation Microfi- nance Fund (SCMF) Total 30. Other liabilities » Accrued interest payable » Accrued expenses » Accounts payable » Income tax » Other credit balances Total 184 Annual Report 2012 Annual Report 2012 185 Financial Statements: Consolidated 31. Other provisions Dec. 31, 2012 » Provision for income tax claims » Provision for legal claims » Provision for contin- gent » * Provision for other claim Total Dec. 31, 2011 » Provision for income tax claims » Provision for legal claims » Provision for contin- gent » Provision for other claim » Provision for end of service Total Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 16,553,685 - - (1,591,577) - 14,962,108 35,171,960 4,924,686 11,983 (10,958,065) (531,054) 28,619,510 210,103,042 40,594,505 7,202,883 - 8,973,223 6,353,586 16,075 (1,336,550) - - 257,900,430 14,006,334 270,801,909 51,872,777 7,230,941 (13,886,192) (531,054) 315,488,382 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 17,210,280 - 34,719,567 2,021,413 - - (656,595) - 16,553,685 - (1,569,020) 35,171,960 256,708,900 - 2,321,223 (178,971) (48,748,110) 210,103,042 10,001,799 2,196,294 8,397 (3,233,267) - 8,973,223 250,574 - - - (250,574) - 318,891,120 4,217,707 2,329,620 (4,068,833) (50,567,704) 270,801,909 Dividend deducted from shareholders’ equity in the Year that the General Assembly approves the dispersment the share- holders of this dividend, which includes staff profit share and remuneration of the Board of Directors stated in the law. 32.2. Reserves According to The Bank status 5% of net profit is to increase legal reserve until it reaches 50% of The Bank’s issued and paid in capital. Central Bank of Egypt concurrence for usage of special reserve is required. 33. Deferred tax Deferred tax assets and liabilities are attributable to the following: » Fixed assets (depreciation) » Other provisions (excluded loan loss, contingent liabilities and income tax provisions) » Other investments impairment » Reserve for employee stock ownership plan (ESOP) Total Dec. 31, 2012 Assets (Liabilities) EGP (19,439,154) Dec. 31, 2011 Assets (Liabilities) EGP (13,329,499) 10,998,616 9,522,636 98,995,733 38,801,679 129,356,874 69,165,241 30,659,714 96,018,092 34. Share-based payments According to the extraordinary general assembly meeting on June 26, 2006, The Bank launched new Employees Share Own- ership Plan (ESOP) scheme and issued equity-settled share-based payments. Eligible employees should complete a term of 3 years of service in The Bank to have the right in ordinary shares at face value (right to share) that will be issued on the vest- ing date, otherwise such grants will be forfeited. Equity-settled share-based payments are measured at fair value at the grant date, and expensed on a straight-line basis over the vesting period (3 years) with corresponding increase in equity based on estimated number of shares that will eventually vest(True up model). The fair value for such equity instruments is measured using of Black-Scholes pricing model. * Provision for other claim formed on December 31, 2012 amounted to 6,353,586 EGP to face the potential risk of banking Details of the rights to share outstanding during the period are as follows: operations against amount 2,196,294 EGP on December 31, 2011 . 32. Equity 32.1. Capital The authorized capital reached EGP 20 billion according to the extraordinary general assembly decision on March 17, 2010. Issued and Paid in Capital reached EGP 5,972,275,410 to be divided on 597,227,541 shares with EGP 10 par value for each share based on: • Increase issued and Paid up Capital by amount EGP 25,721,800 on April 21, 2010 in according to Board of Directors » Outstanding at the beginning of the period » Granted during the period » Forfeited during the period » Exercised during the period Outstanding at the end of the period decision on November 11,2009 by issuance of first trench for E.S.O.P program. Details of the outstanding tranches are as follows: Dec. 31, 2012 No. of shares 12,676,036 7,208,355 (673,567) (3,771,242) 15,439,582 EGP Fair value 21.70 21.25 9.98 Dec. 31, 2011 No. of shares 10,550,825 5,844,356 (407,206) (3,311,939) 12,676,036 No. of shares 2,934,838 5,487,194 7,017,550 15,439,582 5th tranche 10 31.15 3 12% 3.21% 34% Maturity date » 2013 » 2014 » 2015 Total EGP Exercise price 10 10 10 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: » Exercise price » Current