Commercial International Bank (CIB) Egypt
Annual Report 2013

Plain-text annual report

Annual Report 2013 Helping a Nation Realize its True PoTenTial AnnuAl RepoRt 2013 I The Alexandria Stock Exchange, established in 1883, served as a hub of the city’s financial community and has been an engine of economic growth ever since. Contents CIB: An IntroduCtIon Our History What We Do A Snapshot Of Our Businesses Key Financial Highlights Key Facts A Strategy that Delivers Chairman’s Note Board of Directors’ Report 2013 In revIew Institutional Banking Global Customer Relations Consumer and Business Banking COO Area Risk Group Compliance Internal Audit StrAtegIC SuBSIdIArIeS CI Capital Holding Egypt Factors Commercial International Life Insurance Company CORPLEASE Falcon Group CorporAte governAnCe exeCutIve mAnAgement CommunIty development CIB Foundation Sustainability at CIB fInAnCIAl StAtementS 02 02 03 04 05 06 08 10 22 30 32 38 44 52 53 56 58 59 59 60 64 68 72 76 88 II AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 1 CIB: An IntRoDuCtIon CIB: An IntRoDuCtIon A master-planned city, Port Said was—and is—home to beautifully designed buildings and grand promenades, lending an air of respectability to the commercial activity that allowed the city to thrive. ouR HiStoRy WHAt We Do A SNApSHot of ouR BuSiNeSSeS 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 specialist, ac- quired 50% of the stake held by the Ripplewood Consortium. Five months later, in December 2009, Actis became the single largest shareholder in CIB with a 9.09% stake after Ripplewood sold its remaining share of 4.7% on the open market. The emer- gence of Actis as the predominant shareholder marked a suc- cessful transition in the Bank’s strategic partnership. Commercial International Bank (CIB) is the leading private sector bank in Egypt, offering a broad range of financial products and services to its customers, which include en- terprises of all sizes, institutions, households and high-net- worth (HNW) individuals. In addition to traditional asset and liability products, CIB of- fers 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 bank- ing, brokerage and research services), Commercial Interna- tional Life Insurance Company, the Falcon Group, Egypt Fac- tors, 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. Corporate Banking Widely recognized as the preeminent corporate bank in Egypt, CIB aspires to become one of the best banks in the region, serving industry-leading corporate clients as well as small and medium-sized businesses. Debt Capital Markets CIB’s global product knowledge, local expertise and capital re- sources make the Bank an industry leader in project finance, syndicated loans and structured finance in Egypt. CIB’s project finance and syndicated loans teams provide large borrowers with better market access and greater ease and speed of execution. 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 opportu- nities in Egypt and across the region. Consumer Banking CIB recorded considerable growth in 2013 as it continued to build a full-service, world-class consumer bank, as under- scored by the ability to serve clients in a challenging environ- ment last year. We offer a wide array of consumer banking products, including: • Personal Loans: Focusing on employees of our corpo- rate banking clients and offering secured overdrafts and trade products. • Auto Loans: Positioned to actively support this growing market in the coming years. • Deposit Accounts: Offering a wide range of account types to serve our clients’ deposit and savings needs, including 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 current, savings and time deposit accounts. • Residential Property Finance: Providing loans to fi- nance home purchases, residential construction and re- furbishment 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 number of affluent clients in Egypt. Investment Banking Services Through CI Capital, CIB offers existing and prospective cli- ents a full suite of investment banking products and services, including investment banking, advisory and execution, asset management, brokerage and equity research. CI Capital of- fers both deep and broad market knowledge and expertise; the firm is consistently ranked as a leading brokerage house serving local and international clients in Egypt. 2 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 3 CIB: An IntRoDuCtIon CIB: An IntRoDuCtIon Key fiNANciAl HigHligHtS Key fActS FY 13 Consoli- dated FY 12 Consoli- dated FY 11 Consoli- dated FY 10 Consoli- dated FY 13 FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 FY 05 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 2.76 1.0 3.53 1.25 2.43 1 3 1 2.63 1.5 4.89 3.73 3.64 2.77 1 1 1 1 13.46 18.94 15.03 14.59 23.75 19.25 20.93 15.59 19.44 45.4 27.4 32.6 39.8 21.1 34.6 47.4 18.5 18.7 79.49 33.75 59.7 29.5 47.4 54.68 93.4 27.87 37.2 95 53.61 91.77 79 42.11 57.87 63.5 39.91 58.68 900.2 597.2 593.5 590.1 292.5 292.5 195 195 130 29,330 20,646 11,098 27,973 15,994 10,881 17,895 11,285 7,628 11.8 9.8 7.7 15.8 20.8 7.6 24.6 15.9 21.2 3.07% 3.62% 5.35% 2.11% 2.74% 2.69% 1.09% 1.73% 2.60% 34.4% 31.36% 33.90% 27.60% 24.60% 18.10% 15.80% 27.50% 21.30% 2.42 1.83 1.24 3.25 2.3 1.93 4.39 3.71 3.02 6,976 5,344 3,934 3,952 6,482 5,108 3,837 3,727 3,173 3,200 2,288 1,741 1,450 916 610 321 916 1,884 3,006 610 1,653 2,226 321 1,557 1,615 6 6 1,562 2,021 916 610 321 916 1,727 2,615 610 1,445 2,203 321 1,337 1,749 6 6 9 9 1,188 2,141 1,041 1,784 346 193 176 197 49 395 950 57 250 636 1,615 1,233 18 193 668 802 167 364 474 610 26.52% 30.93% 39.58% 39.52% 26.11% 28.29% 34.84% 31.87% 32.80% 29.69% 27.82% 38.38% 32.72% 26.46% 22.79% 18.69% 28.66% 22.33% 21.77% 20.96% 30.47% 31.18% 36.31% 37.95% 31.58% 29.30% 5.36% 4.74% 3.71% 3.62% 3.81% 3.54% 3.12% 3.06% 3.50% 2.89% 2.48% 2.01% 2.89% 2.51% 2.45% 2.18% 3.08% 2.94% 3.08% 2.90% 2.37% 2.09% 5,490 5,181 4,867 4,755 5,193 4,867 4,517 4,360 4,162 3,809 3,132 2,477 2,301 16,413 16,140 18,990 16,325 16,646 16,764 19,821 16,854 16,125 14,473 21,573 13,061 10,537 41,866 41,877 41,065 35,175 41,970 41,877 41,065 35,175 27,443 26,330 20,479 17,465 14,039 113,607 94,014 85,506 75,425 113,752 94,405 85,628 75,093 64,063 57,128 47,664 37,422 30,390 96,846 78,729 71,468 63,364 96,940 78,835 71,574 63,480 54,843 48,938 39,515 31,600 24,870 Common Shareholders Equity 11,960 10,822 8,712 8,567 12,115 11,311 8,921 8,609 6,946 5,631 4,081 3,040 2,527 Average Assets Average Interest Earning Assets Average Common Shareholders Equity Balance Sheet Quality Measures Equity to Risk-Weighted Assets Risk-Weighted Assets (EGP billions) 103,782 89,760 80,480 69,840 104,079 90,017 80,361 69,578 60,595 52,396 42,543 33,906 29,183 94,672 80,063 70,913 62,007 94,605 79,834 70,549 61,624 53,431 44,602 36,603 29,277 25,619 11,362 9,767 8,640 7,800 11,713 10,116 8,765 7,777 6,288 4,856 3,560 2,784 2,325 17.07% 16.50% 15.79% 17.63% 17.29% 17.30% 16.11% 17.71% 17.01% 15.19% 13.70% 14.14% 13.83% 70 65 55 49 70 65 55 49 41 37 30 26 22 12.46% 12.20% 12.53% 15.66% 12.46% 12.18% 12.53% 15.66% 15.28% 13.74% 10.17% 9.59% 9.78% Tier 1 Capital Ratio Adjusted Capital Adequacy Ratio**** 13.55% 13.59% 15.40% 16.92% 13.55% 13.59% 15.40% 16.92% 16.53% 14.99% 14.70% 13.60% 13.10% * ** *** **** 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 2013 and 2012 as per Basel II regulations before profit appropriation our #1 Bank in terms of: 5,490 employees serve some 571,407 active customers EGP 113.8bn in total assets 90,725 internet banking subscribers over 500 of Egypt’s largest corporations bank with cib ProfiTAbiliTy achieving EGP 3 billion in net income rEvENuE among all Egyptian private sector banks with EGP 6.98 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 4 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 5 CIB: An IntRoDuCtIon CIB: An IntRoDuCtIon one of three key streets leading out of Place de l’opera, beautiful kamel Street served as a hub for high-end shopping in khedivial cairo. A StRAtegy tHAt DeliveRS CIB’s outstanding performance over the past three years reveals that at CIB, our customers are our top priority. Our continued success depends 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 perfor- mance in standing hand-in-hand with our clients during these unstable times. Our unwavering commitment to our clients is the basis on which we will continue to provide our shareholders with consistent and high-quality returns. We believe a key component of our success is our highly skilled staff. CIB’s ability to offer our employees an attrac- tive work environment, myriad career opportunities 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 individuals and enter- prises 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 em- ployees work together to deliver effective results for our cus- tomers 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 and 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 satis- faction 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 pro- mote it accordingly. • We strive to lead the Egyptian financial services industry to a higher level of performance in serving the millions of Egyp- tians who remain underserved or unbanked. 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 communities 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 sug- gestions and offer constructive criticism. • CIB is a meritocracy, where all employees have equal op- portunity for development and advancement based only on their merits. 6 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 7 CIB: An IntRoDuCtIon cHAiRmAN’S Note A WoRD FRoM ouR CHAIRMAn our democracy will be judged not merely by the ease with which citizens cast ballots, but by our ability to help those same citizens secure the means to earn a livable wage that feeds their families — knowing that they will be well- educated and well cared for when they become sick. Although we all share an optimistic outlook for the future of our nation, it would be naïve not to acknowledge the impact a lack of focus had on our economy. Real GDP growth, while stable at 2.1% year-on-year, was still below pre-2011 levels. Do- mestic investment as a percentage of GDP has fallen, the Egyp- tian pound depreciated a further 12% against the US dollar. These are serious issues, and they command our attention no less than the shape of our constitution. With the signifi- cant heavy political lifting of this “founding phase” of the new Egyptian republic now behind us, we need to shift our attention to laying the foundation for an equally durable eco- nomic vision that will withstand the test of both time and shifting political priorities. Our democracy will be judged not merely by the ease with which citizens cast ballots, but by our ability to help those same citizens secure the means to earn a livable wage that feeds their families — knowing that they will be well-educat- ed and well cared for when they become sick. It is, I would argue, time that Egypt establishes a National Economic Council that will create the economic DNA for this nation, setting a strategy that will allow us to channel invest- ment into the sectors where it will have the most impact. Ex- amples are all around us, not least of which is the most re- cent: The success of Dubai in winning the Expo 2020 on the back of a clear economic development strategy. Our nation is blessed with significant opportunities — op- portunities that may only be captured if we are prepared. The transformation of grants, loans and deposits from our national allies in the Gulf into substantial stimulus spend- ing was an outstanding first step, but further efforts must be channeled into priorities identified by an economic blueprint. No blueprint will cure all that which ails us — not as an economy, and not as a nation. But as Martin Luther King Jr. suggested a half-century ago, re-imagining our nation’s fu- ture begins with a dream. The power of a dream to transform an economy when there is a clear blueprint is on display here in present-day Egypt: Mohamed Said Pasha dared to dream more than 160 years ago when, as Khedive, he granted Ferdinand de Lesseps the first of two concessions for land that became the Suez Canal, a mega-project that transformed not just our nation, but the global economy. Subsequent generations of Egyptians have certainly dared to dream, but no project to-date has had the transformative impact of the Suez Canal. It revolutionized not just our position in the modern global economy, but laid the foundation for our trading patterns, banking system, in- frastructure networks — even our pride as a vibrant nation. Make no mistake: We are at an inflection point in history, and our future lies not in a single Suez Canal, but in a multi- plicity of national megaprojects with multiplier effects that will not merely put our nation back on its feet economically, but remind us of the amazing things Egyptians can accom- plish when they put their minds to it. Since January 2011, many experts — real and self-appoint- ed — have appeared in public forums and on television, in print and online, talking about the desperate need to rein- vigorate the nation through a megaproject. A few have even had specific suggestions, but not one has become a reality. We have the knowledge base, we have the human and natural resources, and we have the hunger to change. What we have so far lacked is leadership, a catalyst for change. We aspire to being part of that solution at CIB: Putting capital in the hands of those who can grow the economy is why we come to work each and every day, at all levels of the bank. We may not be able to single-handedly lead change, but we are closer to a wide cross-section of the economy than are many, a fact that gives us a certain level of insight. Based on that point of view — and on my decades of experi- ence in the industry — I would suggest that we do not need a single national-level mega-project. No Suez Canal or High Dam would, by itself, have the scale necessary to move for- ward an economy as large and diversified as Egypt’s. Instead, I believe we need a Megaproject of Megaprojects: Multiple large, impactful investments across a broad spectrum of in- dustries that will drive us forward in energy, transportation, healthcare, food, public infrastructure, information technol- ogy. The list is as bounded only by our ability to dream. This is why the era of the Suez Canal’s building and rise to global importance underpins our annual report this year: It was a pivotal project that catalyzed the building of our na- tion’s modern infrastructure, banking and trade position — and which continues to pay dividends to this day. As we look to put capital to work across the economy, we have taken a critical look not just at how we will weight our effort, but also at where we can do better as an institution. That is why we have continued since 2011 with our ambitious plans for hiring, investing in critical infrastructure, opening new branches, renewing our information technology systems and, above all, training our people. The fruit of this investment is clear in our 2013 perfor- mance: Despite broad-based challenges to the economy and three successive downgrades in credit ratings during the first half of the year, we posted an outstanding operational and financial performance with improvement across all key metrics, from margins and spreads to average return on eq- uity, return on average assets and cost-to-income, where our ratio is now the lowest it has been in five years. In the last year, we have begun implementing ambitious programs to innovate across the board, from the product side of the house to new training initiatives and, in particu- lar, our first-ever Sustainable Development Department. The latter, which falls directly under the umbrella of the COO Area, is now advised by one of our prominent board members. The department will help ensure CIB not only minimizes its environmental footprint, but also makes a meaningful contribution to the improvement of our nation’s socio-economic interests. While still in its infancy, we are convinced the Department will have an outsized impact within the Bank — and on the world around us. It’s another example of how CIB looks to lead by example, starting a process that will change our DNA just as we look forward to a National Economic Council es- tablishing the economic DNA of this great nation. Hisham ezz el-Arab Chairman and Managing Director 8 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 9 BoARD oF DIReCtoRS’ RepoRt BoARD oF DIReCtoRS’ RepoRt cairo railway Station: built in 1892 on the site of the original station (est. 1856) connecting cairo to Alexandria, the ramses railway Station has long served as a vital link in Egypt’s transportation network. BoARD of DiRectoRS’ RepoRt Macroeconomic overview The year 2013 has been quite eventful for Egypt. Our country has made several strides towards a more stable political landscape. The 30 of June Revolution resulted in a change in direction to focus more on economic stabil- ity and return to growth. Despite the general optimism shared by many with regards to the country’s future out- look, acknowledging the harsh realities of the state of the country’s economy is paramount to moving forward. Real GDP growth remained stable at its previous level of 2.1%. Domestic investment as a percentage of GDP dropped from 16% to 14% and unemployment recorded a high of 13.4%. The government’s budget deficit increased to 13.7%. Public debt reached 83% of GDP in June 2013, while sovereign yields also peaked in June 2013. The Egyptian pound depreciated 12% against the dollar dur- ing the year and annual inf lation1 picked up to 11.7%. The Egyptian economy, and accordingly all Egyptian banks, had three successive downgrades in credit ratings during the first half of the year followed by an upgrade in the second half of 2013. Such downgrades inevitably re- sulted in a drop in the creditworthiness of the country in the eyes of the outside world and subsequently negatively impacted the institutions operating in Egypt. The optimism shared by many for the future of the Egyptian economy is not unwarranted. The budget def- icit is expected to drop to 11% in 2014, while sovereign yields had witnessed a rapid decline during the second half of the year. Moreover, the continued f low of aid and investments into the country should further avail Egypt of its foreign currency supply. The CBE’s international reserves recovered to USD 17 billion by the end of 2013 also as a result of the aid. Furthermore, CDS on the gov- ernment’s Eurobonds declined to reach 579 bp since June 2013 on greater clarity of the country’s future direction and roadmap. The banking system remained resilient in the face of unfavorable economic conditions. Average loan-to-depos- it ratio fell from 48% in 2012 to 44% in 2013. As demand for credit remains muted, banks continued to allocate large portions of their excess liquidity to sovereign portfolio. Total market loans grew by 6% YTD October 2013, while deposits increased by 14%. The rate of deposit dollariza- tion2 remained steady at 24% during the year. In 2013, the CBE undertook four changes in the corridor rates during the year: 50bp increase in Q1 followed by two successive cuts in Q3 of 50bp each and a further 50bp cut in Q4. This represents a net decrease of 100bp in corridor rates from 2012 mainly aiming at accelerating the pace of growth in investment and credit to the private sector. The interim government implemented a EGP 30 billion stimulus spending package in August 2013 aimed at in- frastructure projects, with another planned for early 2014 that will boost the economy in the short term. Such initia- tives are the driving force behind the optimism among the vast majority of Egyptians today. 1. As measured by Consumer Price Index (Published by CBE) 2. The ratio of foreign currency deposits to total deposits with the banking system excluding deposits held at CBE. 10 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 11 BoARD oF DIReCtoRS’ RepoRt BoARD oF DIReCtoRS’ RepoRt 2013 Financial position CIB produced yet another record financial performance in 2013. Consolidated net income for full year 2013 was EGP 3 billion, 35% over 2012. Standalone net income reached EGP 2.6 billion, 19% over 2012. Standalone revenues grew 27% over 2012 to reach EGP 6.8 billion. CIB recorded net interest income of EGP 5.1 billion, 29% over 2012. Non-interest income was key to 2013’s perfor- mance, with on-going foreign currency illiquidity translating into record trade finance and dealing room fees. Non-inter- est income achieved the highest annual growth in the last 4 years reaching EGP 1.4 billion. Net fees and commission in- come grew 42% year-on-year to reach EGP 1.2 billion. Despite a declining rate environment, CIB improved mar- gins, spreads and performance across all indicators. Consoli- dated ROAE was 26.5% (before appropriation) up from 22.9% in 2012. Consolidated ROAA recorded 2.9% up from 2.5% in 2012, Net interest margin increased by 62bp to reach 5.36% as management increased minimum lending rates to better re- flect risk. CIB improved its efficiency, cost-to-income record- ed 26% compared to 28% in 2012; the lowest cost to income ratio in the last 5 years. Gross loans grew by 3%, adding EGP 1.2 billion during the year to reach EGP 45.6 billion, on slower than expected economic recovery. CIB continued its focus on maintaining margins and had the highest increase in loan yields of 94bp among its peers3. CIB market share reached 8.27% in October 2013 compared to 8.58% in December 2012 as management focused on efficiency and loan portfolio quality. CIB grew deposits strongly during the year, adding EGP 18.1 billion to reach EGP 96.9 billion (23% increase over 2012). The Bank had the highest growth in deposits among its peers, driven by growth in local currency time deposits, demand deposits and savings accounts. Deposit market share grew 40bp during 2013 to reach 7.63% in October 2013. 2013 saw the introduction and management approval of Risk-Adjusted Return on Capital (RAROC)4 as a standardized performance measuring tool. RAROC provides a more repre- sentative return on the true cost of capital to the bank based on the amount of capital allocated, helping to maximize re- turn on capital and ensure best capital allocation. CIB maintained its strong and resilient balance sheet and capital base, reflected in a comfortable capital adequacy level5 (13.55%) and CBE liquidity ratios; these place the bank in a flex- ible position to deal with an uncertain economic environment. CIB maintained its lead over main competitors, achieving the highest year-on-year growth in revenues on strong fee and commissions, deposit and balance sheet growth. Over- all, CIB had a strong financial performance exceeding P&L targets in 2013. 2014 is expected to mark the beginning of a return to core business growth as the country stabilises. prudent Risk Management and preservation of Asset Quality Understanding and assessing risk is a trait known to CIB’s culture which has helped us navigate through several storms 3. Comparison based on September 2013 data 4. RAROC is calculated as the net contribution divided by the capital charge 5. CAR based on Basel II as modified by CBE before profit appropriation in the past. Management’s view is that a provision is only a provision when it is not needed, hence, f a provision is need- ed then it is no longer a provision, but rather a write-off. As such and in light of the present state of the economy and the impact that the political landscape and disturbances have had over the last three years on several industries, manage- ment found it prudent to take the necessary measures that would adequately reflect prevailing economic conditions by taking the necessary downgrades on some sectors. To that end, CIB took loan loss provision expense of EGP 915 million to hedge against any event of a prolonged recovery process in these sectors. As the bank’s loan portfolio continues to be dominated by top tier clients with low leverage, a marginal increase of 33bp in NPL’s brought the ratio up to reach 3.96%. The loan loss provision balance reached EGP 2,864 million, covering non-performing loans by an assuring 1.6x at the end of 2013. CIB’s best in sector asset quality and its strong corpo- rate loan book is a testament to the success of management’s prudent approach to lending. Institutional Banking Institutional Banking net income increased by 89% over last year to reach EGP 2.2 billion, mainly on higher net interest income, foreign exchange gains and strong trade services performance and controlled expense growth. Institutional banking contributed 69% to CIB’s gross profitability. Cor- porate Banking management focused on efficiency in 2013, improving net interest margin on an increase in minimum lending rates that raised loan yields by 38bp. Expense growth was held at 6%. Consumer Banking Consumer Banking net income rose 11% over last year to reach EGP 900 million, contributing 31% to CIB’s gross prof- itability. Consumer Banking gathered EGP 11.9 billion in de- posits aided by innovative new saving product. The new Save and Safe product was launched in 2013 and offers bundled insurance benefits along with savings, in addition to a competitive interest structure and other ben- efits. With the support of a strong mass media advertising campaign, Save and Safe attracted EGP 2.3 billion in seven months. Income Appropriation CIB aims at maximizing its shareholders’ and customers’ value. In 2013, the bank increased its issued capital to reach EGP 9 billion by capitalizing on portion of its general reserve by issuing free stocks (one stock for every two outstanding stocks) as per the approval of the Ordinary General Assem- bly in July 1st, 2013. Accordingly, the Board of Directors pro- posed the distribution of a EGP 1.0 dividend per share (21% higher than 2012). According to the profit appropriation pro- posal, the legal reserve balance will add EGP 131 million to reach EGP 621 million and the general reserve balance will add EGP 1.3 billion to reach EGP 1.7 billion. This appropria- tion will further enforce CIB’s financial position. The bank’s capital adequacy ratio will record 16.32% (after profit appro- priation) compared to 15.71% in 2012. cib has continued to receive global recognition and international awards for its outstanding performance and reputation. Subsidiaries CI Capital generated consolidated revenue of EGP 121 mil- lion, 33% over 2012. Brokerage revenue increased 13% over last year to reach EGP 69 million and was the second ranked brokerage house in 2013 (up from third in 2012) recording a market share of 11.3%. CI Asset Management maintained its market share at 10.5% and had the best performing Egyp- tian equity funds of 2013. Thanks to a number of landmark investment banking transactions, CI Capital was recognized as the “Best In- vestment Bank” of 2013 by the Arab Investment Summit, and ranked third in terms of announced Middle Eastern Target M&A deals in first-half 2013 by Thomson Reuters and Dealogic. Awards and Recognitions CIB has continued to receive global recognition and inter- national awards for its outstanding performance and repu- tation. Such accolades further cement CIB’s position as the number one private sector bank in Egypt. Notable awards include: • Global Finance Magazine recognized CIB with six awards: “Best Bank in Egypt” for the 17th year, “Best Sub-Custodian Bank in Egypt” for the 5th consecutive year, “Best Foreign Ex- change Provider Bank in Egypt” for the 10th year, “Best Trade Finance Bank in Egypt” for the 7th year, “Best Internet Bank” and “World’s Best Emerging Market Bank in the Middle East.” • The Banker magazine recognized CIB with two awards “Bank of the Year - Egypt” and “Deal of the Year Best Restructuring Deal.” • Euromoney Excellence Award 2013 acknowledged CIB as “Best Bank in Egypt.” • CIB was Global Investor ISF’s “Best Asset Manager in Egypt” for the fourth consecutive year. • EMEA Finance recognized CIB as “Best Foreign Exchange in North Africa” • CIB was “Top Ranked bank in North Africa” by FTSE Finan- cial Times Stock Exchange. 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 improvement where we regularly review and update our practices. The overall corporate governance framework of CIB is di- rected by the Board and its sub-committees: Audit Commit- tee, Corporate Governance and Compensation Committee, Risk Committee, Management Committee, High Lending and Investment Committee, Affiliate Committee, Sustain- ability Advisory Board, Operations and IT Committee. The Board and its committees are governed by well-defined charters and are tasked with assisting directors in fulfilling their responsibilities and obligations with respect to their decision-making roles. Such task is further facilitated by the wide array of estab- lished internal policies and manuals covering all business as- pects such as credit and investment, operational procedures, staff hiring and promotion. CIB’s Board consists of nine members who collectively pos- sess a wide range of industry expertise. CIB’s Board met eight times over the course of 2013. Among its defined set of respon- sibilities, CIB’s Board constantly monitors the Bank’s adher- ence to well-defined, stringently enforced and fully transpar- ent corporate governance standards. The Board is able to do this through its various committees whose membership is formed entirely of non-executive directors. Through the the Audit, Risk, Governance & Compensation, Operations & Technology and Sustainability Advisory Board, the Board is able to fulfil its obligations in the following manner: • Ensuring that Board Members have a clear understanding of their roles in corporate governance. Annually reviews the size and overall composition of the Board and ensures it respects its independence criteria. • Establishing appropriate review and selection mecha- nisms for new Board member nominees through the Gov- ernance and Compensation Committee. 12 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 13 BoARD oF DIReCtoRS’ RepoRt BoARD oF DIReCtoRS’ RepoRt The elegant continental hotel on opera Square hosted dignitaries visiting cairo for the festivities surrounding the opening of the Suez canal, a key event in world maritime trade. • Establishing the strategic objectives and ethical standards that will direct the on-going activities of the Bank, while taking into account the interests of all stakeholders. • Establishing internal control mechanisms which com- prise systems, policies, procedures and processes that are in compliance with regulatory requirements. These con- trol measures safeguard Bank assets and limit risks as the Board, management and other employees work to achieve the Bank’s objectives. • Ensuring that senior management implements 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 senior management to ensure that Bank affairs are con- ducted in an ethical and moral manner and in alignment with Board policies. • Reviewing and approving material related to disclosures and other transparency documents in accordance with regulatory requirements or as may be determined by the Board from time to time. • Overseeing a code of conduct to govern the behaviour of directors, officers and employees through an independent Compliance function reporting directly to the Audit Com- mittee. The code of conduct sets CIBs core values as integ- rity, client focus, innovation, 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 auditors and controllers conduct regular audit assignments and review reports submitted to them periodically. During CBE audit missions, CIB’s manage- ment 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 corrective measures with regards to CBE’s audit comments. Moreover, given the utmost attention to maintaining the highest levels of corporate governance, CIB’s investor rela- tions team is committed to consistently sharing high quality information with all stakeholders regarding the Bank’s ac- tivities with emphasis on transparency. operations platform with International Standards During 2013, the COO Area has focused on several strategic objectives, including the improvement of customer experi- ence, infrastructure development, enhancing the controls environment, effective cost management and people agenda. The COO Area implemented a number of key initiatives in 2013 as part of its strategic agenda: The Business Process Orchestration (BPO), a key project for the Bank, kicked off with the hiring of a dedicated expe- rienced project director. BPO will streamline key business and operations processes by integrating analytics into busi- ness processes. BPO will reduce operational process turn- around time with better resources allocation. Additionally, BPO will provide a reporting tool on major processes relat- ed key performance indicators i.e. execution time, related costs, etc. Substantial efforts were made this year in support of the Bank’s Business Continuity and Crisis Management in light of the political and security situation. The Bank managed to successfully operate our head office multiple times from al- ternate locations, and also managed to sustain very high ser- vice levels for customers through our diverse branch network and alternate channels. Sustainability Development Environmental sustainability is becoming a fundamental component of the strategy of leading multinationals, inves- 14 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 15 BoARD oF DIReCtoRS’ RepoRt Key figuReS fRom 2013 BALANCE SHEEt (IN EGP BN) 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 31/12/2013 Balance as of 31/12/2012 % Change 113.8 94.4 20.50% 16.2 42.0 30.5 23.7 96.9 0.5 12.1 14.9 8.62% 41.9 0.17% 27.9 9.26% 8.0 196.50% 78.8 23.02% 0.3 45.58% 11.3 7.11% B. ConSolIDAteD CIB AnD CI-CH Balance as of 31/12/2013 Balance as of 31/12/2011 % Change 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 113.8 94.0 21.07% 16.2 41.9 30.2 23.7 96.8 0.5 12.0 14.9 8.62% 41.9 -0.03% 27.2 10.83% 8.0 195.16% 78.8 23.06% 0.3 44.35% 10.8 11.10% INCOME StAtEMENt (IN EGP MN) A. StAnDAlone CIB Jan.1, 2012 to Dec.31, 2013 Jan.1, 2011 to Dec.31, 2011 % Change Interest and Similar Income Interest and Similar Expense Net Income from Fee and Commission Net Profit After Tax 9,510 -4,460 1,189 2,615 7,846 21.21% -3,945 13.05% 836 42.30% 2,203 18.72% B. ConSolIDAteD CIB AnD CI-CH Jan.1, 2012 to Dec.31, 2013 Jan.1, 2011 to Dec.31, 2011 % Change 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 9,521 -4,467 1307 3,006 3,006 7,859 21.14% -3,946 13.21% 926 41.14% 2,227 35.00% 2,226 35.05% tors and fund managers around the globe. It was in this for- ward thinking spirit that CIB decided to move ahead with a robust Corporate Sustainability initiative in July 2012. To this end, the Bank will ensure that it achieves its twin objectives of serving Egypt’s socio-economic interests and protecting the environment, as well as attaining durable financial safety and soundness for the Bank. CIB approved the establishment of a dedicated Sustain- ability Development Department, which falls directly under the umbrella of the COO area. Dr. Nadia Makram Ebeid (ex. Minister of Environmental affairs and CIB Board of Directors member) was nominated to guide this initiative in coopera- tion with a competent dedicated team. The Sustainability Development Department was initiated in January 2013 with a mandate to ensure the development, management and re- porting of CIB’s sustainability efforts (strategies, policies, systems, initiatives, quick wins including ongoing third par- ty liaising, branding and training efforts). In March, CIB’s sustainability governance structure and framework were approved by the Sustainability Advisory board. Green Teams were nominated to act as Environmen- tal Champions within the organization. The department worked with different internal and ex- ternal stakeholders on a number of going green quick win projects, including the Rooftop Garden, Green Wall, energy conservation initiatives, landscaping, photography compe- titions, non-smoking campaigns and double-sided printing (paper conservation), in cooperation with the Premises Proj- ects, Corporate Services and Branding departments. The Sus- tainability Development Department also began work on the development of a solid waste management system through a phased approach with the contribution of the Corporate Services department. Furthermore, the department worked with the Learning and Development department to focus on raising employee awareness on sustainability, through 35 Sustainability Staff Awareness sessions which were held in CIB Head offices and branches across Egypt. Our long-term initiatives include conducting a social and environmental assessment of our business practices and drawing up a sustainability framework and roadmap. An- other initiative is working towards identifying the necessary steps to acquire the Leadership for Energy and Environmen- tal Design Certification (LEED). Innovative Financial Solutions Among our strongest attributes at CIB is being nimble by rec- ognizing and capitalizing on opportunities and service gaps and by being among the first to satisfy and fill these gaps. Customer service remains among the bank’s top priorities. To that end, focus on availing an electronic system suscep- tible to the needs of the clients while maintaining the high- est levels of accuracy and turnaround time saw CIB focus on expanding our GTS platform. Global Transaction Services (GTS) expanded the network of dedicated trade hubs to 29 hubs. 89% of bank wide trade services transactions have now been migrated to online portal and service hubs which helped in off-loading regular branches. Another initiative that targeted branch-offloading, was Business Banking “pilot ATM deposit cards” for smaller cash deposits. The initiative BoARD oF DIReCtoRS’ RepoRt our long-term initiatives include conducting a social and environmental assessment of our business practices and to draw up a sustainability framework and roadmap. aims at reducing branch load by 20%, helping to improve the customer experience. In the fourth quarter, CIB launched the first interactive smart branch in Egypt in Black Ball mall (New Cairo), lead- ing the banking sector in introducing innovative financial services. This initiative enhances customers’ banking expe- rience through interactive screens demonstrating CIB prod- ucts and services, video call communication with the call center and digital tablets to execute E-banking transactions at the branch with minimum staffing levels. CIB continued its branch network expansion strategy in 2013, adding 17 new branches, as well as enhancing its im- age and customer experience through the renovation and replacement of five other branches. CIB was one of the few banks to grow its network significantly in 2013. The fourth quarter also saw the issuance of the first FIFA- branded Visa cards as well as the free dedicated Travel Desk service for all cardholders. Focus on people Human capital management has been and remains of the ut- most priority. One of the main goals of the Bank’s Human Re- sources department in 2013 was attracting the right caliber of people and contributing to the development and success of existing employees. Focusing on improving our staff satis- faction and compensation strategy has led to an increase in talent retention. Recruitment On the recruitment side, the focus was placed on promot- ing from within for middle and upper management posi- tions, while efforts to build entry level talent were directed towards visiting campuses and having a presence at em- ployment fairs. One of our main sources for summer and for-credit interns came from on-campus outreach efforts, including employment fairs, our winter training initiative, and events such as AUC Career day and Top Employer. We conducted a very successful round of summer internships this year with a carefully selected group of summer interns from reputed universities. Our for-credit internships also witnessed further development, maintaining its reputation for quality education. Learning and Development The role of Learning and Development has evolved in 2013, with an increased focus on investing in our staff’s development. The Learning and Development department has supported mul- tiple initiatives of the People agenda. This included sponsor- ing overseas MBAs and the enrolment of a number of our staff members in the Graduate School of Banking (GSB) Program at the University of Wisconsin in Madison, USA, throughout the year and into next year. These initiatives also include financ- ing higher education opportunities locally at reputable institu- tions as well as funding attendance at overseas conferences. As developing quality management for the Bank is a fun- damental strategy, 2013 saw a continued investment in our leadership development programs, namely the Leadership and Management Program (LAMP) for CIB’s directors and higher positions, a program covering 100% of its target group. Anoth- er initiative is the Leadership and Development Program for Consumer Banking (LDP) which this year targeted consumer banking zone and branch heads. As the leading private bank in Egypt and one with a heightened sense of social responsibility, CIB has success- fully sponsored the creation of the position of Professorship in Banking at the American University in Cairo, allocating USD 2 million to educate and train young graduates in the field of retail banking. 16 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 17 BoARD oF DIReCtoRS’ RepoRt The breakthrough Job Family Project, which introduces a number of programs in Trade Finance and Operations tar- geting Consumer Banking and which was initiated in 2013, will be implemented on a wider scale in 2014. This should bring the learning and development scope into a more stra- tegic perspective. Talent Management A major focus of the Bank in 2013 was Talent Management. CIB initiated an all-round, comprehensive assessment of leadership competencies for executive and senior directors conducted by SHL, one of the world’s leading leadership con- sulting firms. The assessment is used to identify and evaluate the competence of CIB’s senior management against a set of managerial behaviours that impact their work performance, leadership style and ultimately CIB’s organizational culture and business performance. On the Performance Management side, standardized ob- jectives throughout the Bank were reviewed and updated to maintain a robust performance management system that ensures the Bank’s strategy reaches all staff levels and that each staff member clearly understands what is expected from them for the year. Corporate Social Responsibility Our commitment to the country in which we live and oper- ate in is an integral part of our business culture. It has al- ways been among CIB’s top priorities and responsibilities to contribute to our country’s prosperity and welfare. CIB turns commitments into actions through its corporate social re- sponsibility programs. The CIB team is firmly dedicated to supporting Egypt during these turbulent times and is proud of the impact our investment of time, effort and resources has had on our community. CIB Foundation In this, its fourth year in operation, the CIB Foundation ex- panded its activities in 2013. Following the 2013 Annual Share- holders’ General Assembly meeting, the CIB Foundation was allocated roughly EGP 35 million, representing 1.5% of CIB’s net annual profit. The CIB Foundation continued to support major projects in the field of pediatric healthcare through vari- ous multi-faceted initiatives including renovating and upgrad- ing hospital infrastructure, purchasing medical equipment and providing surgical and medicinal treatment to underpriv- ileged children. Over the course of 2013, the Foundation’s partnerships and initiatives included: Children’s Cancer Hospital 57357 • In January 2013, the Foundation continued its commitment to the hospital by funding general operating costs amount- ing to EGP 2 million. • In late 2013, the CIB Foundation renewed its partnership with the 57357 Hospital, raising the annual donation from EGP 2 million to EGP 3.5 million. In the first year of the re- newed partnership, the donation will be used to fund pa- tient care as well as construction costs of the hospital’s 60- bed expansion project. Friends of Abou El Reesh Children’s Hospitals Organization • In March 2013, the CIB Foundation’s Board of Trustees ap- proved an EGP 10 million initiative to renovate and upgrade the Abou El Reesh El Mounira Children’s Hospital’s Emergen- cy Ward and Reception Area. This initiative proved critical in allowing the hospital to provide top quality services and care to incoming patients. • In November 2013, the CIB Foundation donated an additional EGP 2 million to the Friends of Abou El Reesh Children’s Hos- pitals Organization to support staff compensation, medical and administrative supplies, infection control, and much needed ICU equipment. Magdi Yacoub Heart Foundation The CIB and CIB Foundation have been ardent supporters of the Magdi Yacoub Heart Foundation since its inception, and have been committed to enabling the Foundation to provide world- class medical care to the less privileged for free. • In July 2013, the CIB Foundation donated EGP 1.1 million to the Magdi Yacoub Foundation to exclusively sponsor the Pe- diatric Outpatient Room in the Aswan Heart Centre’s Outpa- tient Clinic. • In September 2013, the CIB Foundation’s Board of Trustees approved the roughly EGP 14 million exclusive sponsorship of the Second Pediatric Floor of the Aswan Heart Centre, complementing its earlier sponsorship of the first floor ICU. • In 2013, the Foundation sponsored open heart surgeries for 50 children on the waiting list for EGP 3 million. By this donation, CIB Foundation has helped in saving the lives of 200 children. Children’s Right to Sight Program Through the Rotary Kasr El Nile organization, the CIB Founda- tion has committed EGP 1.5 million to fund 1,000 eye surgeries for children through the Children’s Right to Sight (CRTS) pro- gram. The surgeries have been conducted at Al Nour Eye Hospi- tal and Eye Care Centre. Gozour Foundation for Development: 6/6 Eye Exam Caravans In July 2013, the CIB Foundation reaffirmed its partnership with the Gozour Foundation for Development to fund 12 eye exam caravans in public elementary schools across Egypt. The CIB Foundation allocated roughly EGP 700,000 to fund caravans in Giza, Qalioubeya, Minya, Beni Suef and Fayoum. Through a partnership with Alnoor Magrabi Foundation each one-day caravan targets 450 students, with a total of 5,400 stu- dents receiving free eye exams and care by the end of the project. The caravans also presented valuable opportunities for volun- teers from CIB’s staff to engage with the local community and spend quality time with the less privileged. Yahiya Arafa Children’s Charity Foundation The Yahiya Arafa Children’s Charity Foundation is a long-stand- ing partner of the CIB Foundation. In late December 2013, the CIB Foundation’s Board of Trustees approved an increase in the annual donation to the Yahiya Arafa Foundation to EGP 2 million for the upkeep of three previously-supported Pediatric Units at the Ain Shams University Hospital, as well as the partial operation of a second neonatal unit. BoARD oF DIReCtoRS’ RepoRt our commitment to the country in which we live and operate is an integral part of our business culture. it has always been among cib’s top priorities and responsibilities to contribute to our country’s prosperity and welfare. Maxillo-Facial Center in the Pediatric Prosthodontics Department in the Cairo University Faculty of Dentistry In July 2013, the CIB Foundation’s Board of Trustees ap- proved the development of a EGP 300,000 Maxillo-Facial Center in the Pediatric Prosthodontics Department in the Cairo University Faculty of Dentistry. The highly special- ized center offers treatment for oral and nasal cavity de- formities in the facial palette, congenital deformities in newborn babies, and various facial deformities caused by cancer. With the establishment of the center, expected to open in the first quarter of 2014, the Pediatric Prosthodon- tics Department will be able to provide treatment to chil- dren from across the country as one of the sole providers of the specialized procedures. One Million Blankets Campaign In December 2013, the CIB Foundation made a contribution of EGP 1 million to the One Million Blanket National Cam- paign through Bank El Kessa. Blood Donation Campaigns In 2013, the CIB Foundation hosted 12 blood donation cam- paigns in six of its corporate offices in Cairo and Alexan- dria. Roughly 800 CIB employees donated their blood over the 12 days. Social Development Throughout 2013, CIB upheld the core principles of its Cor- porate Social Responsibility (CSR) activities and its contri- butions to the community through a diverse range of CSR endeavors including the following: • Considering the vital role of the Egyptian Banking Indus- try in boosting the economy and their strong commitment to fulfill their CSR mission and responsibility towards their country especially in tough times. Under the aus- pices of the Federation of Egyptian Banks, all Egyptian Banks had agreed to contribute 2% of their net profit to be directed towards developing slum areas and the most needy areas in Egypt and provide them with basic neces- sitates such as electricity, water, sewerage and other vi- tal services. The funds will be managed according to an agreed upon plan by the Federation of Egyptian Banks in collaboration with the Ministry of National Local Devel- opment and the Governors. • One of CIB’s most promising Community Development initiatives in 2013 involved a partnership with the Ameri- can University in Cairo (AUC) to develop the CIB En- dowed Professorship in Banking program. The program’s objective is to design and implement a strong banking curriculum in different educational institutions and en- hance education in banking throughout Egypt by offering research and service courses. This partnership with AUC is a major step toward bringing practical knowledge of industry trends into the classroom. Through the Profes- sorship Program, students will be exposed to the various aspects of Banking that will challenge their thinking and encourage their application of creative new practices. It will also serve as a link between the University’s School of Business and key members of the Banking community, including regulators, boards, executives and other. • In an effort to expose children to the Banking industry, and specifically to the CIB brand, as well as to encourage career exploration at an early age, CIB entered into a five- year partnership with KidZania. KidZania Cairo offers children a variety of fun and interesting role-playing ac- tivities in a realistic city setting. CIB is proud to be part of such an experience and taking part in enhancing commu- nity development through instilling sound financial skills and experiences. CIB’s on premises mini-branch will al- low the children to cash checks, get debit cards, and de- posit or withdraw KidZos from ATMs around KidZania. • As part of its community outreach efforts CIB began sponsoring a program, in association with IMAX Cinema located in Americana Plaza, which will allow underprivi- leged children to attend 10 pre-booked and dubbed educa- tional films shown in IMAX theaters. 18 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 19 2013 iN RevieW 20 AnnuAl RepoRt 2013 Established in 1859 to serve the workers building the Suez canal, Port Said quickly became a major hub of economic activity for the country. AnnuAl RepoRt 2013 21 2013 In ReVIeW 2013 In ReVIeW iNStitutioNAl BANKiNg Corporate Banking Group Recognized across the Egyptian market for its strong credit culture, the Corporate Banking Group is CIB’s financing arm, providing world-class financial structures and superior advi- sory services to its clients. The Group caters to the financing needs of large companies with an annual turnover exceeding EGP 150 million. Furthermore, in recognition of the important role of medium-size companies, the Group has broadened its scope over the past few years to provide services for these com- panies as well. The group’s mission is to enhance its position as the top corporate bank in the Egyptian market while maximizing value for its shareholders, employees and the community. 2014 Forward Strategy The Corporate Banking Group aims to achieve the following in 2014: • Maximizing share of wallet with multinationals, initially with limited or no relations with CIB as well as with exist- ing corporate clients. • Increase customer loyalty and boost CIB’s market share in all sectors through cross-selling Global Transaction Ser- vices (GTS) products. • Expand CIB’s loan portfolio with special emphasis on fi- nancing medium-sized projects. • Enhance the bank’s fee income stream through increasing trade business services. The Corporate Banking Group’s competitive advantages include: • A strong corporate business model. • Highly experienced staff reinforced by continuous train- ing to keep pace with the latest industry and technical know-how. • Strong customer base with a healthy and diversified port- folio that is well-positioned in primary growth industries, including but not limited to: Oil and Gas, Power, Petro- chemicals Infrastructure, Food and Agribusiness, Tour- ism, Shipping and Ports, and Real Estate. • Ability to provide a wide and innovative array of financial schemes. • Expanded scope of corporate banking to include compa- nies with sales revenues above EGP 50 million, creating potential future growth opportunities for the group. 2013 Accomplishments • Continued to be the major contributor to Institutional Banking profitability, generating almost 50% of the Insti- tutional Banking Group’s profits. • Captured approximately an 80% market share of the ship- ping activities related to Suez Canal payments through facilitating financial solutions for the shipping sector, in- cluding Shipping Agencies, Shipping Service Providers, Container Terminals, Ports and Ship Owners. • Focused on supporting the import of necessary grains and food staples. • Acted as a mandated lead arranger in financing a new project aiming to improve public transportation. • Ensured proper monitoring of the corporate accounts to maintain the sound asset quality of CIB. • Enhanced the utilization of corporate customers to differ- ent online channels such as e-Banking and e-Trade, result- ing in a current market penetration rate of 75%. • Full roll-out of the Business Enhancement Unit to ensure the extension of excellent quality operational services to our corporate clients. Financial Institutions Group The Financial Institutions Group offers a variety of quality products and services through three divisions: Correspon- dent Banking Division (CBD), Non-Banking Financial Insti- tutions Division (NBFI) and Finance Programs & Interna- tional Donor Funds Division (FP & IDF). Correspondent Banking Division (CBD) The Correspondent Banking Division (CBD) is the point of contact for local and foreign banks working with CIB. The di- vision is responsible for: • Securing outgoing business for CIB. • Monitoring and directing business to banks. • Attracting trade business and handling related negotiations. • Marketing and cross-selling CIB products. • Acting as liaison for solving problems (if any) between banks worldwide and CIB’s departments in order to facili- tate and improve workflow. • Offering support and new solutions to CIB clients through strategic alliances with various correspondents under trade finance and cash services. • Supporting other departments through our role as Rela- tionship Officers for banks. • Searching for new business opportunities. 2013 Achievements: • Achieved higher trade finance volumes. • Explored new markets in Asia, Africa and Latin America. • Maintained a well-diversified trade and forfeiting portfo- lio and continued expanding risk participations on both direct and contingent business focusing more on CIB and its clients. 2014 Strategy: • Continue to explore and penetrate new markets. • Identify new quality bank relationships focusing on Asia. • Maintain our focus on supporting the local economy. • Introduce new revenue-generating products. A key competitive advantage for the corporate banking Group is our strong customer base with a healthy and diversified portfolio that is well-positioned in primary growth industries, among them oil and Gas, Power, Petrochemicals infrastructure, food and Agribusiness, Tourism, Shipping and Ports, and real Estate. Non-Banking Financial Institutions Division (NBFI) NBFI is a credit-lending division under the Financial Insti- tutions Group. It provides credit facilities, liability products and services to all types of non-bank financial institutions. Targeted clients include companies involved in: leasing, in- surance, securities brokerage, car finance, factoring, credit insurance and investment companies as well as non-govern- mental organizations (NGOs). while targeting growth in leasing, credit insurance and brokerage (clearing & settlements accounts) both in terms of volume and number of accounts with leading market players upon market stability. • Focus on the liability side through aggressive marketing of the Bank’s attractive liability products in addition to rein- forcing our cross selling strategy to provide CIB’s innova- tive product mix. • Growing existing contingent businesses and attracting in- Activities: • Identifying customer needs and associating such needs with relevant facilities such as short-term lending, long- term lending, contingent business, and securitization transactions, etc. • Focusing on key market players with relatively moderate risk. 2013 Achievements: • Succeeded in controlling and maintaining moderate lev- els of portfolio risk and managed an effective collection of loan portfolio payments through the application of a well- controlled credit policy. • Established new limits for existing credit insurance com- panies and identified new accounts to accommodate con- tingent business targeted in 2014. • Increased cross-selling of CIB retail products. • Engaged in securitization transactions with the Debt Cap- ital Markets Team. 2014 Strategy: • Maintain our market share with existing relationships surance companies. Finance programs & International Donor Funds Division (Fp & IDF) The Finance Programs and International Donor Funds (FP & IDF) Division is uniquely specialized in managing sustain- able development funds and credit lines provided by govern- mental entities and international agencies that positively impact our community and environment. Since its inception in the 1990s and with the collaboration of the Ministry of Ag- riculture and Land Reclamation, FP & IDF has played a role in the country’s agrarian development by encouraging pri- vate sector involvement in the Egyptian Agrifoods market. The Division is also engaged in various environmental and pollution abatement projects that aim to assist companies in making their operations more eco-friendly. More recently, in 2005, FP & IDF penetrated Egypt’s microfinance sector in collaboration with the Spanish government. Main Functions: • Agency Function: Handles agency functions for many funds, grants and credit lines by providing an array of 22 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 23 2013 In ReVIeW 2013 In ReVIeW upon its opening in 1869, the Suez canal firmly established Egypt as a central hub for international shipping and trade. services and tailored operational mechanisms such as structuring new grants and concessional loans, creat- ing disbursement and repayment mechanisms, securing investment of uncommitted funds, promoting funds to potential target groups, offering technical pre-loan assess- ment and post-loan monitoring. • Participating Bank Function: Participates in conces- sional financing with clients, giving CIB a competitive edge among its peers. CIB also participates in guarantee mechanisms to increase SME accessibility to credit lines. • Microfinance: Manages CIB’s direct microfinance portfolio through a microfinance service company that interacts di- rectly with end-users. Recently, an indirect model was adopted with some microfinance institutions (MFIs) in collaboration with the Non-Bank Financial Institutions (NBFI) Division. • Technical Assistance and Consulting Services: Offers an array of integrated and competitive consultancy ser- vices targeting development programs. 2013 Achievements: • Agency Function: FP & IDF succeeded in maintaining its position as the leading agent bank in the market and dis- bursed a total of cumulative EGP 3.4 billion in loans to the agricultural sector through a network of 12 participating banks. • Participating Function: A total of EGP 200 million was dis- bursed to CIB customers through development programs in 2013. • Microfinance: The Division secured EGP 109 mil- lion for 31,233 active customers. While for Wholesale Microfinance,CIB started the utilization of EGP 100 million line signed with the Social Fund for Development (SFD) to reloan to MFIs with the assistance of NBFI division. • Cross-Selling: The Division contributed to cross-selling CIB’s various retail products, including credit cards, consum- er loans, and other consumer and corporate bank products. The Division coordinated the signing of a USD 250 million agreement with a leading international government agency in order to guarantee financing for Egyptian SME companies. 2014 Strategy: • Maintain our lead position as agent bank dominating do- nor funds. • Attract funds and participate in new developmental pro- grams. • Increase CIB’s direct and indirect microfinance market share. • Focus on offering advisory services. Debt Capital Markets Division (DCM) The Debt Capital Markets (DCM) Division has an unprec- edented track record and unparalleled experience in un- derwriting, structuring and arranging large-scale project finance, syndicated loans, bond issues and securitization transactions, all of which are supported by a dedicated agen- cy desk. The Division achieves its objectives by leveraging on CIBs substantive underwriting capabilities and established relationships with international financial institutions and export credit agencies, placing capabilities in the local mar- ket with banks, insurance companies, money market and fixed income funds. Despite the continued slow down witnessed across the market in 2013 in terms of new projects initiation, the Debt Capital Markets division successfully executed deals worth over EGP 14.5 billion — up from EGP 12.4 billion in 2012. The 2013 financing deals were primarily in the Petrochemicals and Heavy Equipment sectors. Building on its reputation for excellence in the field of structuring and arranging deals, CIB played key roles as Initial Mandated Lead Arranger (IMLA), Agent, Security Agent and/or Bookrunner in these transac- tions. In recognition of its role as an IMLA, CIB was awarded both Project Finance’s African Petrochemicals Deal of the Year and EMEA Finance’s Project Finance Awards for Best 24 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 25 2013 In ReVIeW 2013 In ReVIeW Chemicals Deal in Africa. Furthermore, the Debt Capital Markets Division has laid the foundation for future income generation with a substantial deal pipeline. The Division also continues to be the leader in the debt capital markets by playing a unique role in the local mar- ket through structuring and placing complex securitization structures. CIB won the Best Structured Finance Deal in Af- rica 2013 from EMEA Finance for its launch of an EGP 158 million securitization originated by Mansour Auto. The Divi- sion is looking to close deals totaling EGP 700 million before year-end and has a solid deal pipeline for 2014. As an ongoing strategy, Debt Capital Markets aims to: • Continue playing a vital role in economic development by mobilizing funds for large ticket project finance deals and syndication transactions. • Position itself to raise the required debt to fund Egypt’s sub- stantial Infrastructure and Power investments, whether implemented by public sector companies, or via IPP or PPP programs. • 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. treasury & Capital Markets (tCM) CIB’s Treasury & Capital Markets Division is the Bank’s pri- mary pricing arm for all its foreign exchange and interest rate products. TCM engages in a number of money market trading activities, such as primary and secondary govern- ment debt trading, and management of interest rate gaps (with associated hedging). Fixed income Eurobonds are also traded with clients covering sovereign fixed income bonds, whose price and interest rate are usually denomi- nated in US dollars. Foreign exchange products are used by our customers for both investment and hedging. Our investment-related products include dual currency deposits (DCD) and dual one touch deposits. The DCDs provide clients with a much high- er yield on their USD and EUR purchases than the Central Banks’ announced rates on these currencies. Our latest prod- uct is third counterparty trading, where CIB allows its clients to purchase almost any currency they require, while simul- taneously transferring the currency to its country of origin to make payments abroad. Other products covered are direct forwards and simple/plain vanilla options, in addition to a wide array of option structures such as premium embedded options, participating forwards, zero-cost cylinders, boosted call / put spread, interest rate swaps, and interest rate caps / floors / structured products. The Division’s Primary Dealers team provides clients with transparent advice on their investments in treasury bills and treasury bonds, on both primary and secondary markets, with very competitive prices on the secondary market offers. The team has been one of the most influential players in the local debt market. The Division’s Treasury team provides the Bank’s clients with an incomparable quality of service around-the-clock, including weekends and holidays, with daily market com- mentary, weekly technical analysis and an SMS service that displays rates of our main currencies and sovereign bonds. TCM promptly accommodates customer requests to help cli- ents avoid market fluctuations. The TCM Division deals with almost all of the Bank’s clients ranging from large corporate clients, Global Customer Rela- tions & Business Banking clients, Retail, Wealth clients, and the Bank’s Strategic Relations clients. TCM also deals with financial institutions, including funds, insurance companies and others. To enhance TCM’s service offerings, the Division was internally re-organized into two main components: One covering corporate banking clients & GCR, while the other is responsible for the Business Banking, Retail, Wealth and the Strategic Relations Department. Within each area, every trader is responsible for handling specific clients to enhance specialization and customer price sensitivity in an attempt to promote customer value added in the Treasury arena. 2013 Accomplishments In 2013, CIB’s TCM Division won the Best FX Service Award from EMEA Finance. During the first half of 2013, CIB has achieved the highest Net Trading Income amongst all private Egyptian Banks. CIB was ranked as the second best performing bank on the Primary Market for Treasury Bills and Bonds, achieving the same ranking on the Secondary Market for Treasury Bonds for the first three quarters of 2013. Asset and Liability Management (ALM) A key 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 responsible for managing the Bank’s Nostro accounts, overseeing its proprietary book and setting loan and deposit prices. ALM’s main objec- tives are liquidity management, maximizing profitability and product development. 2013 Performance Despite the volatile market conditions witnessed following the events of 30 June — as well as volatility in international mar- kets — ALM was able to preserve its sound liquidity and inter- est rate levels. This allowed the department to seize market op- portunities in order to enhance the Bank’s Net Interest Income (NII) and Net Interest Margin (NIM) all while maintaining healthy regulatory ratios as well as internal and Basel III mea- sures. ALM actively encouraged and participated in aggressive deposit-gathering measures, which resulted in the growth of the Bank’s total deposit base and overall profitability. 2014 Strategy ALM maintains a positive outlook for 2014, despite the eco- nomic and social upheavals of 2013, due to anticipated changes in the political and economic landscape of Egypt. The new government plans to implement a policy of econom- ic expansion through public works projects worth over USD in 2013, cib’s TcM division won the best fX Service Award from EMEA finance. during the first half of 2013, cib achieved the highest Net Trading income amongst all private Egyptian banks. 3 billion, a move that is expected to create jobs and allow for greater financing opportunities. This commitment is supported by our unique value proposi- tion and experienced team. Accordingly, ALM’s strategic initiatives will continue to include prudent and sound management of liquidity and in- terest rates through the diversification of funding options, as well as through the introduction of new products and invest- ments. Furthermore, ALM has the ability to provide sufficient liquidity for potential lending growth purposes. Further ini- tiatives will include enhancing the Bank’s performance and capital management framework. Direct Investment Group (DIG) The Direct Investment Group (DIG) is CIB’s investment arm, introducing equity finance as an additional solution to exist- ing and potential clients. DIG’s main focus is to identify, evalu- ate, acquire, monitor, administer and exit minority equity investments in privately owned companies that possess com- mercial value for CIB. Invested funds are sourced from CIB’s own balance sheet, whereby the investment process is governed by a clear and strict set of parameters and guidelines. Our primary objectives encompass generating attractive, risk-adjusted financial returns for our institution through divi- dend income and capital appreciation, as well as enabling CIB to offer a broad spectrum of funding alternatives to support clients’ growth. We commit to excellence by adopting industry best prac- tices and creating a win-win situation for all stakeholders. Highlights and Accomplishments The investment climate in Egypt remained challenging in 2013. Significant political changes had a direct effect on the country’s economic performance and, in turn, on the Group’s investment activities, especially during the first nine months on the year. Despite the turbulence, DIG maintained its fo- cus on seizing opportunities for growth while upholding its belief in the promising recovery of Egypt. Accordingly, DIG has successfully added one sizable investment in the Textiles industry to its portfolio. In terms of portfolio management, DIG continued its on- going support to its portfolio companies at all levels. DIG maintained the capital increase plans for two of CIB’s affili- ates in order to augment existing growth strategies. A prime example of this is DIG’s support of one of its Oil sector portfo- lio companies by participating in a shareholders loan, which increased the company’s liquidity and financial positions during these turbulent times. On the growth front, DIG has managed to maintain its strong deal pipeline leveraging on continuous market screen- ing and on CIB’s brand equity. Accordingly, DIG has assessed the viability of several investment opportunities in multiple sectors. Currently, DIG is in the final stages of locking down a sizable deal in the Foods sector and is in the Letter of Intent stage in the Building Materials industry. 