share price » Expected life (years) » Risk free rate % » Dividend yield% » Volatility% 6th tranche 10 18.7 3 16.2% 5.35% 38% Volatility is calculated based on the daily standard deviation of returns for the last three years. • Increase issued and Paid up Capital by amount EGP 2,950,721,800 on July 15, 2010 according to Board of Directors decision on May 12 ,2010 by distribution of one share for every outstanding share by capitalizing on the General Reserve and part of the Legal Reserve. • Increase issued and Paid up Capital by amount EGP 33,119,390 on July 31, 2011 in according to Board of Directors decision on November 10,2010 by issuance of second trench for E.S.O.P program. • Increase issued and Paid up Capital by amount EGP 37,712,420 on April 9, 2012 in according to Board of Directors decision on December 22,2011 by issuance of third trench for E.S.O.P program. The Extraordinary General Assembly approved in the meeting of June 26, 2006 to activate a motivating and rewarding program for the Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a maxi- mum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2006 and delegated the Board of Direc- tors to establish the rewarding terms and conditions and increase the paid in capital according to the program. The Extraordinary General Assembly approved in the meeting of April 13,2011 continue to activate a motivating and re- warding program for The Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a maximum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2011 and delegated the Board of Directors to establish the rewarding terms and conditions and increase the paid in capital according to the program. 186 Annual Report 2012 Annual Report 2012 187 Financial Statements: Consolidated 35. Reserves and retained earnings » Legal reserve » General reserve » Retained earnings (losses) » Special reserve » Reserve for A.F.S investments revaluation difference » Banking risks reserve » Intangible Assets Value For Bank Share Before Acquisition Total 35.1. Banking risks reserve » Beginning balance » Transferred from profits Ending balance 35.2. Legal reserve » Beginning balance » Transfer from special reserve » Transferred from previous year profits Ending balance Dec. 31, 2012 EGP 380,348,755 2,036,955,188 (510,946,406) 117,805,566 153,364,794 103,716,932 - 2,281,244,828 Dec. 31, 2012 EGP 281,689,619 (177,972,687) 103,716,932 Dec. 31, 2012 EGP 231,344,896 61,697,292 87,306,567 380,348,755 Dec. 31, 2011 EGP 231,344,896 1,234,122,776 (362,379,298) 185,931,315 (723,343,863) 281,689,619 302,794,421 1,150,159,865 Dec. 31, 2011 EGP 156,992,515 124,697,104 281,689,619 Dec. 31, 2011 EGP 125,128,337 - 106,216,559 231,344,896 35.3. Reserve for A.F.S investments revaluation difference » Beginning balance » Unrealized gains (losses) from A.F.S investment revaluation Ending balance Dec. 31, 2012 (723,343,863) 876,708,657 153,364,794 Dec. 31, 2011 (18,418,736) (704,925,127) (723,343,863) 35.4. Retained earnings (losses) » Beginning balance » Dividend previous year » Change during the period » Transferred from special reserve » Transferred to retained earnings (losses) » The effect of changing accounting policies Ending balance 36. Cash and cash equivalent » Cash and balances with Central Bank » Due from banks » Treasury bills and other governmental notes » Obligatory reserve balance with CBE » Due from banks (time deposits) more than three months » Treasury bills with maturity more than three months Total Dec. 31, 2012 (362,379,298) (15,105,920) (353,414) 1,001,979 (134,109,753) - (510,946,406) Dec. 31, 2012 EGP 5,393,974,124 8,047,820,388 8,017,754,432 (3,093,283,199) (4,637,273,016) (8,063,078,264) 5,665,914,465 Dec. 31, 2011 (203,604,610) (20,231,298) (30,796,515) - (122,852,795) 15,105,920 (362,379,298) Dec. 31, 2011 EGP 7,492,064,510 8,528,229,519 9,260,842,183 (3,014,779,811) (5,237,471,783) (8,821,367,483) 8,207,517,135 37. Contingent liabilities and commitments 37.1. Legal claims There are a number of existing cases filed against the bank on December.31, 2012 without provision as it’s not expected to make any losses from it. 37.2. Capital commitments 37.2.1. Financial investments The capital commitments for the financial investments reached on the date of financial position EGP 199,123,121 as follows: » Available for sale financial investments Investments value EGP 322,671,851 Paid EGP 123,548,730 Remaining EGP 199,123,121 37.2.2. Fixed assets and branches constructions The value of commitments for the purchase of fixed assets contracts and branches constructions that have not been imple- mented till the date of financial statement amounted to EGP 14,922,669. 