26 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 27 2013 In ReVIeW 2013 In ReVIeW DIG has also made arrangements to exit two of its portfo- lio investments in the Automotive and Power industries. Full exit is expected to materialize within the coming months. Strategy Going Forward DIG plans to continue providing support to existing portfolio companies, in addition to maintaining a positive long-term outlook grounded on a true belief in Egypt’s solid fundamen- tals. Accordingly, DIG plans to pursue growth in defensive sectors showing relative resilience to economic instability. Strategic Relations Group (SRG) Over the years, the Strategic Relations Group (SRG) has built a reputation of excellence and high standard services among its client base. As relationships continue to be nur- tured with global donor and development organizations, supported by their sovereign diplomatic missions, SRG boasts yet another year of achievement in 2013, despite the challenges our country faced. Catering to almost 70 of the world’s most renowned and prestigious entities, SRG remains a unique function among its peers in the banking industry. With our small team of dedicated professionals, SRG was able to accom- modate the unique operational needs of its client base during times of stress and insecurity. Working closely with our donor clients, allowing them further outreach to their customers resulted in an almost 50% increase in the SRG portfolio from share of wallet. This was achieved due to our responsiveness, our creative solutions and our customer-centric approach. CIB remains committed to providing its SRG Prime cli- ents with the highest-quality banking services, fulfilling their unique needs while ensuring client satisfaction as well as shareholder value. Global transaction Services Group (GtS) The Global Transaction Services Group was formed to en- sure that the ever-changing technological demands of our clients are addressed efficiently. The Group’s primary objec- tives 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 capabilities. In 2013, the focus of the GTS group has increasingly shifted from reactive, cost optimization aiming at enhanc- ing customer experience to becoming a fully integrated revenue generating engine targeting broader and deeper customer relationships. These collaborative, value-based partnerships with cus- tomers, which are directly driven by their evolving needs, resulted in the introduction of unique financial solutions tailored to the needs of major multinational companies. Tailor-Made Financial Solutions • Bolero Integration Application: Provides the client with a one stop view of all bank guarantees. By reducing the re- quirement for working capital, the application offers the user a better position from which work with their banks to manage credit lines and improve cash positions. • Payment Gateway: Enables our clients’ customers to make online payments via Visa and MasterCard gateways. • CIB / Earthport ACH Integration: Enables internation- al payments (global ACH) capability using an innovative payments framework specifically designed for high vol- umes of low-value cross-border payments. This provides CIB customers with access to local clearing schemes in over 50 countries. GTS Information Suite While continuing to enhance the reporting features available on our Cash On-Line and Trade On-Line platforms, GTS has developed a Corporate Download Portal aiming to improve customer visibility into their working capital A reporting portal that enables self-managed report de- sign and download; availing accurate and comprehensive fi- nancial data- live and archived. This corporate online portal serves as an effective tool supporting strategic, operational and transactional cash management. Incorporating Voice of Customer in Early Stage Product Development Throughout 2011 and 2012, the main focus of GTS was on auto- mating and enhancing operational efficiency. Since early 2013, as the GTS Division heads towards a more customer-centric business model and away from the prevailing product-centric one, incorporating voice of customer in the early stages of prod- uct development has been a key priority for the Division. To drive GTS to a consumer-centric model, the Division established the GTS Business Development department, ensuring relationship officers have adequate knowledge of GTS product offerings through (a) structured training, (b) jointly examining customer profiles with GTS Product Heads to decide on the right products to cross-sell to each customer, and (c) defining metrics to track cross-selling, penetration, and officers referral. GTS established the GDR Desk in Q1 2013 with the purpose of supporting issuers who are broadening and diversifying their shareholder base with potentially greater liquidity, ben- efitting share valuations in addition to expanding our com- mitment globally. CIB continues to be the sole provider for the securitiza- tion trustee services, maintaining our leading position in the market. For the fifth consecutive year, GTS was awarded the Best Sub- Custodian Award from Global Finance Magazine. GTS also re- ceived both the Best Trade Finance Provider in Egypt Award and the Best Online Cash Management – Regional Award by Global Finance in 2013, ensuring CIB’s leadership position in Global Transaction Services in the Egyptian market. In a joint effort by the GSS and the Investor Relations depart- ments, CIB ADR (American Depository Receipts) was regis- tered to be traded on OTCQX International Premier-A segment of the OTCQX marketplace reserved for world-leading non-U.S. companies that are listed on a qualified international exchange and provide their home country disclosure to U.S. investors. CIB is the first ever Egyptian issuer to join the platform. As relationships continue to be nurtured with global donors and development organizations, supported by their sovereign diplomatic missions, SrG boasts yet another year of achievement in 2013, despite the challenges our country faced. GTS continues to enhance customer experience and efficient transaction processing capabilities Product Segment Performance Indicator Percentage of Bank-wide Trade transactions processed electronically via Misys Trade Portal (MTP) Trade Percentage of Bank-wide Trade transactions processed Via Trade Hubs Percentage of Bank-wide Trade transactions migrated from branches (MTP + Service Hubs) Dec-12 Dec-13 12% 15% 67% 71% 79% 86% Cash Management Percentage of Bank-wide Cash transactions processed electronically 13.26% 34% Global Securities Services Percentage of assets under custody market share 35.19% 35.72% 2014 Strategic Areas of Focus • Product bundling to supply key components of value prop- ositions attending to different customer needs. Providing a more integrated set of services to achieve “stickiness” in our customer relationships. • Seamless customer experience across all GTS service de- livery channels, with a continued focus on TAT improve- ment, error rates and governing SLAs. • Enhance user interface providing single sign-on, and consistent look and feel across all products and admin- istrative functions. • Single point of access across all customer segments for all online platforms. • Introducing innovative products / services across all GTS segments to ultimately offer an integrated work- ing capital management solution that facilitates cus- tomer business growth rather than products developed in silos. • Engaging customers through surveys and benchmarking initiatives. • Broaden and deepen customer relationships through vari- ous cross-selling and up-selling initiatives. 28 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 29 2013 In ReVIeW gloBAl cuStomeR RelAtioNS 2013 In ReVIeW The Gcr business model also expanded in line with our Strategic roadmap in 2013. organizational and strategic objectives were prioritized and addressed, and the required resources and staff recruitments were deployed while adhering to our strategic objective of focusing on overall profitability rather than profit-per-product. Despite Egypt’s ongoing turbulent post-revolution environment, the Global Customer Relations (GCR) Group remains bullish in its outlook as it seeks to capitalize on opportunities brought about by economic and political change. GCR, therefore, con- centrated its efforts this year on responding to these changes and taking full advantage of the accompanying opportunities. As a result, and owing to its pivotal role across all of CIB’s busi- ness lines, we are proud to announce that 2013 marked another period of successful achievements for the GCR Group. The GCR business model also expanded in line with our Stra- tegic Roadmap in 2013. Organizational and strategic objectives were prioritized and addressed, and the required resources and staff recruitments were deployed while adhering to our stra- tegic objective of focusing on overall profitability rather than profit-per-product. In line with GCR’s strategic goals and KPI’s, special focus was directed toward our facilitative interdepartmental role within the Bank to align objectives across all areas 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 affected 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 improve bank- wide products and services. Initiatives were undertaken to improve product offerings to better meet client expectations, deepening the Bank’s relationship with existing clients and en- hancing both growth and profits. Driven by ownership and accountability over accounts under management, special focus was directed towards: 1. Business development and portfolio enhancement through growth in the existing portfolio in addition to new commit- ments. 2. Aggressive efforts towards recovering questionable and Non- Performing Loans to safeguard the quality of CIB’s asset port- folio. 3. Proactively solving potential client problems and identifying new business needs. 2013 Achievements: • Contributed to the growth of the corporate portfolio by EGP 420 million by increasing CIB share of wallet with 297 exist- ing clients and 39 new-to-bank clients. • Contributed to the growth of corporate profitability by 34.7%, reaching EGP 774 million as of December 31, 2013 up from EGP 574 million as of December 31, 2012. • Corporate Liabilities: Increase in liabilities worth EGP 1.9 bil- lion (Existing clients for EGP 1.6 billion and New Clients for EGP 0.3 billion). Collaborated with other departments to introduce new products: Bolero Application: CIB is the first Bank in Egypt to apply the Bolero Online solution for its clients for Letters of Guarantee. The Bolero Application is a clear example of a customized so- lution that meets client needs and requires changes to stan- dard operating procedures across a number of departments being one of the GCR’s core competencies and primary busi- ness objectives. ABB Group adopted the Bolero Trade system globally. Whereby all ABB subsidiaries should start utilizing this reporting System to enable the Parent Company in Switzer- land to monitor online the daily banking utilization of all its subsidiaries. • New Cash Deposit Portal • New e-payment Gateway 2013 Achievements in Consumer Banking: • A 35.3% increase in the number of payroll accounts. • A 9.1% increase in the amount of personal loans. • A 12.9% increase in the amount of personal deposits. • Signing contracts of 4 new CIB Branches - Americana Pla- za, CFC Mall, Palm Hills Promenade Mall and DP World 2013 Achievements in Merchant Acquiring Services Merchant Acquiring Services expanded, with GCR’s help, to cover all GCR clients that require them. The Bank is proud- ly the exclusive provider of Point of Sale (POS) terminals throughout the new IKEA Store in Cairo Festival City Mall & Americana Plaza in October & New Cairo. In addition to, Etisalat Misr, Edrak, Mobinil, Travco, Blue Sky and Vodafone to bring the total of 192 POS installed in 2013. 2013 Achievements in Custody Services This department contributed to the growth of CIB’s custody portfolio by attracting shares worth EGP 37.6 million from two leading corporations in Egypt (Orascom Hotels and De- velopment and Consukorra). 2013 Achievements in Global Transaction Services GTS successfully completed a total of 13 deals across the CIB Cash Online, E-Trade and ACH platforms. CIB Affiliates: • Egypt Factors: Receivables factoring services increased by EGP 5,000. • CIL: Issued two insurance policies: A Group Life Insurance Policy for Americana Group including five companies cover- ing 14,000 of its employees. An Individual Insurance Policy in the name of Consukorra Company’s Chief Executive Officer. • Falcon: Falcon carried out Cash Transit Services for EDRAK for Edutainment Projects Company and Nestlé. Falcon also signed an exclusive security contract with Sofitel Group. • CI Capital: Ratifying mandates for the execution of Port Ghal- ib’s sell down transaction. Going Forward — GCR Strategy 2014 • Develop, explore and extend relations with new selected ac- counts in accordance with GCR approved selection criteria. • In line with the announced government expansion policies and directives, special focus will be directed to mega projects, specifically in the Energy, Transportation and Ports sectors. • Focus is directed towards marketing CIB banking service in ports other than Ain El Sokhna. • Aggressive effort will be directed towards expanding all retail banking products and services. • Focus on fortifying and expanding inbound Gulf investments. • Special efforts will be directed toward recovering question- able and problematic exposure to safeguard the quality of CIB’s asset portfolio. • Strategic collaboration with the entire CI family, with specific focus on CI Capital and GTS to provide a well rounded solution to the client. • Constant market screening to spot new opportunities with existing clients and expand with new to bank clients. 30 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 31 2013 In ReVIeW coNSumeR AND BuSiNeSS BANKiNg 2013 In ReVIeW despite political and socioeconomic unrest in 2013, cib wealth maintained its market leadership by continuing to provide our most valued clients with superior financial solutions to meet their financial needs. liabilities The success of CIB consumer banking is clearly demonstrat- ed by the remarkable growth in customer deposits, which reached EGP 70.7 billion in December 2013, an impressive 20% growth over EGP 59.1 billion in 2012. In October 2013, CIB’s total liabilities reached EGP 94.7 billion, which translates to a 7.63% market share for CIB compared to 7.23% in 2012, as total liabilities of all Egyp- tian banks reached EGP 1.2 trillion as of October 2013. This growth is an outstanding achievement in our highly-compet- itive market of 40 banks. Wealth At CIB Wealth, we achieve excellence by adopting industry best practices and fostering a win-win environment for all stakeholders. Despite political and socioeconomic unrest in 2013, CIB Wealth maintained its market leadership by continuing to provide our most valued clients with superior financial solutions to meet their financial needs. This was reflected by the solid and growing relationships through pro- fessional Wealth Managers who continuously strive to build service quality and adequate financial advice. Wealth seg- ment deposit grew 22% year-on-year as of end-2013. In 2014, CIB will continue to make service excellence a cor- nerstone of its proposition tailored to HNWI. payroll The Payroll business saw continued growth in 2013 with a pay- roll net sales acquisition of 33,267 accounts as of year-end. As a major channel for liabilities and assets x-sell, payroll recorded a significant rise in deposits and assets penetration with total deposits recording EGP 3.7 billion in 2013, 37% in- crease from 2012. Total assets portfolio reached EGP 0.874 million in 2013, representing a 44% increase from 2012. Given the prominent role of CIB Payroll business in the market, focusing on quality assurance was solidified by es- tablishing a team to provide around the clock qualitative ser- vice calls to payroll clients. This resulted in reducing monthly payroll complaints from 57% to 9% and updating a database of over 10,000 customer accounts. Business Banking The Business Banking segment has been one of CIB’s stra- tegic initiatives in the past couple of years, handling and managing SMEs within the Banking sector. The segment was launched on a pilot basis in 2011 and then went live in 2012, covering a limited number of branches. Finally in 2013, the Business Banking segment was aggressively introduced to the market with a number of financial products and service offerings that were specifically created for the targeted de- mographic. plus CIB Plus was introduced in 2013 as a new segment that caters to medium-net-worth individuals. Strategy is to build a solid and profitable business that is purely customer-driven. By us- ing simplified products, fast track service and personalized service offerings through a network of Plus Bankers, CIB Plus is designed to help customers grow their savings and product portfolio en route to becoming Wealth. Financials & Achievements: The Business Banking Segment had an impressive year with achievements and figures that encouraged upper manage- ment to put more focus on this segment and allocate more resources by end of 2013. The segment’s performance figures in 2013 measured against 2012 results are presented below: • Assets portfolio grew by EGP 95 million representing a year- on-year (Y-o-Y) increase of 20%. • Deposits portfolio grew by an impressive EGP 3.7 billion with a growth of EGP 1.7 billion in Current Accounts and EGP 2 billion in Term Deposits, which is a total Y-o-Y in- crease of 49%. • Revenue to the Bank grew by 56% Y-o-Y to EGP 354 million, derived mainly from a growth of EGP 80 million in Fees & EGP 46 million in NII • Business Banking new clients acquisition in 2013 reached 644 company which is an average of 54 companies per month. • Average Revenue per Officer recorded a remarkable 28% in- crease, showcasing a productivity improvement by the dedi- cated Business Banking Relationship Manager. Performance Indicator 2012 2013 Increase Total Assets: (ENR) 479,941 574,600 20% Secured Facilities 479,941 550,763 15% Unsecured Direct Loans Unsecured Facilities Customer Deposits (ENR) DDAs Term 22,001 43,554 7,645,462 11,424,084 49% 3,238,894 4,978,526 54% 4,406,568 6,445,558 46% Deposits end net Result, 2013 14% 86% Business Banking Total CIB trade Volume, 2013 26% Total Revenue 233,303 354,330 52% 60% 14% Net Interest Income 161,907 202,779 25% Non-Interest Income 71,396 151,551 112% Gross Contribution 218,652 321,191 47% Business Banking Retail Corporate 32 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 33 2013 In ReVIeW 2013 In ReVIeW A real entrepreneur, tobacco plantation owner Simon Arzt produced cigarettes in Egypt to benefit from the favorable tax regime, while his department store was famous for importing the “right brand” of European goods to serve Egyptian and expat elites living in Port Said. The Business Banking segment has undergone continu- al growth since its launch in 2011, a success attributed to several factors, including our efforts to develop a re- lationship based on trust with our clients, our experi- enced and dedicated management team, the hard work and dedication of our Relationship Managers (RMs) who work to establish solid relationships between our clients and CIB, and finally to our enthusiasm to serve the SME sector in Egypt. In order to assist in the development of SMEs — the backbone of the Egyptian economy — it is important to provide them with access to integrated financial solutions and off-the-shelf financing programs, in addition to working with these com- panies to help them better manage their cash cycles while meeting their needs and expectations. Our support for SME clients also includes conducting busi- ness workshops and seminars designed to help them run their companies efficiently under the current circumstances by offering lectures and courses on business planning and crisis management. Last but not least in 2013, we have graduated 25 Relationship Managers from the first “Business Banking Academy” which aimed to ensure that our Relationship Managers are the best in the Egyptian Market. The Business Banking Segment was proud to honor our first Business Banking Academy Graduates The purpose of the Business Banking Academy is to create strong and ambitious calibers that are the key players and the image of our segment by attending extensive training on soft skills, essential selling tools, technical knowledge on impor- tant subjects such as Trade Finance business and finally an on the job training to put all of the acquired knowledge into implementation. To further extend our lines of services to SMEs, the Bank aims to expand its distribution channels to more locations across the country, with a particular focus on industrial zones. Cards CIB Cards is a robust, full-fledged and profitable business of- fering a full product suite of credit, debit, prepaid and POS, serving over 630,000 customers in retail and business seg- ments across Egypt. Our mission is to become the leader in processing non-cash financial transactions in Egypt, as well as to be a key enabler of the Egyptian economy. Overall, 2013 was a strong year for the CIB Cards Business. On the Credit Cards line, we achieved sales growth of 22.8% over 2012, for a total of EGP 2.9 billion. In the Acquiring segment, CIB maintained its leadership position despite new and strong competition by offering Dy- namic Currency Conversion (DCC) services. That in addition to a high level of customer service resulted in the processing of over 9.6 million transactions worth EGP 5.9 billion. CIB plans to introduce in 2014 several new cards and pro- grams such as airlines co-branded cards and an installment facility and loyalty program by investing in more core con- sumer cards issuances, in order to gain a greater market share, rebalancing towards high-return business payments and continuing to lead in payment innovations to meet evolving customer needs. Alternative Distribution Channels At CIB, one of our core beliefs is in the importance of excel- ling at fundamental business lines, as these are the founda- tion upon which innovative capabilities that address diver- sified, sophisticated and dynamic customer demands are built. Accordingly, the strategic direction of the Alternative Distribution Channels is to focus on providing customers with round-the-clock value-added services through simpli- fied accessibility banking. Online Banking: The new online platform, launched in Q1 2013 succeeded in increasing the number of users by more than 42% compared to 2012, serving 18% of the bank’s cus- tomer base. The platform proved successful at getting cus- tomers better acquainted with online products, in addition to simplifying the process of performing recurring transactions and fund transfers to external beneficiaries. The platform is also making headway in establishing more value-added ser- vices in 2014, such as Bill Payment as well as customization of service offerings. ATM Network: CIB continues to capitalize on its well-es- tablished ATM network to release new value-added servic- es. A new type of machine capable of accepting bulk notes was introduced in Egypt. This will enable real-time depos- its by plastic cards for SME and Corporate clients. Other key technological innovations included the small ticket 34 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 35 2013 In ReVIeW 2013 In ReVIeW card-less deposit mechanism, which helped increase de- posit migration rates by 103% year-on-year. This year also witnessed the release of the Bill Payment service on the ATM network which allows clients to pay their mobile, in- ternet, and utility bills at CIB ATMs. The Bank will contin- ue this strategic direction of offering new value-added ser- vices to help customers conduct transactions effortlessly at all hours at more than 555 ATMs across Egypt. Call Center: CIB’s 24/7 Call Center is the main interac- tion hub for our current and prospective customers. The Center supports inquiries, transactions, requests and complaints through more than 3 million self-service and agent calls per year. The Center increased its workforce by 22% in 2013 to a total of 178 officers, in an effort to widen its customer base. In 2013, the Call Center has been at the epicenter of CIB’s customer-focused strategy by establish- ing a unit to evaluate the new customer experience. Fol- lowing its mandated role to offer one-on-one treatment for every customer, the Center added two new segments, one for the Plus segment and one for the Business Bank- ing segment. The Call Center introduced for the first time in Egypt an interactive multimedia platform in Q4 2013, offering customers the option of interacting with agents over video calls. E-Payments: CIB remains the leading bank in collect- ing government e-payments with a market share of 47%. CIB continues to expand its payment services to cover all Egyptian ports of entry, with this year’s addition being the Cairo International Airport. Fees generated from such ser- vices increased by 6% compared to 2012. The Bank has also launched its new Corporate Payment Services (CPS), which provides government e-payment services for key corporate clients through secured portals that are accessible around the clock without the need to visit a CIB branch. Branch of the Future: CIB launched the first interactive smart branch in Egypt and affirmed its market leadership by introducing innovative financial services to the local market. The new branch, located on Road 90 in New Cairo, offers a unique experience using interactive screens to demonstrate the Bank’s latest products and services, with the ability to send more information to the client via email. The branch also offers the first video call channel during and after official working hours, a unique service among banks in Egypt. The branch is also equipped with the lat- est digital tablets, offering a chance for clients to carry out e-banking transactions at the branch, in addition to the newest line of ATMs in the self-service area. The launch of these fully interactive tools completely revolutionizes the customer banking experience, reflecting CIB’s strategy and its vision towards the future. Consumer loans Consumer Loans portfolios recorded positive trends dur- ing 2013. These trends were evident during Q1 and Q2, which were attributed to the application of new business initiatives across all loan product lines. As the political scene dramatically changed in mid-2013, these trends were impacted during the months of July and August. However, these were reversed by September as the business climate steadily normalized. The Personal Loans portfolio grew by 24% recording EGP 3.33 billion by year-end 2013 as opposed to EGP 2.68 billion in 2012. This growth was achieved as a result of an increase in the scope of unsecured personal loans pro- grams which was expanded to focus on high yield target- ing programs. Moreover, this led to a shift in the sourc- ing mix towards high yield segments and an increase Net Interest Margins of 10% to reach 2.9% at year-end 2013 as opposed to 2.63% at year-end 2012. Sales-wise, the applied business initiatives have led to an increase in single customer profitability by applying a multiple product sales model and increasing the unse- cured loans average ticket size by 46% to reach EGP 41,000 as opposed to EGP 28,000 in 2012. Personal Loans revenues recorded a growth rate of 36%, achieving EGP 134 million in 2013 in contrast to EGP 98 million in 2012. In 2014, the Personal Loans Business will focus on in- creasing overall portfolio Net Interest Margin and gross contribution by prioritizing sourcing from high yield pro- grams as well as increasing assets penetration to payroll customers. The Personal Loans Business will target sales of multi-tiered products and cross selling options to im- prove average customer profitability. The Auto Loans Business saw a rebound in its mar- ket position towards the end of 2013 by doubling monthly unsecured sourcing in order to raise CIB auto loans mar- ket share from 9% in Q1 and Q2 to 14% at year-end. This hike in sales performance resulted from applying several business initiatives such as introducing marketing activi- ties and offering new dealer incentive schemes. This no- table improvement in unsecured Auto lending led to 19% a growth in revenue to reach EGP 24 million in 2013, an EGP 4 million increase over 2012. Sourcing from Secured Auto loans was halted in the beginning of 2013, as the sales focus shifted towards unsecured lending. This led to a growth in the Consumer Assets Unsecured portfolio, which shortened the breakeven period to early 2014. Sus- taining product proposition enhancement contributed to this achievement and served to grow CIB’s market share. The Secured Overdraft portfolio reached EGP 1.9 bil- lion in 2013, as its strategy was centered on changing the portfolio mix towards Local Currency lending which also contributed to increasing the NIM to 1.84% in 2013 com- pared to 1.69% in 2012. The portfolio will witness the in- troduction of unsecured overdraft programs to capitalize on payroll relations in 2014. Insurance Business Life Insurance: The CIB Insurance Business provides Life and General In- surance programs that generate non-interest revenues in the form of fees for CIB Consumer Banking. In 2000, CIB began promoting life insurance programs such as protection packages as well as savings packages. These programs were introduced to address a wide vari- cib’s 24/7 call center is the main interaction hub for our current and prospective customers. The center supports inquiries, transactions, requests and complaints through more than 3 million self-service and agent calls per year. • Continued to provide a wide array of insurance plans to meet the needs of all consumers. General Insurance: • Increased Credit Shield administrative fees by EGP 11 million in 2013 compared to EGP 6 million in 2012. • Launched ‘Save & Safe,’ the first insurance product with a savings account in Egypt. • Monitored and managed all insurance group policies related to assets and portfolios to assure an optimum coverage at the best rates and a smooth process. • Improved Bank Risk Management by reviewing the Bank’s insurance policies related to financed assets, with the goal of reviewing all policies by the end of 2013. • Focused on creating bundled insurance consumer products packages in 2014, such as travel insurance for cards, auto insurance, payroll insurance, CD’s insur- ance, and medical insurance for the Wealth segment. ety of consumer needs in Egypt through the Commercial Insurance Life Company. The department began offering General Insurance in 2011, capitalizing on its strong links to the best insurance providers in Egypt. Target Segment: Due to the nature of insurance products, periodic premi- ums are paid to cover unfortunate events. Our business targets different client segments based on consumer in- come, health condition and need analysis. To secure our valued customers, a number of new life insurance programs were introduced in 2012, with up- graded benefits, to better satisfy most of customer needs. Strategic Goals: • Insurance Business’ strategic goal is to increase its rev- enue contribution to Consumer Banking to 10% by 2016. • Increase market penetration by expanding CIB’s cus- tomer base. • Lead the market by introducing a wide range of prod- ucts from the best insurance providers. 2013 Achievements: Life Insurance: • Achieved a remarkable net growth in fee income to reach 36 % YTD [EGP 51 million in 2013 compared to EGP 38 million in 2012]. 36 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 37 2013 In ReVIeW coo AReA 2013 In ReVIeW In 2013, the COO Area continued to sponsor and implement key initiatives from the Bank’s strategic agenda, despite the fact that this year presented a very challenging operating environment. Egypt’s political and security situation caused heightened tensions after the first half of 2013, resulting in a number of challenges and a good deal of focus on Busi- ness Continuity Management. In addition, a challenging FX environment in the country and local currency devaluation affected our projects, contracts, payments and operating ex- penses. To offset these externalities, as well as to strengthen the CIB brand, the COO Area has focused on several strategic objectives, including the improvement of customer experi- ence, infrastructure development, enhancing the controls environment, effective cost management and people agenda. We were able to boost our distribution network, adding more than 20 new branches — a real accomplishment under the circumstances — bringing our total network to more than 153 branches. We also acquired a new head office at the Smart Village business park, enlarging our presence there to two buildings with facilities covering a total area of 15,000 square meters and hosting more than 1,000 staff members. This year, the COO Area has actively taken ownership of a number of key strategic projects and initiatives for the Bank. Our Sustainability Initiative was one such effort, with a sig- nificant amount of work done in support of its implementa- tion. The COO Area created the proper framework and gov- ernance for the Initiative, and implemented key ‘quick wins,’ including turning our head offices into non-smoking build- ings and raising staff awareness in regards to environmental considerations and corporate social responsibility. Another key project was the move towards compliance with the new US tax regulation, the Foreign Accounts Tax Compliance Act(FATCA). We have hired one of the Big Four to conduct the required consultancy services for the CIB Group in order to understand our responsibilities and our situation to mobilize our resources accordingly. The COO Area continued in its efforts to enact effective cost management as well as positively contributing to the Bank’s revenue generation. Through our staff’s Cross Sell ini- The first cairo hotel to be built on the banks of the river Nile, the original Semiramis was completed in 1907 and immediately became an institution in the bustling city. tiative, the COO Area has generated significant revenue for the Bank this year. Further focus was placed on evolving the COO Area organi- zation in terms of people and functions to increase the value added to CIB. This year, separation of key functions such as the Finance Group has taken place after developing signifi- cantly to act now as a more important player in the Bank’s strategy and decision-making. Consolidation of the Premises & Services Division under one enlarged operations group a in creating further synergies and better end-to-end manage- ment of our operational activities. Increased focus on the CIB brand image and equity will be realized through the separa- tion of the Marketing and the Brand & Corporate Communi- cations Divisions that took place at the beginning of the year. In terms of human resources, we hired promising fresh gradu- ates through successful employment fairs at reputable univer- sities. We also enriched our management line up with experi- enced talent to manage key positions in the COO Area to align with the Bank’s strategic aspirations and market position. operations Group In 2013, the Operations Group enlarged its footprint in the COO Area to manage the Premises Projects & Corporate Ser- vices function in addition to its responsibility for the Cen- tralized Operations, Internal Controls and Service Quality & Business Continuity. This consolidation was done with the aim of creating more synergies with those areas and stream- lining the process flow. The Operations Group kick-started key projects this year which were designed to augment the Bank’s strategic agen- da. This included a major Business Process Orchestration project that will be implemented over three years’ time to centralize and streamline key business process flows from an end-to-end perspective while building up internal capa- bilities through a fully integrated Center of Excellence. Au- tomation of the current Custody Operations has also been one of the priorities this year through introducing a fully- fledged Automated Custody system that is expected to go live by the end of 2014. In support of the business agenda, the Operations Group implemented multiple projects related to the alternate channels that contributed to offloading our branch net- work and improving our customer experience by introduc- ing a number of alternatives for customer transactions. This included an expansion of our ATM network to 550 machines, as well as the addition of new features. We also launched our new online banking portal, raising the level of service provided to our customers and improving their experience with CIB – a key focus area of the Bank’s stra- tegic agenda. Substantial efforts were made this year in support of the Bank’s Business Continuity & Crisis Management in light of the political and security situation. The Bank managed to successfully operate our head office multiple times from alternate locations, accommodating a capacity of 100+ staff, and also managed to sustain very high service levels for customers through our diverse branches network and alternate channels. 38 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 39 2013 In ReVIeW premises projects The challenges of 2013 highly impacted the Premises Proj- ects department, with the local currency devaluation and the unavailability of labor negatively affecting our contractual obligations and timelines. However, the Premises Projects department was able to successfully deliver a number of key milestones this year that involve key strategic parameters. We increased our reach through establishing more than 22 new branches and our ATMs network has grown to reach 560 ATMs. We completed the renovation/uplifting of 10 branches and 16 wealth lounges. We also increased our head office space by acquiring another building in Smart Village, expanding our Smart Village presence to more than 15,000 square meters and accommodating a total of 450 staff. New branch designs are underway, with CIB ushering in a new prototype branch at Black Ball Mall. Widely regarded as the first interactive branch in Egypt, the facility incorporates high-tech elements implemented for the first time at a CIB location. This is the model that we will be replicating across all our new branches starting in 2014. Emphasizing our responsibility towards CIB’s sister com- panies, we completed CICH’s new head office rearrange- ments as well as the foundation phase of Falcon Group’s head office in New Cairo. Finance Group During 2013, the Finance Group continued its transforma- tion into a strategic partner, working closely with the busi- ness and the Board of Directors to assist in decision-making, results analysis and driving performance in the service of shareholders’ interests. A good example of this new strategic focus was the intro- duction of Risk-Adjusted Return on Capital (RAROC) as a key performance indicator for the Bank. RAROC will help align relationship managers’ and shareholders’ interests to maxi- mize returns based on the true capital cost to shareholders. RAROC will be rolled out to CIB’s clients and across product lines throughout 2014 and 2015, making it an integral factor in the Bank’s future decision-making process. 2013 was the year of IT Capital in Finance. Marked improve- ments were made in our management information systems, including the implementation of an advanced enterprise per- formance management application, budgeting and reporting systems, as well as a new IFRS reporting module. All this was accomplished alongside a major upgrade of the Bank’s core banking system. Execution of the upgrades, including the new and more comprehensive automation of ledger control and reconcilement, will continue in 2014. Corporate Services Corporate Services had an extremely busy agenda this year, with a heavy focus placed on enhancing our security. We significantly tightened security measures across all our branches and head offices, including implementation of ac- cess control systems, as well as increasing safety measures in our warehouses based on international safety practices and supported by training our staff on safety and security. Additionally, we provided our drivers with defensive driving training to better ensure the safety of our employees. We introduced a more robust supply chain management function, which involves looking over procurement, tender- ing, contracts and warehouses, and introducing enhanced vendor management capabilities. In support of Business Continuity, we upgraded our branch network generators and UPS supplies to increase our resiliency. A number of initiatives planned for in 2014 began in earnest this year. This included applying a new preventive maintenance strategy for proactive maintenance of our as- sets and buildings. Finally, and in support of the Bank’s sustainability initia- tive, Corporate Services has implemented various projects including planting a roof top garden, creating the green wall, and planting a native plants garden. Furthermore, we imple- mented a non-smoking policy in our head offices, with fur- ther projects expected to take shape in 2014. Human Resources One of the main goals of the Human Resources department in 2013 was to focus on attracting employees of the right caliber as well as to contribute to the development and success of ex- isting employees. Human capital management has been and remains of the utmost priority, and we increased our focus on improving our staff satisfaction and compensation strategy to retain key talent within the organization. Recruitment On the recruitment side, the focus was on promoting from within for middle and upper management positions, while ef- forts to build entry level talent were directed towards visiting campuses and having a presence at employment fairs. One of our main sources for summer and for-credit interns came from on-campus outreach, including employment fairs, our winter training initiative, and events such as AUC Career day and Top Employer. We conducted a very successful round of summer internships this year with a carefully selected group of 50 summer interns from reputed universities. Our credit internships also evolved this year and we were able to select 60 external candidates to sit for the GMAT exam for the next credit course in 2014. We also maintain a very low turnover rate of 1% below the market benchmark. talent Management A major focus of the COO Area is Talent Management. For the first time, CIB initiated an all-round, comprehensive assess- ment of leadership competencies for executive and senior di- rectors conducted by SHL, one of the world’s leading leader- ship consulting firms. The assessment is used to identify and evaluate the competence of CIB’s senior management against a set of managerial behaviors that impact their work perfor- mance, leadership style and ultimately CIB’s organizational culture and business performance. On the Performance Management side, standardized ob- jectives Bank-wide were reviewed and updated to maintain a robust performance management system that ensures the Bank’s strategy reaches all staff levels and that each staff member clearly understands what is expected from them for the year. 2013 In ReVIeW Marked improvements were made in our management information systems, including the implementation of an advanced enterprise performance management application, budgeting and reporting systems, as well as a new ifrS reporting module. learning & Development The role of learning and development has evolved in 2013, with an increased focus on investing in our staff’s develop- ment. The L&D department has supported multiple initia- tives of the People Agenda. This included sponsoring overseas MBAs for two of our staff and enrollment of eight employees in the Graduate School of Banking (GSB) Program at the Uni- versity of Wisconsin in Madison, USA throughout this year and next year. These initiatives also include financing higher education opportunities locally at reputable institutions as well as funding attendance at overseas conferences. As developing quality management for the Bank is a fun- damental strategy, 2013 saw a continued investment in our leadership development programs, namely the Leadership and Management Program (LAMP) for CIB’s directors and higher positions, a program covering 100% of the target pop- ulation. Another program is the Leadership & Development Program for Consumer Banking (LDP) which this year tar- geted consumer banking zones and branch heads. As the leading private bank in Egypt and one with a heightened sense of social responsibility, CIB has success- fully sponsored the creation of the position of Professorship in Banking at the American University in Cairo, allocating USD 2 million to educate and train young graduates in the field of retail banking. The breakthrough Job Family Project, which introduces a number of programs in Trade Finance and Operations targeting Consumer Banking, and which was initiated in 2013, will be im- plemented on a wider scale in 2014. This should bring the learn- ing and development scope into a more strategic perspective. Compensation and Benefits In terms of employee compensation benefits, we participated in local salary surveys to ensure effective reward benchmark- ing and analysis to maintain CIB’s competitive position. We also streamlined the CIB salary structure to ensure our staff are paid on par with the market (external equity) and also ensure that similar jobs with similar performance standards are compensated similarly (internal equity). We enhanced our pay policy including salary adjust- ments for certain positions based on market practices, and changed our merit increase policy to be on a monthly take home basis rather than relying solely on base salary. We also enhanced our staff benefits policy regarding staff loans, mortgage loans and car loans. The Department has also improved our medical insurance policy and limits by changing the vendor to provide more benefits to our staff and raise the bar of satisfaction. Sustainability Development Sustainability from an environmental perspective is becom- ing a fundamental component of the strategy of leading mul- tinationals, investors and fund managers around the globe. It was in this forward thinking spirit that CIB decided to move forward with a robust Corporate Sustainability initiative in July 2012. To this end, the Bank will ensure that it achieves its twin objectives of serving Egypt’s socio-economic interests and protecting the environment, as well as attaining durable financial safety and soundness for the Bank. CIB approved the establishment of a dedicated Sustain- ability Development Department, which falls directly under the umbrella of the COO area. Dr. Nadia Makram Ebeid (ex. Minister of Environmental affairs and CIB Board of Director member) was nominated to guide this initiative in coopera- tion with a competent dedicated team. The Sustainability Development Department was initiated in January 2013 with a mandate to ensure the development, management and re- porting of CIB’s sustainability efforts (strategies, policies, systems, initiatives, quick wins including ongoing third par- ty liaising, branding and training efforts). In March, CIB’s sustainability governance structure and framework were approved by a Sustainability Advisory board. Green Teams were nominated to act as Environmen- tal Champions within the organization. The department worked with different internal and ex- ternal stakeholders on a number of going green quick win projects, including the Rooftop Garden, Green Wall, energy conservation initiatives, landscaping, photography compe- 40 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 41 2013 In ReVIeW 2013 In ReVIeW titions, non-smoking campaigns and double-sided print- ing (paper conservation), in cooperation with the Premises Projects, Corporate Services and Branding departments. The Sustainability Development Department also began work on the development of a solid waste management sys- tem through a phased approach with the contribution of the Corporate Services department. The Sustainability Develop- ment department also worked with the Learning and Devel- opment department to focus on raising employee awareness on sustainability, through 35 Sustainability Staff Awareness sessions which were held in CIB Head offices and branches across Egypt. Our long-term initiatives include conducting a social and environmental assessment of our business practices and to draw up a sustainability framework and roadmap. Another initiative is working towards identifying the nec- essary steps towards acquiring the Leadership for Energy and Environmental Design Certification (LEED). An exter- nal LEED expert was identified to assess the possibility of converting our new Smart Village building into a LEED cer- tified building. CIB Brand and Corporate Communication Department In 2013, and in order to cope with the Bank’s brand position- ing strategy and placing added focus on brand equity and brand image, the Marketing and Communication depart- ment was split into CIB Brand and Corporate Communica- tion department under COO Area and Consumer Market- ing, both within the purview of the Consumer Bank. Their objective is to concentrate on Brand Marketing through managing sponsorships, events, creativity, production and public relations. The Department has made key efforts throughout the year to expand CIB’s image, brand loyalty, brand position- ing, and exposure, keeping in mind external and internal customers. Once again CIB has maintained its position in Cairo’s In- ternational Airport. The airport branding initiative creates the utmost exposure, attracting foreign investors, while cre- ating top-of-mind awareness to all potential clients, while representing a strong and solid position for CIB compared to other Banks. Continuing last year’s Branches Rebranding Project, we are proud to say that all CIB branches were finalized with the new branding materials. All our branches now contain a standard- ized look and feel, and we added more that 20 new locations to our network this year. The CIB Black Ball Branch was launched with a recently approved concept and design, and is expected to be implemented with new 2014 branches. New brand and branches design guidelines have been established in order to support and improve the new brand position. The concept of the new Wealth Easy branches was also launched in a number of high-end residential compounds, such as Gardenia, Arabella, and City View. A strong branding strategy was rolled out in these compounds to promote the concept of easier-to-use branches to our customers. As the CIB website is one of the most important commu- nications tools between the Bank and its clients, the Brand- ing & Corporate Communication Department implemented a new and enhanced CIB website. We completely redesigned our layout with simplicity in mind, and made the site more user-friendly, with a strong focus on content delivery. The improved website offers features such as support for both English and Arabic, a loan calculator, social media platform, online forms, a mobile application, an investor relations web- site, and an audio / video gallery. Moving forward this year, CIB entered into a number of sponsorships to enhance its brand image, relating to themes of quality lifestyle, CSR, art, culture and sports. CIB is now a proud sponsor of Platform Marina & Maadi, Americana Plaza, Zamalek Club, Le Pacha, Red Sea Festival, Euromoney, Kidzania, the Egyptian Squash Association, Youth Salon, IIF, Employment Fairs, and many more. The Montaza district of Alexandria is famous for both its open-air promenade and as the heart of the city’s commercial district. CIB Awards CIB has continued to receive global recognition for the Bank’s outstanding performance and reputation. Some such notable awards include: • Best Bank in Egypt for the 17th year, Global Finance magazine • Best Sub-Custodian Bank in Egypt for the 5th consecutive year, Global Finance magazine • Best Foreign Exchange Provider Bank in Egypt for the 10th year, Global Finance magazine • Best Bank in Egypt, Euromoney Excellence Award 2013 • Best Trade Finance Bank in Egypt for the 7th year, Global Finance magazine • Best Asset Manager in Egypt, Global Investor ISF • Best Internet Bank, Global Finance magazine • Bank of the Year, The Banker magazine • World’s Best Emerging Market Bank, Global Finance magazine • Best Foreign Exchange in North Africa, EMEA Finance • Deal of the Year Best Restructuring Deal, The Banker magazine • Top Ranked Bank in North Africa, FTSE Information technology A number of key milestones were achieved in 2013 in the IT Department’s ongoing efforts to create an optimal techno- logical base upon which the Bank can build its innovative business solutions. Overall, this year has been one of major technological achievement. In the technology arena, CIB successfully managed change across the board. From the physical infrastructure, to key systems within the Bank’s IT platform, as well as other IT services, improvements were made in each area. Of the many technology initiatives completed during 2013, some of the major achievements of the year included: • Completion of the move to the new Core Banking System: CIB has successfully replaced its old system. The new system, in addition to adding significant new capability for the business, is also well aligned with our strategic direction, and has the ability to grow along with our business. • Creation and move to a new Data Center: The creation of a new state-of-the-art data center, and transferring our production center to the new premises, was also complet- ed this year. This new data center houses the Bank’s com- plete infrastructure and is the center of our IT operations. • Compliance and Regulatory Activities: The Bank has continued to make investments in systems for address- ing compliance and regulatory requirements. A number of projects were completed in 2013 to specifically address all regulatory requirements. • Completion of our move to a new Online Banking Sys- tem: In line with our strategy to upgrade the technology behind our alternate channels, CIB also rolled out a new Retail Online Banking system. The system introduces a number of new functions and capabilities, including user- friendly security options. • Ongoing expansion of our Analytics and Information Processing: CIB’s data warehouse capabilities continued to grow in 2013, with additional tools, dashboards, and analytic capabilities being added throughout the year. • Business Process Orchestration project: With a techno- logical base in place, and the completion of the core bank- ing replacement and implementation of other key systems, the Bank has focused its efforts on building on this base to gain a significant advantage. The BPO project is going forward, and is focused on providing process automation capabilities across the Bank Throughout 2013, we upgraded our infrastructure and tech- nical services. By having added critical new functionality, additional capacity and working on streamlining our techni- cal environment, CIB remains steadfast in providing a better experience to our customers. 42 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 43 2013 In ReVIeW 2013 In ReVIeW As the most important waterway connecting East with west, the Suez canal ended the 9,654 km circumnavigation of Africa, cutting average travel time from 20 days to 13 hours. RiSK gRoup Risk Framework Overview In 2013, our strong, disciplined framework in managing risk was integral to withstanding the turbulent challenges of Egypt’s transitional period and allowed the bank to maintain its solid reputation as a market leader, serve our clients and deliver strong results. Our robust framework provides assess- ments of the following risk types: credit, market, operational, interest rate, liquidity, funding as well as social and envi- ronmental. All elements for the framework are integrated to achieve an appropriate balance between risk and return. Culture CIB’s risk culture encourages risk transparency and effective communication to facilitate alignment of business strategies and promote an understanding of the prevailing risks through- out the organization. CIB continues to add learning opportu- nities and expand risk training across the organization. Principles CIB’s take on risk is directed by the following principles: • Decision making is based on a clear understanding of the given risk, accompanied by robust analysis to be approved within the applied risk management framework. • Continuous monitoring, managing and maintaining our de- fined risk appetite. • Business activities are conducted within established risk categories which are further cascaded down to limits. Risk Appetite Risk appetite is the maximum level of risk that the Bank is prepared to accept in order to accomplish its business objectives. It is annually determined and reviewed by the Board of Directors, taking into account strategic and business planning and enforced by a detailed framework. CIB’s risk appetite statement is defined in both qualita- tive and quantitative terms and is integrated into our strategic planning processes and the lines of business. CIB’s risk appetite framework is guided by the following principles: • Ensure strong capital adequacy. • Sound management of liquidity and funding risks. • Maintain stability of earnings. • Address social and environmental risks. Risk Limits CIB’s risk limits are guided by our risk principles and risk ap- petite which are linked to business decisions and strategies. These limits are reviewed and approved by the Board of Di- rectors and include the following: • Credit and Counterparty risks (country, industry, products, segments, clients and groups). • Market risk (foreign exchange and equity risks). • Liquidity and funding risks. • Interest rate risk. • Operational risk. Risk Group The Risk Group (RG) provides independent oversight and supports in the enforcement of the enterprise risk manage- ment (ERM) framework across the organization. RG proac- tively assists in recognizing potential adverse events and establishes appropriate risk responses. This reduces costs or losses associated with unexpected business disruptions. 44 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 45 2013 In ReVIeW 2013 In ReVIeW The Group works to identify, measure, monitor, control and report risk exposure against limits and tolerance levels and reports to senior management and the Board of Directors. operating guidelines that are approved by the Board of Direc- tors. Our risk management framework is governed through a hierarchy of committees and individual responsibilities. objectives • Implement a robust enterprise risk management (ERM) framework that meets regulatory requirements and interna- tional best practices. • Work closely with business and support groups to monitor portfolios and operations in order to provide independent risk analysis. • Work on raising efficiency to reduce expected losses, while maintaining adequate impairments coverage. • Review business decisions, adjusted for risk, in order to opti- mize capital utilization and return on shareholders' value, as well as social responsibility and sustainable business growth. Organization The Chief Risk Officer (CRO) manages the Risk Group and is responsible for the day-to-day management of the following key areas: credit and investment exposure management, con- sumer and business banking credit risk, credit and investment administration, credit information and risk management. The CRO reports directly to the Chairman and has oversight of the enterprise risk management framework and fosters a strong risk management culture throughout the organization. Governance CIB’s risk governance structure includes a robust committee structure and a comprehensive set of corporate policies and The CRO and other risk officers are key members of all credit, consumer, asset and liability management, and op- erational risk committees. Management and the Board of Directors have established key committees to review credit, liquidity, interest rate, market and operational risks. • The High Lending and Investment Committee (HLIC) is composed of senior executives of the Bank. The primary man- date 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 approves the Bank’s credit facilities and equity investments, in addition to focusing on the quality, allocation and development of assets and the adequacy of provisions coverage. • Asset & Liability Committee (ALCO) is designated to optimize the allocation of assets and liabilities, given the expectations of future and potential impact of interest rate movements, liquidity constraints, and foreign exchange ex- posures. ALCO monitors the Bank’s liquidity and market risks, economic developments, market fluctuations and risk profile to ensure ongoing activities are compatible with the risk/reward guidelines approved by the Board of Directors. • Consumer Risk Committee (CRC)’s overall responsibility is managing, approving, and monitoring all aspects related to the quality and growth of the consumer and business banking port- folio. CRC decisions are guided first and foremost by the cur- rent risk appetite of the Bank, as well as the prevailing market Chief Risk Officer [CRO] Risk Management Consumer & Business Banking Risk Credit & Investment Exposure Management Credit Exposure Management Non-Performing Exposure Management & Provisioning Investment Exposure Management Credit & Investment Administration & Credit Information Credit & Investment Administration ALM Risk Credit Information Market Risk Credit Risk Analytics Consumer Credit Policy, Application Fraud & Quality Assurance Strategic Analytics Credit Assessment & Fulfillment Unit Operational Risk Business Banking Collection & Recovery trends, while ensuring compliance with the stipulated guide- lines set by the Consumer Credit Policy Guide, as approved by the Board of Directors. • Operational Risk Committee (ORC) supports the Bank in fulfilling its responsibility to oversee the operational risk man- agement functions and processes. The objective of the ORC is to oversee, approve and monitor all aspects pertaining to the Bank’s compliance with the operational risk framework and regulatory requirements. Credit & Investment Exposure Management Group - Institutional Banking (IB) High Lending & Investment Committee (HLIC) Asset & Liability Committee (ALCO) Consumer Risk Committee (CRC) Operational Risk Committee (ORC) Chief Risk Officer (CRO) Credit risk arises from all transactions where actual, contin- gent or potential claims are measured against any counter- party, borrower or obligor. CIB distinguishes between five kinds of credit risk: • Default risk is the failure of meeting contractual payment obligations by the customer or counterparty. • Country risk is suffering a loss in any given country due to the probability of the following events occurring: a possible deterioration of economic conditions, political and social up- heaval, nationalization and expropriation of assets, govern- ment repudiation of indebtedness, exchange controls and disruptive currency depreciation or devaluation. • Business risk is the possible changes in overall business conditions, such as market environment, client behavior and technological progress. • Reputational risk is related to the publicity concerning a business practice, counterparty or transaction, involving a client that will negatively affect the trust in the organization. • Concentration risk is the risk within and across counterpar- ties, businesses, regions / countries, legal entities, industries, currencies, exposure duration and products. Under the Risk Group, credit risk is managed by the Credit and Investment Exposure Management and Consumer Credit Risk. These groups actively monitor and review exposure to ensure a well-diversified portfolio in terms of customer base, geography, industry, tenor, currency and product. At CIB, our management of credit risk focuses on keeping a balanced view of each of the five aforementioned types of risk, using analysis to properly build a diversified portfolio. This is achieved through performing due diligence of clients as well as regular performance assessments to identify po- tential causes of concern or deterioration and to formulate remedies for mitigation. The following philosophy and principles are applied to measure and manage credit risk: • Credit risk management function is independent from busi- ness divisions. • Client due diligence and prudent selection is achieved in col- laboration with business divisions. • Working to prevent undue concentration and long tail-risks by ensuring a diversified portfolio. Client, industry, country and product-specific concentrations are actively assessed and managed against the risk appetite. • Extension of credit or material change to any counterparty requires approval at the appropriate authority levels. • Measuring and consolidating exposures to each obligor on a group basis. • Specialized teams derive internal client ratings, analyze and approve transactions, and monitor the portfolio. It is CIB’s adherence to these guidelines which aided in the containment of loan losses and enabled the Bank to emerge from a volatile macro-economic credit environment in 2013 stronger than before. Furthermore, the successful navigation through the pitfalls of the 2013 credit crunch could not have been achieved without the application of our existing philos- ophy of conservatism, diversification and mitigation strate- gies including collateral and credit support arrangements. The above measures, backed by the high IB portfolio qual- ity, enabled the Bank to maneuver safely through a difficult period, reflected in a slight increase in default ratio to 3.96% in December 2013 as compared to 3.63% in December 2012, coupled with a total coverage ratio (direct and contingent) of 175.69% in December 2013 as compared to 134.4% in Decem- ber 2012, confirming the Bank’s solid financial position. On the Correspondent Banking side, challenges across Eu- rope continue. However, the Bank continues to adopt a strat- egy of limiting exposure to counterparties in the affected countries, while confining exposure to financially strong and stable institutions. Credit & Investment Administration / Credit Information Group The Credit and Investment Administration function ensures administrative control over institutional and investment ex- posures as well as compliance with both the Credit Policy Guidelines and CBE directives. The Credit and Investment Ad- ministration Department represents a strong back-up to the Institutional Banking Group by maintaining a quality control system that ensures CIB seniority, protection and control, which is processed through verification 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 compiles comprehen- sive client-specific market information reports, from various sources, for all corporate, mid-cap and business banking 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, while being an integral pillar of the consumer banking framework, functions as an independent 46 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 47 2013 In ReVIeW 2013 In ReVIeW governance group that manages the centralized risk function for all consumer and business banking asset products. The over- all objective is to maintain a quality portfolio while partnering with the business in ensuring portfolio growth and to take a leadership position in the asset business. The purview of this unit extends across the entire consumer credit cycle, including a) policy formulation b) underwriting and credit assignment c) collection and repayment d) portfolio monitoring and analyt- ics and e) application fraud. The group also ensures compliance with the Consumer and Business Banking Policies guidelines and Central Bank of Egypt directives. The Bank’s consumer asset portfolio consists primarily of credit cards, auto loans, personal loans, collateralized cash loans, secured and unsecured overdrafts and residential prop- erty finance. The business banking segment product suite has also been enhanced to include the entire range of contingent business and direct facilities. The Bank has now assumed a market leadership position in the consumer asset business. The asset portfolio has exhibited relatively strong growth through- out the year with an increase of EGP 0.5 billion, representing a growth rate of 7.7% in the direct facilities and reached EGP 0.9 billion, in the contingent facilities This growth can be attributed to the introduction of new programs and policy changes that give the Bank a definite com- petitive edge in the market, with the focus being on growing our higher yield unsecured portfolio. Consumer credit risk, in con- junction with the business units, have deepened the product line by rolling out multiple surrogate programs, tests and product variants to attract new target segments envisaged to facilitate growth. The Bank is a pioneer in the launch of innovative prod- uct propositions revolving around the bureau score. Over the past five years, CIB has built a sizeable consumer asset portfolio of more than EGP 7.2 billion with an enviable portfolio quality carrying a loss rate of 0.5 %. This portfolio size and quality con- tinues to provide a high loss-absorption capacity, thus facilitat- ing the launch of multiple programs to attract high-yield seg- ments to further enhance profitability. Furthermore, there has been significant progress in the busi- ness banking segment with focus being to increase our cus- tomer base and deepen existing relationships. A dedicated risk structure with the required skill-set and expertise has been instrumental in facilitating the Bank’s foray into new product variants while ensuring adequate controls to mitigate the dis- tinctive risks to this segment. There has been a continued drive to excel in processing efficiencies at our underwriting and collection functions. Various restructuring and re-engineering initiatives have helped effectively address the increasing demands of an ever-growing portfolio without any increase in capacity, while positively driving the key indicators of productivity, effectiveness and efficiency. The aggressive portfolio growth over the years and the mid- year disruptive events notwithstanding, the portfolio qual- ity has been sustained at levels that ensure the consumer and business banking asset portfolio aggressively grows in hitherto untapped segments, while pioneering new products within the market. The portfolio has exhibited a healthy trend with non-performing assets at (non performing: 90+ days past due) 0.3% (compared to 0.3% in 2012 and 0.5% in 2011) and designed by belgian architect Ernest Jaspar, the grand heliopolis Palace hotel was touted as Africa’s most luxurious hotel when it opened its doors in 1910. Today, this building serves as the Presidential Palace. loss rates of 0.5% (compared to 0.4% in 2012 and 0.6% in 2011). The portfolio quality has been sustained by ensuring the right portfolio mix (with concentration caps across comparatively riskier segments) and a very rigorous portfolio management approach that identifies opportunities for growth and defines corrective actions that are then executed subsequently. There are multiple coincident and lagged indicators insti- tuted across the consumer credit life cycle to monitor and maintain the optimal portfolio quality. Portfolio monitoring begins with a rigorous review of all early warning indicators, such as through-the-door (TTD) analysis, first payment de- faults (FPD) and non-starters coupled with key coincident in- dicators, such as delinquencies, bucket movements and con- sequent flow rates, and Was-Is analysis across key segments. Segmented vintages and month-on-book (MOB) analysis are also employed to identify different customer repayment pat- terns and provide the fundamental base for all policy formu- lations and collection strategies. We have introduced new early warning triggers, heat maps and tripwires in keeping with the increased focus on tapping new segments and introducing product variants, ensuring adequate monitoring and pro-active launch of mitigating ac- tions. Loss recognition and provisioning methodologies have been implemented along IFRS guidelines, which ensure that 48 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 49 2013 In ReVIeW 2013 In ReVIeW cib has a comprehensive liquidity Policy and contingency funding Plan that supports the diversity of funding sources and maintains an adequate liquidity buffer with a substantial pool of liquid assets, and no reliance on wholesale funding. the Bank is pragmatic in its current risk assessment and fore- casting of future potential losses. status is regularly reported to management and the Board of Directors. Consolidated portfolio Quality & provisioning Total IFRS based impairment charges reached EGP 2.86 bil- lion in December 2013, as opposed to EGP 1.93 billion in De- cember 2012, despite a write-off of EGP 98 million in 2013. The Bank’s general ratio for direct exposure increased from 2.32% as of December 2012 to 3.72% as of December 2013. The Bank’s Coverage Ratio increased from 119.91% as of Decem- ber 2012 to 158.82% as of December 2013. Risk Management Department The Risk Management Department (RMD) identifies, measures, monitors and controls Asset and Liability Man- agement (ALM) and market and operational risk via the Bank’s policies, and ensures that the Basel II and risk ana- lytics requirements are adequately managed and that the Liquidity Risk is the risk that the Bank would find itself un- able to meet its normal business obligations and regulatory liquidity requirements. CIB has a comprehensive Liquidity Policy and Contingency Funding Plan that supports the di- versity of funding sources and maintains an adequate liquid- ity buffer with a substantial pool of liquid assets, and no reli- ance 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 2013, the Bank maintained strong liquidity ratios and there was no need to execute the Contingency Funding Plan. Interest Rate Risk is defined as the potential loss from unex- pected changes in interest rates, which can significantly alter the Bank’s profitability and economic value of equity. Inter- Consolidated Portfolio Quality & Provisioning 2010 2011 2012 2013 Gross Loans (000’s of EGP) 36,716,652 42,933,133 44,350,975 45,549,651 NPL (%) General Ratio (Direct Exposure only) Coverage Ratio Charge Offs to Date (000’s of EGP) Recoveries to Date (000’s of EGP) Recoveries to Date / Charge-offs to Date 2.73% 2.19% 125.42% 1,714,960 368,095 2.82% 1.77% 120.55% 1,870,898 383,835 21.46% 20.52% 3.63% 2.32% 119.91% 2,057,209 403,031 19.59% 3.96% 3.72% 158.82% 2,155,455 454,070 21.07% est 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 complemen- tary technical approaches to measure and control interest rate risk including: interest rate gaps, duration, duration of equity, and earnings-at-risk (EaR). In 2013, the balance sheet was strategically positioned to benefit from the interest rate environment and CIB proactively managed this sensitivity to safeguard against adverse shocks. Market Risk loss results from adverse movements in the val- ue of financial instruments arising from changes in the level or volatility of interest rates, foreign exchange rates, com- modities, equities and other securities, including derivatives. The Bank classifies market risk exposure into traded and non-traded activities. The Bank uses various measurement techniques including value-at-risk (VaR), stress testing and non-technical measures, such as asset cap and profit and loss versus stop loss limits to monitor and control market risks. Despite the volatility in 2013, CIB maintained adequate mar- ket risk appetite levels. Operational Risk loss results from inadequate or failed in- ternal processes, people and systems or from external events. CIB maintains a comprehensive Operational Risk Framework and policies and processes designed to provide a sound and well-controlled environment. The Framework uses the fol- lowing approaches to measure and control Operational Risk: loss database, risk control self-assessment (RCSA), and key risk indicators (KRIs). In 2013, Operational Risk losses were at minimum tolerance levels and were proactively monitored and managed. Basel II As per the Central Bank of Egypt mandates of December 2012, CIB successfully satisfied all the requirements and re- ports Basel II capital adequacy results on a quarterly basis. 