37.3. Letters of credit, guarantees and other commitments » Letters of guarantee » Letters of credit (import and export) » Customers acceptances Total Dec. 31, 2012 EGP 12,787,512,199 933,297,936 1,176,928,870 14,897,739,005 Dec. 31, 2011 EGP 11,263,565,016 753,154,858 542,833,642 12,559,553,516 38. Mutual funds Osoul fund • The Bank established an accumulated return mutual fund under license no.331 issued from capital market authority on February 22, 2005 CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 32,294,160 with redeemed value EGP 6,272,494,697. • The market value per certificate reached EGP 194.23 on December 31, 2012. • The Bank portion got 1,612,914 certificates with redeemed value EGP 313,276,286. Istethmar fund • CIB bank established the second accumulated return mutual fund under license no.344 issued from capital market authority on February 26, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. - The number of certificates issued reached 2,332,745 with redeemed value EGP 141,644,276. • The market value per certificate reached EGP 60.72 on December 31, 2012. • The Bank portion got 194,744 certificates with redeemed value EGP 11,824,856. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • The Bank and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capital market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 884,496 with redeemed value EGP 37,290,351 . • The market value per certificate reached EGP 42.16 on December 31, 2012. • The Bank portion got 71,943 certificates with redeemed value EGP 3,033,117. Hemaya fund • CIB bank established an accumulated return mutual fund under license no.585 issued from financial supervisory Au- thority on June 23, 2010. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 344,619 with redeemed value EGP 40,737,412. • The market value per certificate reached EGP 118.21 on December 31, 2012. • The Bank portion got 50,000 certificates with redeemed value EGP 5,910,500. 188 Annual Report 2012 Annual Report 2012 189 Financial Statements: Consolidated Thabat fund • CIB bank established an accumulated return mutual fund under license no.613 issued from financial supervisory au- thority on September 13, 2011. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 1,479,698 with redeemed value EGP 173,006,290. • The market value per certificate reached EGP 116.92 on December 31, 2012. • The Bank portion got 52,404 certificates with redeemed value EGP 6,127,076. 39. Transactions with related parties All banking transactions with related parties are conducted in accordance with the normal banking practices and regulations applied to all other customers without any discrimination. • Amend certain regulations of the Income Tax Law issued by Act No. 91 of 2005 • Amend certain regulations of the Sales Tax Law issued by Act No. 11 of 1991 • Amend certain regulations of the tax law on property built issued by Act No. 196 of 2008 • Amend certain regulations of the Stamp Tax Law issued by Act No. 111 of 1980 • Presidential instructions were issued to freeze those laws and so, the financial statements hadn’t been affected by those amendments. • The impact of those laws on the bank if applied has been calculated from the date of their publication in the official newspaper. • This had resulted in a total liability within the limit of L.E 3.1 million. • The bank’s external auditors had verified the calculation of this commitment. 39.1. Loans, advances, deposits and contingent liabilities CICH • The company has been inspected from the beginning of its operation 1999 till 2000. • The company has made an objection over the tax declaration & the re-inspection has been approved but till now no date has been determined for inspection (no inspection made from year 2001 till 2004). • The tax deceleration has been represented for the years 2005/2007 according to the income tax rule no. 91 year 2005. • The salary tax has been inspected from the beginning of operation till 2004 & has been settled no tax inspection has been made from 2005 till now. • The company has been inspected from the beginning of its operation 1999 till 2000. • The company made an objection on the legal time & no date has been determined for internal committee to discuss the issue no tax inspection has been made from 2001 till the cancellation of stamp duty rule on July 31, 2006. Sales tax is not applied for the company’s operation. 