2013 Accomplishments • Commenced the enterprise risk management framework ini- tiative with objective to monitor risks in an integrated and holistic view regarding governance, risk strategy, capital al- location, and infrastructure. • Established the risk strategy policy and risk appetite framework. • Diligently monitored action plans that led to preserva- tion of portfolio quality, evidenced by the NPL ratio of 3.96% and a total coverage ratio (direct and contingent) of 175.69% in 2013. • Set the industry prudential limits, based on a comprehen- sive coverage and reporting capability. • Enhanced controls and portfolio management tech- niques to ensure quality given the increasing complexi- ties in the portfolio. • Re-engineered initiatives to improve processing efficien- cies, productivity and turn-around-time (TAT). • Participated in setting the road map for developing the social and environmental management system, under the Bank’s overall sustainability initiative. • Spread awareness and understanding through extensive training spanning consumer credit, business banking and operational risk. • Encouraged continuous learning led by our Risk Group professionals by designing and offering educational train- ing programs. 50 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 51 2013 In ReVIeW compliANce The bank’s internal Audit function is adequately equipped to produce an independent and objective assurance to evaluate the adequacy and effectiveness of Governance, risk Management, and the internal control System. iNteRNAl AuDit 2013 In ReVIeW our internal Audit team adds value by aggressively following up on and ensuring that Audit recommendations are properly considered and closed to mitigate risk-raised gaps. CIB’s Compliance Department was established in March 2007 as an independent entity guarding the Bank and its stakehold- ers against a full spectrum of compliance risks, including reg- ulatory, governance, legal, fraud, reputation, money launder- ing and terrorism financing. The Department works diligently to achieve the highest possible standard of compliance. The Compliance Department includes four divisions: policies and procedures This Division ensures the bank’s compliance with policies, regulations, laws and procedures to manage the Bank‘s regu- latory risk, avoiding penalties from the regulator, the Central Bank of Egypt (CBE). It also assesses the compliance risks, including fraud and recommends necessary controls to close any related gaps. In 2013, the Division focused on enhancing the compli- ance process as well as tightening controls in light of the current situation in the country. In 2014, the Division will continue to coordinate with In- ternal Audit and Risk Management to align control effec- tiveness together with the business in order to achieve the Bank’s strategy within the agreed upon risk appetite. Anti-Money laundering and terrorism Financing The AML Division is directly involved in monitoring trans- actions, customer account behaviour, and screening trans- actions. Screened transactions include incoming and outgo- ing payments for individuals and entities that are negatively listed or those involving sanctioned countries to avoid Bank involvement in such crimes. During 2013, the Chief Compliance Officer began reviewing the FATCA (Foreign Account Tax Compliance Act) require- ment with different bank stakeholders where CIB has signed an agreement with PwC to walk the Bank through the prepa- ration and implementation for U.S persons / entities through the use of offshore accounts. This will be in effect by June 2014 as per the US Internal Revenue Services (IRS) announcement. In 2014, enhancing staff AML awareness is our focus. This will also include training for different levels and areas. E- learning will be introduced for that purpose to complement classroom training. Corporate Governance and Code of Conduct The Corporate Governance and Code of Conduct Division’s main focus this year was to ensure the setting of clear, well- defined reporting lines in different areas of the Bank together with highlighting any potential conflict of interest. Several channels for staff issues / code of conduct and pe- titions have been introduced and announced to employees. Complaints Investigation The Complaints Division was established in 2010 and is re- sponsible for investigating inquiries and complaints received from the CBE and the Chairman’s Office. It coordinates with the Customer Care Unit, which is in charge of all customer complaints, to investigate the root causes of such complaints and client dissatisfaction, and to initiate remedial action. Our main aim in 2013 was to minimize customer com- plaints in order to mitigate any damage to our reputation and increase customer satisfaction. Going forward we shall continue doing so together with en- suring system development and implementation of new pro- cesses to raise efficiency and provide quality service. dit has a solid reporting line to the Board’s Audit Committee. The Committee reviews the efficiency of the Internal Con- trol System to mitigate risks that threaten the achievement of the Bank’s objectives and to ensure conformity with best practice and Institute of Internal Auditors (IIA) standards. The Committee also ensures the coordination between Au- dit, Risk Management, Internal Control and the Compliance department thus creating synergies and cost effectiveness. Our Internal Audit team adds value by aggressively fol- lowing up on and ensuring that Audit recommendations are properly considered and closed to mitigate risk-raised gaps. As for the fiscal year 2013, Internal Audit made 198 recom- mendations, of which 147 (74%) were properly resolved. The remaining 51 (26%) are in the pipeline waiting to be resolved by target dates that are coordinated with related business partners. Internal Audit is concerned with the continuous education of its members, providing them with the support they need to qualify for certifications such as the CIA, CBA, CPA, CISA, and our in-house CIB Credit Course. Currently 30% of Inter- nal Audit Staff are certified auditors with the remainder in the process of obtaining their respective certifications. Fiscal year 2013 was a period of productivity and major achievement for our Internal Audit function. We appreci- ate the strong and continuous support of the Board of Di- rectors (BOD), Board Audit Committee and management team of CIB. The Internal Audit Group (IAG) performs assurance engage- ments as a means of adding value, influencing changes that en- hance Governance, Risk Management and Internal Control, as well as improving accountability for results. In 2013, IAG con- ducted 18 audit reports that covered several businesses units through an end-to-end process. These reports were presented to the BOD Audit Committee and CIB Management. The Bank’s Internal Audit function is adequately equipped to produce an independent and objective assurance to evalu- ate the adequacy and effectiveness of Governance, Risk Man- agement, and Internal Control System. The IAG regularly tracks implementation of audit recommendations to ensure effectiveness. Internal Audit undertakes a comprehensive risk-based au- dit approach over all of its audited business units, which is reflected in the three-year Audit Plan linked to CIB’s strat- egy that covers the banking segments. The risk profile of each business function determines and identifies the number of internal audit visits to each business unit during the three- year plan cycle. The Internal Audit function adopts the approach of busi- ness partners serving the BOD, Bank management and staff through providing consulting activities and participating as a non-voting member in most of the Bank’s strategic commit- tees without infringing on its independence. To ensure the independence of the Audit function and in line with best corporate governance practices, Internal Au- 52 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 53 StRAtegic SuBSiDiARieS 54 AnnuAl RepoRt 2013 originally built in the 1840s, the luxurious, elegant Shepheard’s hotel was among the most famous hotels in the world until it was destroyed by fire in 1952. AnnuAl RepoRt 2013 55 StRAteGIC SuBSIDIARIeS ci capital Holding CI Capital is a full-fledged investment bank wholly-owned by CIB. CI Capital operates across its different platforms of- fering securities brokerage, equities research, asset manage- ment and investment banking advisory, all supported by a strong research arm. Securities Brokerage CI Capital Securities Brokerage is Egypt’s top-ranked brokerage house by market share of executions in Q3 2013 and offers unparalleled reach and placement power both regionally and internationally. The company offers its services through two fully-owned brokerage companies serv- ing a wide range of global clients: Commercial International Brokerage Company (CIBC) caters to institutions and high- net-worth individuals, while Dynamic Securities Brokerage focuses on retail clients. 2013 Accomplishments: • Ranking: CI Capital Securities Brokerage has success- fully propelled both of its brokerage arms into the upper echelons of the Egyptian securities market. In 2013, CIBC was the second-ranked brokerage firm in Egypt by execu- tion market share, with traded value of EGP 30.1 billion. Dynamic Securities made steady progress throughout the year, moving up strongly from the top 30 to secure a place as one of the top 20 brokers in the country. • Market Share: By the end of 2013, CI Capital Securities Brokerage increased market share to 12.1% (up from 8.9% in 2012) across both brokerage firms. Total executions in 2013 stood at EGP 32.7 billion. • Executed the EGP 12.2 billion Orascom Construction In- dustries Mandatory Tender Offer. • Organized a notable Egypt-focused investor conference with CI Capital Research in London and New York. Asset Management CI Asset Management is a leading in- stitutional asset management firm in Egypt, with total assets under man- agement amounting to EGP 7.9 billion. The company offers a full range of fixed income, money market and equities prod- ucts, and is a noted pioneer in product innovation, including Egypt’s first one-year open-ended capital protected fund and its first shari’ah-compliant fund. The division manages eight diverse funds and provides portfolio management services for a wide array of CIB and CI Capital clients, offering discretionary services to high- net-worth individuals and institutional investors. Clients are provided with comprehensive personalized services tailored to their investment and reporting requirements. Fund name Fund type Inception Date AUM Osoul Money Market April 2005 EGP 5.2 bn Istethmar Equity April 2006 EGP 160 mn Al Aman Islamic Equity Blom MM Fund Money Market Hemaya Capital Pro- tected Thabat Fixed Income October 2006 September 2009 August 2010 September 2011 EGP 33 mn EGP 432 mn EGP 18 mn EGP 91 mn Rakhaa Islamic MM May 2012 EGP 683 mn Banque Du Caire Fixed Income February 2013 EGP 92 mn 2013 Accomplishments: • Blom Money Market Fund was the best-performing money market fund in Egypt for the third year in a row. • Osoul Money Market Fund remains the best-performing money market fund relative to its peers in size. • Launch of Banque du Caire Fixed Income Fund. • Acquired a new CIB equity portfolio, adding EGP 50 mil- lion to our assets under management. • Launched a new money market fund for Arope Insurance, the first money market fund issued by an insurance com- pany in Egypt. • CIAM was named “Best Asset Manager in Egypt” by Global Investor for the fourth consecutive year. Investment Banking Building on an investment banking tradition that dates back to 1991, CI Capital Investment Banking offers some of the most focused, experienced and professional ad- visory and execution capabilities in Egypt. With more than EGP 68 billion in transactions executed since 2008, the IB team has a proven ability to structure and execute landmark M&A, equity capital markets, debt capital markets and cor- porate finance transactions, including complex cross-border deals, in challenging conditions. As CIB’s investment banking arm, the Division enjoys a unique position in terms of access to deal flow, unparalleled sector, industry and company knowledge, and the ability to access, raise and structure equity and debt capital. The com- pany’s powerful distribution platform includes leading glob- al institutional investors on four continents and thousands of regional HNWI and retail investors. 2013 Accomplishments: • CIIB has established itself as the #1 investment bank in Egypt in 2013. Despite challenging market conditions due to political events, CIIB had a landmark year during which it was successful in executing 6 deals with an aggregate trans- action value exceeding EGP 55 billion. • CIIB acted as sole local financial advisor on OCI N.V.’s USD 7.3 billion acquisition of Orascom Construction Indus- tries S.A.E. in what stands as one the largest M&A deals executed in the Middle East and North Africa region this year and one of the largest in Egypt’s history. The team also completed several transactions involving prominent cor- porates including Bechtel, El Sewedy Cables, Al Hokair and Al Arafa Group. • CIIB’s success was recognized for the first time on an inter- national scale, ranking in the top ten of all of the prominent Middle East and North Africa M&A league tables, including Wall Street Journal, Thomson Reuters, and Dealogic. CIIB also earned one of the most prestigious awards in the indus- try: the EMEA Finance Best Local Investment Bank in Egypt 2013, as well as the best investment bank in MENA award by the Arab Investment Summit. • Meanwhile, CIIB proudly launched its full time Analyst Training Program — the only program of its kind currently offered in Egypt — which trained 25 promising young grad- uates in the fundamentals of corporate finance over a 12- week period. • CIIB’s restructuring effort that began in mid-2012 has trans- formed the business from a mid-market player into a top- tier advisor catering to large corporate and institutional clients. The firm has developed a solid track record in exe- cuting complex transactions while offering its clients a com- prehensive advisory platform that fully serves their strategic StRAteGIC SuBSIDIARIeS development and growth objectives. The team in place to- day is comprised of 18 leading-class bankers with a unique combination of international, regional and local experience, coupled with a strong execution track record. • For 2014, CIIB aims to maintain its market leadership posi- tion in the local market, where it stands to benefit from an anticipated rebound in capital markets and M&A activity. The firm also continues to target mandates that add to its franchise value, particularly ones that involve international blue chip corporates and cross-border transactions. It’s cur- rent pipeline of transactions include several global offerings across various industries which are scheduled to come to market in 2014, as well as a number of high quality M&A transactions in Egypt and the region. CI Capital Research CI Capital Research is the leading Egyptian research house offering in- ternational quality research products, and thanks to its large local presence, with local know-how too. It is also unique in the region for its exclusive leadership make- up of Extel-ranked analysts. The Research team comprises a macro and equity strategy team which tracks, analyzes and forecasts macro-economic indicators, in addition to some of the most experienced equity analysts in the region, with 48 years of cumulative experience in MENA equity research. Bottom-up, the Research product is multi-sector, covering: fi- nancials, real estate, industrials and construction, telecoms, and consumer for equities listed in Egypt and across the GCC markets. CI Capital Research is also developing a small and midcap research product, in response to strong client interest. Cumulatively, the team plans to have 120 MENA stocks under coverage in two years’ time. 2013 Accomplishments: • Brought its coverage universe up to close to 50 companies in Egypt, the UAE, Saudi Arabia, Qatar, Oman and Jordan-- a cumulative market cap of USD 85 billion. • Increased regional coverage, with MENA equities now rep- resenting 30% of CI Capital Research’s coverage universe. • Successfully hosted an Egypt Investor Conference in London and New York, the largest event of its kind to be held abroad. • Was among the few research houses selected to help the Egyptian government’s General Authority for Investment presentation to potential investors bringing in much desired FDI to Egypt. Concrete Al Hokair group oriental petrochemicals Company orascom Construction el Sewedy electric egp 158 mn undisclosed undisclosed uSd 7.345 mn undisclosed Sale of 38% stake to CIB Direct Investment Debt Restructuring Sale of 33% stake to Carbon Holdings Sale of 33% stake to Carbon Holdings Sell-Side Advisor January 2013 January 2013 May 2013 July 2013 July 2013 56 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 57 StRAteGIC SuBSIDIARIeS 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 Interna- tional 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 special- ize in factoring, and is the first registered company on the Egyptian Register for Factoring Companies. product type With a clear focus on non-traditional trade finance instru- ments, Egypt Factors is committed to supporting and pro- moting cross-border and domestic trade in Egypt. To that end, Egypt Factors provides a comprehensive package of re- ceivables management services that consist of the following: • Administration & Commercial Collection EGF will undertake all debtor bookkeeping and collection measures, as well as monitoring and following up on all outstanding invoices. With the company’s coverage ex- tending to over 85 countries around the world, including Egypt, EGF is able to bridge differences in culture, lan- guage, market habits and legal environment through a comprehensive network of more than 400 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 established 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 upcoming risks are recognized on time. target Market The company targets producers/manufacturers, traders and service providers who conduct transactions based on short- term deferred payments. EGF also offers services to domestic buyers from local or foreign sources, which benefit from the increased purchasing power without tying up banking facili- ties. For large corporations, factoring is advantageous in that it provides value added services and non-recourse funding to improve risk position, business efficiency and financial ra- tios. Factoring is also considered highly beneficial to mid-cap companies in terms of liquidity and growth. 2013 Accomplishments Despite the turbulence that rocked both the global markets in general and Egypt’s economy in particular over the past three years, Egypt Factors has succeeded in penetrating new business sectors while maintaining its business portfolio and achieving substantial growth during FY13. According to Factors Chain International (FCI) statistics, EGF has, for the fifth consecutive year, achieved the high- est volume of international trade handled through the FCI network among all Egyptian factoring companies and was ranked third in the MENA region. ongoing forward strategy With a positive outlook for domestic growth, stability and a more congenial global environment expected over the com- ing year, Egypt Factors has ambitious growth plans and aims to boost its growth pace while focusing on providing value-added services to its clients. Long-term, Egypt Fac- tors aims to become the leading commercial finance hub in the MENA region. commercial international life insurance company StRAteGIC SuBSIDIARIeS Commercial International Life Insurance Company (CIL) seeks to meet the savings and protection needs of individual and corporate customers in Egypt with insurance products that offer excellent value-for-money. CIL was a pioneer in in- troducing 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 successful banc-assurance sales model. The company has risen to become one of the largest players in the Egyptian life insurance industry. 2013 performance Despite challenging conditions and distressed circumstanc- es in the Egyptian market, CIL successfully met its annual targets thanks to the positive enhancements in efficiency, productivity and quality measures applied by CIL. CIL currently insures the lives of and provides retirement savings programs for more than 350,000 and 56,000 individu- als, respectively. 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 service, professional growth and fulfillment of employees. • Improve quality of life in our community. • Contribute materially to CIB’s revenue base with strong sales growth, high policy persistency and maximization of synergies with CIB affiliate companies. corporate leasing company (egypt) SAe – coRpleASe CORPLEASE is one of the top three financial leasing com- panies in Egypt. Established in 2004, the company provides finance lease and operating lease products to the SME sector and the corporate sector at large. CORPLEASE also provides fleet management 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. In addition, the company established a fully-owned subsidiary incorporated in the Dubai Interna- tional Financial Center (DIFC). In 2013, CORPLEASE achieved robust new lease bookings as volumes more than doubled compared to 2012. The eco- nomic environment in Egypt remains fast-changing, a factor which directly impacts credit risk and demand levels for me- dium and long term financing. Despite the difficult business environment, CORPLEASE retained a robust and healthy portfolio by placing significant emphasis on the soundness of each individual credit story and overall portfolio risk diversi- fication measures. The company continues to enjoy a strong financial position with favorable coverage, liquidity, capital- ization and funding ratios. CORPLEASE continues to place significant emphasis on developing its automation, risk and internal controls. The company continuously invests in the development and train- ing of its professional staff through dedicated in-house and external training activities. The company believes that the quality of its people, operating practices and controls are the best in the industry. 58 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 59 StRAteGIC SuBSIDIARIeS falcon group StRAteGIC SuBSIDIARIeS falcon for General Services and Properties Management, despite being a newly established entity, has expanded to 318 sites in a number of different regions throughout Egypt, capturing an estimated 14% market share. Falcon Group was established in 2006, and has grown into a full-fledged security services company. Falcon Group is a joint venture between CIB, the CIB Employees Fund, Al Ahly for Marketing and Services and other private entities. CIB owns 40%, the Employees Fund 20%, Al Ahly for Marketing and Services 5%, while other shareholders own the remaining 35%. The Group’s five main lines of business operate as sepa- rate legal entities: Security, Cash In Transit, Technical Ser- vices, General Services and Properties Management, Falcon Blue for Touristic Services. As of December 2013, the group achieved consolidated revenues of EGP 164 million. Falcon was established with a paid-in capital of EGP 10 million, and by 2010 the company had distributed dividends Shareholders Capital Structure 2013 CIB CIB Fund Al Ahly for Marketing & Services Others Total 40% 19.59% 5.46% 35% 100% CIB CIB Fund Al Ahly for Marketing & Services Others 35% 40% 5.46% 19.59% amounting to 175% of the paid-in capital and realized an av- erage return on equity of more than 30% as of 2013. Falcon increased its issued capital from EGP 10 million to EGP 30 million in 2013; currently the paid-in capital amounts to EGP 15 million. The capital increase should be finalized in 2014. Business lines Falcon for Security Services: • Properties and Premises Protection • Public Event Security • Personal Protection • Security Dogs • Corporate Security Training Courses • Female Guards • Safety Training • Industrial Security Falcon Tech: • Security surveillance equipment • Fire systems • Counter-surveillance equipment • Safety Equipment • Access control equipment • We provide professional training for all technicians to ensure high quality services 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 and Hotels • Visa Handling • Meet and Assist • Medical Insurance for Travel • Assistance in Recovering Lost Baggage • Tour Arrangement for Groups and Individuals • Hajj and Omrah Falcon for General Services and Properties Management • Cleaning and Housekeeping • Pest Control • Planting and Trimming • Maintenance expanded Market presence Falcon Security Services has grown its share of the market to 42%, and continues to be a trustworthy provider to cli- ents in 496 locations. Falcon for General Services and Properties Management, despite being a newly established entity, has expanded to 318 sites in a number of different regions throughout Egypt, cap- turing an estimated 14% market share. Falcon for Money Transfer Services Falcon fleet increased to 100 armored vehicles, and installed GPS tracking systems and monitoring cameras in its fleet. The company also opened its Is- mailia branch, which increased market share to 33%. In 2013, Falcon commenced construction of its new headquar- ters located in New Cairo. The first phase includes 2 basements and a ground floor with an expected cost of EGP 15 million. In our efforts to further institutionalize the group and en- able the company to grow efficiently, Falcon established a Compliance Department and enhanced its corporate gover- nance oversight at the board level. new products, Services and expansions Following the 25th of January revolution and the political and economic turmoil that followed, the security market’s dy- namics shifted as corporations and individuals alike altered their perspective, with security becoming an issue of para- mount importance. Furthermore, many businesses began to outsource their security needs in order to avoid strikes and employee demonstrations, which hindered operations. These developments led to an influx in demand for efficient and re- liable security solutions that include cash in transit services and electronic security solutions. 2013 Group Accomplishments: • Inaugurated a new Cash Center in the Fifth Settlement, which will enable Falcon to provide vault management services, fea- turing a more secure location, state of the art armored vault. • Established Security Emergency unit and backup services • Received the 2013 Knight award by the ISO association in the UAE Strategy Going Forward: • Opening a new branch in Mansoura in 2014, and 4 branches during the coming three years. • Adding 22 cars to our fleet during 2014, with a target of 160 vehicles by 2016. • Establishing a showroom for electronic solutions that will afford Falcon Tech the ability to better present prod- ucts to clients. 60 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 61 coRpoRAte goveRNANce 62 AnnuAl RepoRt 2013 connecting the heart of cairo to the upscale Gezira island and zamalek, the kasr El Nil bridge is guarded by large stone lions created in the late 19th century by french sculptor henri Alfred Jacquemart. AnnuAl RepoRt 2013 63 CoRpoRAte GoVeRnAnCe coRpoRAte goveRNANce We at CIB firmly believe that good governance is a cornerstone of our success as it assures the alignment of the interests of shareholders and managers and the monitoring of management through the dissemination of information and transparent re- porting. Corporate governance is the underlying framework within which our five-year plan is being implemented. As such, we have developed a sound reporting system that guarantees timely, transparent and accurate disclosure of material matters regarding the Bank, its ownership, operations and financial per- formance. The Bank also advocates the equal treatment of all shareholders and the protection of their voting rights. We take pride in our strong corporate governance structures, which include an experienced team of professional executive directors and senior management, competent board commit- tees, as well as a distinguished group of non-executive directors who truly believe that while business requires mandated laws and rules, these can never substitute for ethical behaviour and voluntary compliance. CIB’s highly qualified Board of Directors is supported by in- ternal and external auditors, as well as other internal control functions (Risk, Compliance, and Internal Audit), and effectively 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. the Board of Directors One of our key strengths is our distinguished Board of Directors, the ultimate decision-making body of the Bank. The Board is composed of nine members: with a diverse knowledge base and a balanced skill set that gives CIB a distinct competitive edge. The Board primarily focuses on long-term financial returns and the best interest of all CIB’s stakeholders: customers, sharehold- ers and employees of the Bank, as well as the communities in which the Bank operates. Moreover, the Board’s role is to set the Bank’s values, strategy and key policies, along with pursuing and maintaining its long-term success. Such a role is accom- plished through providing entrepreneurial leadership, sound strategies and risk management oversight to ensure that risks are assessed and properly managed. The Directors meet at least six times per year for discussions on matters that are important to shareholders. Over the course of 2013, CIB’s Board met eight times. Being the single largest shareholder in CIB, Actis — an emerging market private equity specialist — currently owns 9.09% of CIB’s shares and has a rep- resentative 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 capitalization from USD 200 million to USD 4 billion, and developed from a wholesale lender into the full-fledged financial institution it is today. His vision transcended financial performance to include the adoption of best practice in corporate governance, and risk management and the buildup of a modern banking culture. With that effort CIB stock is now viewed by the international in- vestment community as a proxy stock for Egypt and the bench- mark for its banking industry. Mr. Ezz Al-Arab is the Chairman of the Board of Trustees of CIB Foundation. He is also a Director in MasterCard Middle East & Africa’s Regional Advisory Board since June 2007 and a principal member of the American Chamber of Commerce. For his distinguished work, he was elected as a member of the Board of Trustees of the American University in Cairo (AUC) in Novem- ber 2012. In March 2013, Mr. Ezz Al-Arab was also elected as Chairman of the Federation of Egyptian Banks. Prior to joining CIB, Mr. Ezz Al-Arab led a distinguished banking career as Managing Director in international invest- ment banks in London (Deutsche Bank, JP Morgan and Merrill Lynch), Bahrain, New York and Cairo. Mr. Jawaid Mirza Non-Executive Board Member Mr. Jawaid Mirza is a senior advisor and banking executive with a solid record of accomplishments in all facets of financial, tech- nology, risk and operations management. After successfully serving as a Group COO at CIB, Mr. Mirza acted as Board Mem- ber and Managing Director since April 2013. Starting January 2014, Mr. Mirza will serve as non-executive board member of the CIB Board. Mr. Mirza brings with him over 30 years of diversified expe- rience, working with global institutions like Citicorp and ABN AMRO Bank. He started his career in Citibank as a Financial Controller in Pakistan, subsequently serving in various senior regional positions in ABN-AMRO in Central Eastern Europe, European Region, Central Asia, Middle East and Africa. He later moved to Hong Kong as Corporate Executive Vice President and CFO responsible for the Asian region and Australia/New Zea- land. He has led successful due diligences for acquiring banks in Hungary, Taiwan, Thailand, Germany, France and Pakistan. Mr. Mirza is a successful leader with demonstrated abilities in directing operations and staff, managing financial performance and streamlining system across the board to deliver cost sav- ings, enhance efficiency, and improve bottom line profitability. His core competencies extend to Strategic Business Planning, Performance Management, Operation Risk Management, Off- shore and Shared Services, Audit, Compliance and Central Con- trols, Change Management, Operation Efficiency, M&A, Due Diligence and IT Services & Operations. Mr. Mirza has been a member of the Top Executive Group of ABN AMRO bank, bestowed to only 120 out of 160,000 mem- bers of staff and was also a member of the ABN AMRO Group Finance Board as well as the Group COO Board, and also served in Board of Directors with ABN AMRO Pakistan Ltd. He has at- CoRpoRAte GoVeRnAnCe cib’s board of directors is supported by auditors, internal control functions (risk, compliance, and internal Audit), and effectively utilizes the work carried out by those functions to ensure that the bank adheres to international best practices in corporate governance. tended various business management courses at reputable in- stitutions including the Queens Business School and the Whar- ton Business School. Dr. William Mikhail Non-Executive Board Member Dr. Mikhail is a professor of Econometrics at the American Uni- versity in Cairo (AUC). He obtained his PhD from the London School of Economics, in 1969. He served as an associate professor of Statistics and Econometrics at Cairo University in the 1970s. In addition to his academic career, Dr. Mikhail worked at the Ministry of Planning, London School of Economics, Dar Al-Han- dasah Consultants in Rabat, Morocco and in Amman, Jordan, Techno-Economics Division of Kuwait Institute for Scientific Research, UN Development Program, and UNDESD. Dr. Mikhail has published extensively on econometric theory and applied econometrics in international journals, and supervised many PhD and MA theses both at Cairo University and AUC. Mr. Mahmoud Fahmy Non-Executive Board Member Counsellor Fahmy is a renowned Egyptian lawyer, an interna- tional arbitrator and an Attorney at Law admitted to Egypt’s Bar of Civil, Commercial and Criminal Cassation Courts, the Supreme Administrative Court and the Supreme Constitutional Court. He is also a member of the General Assembly of Public Sector Banks at the Central Bank of Egypt, a member of the Egyptian Businessmen’s Association and head of its Investment and Economic Legislation Committee, Chairman of the Egyp- tian Legal Association, Chairman of Corporate Leasing Co. Egypt (CORPLEASE) and Chairman of The Egyptian Leasing Association. He previously served as the Chairman of the Capi- tal Market Authority. Mr. Fahmy is the founder of the Fahmy Law Office for Legal Consultation, Arbitration, Investment and Capital Markets. Dr. Nadia Makram Ebeid Non-Executive Board Member Dr. Nadia Makram Ebeid is the Executive Director of the Centre for Environment and Development for the Arab Region and Eu- rope (CEDARE), an international diplomatic position that 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 Council for Environment and Development Research. In recognition of her role in environ- mental policy and advocacy, Dr. Ebeid has been awarded nu- merous awards and distinctions from local and international NGOs, leading institutions and associations. Dr. Medhat Hassanein Non-Executive Board Member Dr. Medhat Hassanein, Egypt’s former Minister of Finance (1999-2004), is a professor of Banking and Finance with the Management Department of the School of Business, Eco- nomics & Communication at the American University in Cairo. Dr. Hassanein is a senior policy analyst with long experi- ence in institutional building, macro-policy analysis, finan- cial economics, corporate finance and international finan- cial management. He has previously served as advisor to government, high-level advisory bodies and the donor com- munity. During his term as Minister of Finance, he devel- oped and instituted the second generation of fiscal public policy reforms for the Government of Egypt. Dr. Hassanein has also served as Chairman and Board Mem- ber in public holding companies, private corporations 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 Actis, leading the firm, which he joined in 2000, from its London headquarters. Originally a banker with Cargill, Banker’s Trust and Swiss Bank Corporation, Mr. Fletcher transitioned into corporate finance in the early 1990s with a role at Citibank. At Citibank, he led the East African operations, be- coming Head of Emerging Markets Strategic Planning. With two decades of experience in emerging markets, Mr. Fletcher’s career has spanned Kenya, Tokyo, New York and London. Mr. Fletcher is a Founding Director of the Emerging Mar- kets Private Equity Association (EMPEA). He holds a Mas- ters in Geography from Oxford University. 64 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 65 CoRpoRAte GoVeRnAnCe CoRpoRAte GoVeRnAnCe Mr. Yasser Hashem Non-Executive Board Member Mr. Hashem began his career as a Partner at Zaki Hasherm & Partners after his graduation from the Faculty of Law, Cairo University in 1989. In 1996, He became the Managing Partner of Zaki Hash- em & Partners, Attorneys at Law, where he became respon- sible for managing the day-to-day business of the firm and representing the firm with major clients and international law firms. Mr. Hashem has specialized knowledge of Corpo- rate, Capital Market, Mergers & Acquisitions and Telecom Law matters. Mr. Hashem has participated in a number of restructurings and incorporations of foreign and domestic companies, in addition to providing advisory services to many local and foreign investors on aspects of doing busi- ness in Egypt. Mr. Hashem handled all IPOs that took place during the past seven years in Egypt, as well as represented acquirers in major M&A transactions and tender offers. Moreover, he participated in drafting and negotiating all major telecom licenses (public payphones, mobiles, private data networks, marine cables, satellite, etc.) since the inception of private provision of telecom services in Egypt. Mr. Hashem was admitted to the Egyptian Bar Association (in 1989), as well as the Supreme Court of Egypt (in 2007). He is also a member of the Egyptian Society of International Law and the Licensing Executive Society (LES). He is also an Hon- orary Counsel to the British Ambassador in Egypt. Dr. Sherif H Kamel Non-Executive Board Member Dr. Kamel is the founding Dean of the School of Business at the American University in Cairo from September 2009 through the present and is a professor of Management Information Systems. Dr. Kamel served as associate dean for executive edu- cation (2008-2009), where he led the establishment of the school’s International Executive Education Institute. Be- tween 2002 and 2008, he was director of the school’s pri- mary professional development department, and during the period 2002-2006, he was director of the Institute of Man- agement Development. Before joining AUC, Dr. Kamel was director of the Regional IT Institute (1992-2001) and for the period 1987-1992, helped establish and manage the training department of the Cabinet of Egypt Information and Decision Support Center. Dr. Kamel holds a PhD in Information Systems from Lon- don School of Economics and Political Science (1994), an MBA (1990), and a BA in Business Administration (1987) from AUC, and a MA in Islamic Art and Architecture. Dr. Kamel is a member of many renowned organizations, including: the World Bank Knowledge Advisory Commis- sion, the American Chamber of Commerce in Egypt, the US- Egypt Business Council, the Association of African Business Schools, the Egyptian Council for Foreign Affairs, and the Ro- tary Organization. Dr. Kamel has received a number of orga- nizational leadership awards for serving the IT community, including accolades in 1999 (IRMA, USA), 2000 (BIT World, Mexico), 2009 and the AUC School of Business, Economics and Communication Excellence in Research Award in 2005. the Board of Directors’ Committees CIB’s Board of Directors has eight standing committees that assist the Board in fulfilling its responsibilities. Ac- cordingly, the Board is provided with all necessary re- sources to enable them to carry out their duties in an ef- fective manner. Each committee operates under a written charter that sets out its responsibilities and composition requirements. Committee Members Key Responsibilities Audit Committee Supervising the quality and integrity of CIB’s financial reporting Chair: Dr. Medhat Has- sanein Members: Dr. Sherif Kamel Mr. Yasser Hashem The Committee’s mandate is to ensure compliance with the highest levels of professional conduct, reporting practices, internal processes and controls. Consistent with the interests 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 six times in 2013. 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: Dr. Nadia Makram Ebeid Members: All other Non- Executive Board Members 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 governance framework, the GCC is responsible for establishing corporate governance standards, provid- ing assessment of Board effectiveness and determining the compen- sation of members of the Board. The Committee also determines the appropriate compensation levels for the Bank’s senior executives and ensures that compensation is consistent with the Bank’s objectives, performance, and strategy and control environment. The Governance and Compensation Committee (GCC) met two times in 2013. Committee Members Key Responsibilities The Risk Committee Supervising the management of risk of CIB Chair: Mr. Jawaid Mirza Members: Mr. Mark Richards Mr. Paul Fletcher The primary mission of the Risk Committee is to assist the Board in fulfilling its oversight risk responsibilities by establishing, monitor- ing 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 Committee met four times in 2013. The Management Committee Responsibility for execution of the Bank’s strategy The High Lending and Investment Committee Responsibility for assets’ al- location, quality and develop- ment The Affiliates Committee Responsibility for steering and managing CIB’s affiliates Chair: Mr. Hisham Ezz Al-Arab Members: Mr. Hussein Abaza along with other senior and executive CIB staff Chair: Mr. Hisham Ezz Al-Arab Members: Mr. Hussein Abaza Along with other senior and executive CIB staff. Chair: Mr. Hisham Ezz Al-Arab Members: Mr. Hussein Abaza along with other senior and executive CIB staff. The Management Committee is an Executive committee chaired by the Chairman and Managing Director and is composed of the Vice Chair- man and Managing Director, CEO of Institutional Banking, CEO of Consumer Banking and the COO. The Management Committee is re- sponsible 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 re- sources 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 2013. This committee is an Executive Committee chaired by the Vice Chair- man and Managing Director and members of the Bank’s key senior executives. The High Lending and Investment Committee is respon- sible for managing the assets side of the balance sheet; keeping an eye over assets allocation, quality and development. Per its mandate, the High Lending and Investment Committee convened weekly through- out 2013. The Affiliates Committee is a committee reporting to the Board of Directors, responsible for steering and managing CIB’s affiliates, and acts as a think-tank for the setting and initiation of all strategic goals related to the Bank’s affiliates.The affiliates committee met five times throughout 2013. The Sustainability Advisory Board Concentrating on long-term value drivers that advance the twin objective of sustained success of the Bank as well as the well being and betterment of society as a whole Chair: Dr. Nadia Makram Ebeid Members: Dr. Medhat Has- sanein Mr. Jawaid Mirza The Sustainability Committee is a committee delegated by the Board of Directors to oversee, approve and monitor all sustainability strate- gies, initiatives and projects. It concentrates on long-term value driv- ers that advance the twin objective of sustained success of the Bank as well as the well-being and betterment of society as a whole. The committee has met three times over the course of 2013. The Operations and IT Committee Assisting the Board in over- seeing Bank operations and technology strategy as well as Operations and Technology Risk Chair: Mr. Jawaid Mirza Members: Dr. Sherif H. Kamel The Committee is appointed by the Board of Directors to assist the Board in its oversight of the Bank’s operations and technology strat- egy and significant investments in support of such strategy as well as Operations and Technology Risk. It is a newly formed committee to be operative first of January 2014. 66 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 67 exeCutIVe MAnAGeMent cHief executive officeRS exeCutIVe MAnAGeMent 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 leader- ship, CIB expanded its leading position, grew its market capitalization from USD 200 million to USD 4 billion, and developed from a wholesale lender into the full-fledged fi- nancial institution it is today. His vision transcended fi- nancial performance to include the adoption of best prac- tice in corporate governance, and risk management and the buildup of a modern banking culture. With that effort CIB stock is now viewed by the international investment community as a proxy stock for Egypt and the benchmark for its banking industry. Mr. Ezz Al-Arab is the Chairman of the Board of Trust- ees of CIB Foundation. He is also a Director in MasterCard Middle East & Africa Regional Advisory Board since June 2007 and a principal member of the American Chamber of Commerce. For his distinguished work, He was elected as a member of the Board of Trustees of the American University in Cairo (AUC) in November 2012. In March 2013, Mr. Ezz Al-Arab was also elected as Chairman of the Federation of Egyptian Banks. Prior to joining CIB, Mr. Ezz Al-Arab led a distinguished banking career as Managing Director in international in- vestment banks in London (Deutsche Bank, JP Morgan and Merrill Lynch), Bahrain, New York and Cairo. Mr. Ahmed Maher Abdel Wahed CEO Consumer Banking and Operations Mr. Ahmed Maher Abdel Wahed joined CIB in December 2013, bringing over 25 years of experience in international banks across the Middle East, and strong track records in diversified banking structures. Before joining CIB, Mr. Abdel Wahed spent 11 years at HSBC in multiple senior executive assignments across the Middle East. In his most recent assignment, he was the Re- gional Chief Operating Officer for the Middle East and North Africa, and a member of the HSBC Group COO Strategy and Decision Making Executive Committees. In this capacity, he represented the region to drive global strategy, standards and organizational effectiveness. As a result, he ensured streamlined processes, technology and diversified culture within the institution, hence supporting business growth, quality of service and customer experience within a strong risk and control framework. Mr. Abdel Wahed began his career in 1988 at CIB, after graduating from Cairo University. Now with more than 25 years of experience and international exposure, he has re- turned to his home country, Egypt, and his extended CIB family. He brings with him a wealth of knowledge and expe- rience, and seeks to be part of the change and great future of Egypt in general, and CIB in specific. Mr. Mohamed Abdel Aziz el toukhy Head of Retail and Business Banking Mr. Mohamed Abdel Aziz El Toukhy is leading the transfor- mation of the organization into a modern consumer bank- ing franchise. Mr. Touhky began his career with CIB’s Trade Finance Department in 1979. He has risen through the ranks, as- suming positions in Operations, Branch Management and Corporate Banking. In July 2006, he was promoted to Gen- eral Manager of Consumer Banking and has since led the CIB Branch Network and Retail Banking areas to unprec- edented success. During his tenure, CIB branches have grown in number to 145, covering all key governorates in Egypt. Moreover, all of the Bank’s Asset and Liabilities businesses are on solid growth trajectories, with CIB taking leadership po- sitions in credit cards, auto loans, personal loans, current and savings accounts, time deposits, certificates of deposit and investment / insurance products. In terms of profit- ability, the Consumer Bank has increased its share of the Bank’s net income from only 10% in 2006 to 39% in 2012. Under Mr. Toukhy’s leadership, CIB’s Branch Network and Retail Banking Group grew its 2013 Consumer Banking bal- ance sheet (B/E) to over EGP 74 billion in customer deposits. to managing the business, launching innovative products and services, optimizing channels for sales and service and effective marketing and communication. Mr. Khan has worked in a number of key areas in consumer banking during his career, including heading Alternate channels, Non-resident programs, Wealth segment, Credit Cards and Branch Distribution. Burhan also specializes in customer experience in consumer banking and has worked in a num- ber of regions to enhance customer loyalty across distribu- tion channels. Mr. Khan also worked in Corporate and Treasury Opera- tions in his early years of banking, where he worked on pro- cess reengineering, enhancement of controls and productiv- ity gains. Mr. Burhan Khan Senior Advisor For Consumer Banking Mr. Burhan Khan joined CIB in November 2012 as Senior Advisor for Consumer Banking. Mr. Khan brings with him extensive experience of more than 30 years in global insti- tutions like Citibank, Standard Chartered, ABN AMRO and the Royal bank of Scotland and across various geographies, including Pakistan, Australia, the United Arab Emirates and Kazakhstan. Mr. Khan has worked in all facets of the consumer busi- ness at different stages of evolution across various cultures and markets. He has been responsible for the formation of consumer banking divisions that became leading consum- er franchises as well as the turnaround of consumer busi- nesses in other geographies in a short period of time. All of this included coming up with a strategic vision and agenda as well as the implementation of the segmented approach Mr. Hussein Abaza Chief Executive Officer, Institutional Banking Mr. Hussein Abaza assumed his duties as CEO of Institu- tional Banking in October 2011. Prior to his current role, Mr. Abaza was CIB’s Chief Operating Officer, Chairman of CIAM and a member of the High Lending and Investment Commit- tee, and the Management Committe, The affiliates Commit- tee 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 Opera- tional Risk, and Investor Relations. Outside CIB, Mr. Abaza worked as Head of Research at EFG Hermes Asset Manage- ment from March 1995 until October 1999. He began his ca- reer at Chase National Bank of Egypt, the forerunner to CIB. He holds a BA in Business Administration from the Ameri- can University in Cairo. 68 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 69 commuNity DevelopmeNt 70 AnnuAl RepoRt 2013 upon its completion in 1902, the Aswan dam, which provides storage for annual floodwaters in support of irrigation development, was the largest masonry dam in the world and one of the largest infrastructure projects in the region. AnnuAl RepoRt 2013 71 CoMMunIty DeVelopMent ciB fouNDAtioN CoMMunIty DeVelopMent As issues of corporate sustainability and commitment to lo- cal communities continue to gain importance in Egypt, the CIB Foundation has been a solid contributor to the coun- try’s public health sector. Established in 2010 as a non-profit organization dedicated to enhancing health and nutrition services for underprivileged children in Egypt, and regis- tered under the Ministry of Social Solidarity as per the Min- istry’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: 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 72 AnnuAl RepoRt 2013 Following the annual shareholder’s General Assembly meet- ing in early 2013, the CIB Foundation was allocated roughly EGP 35 million, representing 1.5% of CIB’s net annual profit. With this funding, the CIB Foundation continued to support major projects in the field of pediatric healthcare through various multi-faceted initiatives, including renovating and upgrading hospital infrastructure, purchasing medical equipment and providing surgical and medicinal treatment to underprivileged children. Over the course of 2013, the Foundation’s partnerships and ini- tiatives included: Children’s Cancer Hospital 57357: Annual Donation In 2009, CIB entered into a five-year partnership with the Chil- dren’s Cancer Hospital Foundation 57357, through which EGP 2 million was donated to the hospital each year. In January 2013, the Foundation fulfilled its fifth year commitment to the hospi- tal. The funds have been used for general operational purposes. In late 2013, the CIB Foundation renewed its partnership with the 57357 Hospital, raising the annual donation from EGP 2 million to EGP 3.5 million. In the first year of the renewed partnership, the donation will be used to fund patient care as well as construction costs of the hospital’s 60-bed expansion. Friends of Abou el Reesh Children’s Hospitals organization: operating Costs for the Intensive Care unit In February 2012, the CIB Foundation celebrated the official opening of the Foundation-funded Intensive Care Unit (ICU) at the Abou El Reesh El Mounira Children’s Hospital. The ICU holds 11 beds, doubling the hospital’s capacity to serve critical patients. The new ICU operates alongside the existing ICU, and provides quality service and care to patients from across the country. In August 2012, an EGP 2 million protocol of cooperation was signed with the Friends of Abou El Reesh Children’s Hos- pitals Organization to cover the annual operating expenses of the Foundation-funded ICU. In November 2013, the CIB Foun- dation donated an additional EGP 2 million to the Organiza- tion to support staff compensation, medical and administra- tive supplies, infection control, and needed ICU equipment. Magdi yacoub Heart Foundation: 100 open- Heart Surgeries The Magdi Yacoub Heart Foundation has been a long-standing partner of both CIB and the CIB Foundation. 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 dona- tion was disbursed in two equal tranches, with the first tranche of EGP 3 million distributed in September 2012, and the second tranche of EGP 3 million distributed in April 2013. Magdi yacoub Heart Foundation: pediatric outpatient Room In July 2013, the CIB Foundation donated EGP 1,150,000 to the Magdi Yacoub Foundation to exclusively sponsor the Pe- diatric Outpatient Room in the Aswan Heart Centre’s Outpa- tient Clinic. The Outpatient Clinic is the most visited and utilized fa- cility at the Aswan Heart Centre, averaging 500 patients per month. Furthermore, all children diagnosed or treated at the Aswan Heart Centre are first received in this Outpatient Room. Besides increasing the volume of diagnosed patients, the Outpatient Clinic greatly enhances the quality of service delivered. The facility, which came into service in 2012, has a reception area, four examination rooms, one preparation room, one echocardiography room, and one room dedicated to medical secretariat. By supporting this project, the CIB Foundation became the main sponsor of all pediatric facilities at the Aswan Heart Centre. Magdi yacoub Heart Foundation: Second pediatric Floor In September 2013, the CIB Foundation’s Board of Trustees ap- proved the roughly EGP 14 million exclusive sponsorship of the Second Pediatric Floor of the Aswan Heart Centre. The second floor was opened in early 2013, and in addition to the CIB Foun- dation-sponsored Children’s Play Room, the floor contains 10 patient rooms, 14 beds, 3 storage rooms, 3 lavatories, a house- keeping room, 1 deputy doctor room, and 1 head nurse room. The CIB Foundation has been an ardent supporter of the Magdi Yacoub Heart Foundation since its inception, and has been committed to enabling the Foundation to provide world- class medical care to the less privileged at zero cost. The Aswan Heart Centre has allowed for the training of young Egyptian doctors at international standards, and has given due atten- tion to scientific research seeking to transfer knowledge, skills and experience across the region and beyond. With the CIB Foundation’s support, the Aswan Heart Cen- tre has become a major referral center for cardiac patients in Egypt and the region. Friends of Abou el Reesh Children’s Hospitals organization: emergency Ward and Reception Area In March 2013, the CIB Foundation’s Board of Trustees ap- proved an EGP 10 million initiative to renovate and upgrade AnnuAl RepoRt 2013 73 CoMMunIty DeVelopMent CoMMunIty DeVelopMent The cib foundation has been an ardent supporter of the Magdi yacoub heart foundation since its inception, and has been committed to enabling the foundation to provide world-class medical care to the less privileged at zero cost. the Abou El Reesh El Mounira Children’s Hospital’s Emergency Ward and Reception Area. The renovation and upgrade of the Emergency Ward was critical to allow the hospital to provide top quality services and care to incoming patients. The expected 10-month reno- vation period included restructuring the areas to streamline movement and operations, providing services such as lab work, x-rays, and blood transfusions at high speed and efficien- cy, establishing reporting mechanisms to facilitate accurate diagnoses, fully equipping the unit to handle high-risk cases, and providing intensive care areas in the emergency ward. The EGP 10 million donation will be distributed to the Friends of Abou El Reesh Children’s Hospitals Organization in five equal installments. The first and second installments, totaling EGP 4 million, were distributed in April 2013 and Sep- tember 2013, respectively. Rotary Kasr el nile: one thousand eye Surgeries Through the Rotary Kasr El Nile organization, the CIB Founda- tion has committed EGP 1.5 million to fund 1,000 eye surgeries for children through the Children’s Right to Sight (CRTS) pro- gram. Operational for the past six years, CRTS is dedicated to eradicating blindness by supporting children and infants re- quiring immediate eye surgery. Through partnerships with El Nour Eye Hospital in Mohandiseen and the Eye Care Hospital in Maadi, the CRTS team will oversee between 750 and 1,000 various ophthalmological operations for underprivileged chil- dren. Payments for nine rounds of surgeries were completed in 2013 for a total of EGP 683,379. Gozour Foundation for Development: eye exam Caravans In July 2013, the CIB Foundation reaffirmed its partnership with the Gozour Foundation for Development to fund 12 eye exam caravans in public elementary schools across Egypt. The Gozour Foundation for Development is the non-governmental arm of the Center for Development Services (CDS). The CIB Foundation allocated EGP 683,760 in two tranches to fund caravans in Giza, Qalioubeya, Minya, Beni Suef and Fayoum through the 6/6 Eye Exam Caravan Program. Through a partnership with 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 included 15-20 doctors, nurses, and coordina- tors, and is fully equipped with eye exam machines, a fully stocked pharmacy and an eyeglass shop. Each one-day cara- van targeted 450 children, with a total of 5,400 children receiv- ing free eye exams and care by the end of the project. In August 2013, the first tranche of EGP 350,460 was distrib- uted to the Gozour Foundation. The second tranche of 333,300 will be distributed in early 2014. The caravans also presented valuable opportunities for volun- teers from the CIB family to engage with the local community and spend quality time with the less privileged. In November and December 2013, volunteers from head offices, regional of- fices and branches across the governorates actively participated in six caravan days in two schools in Giza and Qalioubeya. 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 late December 2013, the CIB Foundation’s Board of Trustees approved an increase in the annual donation to the Yahiya Arafa Founda- tion from EGP 1 million to EGP 2 million for the upkeep of three previously-supported Pediatric Units at the Ain Shams University Hospital, as well as the partial operation of a sec- sleep cold. In December 2013, the CIB Foundation made a con- tribution of EGP 1 million to the national campaign through Bank Al Kesaa, a trusted organization with lengthy experience and success working in Upper Egypt. An internal announce- ment was also made to CIB staff, encouraging their participa- tion in the national campaign. Blood Donation Campaigns In 2013, the CIB Foundation hosted 12 blood donation cam- paigns in six of its corporate offices in Cairo and Alexandria. The first six campaigns, which took place in April, May and June 2013, were held in collaboration with the Takatof Founda- tion, a PricewaterhouseCoopers initiative, as part of the Triple Effect initiative. Through the initiative, the Foundation seeks to triple the number of voluntary blood donors in Egypt. Over the course of the first six days, a total of 495 bags of blood were collected, placing CIB in the number one position for the high- est number of blood donors in a corporate office in a single-day campaign. The second round of campaigns were held in Octo- ber and November 2013 in the same corporate offices, with the donated blood going to patients in the National Cancer Insti- tute and Children’s Cancer Hospital 57357. 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. ond neonatal unit. The Yahiya Arafa Foundation has been in- strumental in purchasing high-end equipment for the units, as well as training the nurses and doctors working in these units. The CIB Foundation strongly believes in ensuring the sustainability of its projects, and believes that supporting the operations of the Yahiya Arafa Foundation will ensure the smooth running of the other supported units. The donation will be used to cover human resources, equipment mainte- nance, operating costs and academic research. Rotary Club of Zamalek: Maxillo-Facial Center in the pediatric prosthodontics Department in the Cairo university Faculty of Dentistry In July 2013, the CIB Foundation’s Board of Trustees approved the development of a roughly EGP 300,000 Maxillo-Facial Cen- ter in the Pediatric Prosthodontics Department in the Cairo University Faculty of Dentistry. The highly specialized center of- fers treatment for oral and nasal cavity deformities in the facial palette, congenital deformities in newborn babies, and various facial deformities caused by cancer. Previously, children were treated in the 60-unit prosthodontics area, with adults of all ages. The set up in the prosthodontics area was neither suitable for the children themselves, nor for the doctors in the Faculty. With the establishment of the center, expected to open in the first quarter of 2014, the Pediatric Prosthodontics De- partment will be able to provide treatment to children from across the country as one of the sole providers of the spe- cialized procedures. 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 74 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 75 CoMMunIty DeVelopMent CoMMunIty DeVelopMent SuStAiNABility At ciB The year 2013 marked the launch of CIB’s strategic initia- tive aimed at promoting sustainability throughout its lines of business. This novel approach, an all-too-rare and much- needed development in Egypt, aspires to imprint CIB’s core belief in the importance of sustainable development on the landscape of the Egyptian business community. This approach focuses on the Bank’s impact on wider society. The products offered to our customers, the great value the Bank places on its employees and how CIB invests in our communities all have a social impact. While the tax duties paid to the govern- ment, the pension funds the Bank commits to and the dividends it pays to shareholders all have an economic impact. Further- more, the business activities we back in addition to our own op- erations can have a profound environmental impact. It is for these reasons that a socially responsible Bank must be run with a long-term view. It must be consistently profit- able, but not solely concerned with making a profit. Only then would it have a sustainable business, able to attract and retain the capital it needs from shareholders to continue to operate. The following sections discuss CIB’s approach to sustain- ability; a strategy rooted in six key pillars as identified in the above chart, which when taken together can serve as a model for other businesses. In addition to looking at how the Bank incorporates sustainability into its business model, the report explores what tangible results were achieved since it began this initiative early in 2013. Strategy CIB’s sustainability strategy is based on the Bank’s vision, values and purpose. We enable people, businesses and soci- ety to grow in a way that is sustainable in the long-term. CIB’s responsibility for sustainable development starts with helping our clients work on achieving economic success through ensuring clean, responsible and inclusive growth. CIB not only contributes to creating a place where our employees can learn, grow, and be fulfilled in their work, we also make the communities in which we operate better places to live. To preserve CIB’s distinct leadership and trusted reputa- tion and to make Egypt a better place, sustainability is in- tegrated in our business model and consists of three main areas: Financial sustainability, Social sustainability and Environmental sustainability. We thereby assure the Bank’s fundamental capacity to contribute to economically-, envi- ronmentally- and socially-sustainable development in mar- kets where we operate and in society as a whole. cial lending. We recognize that a Bank’s major environmen- tal impact tends to be indirect, arising from the provision of financial services to business customers operating in sensi- tive sectors. We also believe that taking due account of our environmental and social impact is not only the right thing to do, but also makes good business sense. CIB is currently in the process of establishing a Social & Envi- ronmental Management System (SEMS) with the backing of an external consultant, in order to manage our direct and indirect environmental impact in an efficient and systematic manner. SEMS is a comprehensive, systematic, planned, and docu- mented set of processes and practices, that allow financial institutions to identify, appraise, manage, monitor and miti- gate risks associated with environmental and social impli- cations of operations and investments. Once tested and ap- proved, the SEMS will become an integral part of the Bank’s internal credit management processes. We realize that de- veloping and institutionalizing SEMS is the key requirement for a financial institution to abide by the Equator Principles, and therefore be recognized as a Green Bank. The Equator Principles comprise a risk management framework to which financial institutions may voluntarily accede. Following training and the testing of the SEMS applica- tion, CIB will also be looking at the adoption of the Equa- tor Principles for determining, assessing and managing social and environmental risk in project finance loans and investments. The Equator Principles are based on IFC per- formance standards on social and environmental sustain- ability and on the World Bank’s general environmental and health and safety guidelines. Sustainable operations CIB believes that a meaningful commitment to protecting the environment must begin with a commitment to conduct our internal operations in an environmentally responsible manner. We have begun to further analyze our in-house op- erations, with a particular focus on their direct impact on the environment. We believe the concrete actions we take in or- der to manage this impact will raise the awareness of a wider group by inspiring our 5,600 employees. In order to improve its environmental performance, CIB will take the necessary steps to measure and reduce its resource consumption, raise the awareness of employees and collabo- rate with suppliers. Areas of development will include resourc- es such as paper, energy, water and solid waste management. Risk Management CIB has a strong and longstanding commitment to managing the environmental and social risks associated with commer- Measures taken in 2013 Solid Waste Management: To set a strategy for waste man- agement, a number of high-level meetings were conducted Sustainable operations ensuring that facilities adopt cutting-edge environmen- tal safeguards in activities related to buildings, opera- tions, procurement, use and disposal of supplies, water, paper and energy consump- tion and waste. manage- ment. CSr Investing in community development projects to cre- ate sustainable communities through the activities and efforts of CIB Foundation and other social initiatives. throughout its history, CIB has sought to play a role in the development of all aspects of society, ultimately leading to the betterment of our community. Strategy Sustainability at CIB: Clean, efficient and inclusive growth. Sustaining CIB for the long-term employees engaging staff in sustain- ability efforts, labor and working conditions, human resource policies and life / work balance. Commitment to attracting, retaining and developing the best talent in the market. risk management Aiming to help clients avoid and mitigate adverse impacts and manage risk as a way of doing business sustainability. Customers Including environmental and social considerations in the development and offering of products and services to meet the needs of our customers. 