42. Main currencies positions » Egyptian pound » US dollar » Sterling pound » Japanese yen » Swiss franc » Euro Dec. 31, 2012 In thousand EGP 12,800 (10,376) 1,670 (67) 179 8,598 Dec. 31, 2011 In thousand EGP 8,068 24,134 408 (53) 118 7,481 » Loans and advances » Deposits » Contingent liabilities EGP 660,440,043 243,759,055 114,859,635 39.2. Other transactions with related parties » International Co. for Security & Services » Corplease Co. » Commercial International Life Insurance Co. Income EGP 1,328,326 66,903,581 3,469,611 Expenses EGP 65,837,521 52,183,938 2,448,968 40. Good will & intangible assets According to Central Bank of Egypt regulation issued on Dec 16, 2008, an amortization of of 20% annualy has been applied on goodwill starting Year 2010. Amortization amount has been riched until end of December 2012 EGP 200,467,337 Intangible assets which have been acquired on acquisition date are determined as follows:- » Brand » Licenses » Contracts » Customer Relationships Total » Amortization Till December 2012 Net Intangible Assets EGP 336,790,272 20,000,000 119,694,389 198,187,745 674,672,406 (641,249,991) 33,422,415 The economic life for intangible assets were estimated to be ten years which intangible assets amortize over it except in case of impairment loss indication in this case the impairment loss recognizes through profit and loss. 41. Tax status Bank • The Bank’s corporate income tax position has been examined and settled with the tax authority from the start up of operations up to the end of year 1984. • Corporate income tax for the years from 1985 up to 2000 were paid according to the tax appeal committee decision and the disputes are The Bank’s corporate income tax position has been examined and settled with the tax authority from Year 2001 up to Year 2004. • Corporate income tax for the years 2005-2006 has been examined from the tax authority and paid. • The Bank pays salary tax according to concerning domestic regulations and laws, and the disputes are under discus- sion in the court of low The Bank pay stamp duty tax according to concerning domestic regulations and laws, and the disputes are under discussion in the court of law . • Several resolutions were issued to amend some income tax laws and were published in the official newspaper on December 6, 2012. which will take effect as of the next day of publication and these amendments are as follows: 190 Annual Report 2012 Annual Report 2012 191 CIB Employees Featured in this Report Name Ahmed El Geoushy Ahmed Swidan Amr Al-Shuwaikh Ahmed Megahed Alaa Yehia Amgad Sorour Amr Al-Shuwaikh Dina Ibrahim Engy Ibrahim Abdel Sallam Habiba El-Gogary Ingi Akram Ismail El Saidy Karim Youssef Khaled Magdy Laila Ramez Mohamed Shams Mohamed Rouchdy Mohamed Adel-Mostafa Mohamed El Nagar Mostafa Adel Monia Mikhail Mohamed Talaat Mohamed El Rawy Nermin Rafik Nermine Farrag Neveen Gamal Nermeen Refaat Nader Fouad Omar Nagy Omar Ibrahim Randa Khodeir Sherif Shalash Sameh Karara Sandra Fouad Sara Ahmed Fouad Shalaby Shehab Shams El Din Sally Asaad Sherif Hany Soha El-Etriby Tariq Feroz Yasmine Waheed Yasmine Gadallah Hiring Date More than 5 years More than 5 years More than 5 years More than 5 years More than 5 years More than 5 years More than 5 years More than 5 years Less than 5 years More than 5 years Less than 5 years Less than 5 years Less than 5 years More than 5 years Less than 5 years More than 10 years More than 5 years More than 5 years More than 5 years Less than 5 years Less than 5 years Less than 5 years Less than 5 years More than 5 years Less than 5 years Less than 5 years Less than 5 years Less than 5 years Less than 5 years More than 5 years More than 10 years Less than 5 years More than 5 years Less than 5 years Less than 5 years Less than 5 years More than 5 years Less than 5 years More than 5 years Less than 5 years More than 5 years Less than 5 years Commercial International Bank S.A.E Nile Tower Building 21/23 Charles De Gaulle Street Giza, Cairo, P.O. Box 2430 Tel: (+202) 3747 2000 Fax: (+202) 3570 3632 Website: www.cibeg.com 

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