76 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 77 CoMMunIty DeVelopMent CoMMunIty DeVelopMent The Nag hammadi railroad bridge in upper Egypt was constructed as part of the national railroad expansion plan southwards from Assiut, reaching Girga in 1892, Nag hammadi in 1896, Qena in 1897 and luxor and Aswan in 1898. with both private and public waste entities, including one conducted with representatives of the Ministry of the Envi- ronment in October of 2013. CIB is in the process of developing a solid waste manage- ment system, which will begin with the Nile Tower Corporate Office in 2014 as a pilot phase, and expand gradually. Paper Consumption: Since June 2013, double sided printing was set as default on all Xerox photocopiers in CIB’s corpo- rate offices; these printers represent 80% of our paper con- sumption and waste. Energy Consumption: Beginning in June 2013, the Bank im- plemented a PC Sleep Mode initiative proposed by the Green Team. The benefits include a reduction in depreciation for computers in the long-run, and reduction in computer kilo- watts consumption by a minimum of 25% and an estimated 40% maximum rate of reduction. CIB has adopted the use of power saving bulbs in some corporate office premises and some branches. Water Consumption: Water restrictors were installed in the Mobtadian premises and the Tiba head offices. Lavatory toi- let flushers were adjusted to flush 6 liters of water instead of 9 liters. We are now preparing to install these restrictors to the Nile Tower facilities, other corporate office buildings and branches. This action will reduce water consumption by an estimated 20% – 30%. employees: Employee Engagement: Staff Awareness Sessions: The Learning and Development department is working closely with the Sustainability De- velopment department in raising awareness on the initia- tives that CIB has undertaken towards achieving its goal of becoming the No. 1 Bank Going Green. By June 2014 it is expected that all CIB employees would have participated in these sessions and will be completely aware of the direction towards sustainability adopted by CIB. Green Ideas: Through the aforementioned Sustainability Awareness sessions, management has received 28 new rec- ommendations for Quick Win ideas from 18 staff members, with some having already been actualized, while others are being taken into consideration. Photography Competition: In October 2013, CIB an- nounced its inaugural Photography Competition aimed at promoting environmental awareness, in addition to rep- resenting Egypt’s natural heritage through photographs reflecting the country’s diverse environment and ecology in all its forms. The winning photograph will be used by CIB’s Branding Department to promote the ‘CIB Going Green Program.’ Human Resources: CIB’s recruitment strategy throughout 2013 emphasized greater gender diversification whereby the percentage of females hired reached 37% of the total number of hires for the year. On the Organizational Development side, the HR de- partment followed through with implementing the de- partmental action plans set by each department head and those recommended by the second HR Employee Engage- ment survey held in 2012. Enforcing the recommendations of the survey will serve to establish it as a continuous ex- ercise which will reflect the Bank’s leadership ability to consistently improve staff engagement regardless of the challenges involved. CIB has always believed in creating an equal opportunity atmosphere for all Bank employees, which is very clear in our Code of Conduct. In addition to encouraging non-discrimina- tory practices, our policies are also highly protective against any form of harassment and intimidation. This is evident in 78 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 79 CoMMunIty DeVelopMent CoMMunIty DeVelopMent our adoption of a whistle-blowing policy that provides the highest levels of confidentiality and indemnity when raising concerns about any irregularities. Corporate Social Responsibility Community Development Throughout 2013, CIB upheld the core principles of its Cor- porate Social Responsibility (CSR) activities and its contri- butions to the community. A commitment that is evident by the diverse range of CSR endeavors that the Bank has under- taken for the year, which are separate from initiatives under- taken by the CIB Foundation, which are discussed beginning on page 72 of this report. CIB Endowed Professorship in Banking One of CIB’s most promising Community Development ini- tiatives in 2013 involved a partnership with the American University in Cairo (AUC) to develop the CIB Endowed Pro- fessorship in Banking program. The program’s objective is to design and implement a strong banking curriculum in different educational institutions and enhance education in banking throughout Egypt by offering research and ser- vice courses. This partnership with AUC is a major step toward bring- ing practical knowledge of industry trends into the class- room. Through the Professorship Program, students will be exposed to the various aspects of Banking that will chal- lenge their thinking and encourage their application of creative new practices. It will also serve as a link between the University’s School of Business and key members of the Banking community, including regulators, boards, execu- tives and other. KidZania In an effort to expose children to the Banking industry, and specifically to the CIB brand, as well as to encourage career exploration at an early age, CIB entered into a five-year part- nership with KidZania. The pilot program will allow children to perform tasks associated with real life careers such as fire- fighters, doctors, police officers, and journalists, and are re- warded with either KidZos — the official currency of KidZa- nia — or credit at Kidzania’s games and concessions. CIB’s on premises mini-branch will allow the children to cash checks, get debit cards, and deposit or withdraw KidZos from ATMs around KidZania. KidZania Cairo offers children a variety of fun and inter- esting role-playing activities in a realistic city setting. The simulation allows children to create and learn the implica- tion of their tasks in the real world. CIB is proud to be part of such an experience and taking part in enhancing commu- nity development through instilling sound financial skills and experiences. IMAX Cinemas As part of its community outreach efforts CIB began spon- soring a program, in association with IMAX Cinema located in Americana Plaza, which will allow underprivileged chil- dren to attend 10 pre-booked and dubbed educational films shown in IMAX theaters. Sponsoring Talent In 2013, CIB expanded its commitment as a promoter of cultural development in Egypt and a champion of talented Egyptians in all fields of artistic expression and athletics. To that end, CIB engages with numerous associations and gov- ernment agencies, such as collaborating with the Fine Arts Division at the Egyptian Ministry of Culture to support a new generation of aspiring and gifted young artists. As a committed patron of the arts, CIB was a major con- tributor to the annual National Art Competition, which ex- hibits the work of promising young artists. Furthermore, CIB sponsored Egypt’s first symposium showcasing artwork de- vised from scrap metal by local artists, in an effort to encour- age the proliferation of art by Egyptians from all walks of life. CIB is proud to be among the sponsors of the Egyptian Squash Association and the world champions, the Egyptian national team, as part of its efforts to encourage youth de- velopment in competitive sports in the international arena. Community Health Via the CIB Foundation, the Bank is very active in promoting health initiatives for the under-privileged in Egypt. You can learn more about this in the CIB Foundation text that begins on page 72. Code of Conduct CIB has always believed in creating an equal opportunity atmosphere for all bank employees, as we make clear in our Code of Conduct, which is provided to all employees. In ad- dition to encouraging non-discriminatory practices our policies are also highly protective against any form of ha- rassment and intimidation in the workplace. This is evident in our adoption of a whistle-blowing policy that provides the highest levels of confidentiality and indemnity when raising concerns about any irregularities. Meeting Shareholder expectations CIB’s Board is composed of eight non-executives and two executive directors. The diversity of backgrounds and expe- rience among members presents distinct added value and characterizes the bank’s culture. The Board is regularly updated on bank activities and fre- quently assesses its performance against set strategic objec- tives to reinforce its commitment towards CIB’s sharehold- ers, customers, employees and socially responsible practices, prompt disclosure of financial and non-financial data is pro- vided on regular basis. CIB’s well-established corporate governance policies, which ensure the independence of its compliance and risk functions, have demonstrated high levels of conformity with the new CBE Corporate Governance Guidelines for Egyptian Banks issued in 2011. You can read more about our Corporate Governance policies beginning on page 64 of this report. Customers CIB aims to achieve sustainability throughout the entire cus- tomer service cycle. Sustainability will be adopted in a num- ber of products and services in various business lines, rang- ing from Microfinance to SME and Corporate Banking. cib’s well-established corporate governance policies, which ensure the independence of its compliance and risk functions, have demonstrated high levels of conformity with the new cbE corporate Governance Guidelines for Egyptian banks issued in 2011. In order to offer the best service experience to its custom- ers, who are at the heart of its business, and to ensure their continuous satisfaction, CIB will continue to maintain sus- tainability and generate added value in the long term. Customer Experience Management Enhancing customer’s journey continues to be our key driver in managing customer experience across all channels. Syner- gies are built to achieve success and excellence with focus on: • Increasing Operational Excellence and Efficiency • Customer Experience Management • Capabilities Development Our initiatives to integrate channels and back end operations has led to optimizing our services and improve customer sat- isfaction. Various processes are being re-engineered to exceed and improve processing efficiency and customer expectations. Service indicators and measurement tools are developed to advance our service delivery standards. Efficiency and indica- tors are being tracked to channelize our efforts in right areas to meet customer expectations. On-boarding unit is developed as part of strengthening our relationships with customers and improve customers journey. Staff capabilities are developed through tailored training programs to meet and address cus- tomer requirements and departmental level efficiency. At CIB our key priority remains to ensure seamless and finest customer experience and journey for all services and interactions. Corporate Banking CIB is committed to continuously and significantly increase its facilities to a number of environmental friendly projects such as: Water Waste Management: CIB supported Orasqualia, a joint venture established by OCI and Aqualia, with a 15-year Syndicate MTL amounting to USD 74 million to develop a Waste Water Treatment Plant in New Cairo. The Bank also provided Green Valley Oil Services with an MTL amounting to USD 3 million to refinance machines purchased to perform water waste treatment services for the Rashid Petroleum Company, with a total investment cost of USD 8.7 million. Agriculture Waste Management: CIB granted ENTAG with short-term financing amounting to EGP 55 million for the company’s agricultural waste management projects and its supply of Biomass (used as an alternative fuel) project, with a total investment cost of USD 8.2 million. Solar Energy: The Bank supplied Middle East Engineering & Telecommunications (MEET) with a short-term facility in the form of an EGP 15 million MPL, with a total investment cost of USD 2.3 million, to aid in its environmental sustain- ability projects. CIB is also collaborating on Emaar Misr for Development’s Mividia project, an initiative aimed at applying the use of solar energy for public street lighting in the suburb of New Cairo, as well as looking at ways to reduce carbon-dioxide emissions. Electricity: CIB granted several of the electric utility com- panies’ credit facilities to partially finance the construction of their thermal power plants. These transactions were co- financed by the World Bank and therefore conform to envi- ronmental regulations. Petrochemical: CIB financed the construction and op- erations of several petrochemical projects, noting that customary financing terms include satisfaction of environ- mental regulations in addition to the appointment of an en- vironmental consultant. Several petrochemical clients com- menced social responsibility programs and comprehensively contributed to their respective local communities. Business Banking In recognition of the importance of developing the SME seg- ment as a key pillar in sustainability, CIB is keen that the development of this sector takes place in an inclusive way. CIB Business Banking, which serves 2,675 enrolled compa- 80 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 81 CoMMunIty DeVelopMent CoMMunIty DeVelopMent Sustainability progress 2013 nies with assets totaling EGP 714 million and a total of EGP 12 billion in liabilities as of September 2013, offered these companies both long-term and short term financing options through secured and unsecured lending products, in addi- tion to helping them better manage their cash cycle. In 2013, the department also conducted several deals with credit guarantee companies such as the Overseas Pri- vate Investment Corporation (OPIC). OPIC supports U.S. foreign policy objectives by encouraging development in regions that have experienced instability or conflict, yet offer promising growth opportunities. Moreover, they aim to improve the performance of SMEs in Egypt by providing medium to long term credit guarantee solutions to eligible investment projects. This year also saw CIB Business Banking conduct two workshop events in both Cairo and Alexandria which were attended by CIB clients, the Business Banking team and sev- eral media agencies and outlets. These workshops were con- ducted to give CIB clients a chance to learn how to better rep- resent themselves and their companies to banks and traverse the two-year socio-economic crisis here in Egypt. The crisis management sessions and business plan were presented by the Frankfurt School of Business and were well-received by CIB clients. Going forward, many more projects and plans are being laid down for the coming year to support the SME sector and the country’s economy. Finance programs and International Donor funds CIB’s positive impact on our community is evident in its sup- port of continuous improvement of environment protection projects through its Finance Programs and International Do- nor Funds Division. This division manages agricultural de- velopment funds and credit lines provided by government en- tities and international agencies to small, medium and large scale agrarian businesses. It also manages a microfinance portfolio as well as environmentally friendly projects. To date, CIB has disbursed 179,000 microfinance loans with a total outstanding portfolio of EGP 107 million. environmentally-friendly and Socially-conscious projects Agricultural Development Program (ADP) The Agricultural Development Program plays a major role in improving and supporting Egypt’s agricultural sector and the associated supply chain. ADP also aims to raise awareness and improve access to finance for SMEs working in the agricultural business. The program looks to estab- lish, expand and modernize these businesses primarily in the fields of post harvest activities, agricultural input sup- ply and marketing. Veterinary Service Program (VSP) The Ministry of Agriculture and the European Commission (EC) collaborated in a program to improve the productivity of the livestock sector in Egypt. This program mainly aims to assist the Government of Egypt in improving the quality of animal health services and to encourage veterinarians to open their own businesses. Buffalo Fattening Program (BFP) This program is among the most important livestock pro- grams in Egypt, as it plays an important role in improving the production and supply of red meat to the market. The program is a result of a joint effort between the Ministry of Agriculture and the USAID. Environment Protection with KfW (Public Private Sector Project – PPSI) CIB was among the first banks to participate in the environ- ment protection program with the German Development Bank (KfW). The program targets both public and private enterprises and SMEs. Its main objective is to ensure that industrial firms and business enterprises have the proper technical assistance related to industrial pollution abate- ment technologies. This helps in reducing the emission loads in accordance with national standards. Environmental Compliance Office Project (ECO) This program — which comes under the purview of CIBs environmental compliance office project (ECO) — is funded through the Danish government and with coordination ef- forts being led by the Government of Egypt. This project helps firms and business enterprises in financing the purchasing of machines, equipment, construction works and designs re- quired for projects which focus on environmental protection and energy efficiency. Egyptian Pollution Abatement Project (EPAP II) CIB also participates in the second pollution abatement proj- ect (EPAP II). This project provides a financial package to sup- port public and private industries to improve their environ- mental status. This project is co-sponsored by the World Bank (WB), the European Investment Bank (EIB), the Japanese Bank for International Cooperation (JBIC), the French Development Agency (AFD), the European Commission (EC), the Govern- ment of Finland in addition to the Government of Egypt. The Sustainability development department started in January 2013 with an official charter approved on 1 March 2013. The department acts as the organizational focal point with various departments to understand the needs of the bank and ensure the integration of sustainable principles into cib’s business practices. Sustainability Governance l t n e m p o e v e D y t i l i i b a n a t s u S t n e m t r a p e D Sustainability Advisory Board Sustainability Steering Committee Sustainability Green team Sustainability Advisory Board: The Sustainability Advisory Board, which was chartered in 14th of March 2013, acts on behalf of the Board in all sustain- ability-related efforts and concentrates on long-term value drivers that advance the twin objective of sustained suc- cess of the Bank. It approves CIB’s sustainability framework, strategies, policies, international affiliations and member- ships, and initiatives. Sustainability Steering Committee: The Sustainability Steering Committee is chaired by Dr. Na- dia Makram Ebeid, and is composed of senior heads from var- ious Bank departments. The committee meets at least once every quarter and as often as deemed necessary. Its main responsibilities are prioritization and review in addition to monitoring the implementation of sustainability initiatives consistent with CIB’s corporate sustainability strategy. Sustainability Development Department: The Sustainability Development Department started in January 2013 with an official charter approved 1st March, 2013. The department acts as the organizational focal point with various departments to understand the needs of the Bank and ensure the integration of sustainable principles into CIB’s business practices. The department is responsible for the development, monitoring and coordination of CIB’s sustainability efforts including strategies, policies, systems, initiatives, quick wins including ongoing branding, training and reporting efforts. Sustainability Green Teams: At the first Steering Committee meeting in April 2013, 26 Green Team members were assigned and 11 more have since volunteered. Green Team members aspire to be CIB’s envi- ronmental champions, ensuring Going Green awareness, recommendation of Quick Win ideas, and implementation of various sustainability initiatives across the Bank, as it relates to their existing jobs. Social and environmental Assessment phase In April 2013, CIB appointed an external consultant to assess the current social and environmental practices across the or- ganization, and to assess CIB’s current sustainability perfor- mance and building blocks. The Sustainability Department coordinated and managed 22 meetings for the consultant with 16 departments from all over the Bank, where the consultant 82 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 83 CoMMunIty DeVelopMent CoMMunIty DeVelopMent in April 2013, cib appointed an external consultant to assess the current social and environmental practices across the organization, and to assess cib’s current sustainability performance and building blocks. came up with an assessment report and main strengths and gaps were identified. A Sustainability Assessment Report, in- cluding suggested steps for action, was prepared in July 2013. These findings form the basis on which CIB’s Sustainability Framework Report and Roadmap were prepared. Sustainability Framework The framework represents the sustainability guideline for CIB. It articulates the Bank’s strategic commitment to sus- tainable development, sets the foundation for the Bank’s social and environmental risk management and is designed to ensure that sustainability is fully integrated across CIB’s policies, processes and operations. Sustainability Roadmap The Roadmap identifies the necessary steps and milestones that have been set for the coming years to achieve CIB’s short and long-term sustainability objectives. It highlights what needs to be implemented on the ground, including the devel- opment, monitoring, implementation responsibilities, and estimated time frames for key pillars namely, the Social and Environmental Management Systems (SEMS), the Direct Im- pact Management Plan (DIMP), Leadership for Energy and Environmental Design (LEED), alongside a sustainability Stra- tegic Plan, Branding initiatives and Sustainability Reporting. leeD Leadership in Energy & Environmental Design (LEED) is a third-party certification program and an internationally ac- cepted benchmark for the design, construction and opera- tion of high performance green buildings. Developed by the U.S. Green Building Council (USGBC), LEED is intended to help building owners and operators find and implement ways to be environmentally responsible and resource-efficient. Since October 2013, an external LEED Expert is mandat- ed to assess the possibility of turning the new smart village building into a LEED EBOM (Existing Buildings Operations and Maintenance ) certified facility. Sustainability training An ongoing training strategy is being prepared to institu- tionalize sustainability training at CIB. Raising awareness on sustainability will be included as an integral part of all ongoing training programs in the Bank. Several Sustainabil- ity Training sessions have been conducted since May by the Green Teams to raise awareness on Sustainability. Also, two Training of Trainers (ToT) sessions were conducted in June and September, where 20 instructors from various depart- ments were trained on how to conduct the awareness ses- sions across the organization. The development of social and environmental risk skills will be ensured through the selection of a specialized con- sultant of relevant experience to build, develop and deliver this training to cover all Credit and Risk staff. A total of 18 selected members from Business and Risk Groups attended a two-day workshop in September. It is anticipated that the attendees will play a pivotal role in the upcoming develop- ment of SEMS. Beginning in October, 24 staff sustainability awareness sessions were conducted, covering the Strategic Relations, Operations, IT, Human Resource and Call Center depart- work environment where employees could take breaks and host events while promoting CIB’s green image. Smoke Free Environment: The Smart Village building has been fully non-smoking since October. Almost all corporate office buildings in Cairo were designated as non-smoking buildings beginning in early November 2013. Green Wall: A 21-square-meter living green wall has been fully developed in the new Smart Village building lobby in August 2013. The initiative improves air quality in the building, uses water-efficient technology and reduces the amount of energy used to maintain a cool temperature within the building. Awareness and Communication Sustainability at CIB is communicated internally through a periodic Sustainability Newsletter and an organizational intranet site. The site will act as a communication platform to inform staff about the sustainability initiative, the roles of the sustainability development department and the green teams, green news, and eco-facts. ments within the two Smart Village buildings. Also, nine awareness sessions were conducted targeting employees in the Delta and Alexandria region. To date, 780 employees have participated in these sessions. Quick Wins Our exciting sustainability journey inspired us to identify a number of Quick Win projects that were shared with and approved by the Sustainability Steering Committee. Some of these are internal Quick Wins, engaging several depart- ments, namely Corporate Services, Premises Projects and Branding. Others represent full-fledged projects undertaken through external vendors after tendering processes. Implementation of these projects ensures active staff in- volvement and green teams participation in sustainabil- ity initiatives. These pragmatic activities bring sustain- ability into focus on the individual level by connecting the impact of everyday actions at work with sustainability at home and vice versa and encourage employees to bring their positive personal sustainability behaviors into the workplace. Landscaping: In July, the front green area of the Smart Vil- lage building was planted with low-water consumption plants to provide an appealing sustainable landscape, and to contribute to building environmental awareness. Rooftop Garden: In June 2013 the rooftop garden was de- veloped on the top floor of the new Smart Village building, where fresh and organic vegetables and fruits are grown for home use. The rationale is to create a relaxing and healthy 84 AnnuAl RepoRt 2013 AnnuAl RepoRt 2013 85 constructed by the Ptolomies the mid-third century bc, the original lighthouse of Alexandria guided merchant ships safely into harbor for centuries before it was damaged by a series of earthquakes and abandoned in the 14th century of our era. fiNANciAl StAtemeNtS Separate financials Auditors’ Report Balance Sheet  Income Statement  Cash Flow  Changes in Shareholder’s Equity  Notes Consolidated financials Auditors’ Report  Balance Sheet  Income Statement  Cash Flow  Shareholder’s Equity  Notes  86 AnnuAl RepoRt 2013 88 90 91 92 94 96 140 142 143 144 146 148 AnnuAl RepoRt 2013 87 Financial StatementS: Separate Financial StatementS: Separate 88 annual report 2013 annual report 2013 89 Financial StatementS: Separate Financial StatementS: Separate commercial international Bank (egypt) S.a.e Separate balance sheet as at December 31, 2013 commercial international Bank (egypt) S.a.e Separate income statement for the year ended December 31, 2013 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 (losses) Total equity Net profit for the year after tax Total equity and net profit for year Total liabilities and equity Notes 15 16 17 18 19 20 21 22 22 23 24 25 33 26 27 28 21 30 29 31 32 32 Dec. 31, 2013 EGP 4,796,240,354 8,893,670,965 23,654,812,174 2,246,347,806 132,422,732 41,837,951,712 103,085,538 23,363,501,695 4,187,173,991 599,276,660 9,695,686 2,879,794,496 83,755,441 964,538,516 113,752,267,766 1,373,410,040 96,940,270,000 114,878,583 2,625,755,491 132,153,227 450,755,558 101,637,222,899 9,002,435,690 307,223,285 190,260,457 - 9,499,919,432 2,615,125,435 12,115,044,867 113,752,267,766 Dec. 31, 2012 EGP 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 Contingent liabilities and commitments Letters of credit, guarantees and other commitments The accompanying notes are an integral part of these financial statements. 37 16,182,489,160 14,897,789,005 Interest and similar income Interest and similar expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Dividend income Net trading income Profit (Losses) from financial investments Administrative expenses Other operating (expenses) income Impairment (charge) release for credit losses Profit before income tax Income tax expense Deferred tax Net profit for the year Earning per share Basic Diluted Notes 6 7 8 9 22 10 11 12 13 33 & 13 14 Dec. 31, 2013 EGP 9,509,874,663 (4,460,113,281) 5,049,761,382 1,316,916,389 (127,965,091) 1,188,951,298 19,803,451 759,972,323 (381,156,748) (1,726,520,973) (155,016,845) (915,581,874) 3,840,212,014 (1,179,708,811) (45,377,768) 2,615,125,435 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 2.67 2.63 2.34 2.31 Hisham Ezz El-Arab Chairman and Managing Director 90 annual report 2013 annual report 2013 91 Hisham Ezz El-Arab Chairman and Managing Director Financial StatementS: Separate Financial StatementS: Separate commercial international Bank (egypt) S.a.e Separate cash flow for the year ended December 31, 2013 (Cont.) Cash and cash equivalent at the end of the year 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, 2013 EGP 11,758,996,230 Dec. 31, 2012 EGP 5,536,080,095 4,796,240,354 8,893,670,965 23,654,812,174 (3,224,658,841) (5,148,331,397) (17,212,737,025) 11,758,996,230 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 commercial international Bank (egypt) S.a.e Separate cash flow for the year ended December 31, 2013 Cash flow from operating activities Profit before income 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 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 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 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 during the year Beginning balance of cash and cash equivalent Dec. 31, 2013 EGP Dec. 31, 2012 EGP 3,840,212,014 3,053,218,102 202,345,252 915,581,874 129,104,495 17,695,722 (124,230,792) (6,267,555) (5,633,785) (141,521) 16,778,256 (740,692) (1,656,257) 89,181,563 346,284,340 - 5,418,512,914 (642,434,022) (9,149,658,764) (791,761,765) 30,153,546 (1,008,774,806) (382,561,576) (341,452,676) 18,105,543,110 (588,304,891) 10,649,261,070 (7,527,300) (519,822,256) 18,579,337 - (7,463,491,687) 4,520,053,768 700,000 (3,457,373,543) 51,657,989 (1,055,843,165) 29,348,380 (974,836,796) 6,222,916,136 5,536,080,094 167,225,901 609,971,077 51,616,932 (78,642,848) (60,242,239) 7,902,478 (12,294,615) (531,054) 7,230,941 (2,387,583) (519,013) 79,068,829 89,736,000 (371,000) 3,910,981,908 521,695,379 758,289,224 (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 (9,270,719,274) (18,838,138) (806,206,521) 37,712,420 (787,332,239) (2,545,054,108) 8,081,134,203 92 annual report 2013 annual report 2013 93 Financial StatementS: Separate Financial StatementS: Separate - - 5 3 4 , 5 2 1 , 5 1 6 , 2 ) 5 6 1 , 3 4 8 , 5 5 0 , 1 ( ) 0 6 8 , 4 7 9 , 3 7 8 ( - - - - - - - ) 6 8 1 , 1 4 8 , 4 5 0 , 1 ( 5 3 4 , 5 2 1 , 5 1 6 , 2 - - - - - - , 2 3 9 6 1 7 3 0 1 , - - - - - 6 7 1 , 6 2 7 , 1 0 1 ) 6 7 1 , 6 2 7 , 1 0 1 ( 3 6 5 , 1 8 1 , 9 8 3 6 5 , 1 8 1 , 9 8 - - , 7 6 8 4 4 0 5 1 1 2 1 , , , 7 5 4 0 6 2 0 9 1 , , 1 1 6 1 5 8 6 1 7 2 , , , 6 5 7 0 9 9 1 , - - ) 0 6 8 , 4 7 9 , 3 7 8 ( - - - , ) 9 7 0 8 6 4 0 2 7 ( , , 9 5 7 6 6 3 7 2 , - - ) 0 9 3 , 6 2 8 , 2 9 ( - - - - - - ) 9 7 9 , 1 0 0 , 1 ( - - - - - 0 9 3 , 6 2 8 , 2 9 - - - - - - , 2 5 7 2 4 2 6 0 4 , , 1 2 9 4 6 3 0 9 4 , , 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 , , 0 8 3 , 8 4 3 , 9 2 - - - ) 7 2 2 , 2 8 6 , 3 6 ( ) 2 1 4 , 2 4 8 , 5 2 3 , 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 , - 3 8 5 , 7 8 3 , 2 - - ) 0 0 9 , 1 1 8 , 0 0 0 , 3 ( - 0 9 8 , 0 2 1 , 7 7 2 , 1 6 6 1 , 6 1 0 , 0 1 1 l a t o T r o f e v r e s e R k c o t s e e y o l p m e n a l p p i h s r e n w o r o f t fi o r p t e N g n i k n a B r a e y e h t e v r e s e r s k s i r . S F A . . ff i d s t n e m t s e v n i n o i t a u l a v e r e v r e s e r l a i c e p S d e n i a t e R s g n i n r a e ) s e s s o l ( e v r e s e r l a r e n e G l a g e L e v r e s e r l a t i p a C , 0 1 4 5 7 2 2 7 9 5 , , , 0 8 2 0 6 1 0 3 0 3 , , - - - - - - - , 0 9 6 5 3 4 2 0 0 9 , , S F A f o e u l a v r i a f t a e g n a h c t e N e v r e s e r l a i c e p s m o r f r e f s n a r T r a e y e h t f o t fi o r p t e N s e v r e s e r o t d e r r e f s n a r T e c n a l a b g n i n n i g e B e s a e r c n i l a t i p a C d i a p d n e d i v i D 3 1 0 2 , 1 3 . c e D t n e m t s e v n i l a i c n a n fi k s i r k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r r a e y e h t f o d n e e h t t a e c n a l a B l k c o t s s e e y o p m e r o f e v r e s e R ) P O S E ( n a l p p h s r e n w o i n o d e d n e r a e y e h t r o f y t i u q e r o F e v r e s e R ' l s r e d 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 3 1 0 2 , 1 3 r e b m e c e D . 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 r o f e v r e s e R k c o t s e e y o l p m e n a l p p i h s r e n w o r o f t fi o r p t e N g n i k n a B r a e y e h t e v r e s e r s k s i r . S F A . . ff i d s t n e m t s e v n i n o i t a u l a v e r e v r e s e r l a i c e p S d e n i a t e R s g n i n r a e ) s e s s o l ( e v r e s e r l a r e n e G l a g e L e v r e s e r l a t i p a C 9 2 8 , 8 6 0 , 9 7 9 2 8 , 8 6 0 , 9 7 - - 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 ( 1 1 9 , 0 1 7 , 2 0 2 , 2 - - - - - - 7 8 6 , 2 7 9 , 7 7 1 ) 7 8 6 , 2 7 9 , 7 7 1 ( - - 9 9 5 , 7 7 5 , 6 7 8 - - - - - - - - - - - - - - - - - - - - ) 0 2 9 , 5 0 1 , 5 1 ( - - - - - 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 5 2 2 , 3 4 1 , 8 2 9 2 , 7 9 6 , 1 6 , 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 , , 0 6 9 4 7 2 4 3 2 1 , , , 6 9 8 4 4 3 1 3 2 , - - - - - - - , 0 2 4 2 1 7 7 3 , , 0 9 9 2 6 5 4 3 9 5 , , , 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 , , S F A f o e u l a v r i a f t a e g n a h c t e N e v r e s e r l a i c e p s m o r f r e f s n a r T s e v r e s e r o t d e r r e f s n a r T r a e y e h t f o t fi o r p t e N d i a p d n e d i v i D e c n a l a b g n i n n i g e B e s a e r c n i l a t i p a C 2 1 0 2 , 1 3 . c e D t n e m t s e v n i l a i c n a n fi k s i r k n a b o t ) m o r f ( d e r r e f s n a r T e v r e s e r r a e y e h t f o d n e e h t t a e c n a l a B l k c o t s s e e y o p m e r o f e v r e s e R ) P O S E ( n a l p p h s r e n w o i n o d e d n e r a e y e h t r o f y t i u q e r o F e v r e s e R ' l s r e d 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 2 1 0 2 , 1 3 r e b m e c e D . 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 94 annual report 2013 annual report 2013 95 Financial StatementS: Separate Financial StatementS: Separate Notes to the consolidated financial statements for the year ended on December 31, 2013 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 125 branches, and 27 units employing 5193 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 Egyp- tian 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 Di- rectors 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 indi- rectly – 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 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 recog- nized 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’. The separate financial statements of the Bank should be read with its consolidated financial statements, for the period ended on December 31, 2013 to get complete information on the Bank’s financial position, results of operations, cash flows and changes in ownership rights. 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. 2.2. 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 consid- ered 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 identifiable 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. 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 lossThis category has two sub-categories: • Financial assets held for trading. • Financial assets designated at fair value through profit and loss at inception. 96 annual report 2013 annual report 2013 97 Financial StatementS: Separate Financial StatementS: Separate 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 mismatch would arise if the debt securities issued were accounted for at amortized cost, because the related derivatives are mea- sured at fair value with changes in the fair value recognized in the income statement. The main classes of financial instru- ments 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 performance 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 unless 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 models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instru- ments 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 reclassification, 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 unreal- ized 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 rec- ognized 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 invest- ment 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 govern- mental 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 ob- tained 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 separate 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. 98 annual report 2013 annual report 2013 99 Financial StatementS: Separate Financial StatementS: Separate 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 commit- ments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable forecast 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. 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 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 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 interest income after the settle- ment 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 re- sell 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 fi- nancial 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. 100 annual report 2013 annual report 2013 101 Financial StatementS: Separate Financial StatementS: Separate The objective evidence of impairment loss for a group of financial assets is observable data indicating that there is a measurable 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, wheth- er significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collec- tively 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 im- pairment 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 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 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 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 impairment 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 settle- ment 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 depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisi- tion of the items. Subsequent costs are included in the asset’s carrying amount or as a separate asset, as appropriate, only when it is prob- able 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, on each balance sheet date. De- preciable 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 as- set’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. 102 annual report 2013 annual report 2013 103 Financial StatementS: Separate Financial StatementS: Separate 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 statement 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 re- turn 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 depre- ciated 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. 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. 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 bal- ance 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, per- formance 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 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 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 appli- cable 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 in- crease 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. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating in- come (expenses). 2.23. comparatives Comparative figures have been adjusted to conform with changes in the presentation of the current period where necessary. 104 annual report 2013 annual report 2013 105 Financial StatementS: Separate Financial StatementS: Separate 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 fi- nancial 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 identifies, 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 components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations (ii) current expo- sures 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 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 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 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 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 customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality map- ping 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. 106 annual report 2013 annual report 2013 107 Financial StatementS: Separate Financial StatementS: Separate 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, guaran- tees 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. 3.1.3. Impairment and provisioning policies 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 follow- ing 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, 2013 December 31, 2012 Loans and advances (%) 87.71 Impairment provision (%) 31.49 Loans and advances (%) 89.99 Impairment provision (%) 40.84 4.90 3.43 3.96 5.32 19.93 43.26 5.89 0.49 3.63 8.56 2.01 48.58 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 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 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% 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% Internal rating 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 108 annual report 2013 annual report 2013 109 Financial StatementS: Separate Financial StatementS: Separate 3.1.6. Loans and advances Loans and advances are summarized as follows: Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: Impairment provision Unamortized bills discount Unearned interest Net Dec. 31, 2013 EGP Dec. 31, 2012 EGP Loans and advances to customers 40,832,064,380 2,790,527,143 1,773,225,040 45,395,816,563 2,842,840,136 6,634,495 708,390,220 41,837,951,712 Loans and advances to banks 123,630,395 - 30,202,899 153,833,294 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 1,176,571,369 - 31,595,000 1,208,166,369 21,410,562 - - 132,422,732 1,901,222,402 22,277,973 520,994,222 40,698,313,773 29,298,630 - - 1,178,867,739 Impairment provision losses for loans and advances reached EGP 2,864,250,698. During the year the Bank’s total loans and advances increased by 2.70% . 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. 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, 2013 EGP 23,654,812,174 2,047,967,761 153,833,294 (21,410,562) 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 5,015,510,545 24,125,578,810 9,630,556,651 109,231,797 (6,634,495) (2,842,840,136) (708,390,220) 103,085,538 26,889,648,525 599,276,660 95,265,165,102 2,480,059,591 472,350,554 750,766,099 14,959,372,507 18,662,548,751 Dec. 31, 2012 EGP 11,153,742,074 1,138,056,688 1,208,166,369 (29,298,630) 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 The above table represents the Bank Maximum exposure to credit risk on December 31, 2013, 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 44.16% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 30.38%. 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: • 92.61% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.04% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 1,803,427,939. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2013. • 95.01% of the investments in debt Instruments are Egyptian sovereign instruments. 110 annual report 2013 annual report 2013 111 Financial StatementS: Separate Financial StatementS: Separate P G E s k n a b o t s r e m o t s u c s e c n a v d a d n a o t s e c n a v d a s n a o l l a t o T d n a s n a o l l a t o T e t a r o p r o C r e h t O s n a o l s n a o l d e t a c i d n y S 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 s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O - - 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 8 7 0 , 7 5 5 , 8 5 4 2 , 8 4 8 , 4 9 5 6 5 , 8 4 5 , 7 4 1 - 8 8 1 , 9 5 9 , 6 1 - - 2 5 3 , 7 8 8 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 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 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 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 , , 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 s k n a b o t s r e m o t s u c s e c n a v d a d n a o t s e c n a v d a s n a o l l a t o T d n a s n a o l l a t o T r e h t O s n a o l s n a o l d e t a c i d n y S s n a o l t c e r i D t f a r d r e v O e t a r o p r o C - - 6 0 0 , 9 6 1 , 1 1 8 5 1 , 8 7 6 , 9 7 0 , 2 7 8 9 , 2 1 7 5 8 2 , 0 6 4 , 9 8 9 3 9 2 , 3 5 2 , 3 5 5 - 4 3 5 , 2 0 5 9 4 0 , 6 4 4 , 5 6 7 6 , 2 8 3 , 6 6 7 6 1 , 3 2 7 , 9 5 4 5 1 6 , 5 4 6 , 1 1 8 5 4 7 , 3 5 4 , 1 6 3 7 9 5 , 6 4 4 , 9 3 4 , 1 2 5 7 , 5 6 7 , 9 6 6 0 1 , 7 4 8 , 6 2 1 6 6 1 , 4 0 2 , 7 7 6 2 7 , 3 5 2 , 1 2 1 1 9 6 , 4 8 5 , 0 3 9 , 8 3 0 9 0 , 9 4 0 , 3 0 1 8 8 0 , 2 4 9 , 5 6 6 , 8 5 2 0 , 2 0 7 , 9 5 5 , 9 1 8 5 8 , 0 9 4 , 7 0 4 , 4 r e h t O s n a o l - - 2 1 7 , 2 3 5 4 9 3 , 0 0 1 , 7 s e g a g t r o M s n a o l l a n o s r e P l a u d i v i d n I - - 7 1 3 , 6 1 5 , 2 8 9 6 , 7 4 5 , 4 4 5 3 7 , 8 1 5 , 4 2 9 4 4 , 3 9 3 , 3 3 4 2 4 , 3 4 8 , 6 6 3 3 7 8 , 5 6 2 , 6 9 9 , 3 , 2 3 7 2 2 4 2 3 1 , , 7 2 4 6 7 9 2 5 5 2 4 , , , 1 1 6 4 6 2 4 0 1 , , 0 8 9 3 9 4 7 9 1 9 , , , 2 8 9 7 4 2 2 7 1 2 2 , , , 2 8 8 7 0 3 1 8 6 4 , , , 6 0 1 3 3 6 7 , , 1 4 7 9 5 3 9 6 3 , , 5 5 7 5 2 7 8 9 0 4 , , , 5 9 2 3 7 2 2 , , 9 9 3 4 9 9 8 , , 8 7 6 4 9 8 3 , , 5 2 0 4 6 3 4 1 , , 2 9 7 0 0 7 6 3 7 , , 2 3 9 7 1 1 1 5 , , 8 0 7 7 0 0 0 1 , , 1 4 5 0 9 5 4 9 0 1 , , , 0 9 7 2 3 2 7 5 7 , , 0 8 5 0 1 7 4 6 1 1 , , s d r a c t i d e r C s t f a r d r e v O 3 1 0 2 , 1 3 . c e D : s e d a r G : 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 s n a o i l g n m r o f r e p - n o N i g n h c t a w r a l u g e R t s i l h c t a W 2 1 0 2 , 1 3 . c e D : s e d a r G l a t o T s n a o i l g n m r o f r e P s n a o i l g n m r o f r e P i g n h c t a w r a l u g e R t s i l h c t a W s n a o i l g n m r o f r e p - n o N l a t o T e t a r o p r o C l a t o T s n a o l d e t a c i d n y S 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 4 6 4 , 7 1 9 , 7 3 6 3 0 , 1 5 6 , 5 4 1 - - 0 6 1 , 7 1 6 , 7 1 4 4 5 , 1 5 9 , 5 6 4 0 3 , 0 0 3 , 0 2 2 9 4 , 9 9 6 , 9 7 9 4 6 , 9 8 3 , 9 6 2 7 4 , 6 1 4 , 7 1 2 4 8 , 0 5 2 , 1 8 0 , 2 2 5 3 , 4 8 8 , 2 2 7 8 8 , 7 4 2 , 9 4 7 3 0 6 , 8 1 1 , 9 0 3 , 1 1 8 6 , 1 0 9 , 8 3 4 , 2 4 3 9 1 8 4 6 2 2 , , , 2 5 3 4 8 8 2 2 , , 1 9 5 6 1 8 2 3 8 , , 9 9 3 8 1 1 9 0 4 1 , , , 2 0 8 7 0 7 5 2 5 , 0 8 5 , 1 4 7 2 3 3 , 9 9 1 0 6 1 , 6 1 2 7 0 7 5 9 , s n a o l l a n o s r e P 1 8 1 , 3 8 3 , 9 3 3 1 , 2 5 8 , 2 0 4 5 , 4 0 7 , 2 l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 1 2 2 , 6 4 6 , 4 2 6 9 , 6 2 1 , 5 1 2 2 2 , 1 1 2 , 1 5 1 5 5 , 9 4 0 , 0 1 2 8 2 , 3 1 9 , 5 4 1 8 3 6 , 3 6 8 , 2 8 2 , 4 5 8 9 3 9 4 1 , , 5 6 4 6 8 6 5 6 1 , , 1 1 4 4 2 1 4 4 3 , e t a r o p r o C l a t o T s n a o l d e t a c i d n y S 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 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 0 3 1 , 7 0 8 , 1 1 9 5 5 , 2 7 5 , 7 5 - 1 5 6 , 1 8 8 , 1 8 8 7 , 4 7 3 , 7 1 8 5 , 0 8 8 , 4 2 2 4 3 , 2 3 4 , 4 3 5 2 , 0 4 6 , 2 3 8 2 3 , 0 1 8 , 0 3 2 6 9 , 3 0 5 , 6 5 3 4 1 , 7 1 2 , 7 1 7 0 7 , 6 8 4 , 9 1 4 , 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 , , 2 1 8 7 0 2 3 9 4 , 6 2 6 , 1 9 5 9 9 , 0 0 7 0 0 4 , 0 1 1 1 2 0 3 0 9 , s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 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 8 0 7 , 6 3 1 , 0 4 6 8 3 , 7 1 1 , 0 1 0 9 8 , 8 4 4 , 1 1 2 7 4 , 1 3 8 , 6 3 1 0 5 3 , 5 0 5 , 0 7 2 , 2 9 1 9 2 2 6 1 , , 5 5 1 6 1 3 5 5 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 3 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 2 1 0 2 , 1 3 . c e D . 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 : 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 . , , , 9 3 9 7 2 4 3 0 8 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 l a t o T s n a o l r e h t O s n a o l d e t a c i d n y S e t a r o p r o C 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 s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 3 1 0 2 , 1 3 . c e D , 9 3 9 7 2 4 3 0 8 1 , , 5 7 6 , 3 7 1 , 3 9 3 1 , 9 2 2 , 2 7 2 3 8 0 , 5 8 0 , 8 2 1 , 1 6 8 6 , 6 6 4 , 2 6 2 9 5 7 , 4 8 3 , 1 3 1 7 , 5 6 0 , 3 1 9 5 9 , 8 1 5 , 2 0 1 5 2 9 , 9 3 9 , 5 0 0 0 , 4 6 5 , 4 1 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 l a t o T s n a o l r e h t O s n a o l d e t a c i d n y S e t a r o p r o C 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 s n a o l l a n o s r e P l a u d i v i d n I 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 , 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 a u d i v i d n I 112 annual report 2013 annual report 2013 113 Financial StatementS: Separate 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 year Loans and advances to customer Corporate Direct loans Total Dec. 31, 2013 Dec. 31, 2012 2,950,132,000 2,950,132,000 2,924,873,000 2,924,873,000 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 e nd of financial year, based on Standard & Poor’s ratings or their equivalent: Dec. 31, 2013 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes Trading financial debt instruments - - - - 23,654,812,174 23,654,812,174 - - - 86,593,728 1,961,374,033 2,047,967,761 EGP Total Non-trading financial debt instruments 962,346,780 176,768,467 200,559,029 851,468,992 962,346,780 176,768,467 200,559,029 938,062,720 24,698,505,257 50,314,691,464 52,592,428,460 26,889,648,525 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 year. The Bank has allocated exposures to regions based on the country of domicile of its counterparties. Dec. 31, 2013 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: - 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 Cairo 23,654,812,174 2,047,967,761 153,833,294 (21,410,562) 788,301,456 577,101,742 2,809,768,674 317,339,513 9,563,433 4,141,934,996 18,759,464,871 8,869,001,700 105,176,241 (6,634,495) (2,842,840,136) (553,087,820) 103,085,538 Alex, Delta and Sinai - - - - 260,325,730 158,976,345 1,097,553,129 56,881,818 1,278,303 634,425,280 4,753,247,203 761,554,951 4,055,556 - - (153,568,700) - Upper Egypt Total - - - - 23,654,812,174 2,047,967,761 153,833,294 (21,410,562) 125,315,812 29,545,877 274,064,589 8,922,339 - 239,150,269 612,866,736 - - - - (1,733,700) - 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 5,015,510,545 24,125,578,810 9,630,556,651 109,231,797 (6,634,495) (2,842,840,136) (708,390,220) 103,085,538 26,889,648,525 599,276,660 86,402,303,565 - - 7,574,729,615 - - 1,288,131,922 26,889,648,525 599,276,660 95,265,165,102 t s r o 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 a u d i v i d n I s e i t i v i t c a r e h t O r o t c e s t n e m n r e v o G e d a r t l i a t e r d n a e l a s e l o h W e t a t s e l a e R g n i r u t c a f u n a M l a i c n a n i F s n o i t u t i t s n i , 4 7 1 2 1 8 4 5 6 3 2 , , , 1 6 7 7 6 9 7 4 0 2 , , , 4 9 2 3 3 8 3 5 1 , , ) 2 6 5 0 1 4 1 2 ( , , 8 9 9 2 4 9 3 7 1 1 , , , 4 6 9 3 2 6 5 6 7 , , 2 9 3 6 8 3 1 8 1 4 , , , 0 7 6 3 4 1 3 8 3 , , 6 3 7 1 4 8 0 1 , , 5 4 5 0 1 5 5 1 0 5 , , , 0 1 8 8 7 5 5 2 1 4 2 , , , 1 5 6 6 5 5 0 3 6 9 , , , 7 9 7 1 3 2 9 0 1 , , ) 5 9 4 4 3 6 6 ( , , ) 6 3 1 0 4 8 2 4 8 2 ( , , , 8 3 5 5 8 0 3 0 1 , , ) 0 2 2 0 9 3 8 0 7 ( , , 5 2 5 8 4 6 9 8 8 6 2 , , , 0 6 6 6 7 2 9 9 5 , , 2 0 1 5 6 1 5 6 2 5 9 , , - - - - 8 9 9 , 2 4 9 , 3 7 1 , 1 4 6 9 , 3 2 6 , 5 6 7 2 9 3 , 6 8 3 , 1 8 1 , 4 6 3 7 , 1 4 8 , 0 1 0 7 6 , 3 4 1 , 3 8 3 - - - - - - - - ) 5 9 2 , 8 2 3 , 9 3 ( ) 0 4 9 , 8 6 4 , 3 3 1 ( - - - - - - - - - - - - - - - - 4 7 1 , 2 1 8 , 4 5 6 , 3 2 1 6 7 , 7 6 9 , 7 4 0 , 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 2 2 , 6 5 2 , 3 - - ) 3 1 6 , 3 7 7 , 2 8 1 , 1 ( ) 7 4 3 , 7 9 3 , 5 1 ( - - - ) 7 5 4 , 0 0 5 , 7 5 3 ( - - - 9 4 2 , 4 3 1 , 5 9 4 , 5 2 - - - - 0 0 0 , 0 0 0 , 5 1 ) 9 9 3 , 4 1 ( ) 6 9 2 , 7 3 2 , 6 ( - - - - 8 8 2 , 4 2 0 , 5 6 7 , 3 2 2 2 , 2 2 7 , 4 3 - 6 9 8 , 5 8 1 , 6 4 0 , 1 5 4 2 , 4 2 6 , 4 8 7 , 4 1 7 0 , 5 5 5 , 4 3 9 , 1 3 1 2 , 6 9 0 , 8 6 4 0 5 3 , 2 4 6 , 6 0 8 , 0 1 5 8 1 , 6 9 2 , 5 9 0 , 1 9 7 3 , 7 6 4 , 4 7 2 1 3 5 , 2 5 5 , 5 1 2 8 8 4 , 5 4 2 , 3 1 0 , 1 5 1 5 , 4 9 7 , 1 0 3 , 1 9 7 8 , 1 5 3 , 3 2 - 3 5 9 , 4 7 7 , 4 2 2 , 1 1 1 9 7 , 2 1 3 , 3 8 7 - - - 2 7 5 , 5 7 9 , 0 9 ) 6 4 9 , 5 7 4 , 8 3 ( ) 8 6 5 , 0 6 3 , 4 5 4 , 1 ( ) 6 2 4 , 6 2 1 , 2 1 ( ) 9 6 0 , 7 4 5 , 1 1 3 ( - - - ) 5 9 4 , 4 3 6 , 6 ( , 5 2 5 1 4 1 2 4 3 6 , , , 4 6 8 3 0 2 9 6 9 4 1 , , , 7 5 4 1 3 6 0 8 7 2 5 , , , 5 1 2 8 6 7 8 9 4 , , 8 3 4 5 5 9 0 2 0 2 , , 4 9 2 , 3 3 8 , 3 5 1 ) 2 6 5 , 0 1 4 , 1 2 ( - m o t s u c o t s e c n a v d a d n a s n a o l s s o r G s k n a b o t s e c n a v d a d n a s n a o l s s o r G n o i s i v o r p t n e m r i a p m I : s s e L l a t n e m 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 t e s s a l a i c n a n fi g n i d a r T s t n e m u r t s n i t b e D - s e t o n 3 1 0 2 , 1 3 . c e D t n u o c s i d s l l i b d e z i t r o m a n U n o i s i 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 s n a o l d e t a c i d n y S - s n a o l r e h t O - s n a o l l a n o s r e P - s d r a c t i d e r C - : l a u d i v i d n I s t f a r d r e v O - s r e s n a o l r e h t O s e g a g t r o M - - : e t a r o p r o C s n a o l t c e r i D s t f a r d r e v O - - - - - , 8 4 6 1 6 2 6 3 6 5 1 , , 8 3 5 , 5 8 0 , 3 0 1 s t n e m u r t s n i l a i c n a n fi e v i t a v i r e D 0 6 6 , 6 7 2 , 9 9 5 6 7 2 , 4 1 5 , 4 9 3 1 , , 5 5 9 2 0 2 7 1 0 3 , , - i c o s s a d n a y r a i d i s b u s n i s t n e m t s e v n I - : s t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - s e t a l a t o T 114 annual report 2013 annual report 2013 115 Financial StatementS: Separate 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 in- terest 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 Se- nior Management. In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal model to calculate VaR and is not yet approved by the Central Bank as the regulator is currently applying and requiring banks to calculate the Market Risk Capital Requirements according to Basel II Stan- dardized Approach. 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 re- viewed 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 89,669 Dec. 31, 2013 High 539,916 75,596,340 101,789,562 84,950,011 63,975,773 16,839,550 11,620,567 203,290 124,134 1,124,626 606,374 491,484 305,229 75,622,331 101,827,317 Low 3,370 55,515,213 48,925,587 6,589,626 85,632 35,182 210,658 55,529,386 Medium 40,138 33,579,414 29,092,222 4,487,192 278,907 - 287,242 33,555,660 Dec. 31, 2012 High 175,325 82,099,623 72,429,892 9,669,731 368,507 - 465,524 82,161,567 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Equities risk Portfolio managed by others risk Investment fund Total VaR 116 annual report 2013 EGP Low 4,756 3,045,986 919,482 2,126,504 149,646 - 169,518 3,139,829 Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Equities risk Funds managed by others risk Investment fund Total VaR Medium 89,669 Dec. 31, 2013 High 539,916 Low 3,370 Medium 40,138 Dec. 31, 2012 High 175,325 Low 4,756 11,620,567 124,134 606,374 305,229 11,654,395 16,839,550 203,290 1,124,626 491,484 16,875,949 6,589,626 85,632 35,182 210,658 6,621,300 4,487,192 278,907 - 287,242 4,553,070 9,669,731 368,507 - 465,524 9,721,129 2,126,504 149,646 - 169,518 2,218,253 Non trading portfolio VaR by risk type Medium Dec. 31, 2013 High Low Medium Dec. 31, 2012 High Low Interest rate risk - For non trading purposes Total VaR 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. 72,429,892 72,429,892 29,092,222 29,092,222 48,925,587 48,925,587 84,950,011 84,950,011 63,975,773 63,975,773 919,482 919,482 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 monitored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk and Bank’s fi- nancial instruments at carrying amounts, categorized by currency. Dec. 31, 2013 Financial assets Cash and balances with Central Bank Due from banks Treasury bills and other governmental notes Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivative financial instruments 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 instruments Long term loans Total financial liabilities Net on-balance sheet financial position EGP USD EUR GBP Equivalent EGP Total Other 3,934,820,535 685,783,608 97,955,512 21,155,801 56,524,898 4,796,240,354 49,755,496 5,569,959,173 2,823,809,212 386,613,624 63,533,460 8,893,670,965 20,718,475,000 3,832,188,780 181,468,677 2,150,872,512 86,593,728 - 153,833,294 - - - - - - 24,732,132,457 8,881,566 2,246,347,806 - 153,833,294 25,967,879,074 18,702,088,432 645,731,167 46,134,574 33,983,316 45,395,816,563 35,951,722 65,733,199 1,400,617 22,131,250,477 4,187,173,991 1,232,251,218 - 558,685,850 40,590,810 - - - - - - - - - - - 103,085,538 23,363,501,695 4,187,173,991 599,276,660 79,734,864,657 30,369,022,242 3,750,365,185 453,903,999 162,923,240 114,471,079,323 319,951,905 64,712,814,197 1,031,898,608 27,965,508,241 20,152,926 3,585,282,145 1,399,569 456,884,824 7,032 219,780,593 1,373,410,040 96,940,270,000 31,266,232 81,503,495 2,108,856 - - 114,878,583 132,153,227 65,196,185,561 - 29,078,910,344 - 3,607,543,927 - 458,284,393 - 219,787,625 132,153,227 98,560,711,850 14,538,679,096 1,290,111,898 142,821,258 (4,380,394) (56,864,385) 15,910,367,473 annual report 2013 117 Financial StatementS: Separate 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, 2013 Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total Financial assets Cash and balances with Central Bank Due from banks Treasury bills and other governmental notes* Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivatives financial instruments (including IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in subsidiary and associates Total financial assets Financial liabilities Due to banks Due to customers Derivatives financial instruments (including IRS notional amount) - - - 4,477,416,766 3,966,455,633 286,026,802 3,527,609,980 2,996,487,000 18,208,035,477 - - - - - - 4,796,240,354 4,796,240,354 163,771,764 8,893,670,965 - 24,732,132,457 136,007,765 - - 1,672,005,178 375,962,584 62,372,279 2,246,347,806 4,342,350 116,417,222 2,870,824 30,202,898 - 29,833,639,030 6,465,364,854 5,189,602,857 3,111,717,350 795,492,472 - - 153,833,294 45,395,816,563 1,389,566,463 234,619,676 747,844,799 2,185,915,919 332,706,143 53,339,700 4,943,992,700 663,515,064 - 378,645,263 - 2,815,541,814 197,841 13,567,604,319 4,186,976,150 5,351,673,079 - 586,522,156 - 23,363,501,695 4,187,173,991 - - - - - 599,276,660 599,276,660 40,032,097,418 14,157,989,648 27,250,120,414 24,754,421,814 6,855,834,278 6,261,522,913 119,311,986,485 347,374,047 32,282,923,172 - 14,485,215,174 - 11,106,121,075 - 22,458,172,731 - 87,337,000 1,026,035,993 16,520,500,848 1,373,410,040 96,940,270,000 2,315,824,671 1,770,211,105 129,416,652 66,856,880 603,658,202 69,818,235 4,955,785,745 5,314,000 Long term loans Total financial liabilities 34,974,213,117 16,260,740,279 Total interest re-pricing 28,091,227 5,057,884,301 (2,102,750,631) GAP Capital * After deducting Repos. 49,299,000 11,284,836,727 49,449,000 22,574,478,611 - 690,995,202 132,153,227 17,616,355,076 103,401,619,012 - 15,965,283,687 2,179,943,203 6,164,839,076 (11,354,832,163) 15,910,367,473 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 moni- tored 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 regula- tions. • 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, 2013 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (contractual and non contractual maturity dates) Dec. 31, 2012 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (con- tractual and non contractual 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 1,373,410,040 14,357,244,907 28,091,227 - - - - 14,355,336,031 5,314,000 31,020,534,031 49,299,000 36,171,294,031 49,449,000 1,035,861,000 - 1,373,410,040 96,940,270,000 132,153,227 15,758,746,174 14,360,650,031 31,069,833,031 36,220,743,031 1,035,861,000 98,445,833,267 16,226,910,823 11,735,431,147 29,841,046,583 41,734,405,803 14,830,199,429 114,367,993,785 Up to 1month One to three months Three months to one year One year to five years Over five years Total EGP 1,714,862,716 11,526,810,962 - - - - - 9,736,841,059 - 20,452,119,693 59,508,571 35,809,584,757 20,986,667 1,309,370,420 - 1,714,862,716 78,834,726,890 80,495,238 13,241,673,678 9,736,841,059 20,511,628,264 35,830,571,424 1,309,370,420 80,630,084,844 9,874,255,242 12,497,060,088 22,097,635,946 39,608,844,700 9,940,640,568 94,018,436,544 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 extend- ed. 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. 118 annual report 2013 annual report 2013 119 Financial StatementS: Separate Financial StatementS: Separate 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 cur- rency 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 Dec. 31, 2013 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec. 31, 2013 Letters of credit, guarantees and other commitments Total Up to one month One to three months Three months to one year One year to five years Over five years Total 28,748,121 - 28,748,121 4,157,915 - 4,157,915 12,154,312 1,707,852 13,862,164 - 9,904,184 9,904,184 - 58,206,199 58,206,199 45,060,348 69,818,235 114,878,583 Up to 1 year 1-5 years Over 5 years Total 10,428,508,630 5,449,818,970 304,161,560 16,182,489,160 10,428,508,630 5,449,818,970 304,161,560 16,182,489,160 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. 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 Book value Fair value Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 8,893,670,965 153,833,294 7,957,710,034 1,208,166,369 8,893,670,965 153,833,294 7,957,710,034 1,208,166,369 6,514,938,760 38,880,877,803 5,981,587,224 37,161,221,146 6,514,938,760 38,880,877,803 5,981,587,224 37,161,221,146 4,187,173,991 58,630,494,813 4,205,753,328 56,514,438,101 4,187,173,991 58,630,494,813 4,205,753,328 56,514,438,101 1,373,410,040 96,940,270,000 132,153,227 98,445,833,267 1,714,862,716 78,834,726,890 80,495,238 80,630,084,844 1,373,410,040 96,940,270,000 132,153,227 98,445,833,267 1,714,862,716 78,834,726,890 80,495,238 80,630,084,844 Due from 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 using 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 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 liabilities ,subordinated loans with more than five years to maturity (amortizing 20% of its carrying amount in each year of the re- maining 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. 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. 120 annual report 2013 annual report 2013 121 Financial StatementS: Separate Financial StatementS: Separate According to Basel II : Tier 1 capital Share capital (net of the treasury shares) Reserves Retained Earnings (Losses) 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 Dec. 31, 2013 In thousands EGP Dec. 31, 2012 In thousands EGP Restated 9,002,436 1,001,869 (546,531) (726,847) 8,730,927 1,123 21,510 5,972,275 3,909,853 (510,946) (4,701) 9,366,481 41,821 147,873 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 (%) * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. 59,514,861 2,429,715 8,135,709 70,080,285 13.55% 56,891,117 1,994,962 6,478,218 65,364,297 15.71% 709,302 898,996 10,265,477 742,938 765,571 9,496,498 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 ex- pectations 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 economic 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 timing 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 tech- niques. 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 prac- tical, 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. Dec. 31, 2013 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2012 Revenue according to business segment Expenses according to business segment Profit before tax Tax Profit for the year Total assets Corporate banking SME’s Investment banking Retail banking EGP Total 4,446,599,564 698,163,082 (58,811,197) 1,666,363,119 6,752,314,568 (1,626,606,779) (316,973,281) (90,547,864) (877,974,630) (2,912,102,554) 2,819,992,785 (856,984,584) 1,963,008,201 99,626,236,327 381,189,801 (119,972,068) 261,217,733 2,601,325,392 (149,359,061) - (149,359,061) 1,275,407,237 788,388,489 (248,129,927) 540,258,562 10,249,298,810 3,840,212,014 (1,225,086,579) 2,615,125,435 113,752,267,766 Corporate banking SME’s Investment banking Retail banking 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) 2,177,828,242 (552,626,343) 1,625,201,899 80,952,435,040 422,873,981 (107,289,406) 315,584,575 2,626,503,517 (298,687,476) - (298,687,476) 1,451,894,947 751,203,355 (190,591,442) 560,611,913 9,374,557,798 3,053,218,102 (850,507,191) 2,202,710,911 94,405,391,302 122 annual report 2013 annual report 2013 123 Financial StatementS: Separate Financial StatementS: Separate 5.2. By geographical segment Dec. 31, 2013 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2012 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 5,746,507,019 (2,169,461,195) 3,577,045,824 (1,138,986,743) 2,438,059,081 104,134,226,778 Cairo 4,334,514,952 (1,834,683,705) 2,499,831,247 (696,353,609) 1,803,477,638 84,065,156,225 Alex, Delta & Sinai 907,098,338 (654,444,883) 252,653,455 (82,660,394) 169,993,061 8,163,839,552 Alex, Delta & Sinai 887,705,321 (399,008,070) 488,697,251 (136,133,396) 352,563,855 9,048,557,087 Upper Egypt 98,709,211 (88,196,476) 10,512,735 (3,439,442) 7,073,293 1,454,201,436 Upper Egypt 148,693,225 (84,003,621) 64,689,604 (18,020,186) 46,669,418 1,291,677,989 EGP Total 6,752,314,568 (2,912,102,554) 3,840,212,014 (1,225,086,579) 2,615,125,435 113,752,267,766 Total 5,370,913,498 (2,317,695,396) 3,053,218,102 (850,507,191) 2,202,710,911 94,405,391,302 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 fee and commission income 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 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 201,284,007 3,915,076,745 4,116,360,752 5,228,658,859 27,135,663 132,463,454 3,523,926,754 3,656,390,208 4,013,129,815 17,423,270 137,673,401 158,941,017 45,988 9,509,874,663 91,504,193 4,338,661,909 4,430,166,102 25,580,494 4,366,685 4,460,113,281 5,049,761,382 Dec. 31, 2013 EGP 761,430,244 43,812,007 511,674,138 1,316,916,389 127,965,091 127,965,091 1,188,951,298 29,184 7,845,913,494 181,169,862 3,449,311,643 3,630,481,505 310,995,070 3,760,975 3,945,237,550 3,900,675,944 Dec. 31, 2012 EGP 470,471,721 40,798,715 431,596,884 942,867,320 107,365,742 107,365,742 835,501,578 8. Dividend income Trading securities Available for sale securities Subsidiaries and associates 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 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 Dec. 31, 2013 EGP - 14,109,201 5,694,250 19,803,451 Dec. 31, 2012 EGP 578,098 27,138,391 4,517,707 32,234,196 Dec. 31, 2013 EGP 442,009,259 2,707,556 (20,513,102) (1,097,874) 4,095,705 332,508,008 262,771 759,972,323 Dec. 31, 2012 EGP 249,583,425 2,045,486 6,669,087 212,030 (2,963,355) 311,074,819 (893,527) 565,727,965 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 777,016,107 34,795,512 32,515,509 882,193,845 1,726,520,973 684,521,699 30,542,233 30,941,993 698,639,542 1,444,645,467 Dec. 31, 2013 EGP 89,858,233 740,692 (128,962,974) (116,652,796) (155,016,845) Dec. 31, 2012 EGP 36,631,170 2,387,583 (51,085,880) (97,723,664) (109,790,791) 124 annual report 2013 annual report 2013 125 Financial StatementS: Separate Financial StatementS: Separate 12. Impairment (charge) release for credit losses 16. Due from banks Loans and advances to customers Total Dec. 31, 2013 EGP (915,581,874) (915,581,874) Dec. 31, 2012 EGP (609,971,077) (609,971,077) 13. Adjustments to calculate the effective tax rate Dec. 31, 2013 EGP 3,840,212,014 - 3,840,212,014 25.00% 960,053,003 196,289,297 (72,040,958) 140,285,237 500,000 1,225,086,578 31.90% Dec. 31, 2013 EGP 2,716,110,919 (40,741,664) (271,611,092) 2,403,758,163 900,243,569 2.67 914,378,753 2.63 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% Dec. 31, 2012 EGP 2,379,297,994 (35,689,470) (237,929,799) 2,105,678,724 900,243,569 2.34 911,239,406 2.31 Dec. 31, 2013 EGP 1,674,626,181 3,121,614,173 4,796,240,354 4,796,240,354 Dec. 31, 2012 EGP 1,744,700,680 3,649,273,444 5,393,974,124 5,393,974,124 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 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 15. Cash and balances with Central Bank Cash Obligatory reserve balance with CBE - Current accounts Total Non-interest bearing balances 126 annual report 2013 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 18. Trading financial assets Debt instruments - Governmental bonds Total Equity instruments - Foreign company shares - Mutual funds Total - Portfolio managed by others 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 Dec. 31, 2013 EGP 520,680,728 8,372,990,237 8,893,670,965 3,225,196,041 647,259,153 5,021,215,771 8,893,670,965 163,771,764 8,729,899,201 8,893,670,965 8,893,670,965 8,893,670,965 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, 2013 EGP 6,524,096,980 7,197,085,800 11,010,949,677 (1,077,320,283) 23,654,812,174 - - 23,654,812,174 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, 2013 EGP Dec. 31, 2012 EGP 2,047,967,761 2,047,967,761 1,138,056,688 1,138,056,688 8,881,566 136,007,766 144,889,332 53,490,713 2,246,347,806 15,877,741 318,347,334 334,225,075 - 1,472,281,763 Dec. 31, 2013 EGP 153,833,294 (21,410,562) 132,422,732 102,219,834 30,202,898 132,422,732 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 annual report 2013 127 Financial StatementS: Separate Financial StatementS: Separate analysis for impairment provision of loans and advances to banks Beginning balance Charge (release) during the year Exchange revaluation difference Ending balance 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, 2013 EGP 29,298,630 (9,224,786) 1,336,718 21,410,562 Dec. 31, 2012 EGP 37,950,503 (11,450,369) 2,798,496 29,298,630 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 6,514,938,760 5,015,510,545 24,125,578,810 9,630,556,651 109,231,797 38,880,877,803 45,395,816,563 (6,634,495) (2,842,840,136) (708,390,220) 41,837,951,712 16,679,527,211 25,158,424,501 41,837,951,712 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 analysis for impairment provision of loans and advances to customers Dec. 31, 2013 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance Overdraft Credit cards 10,753,047 270,365 (2,755,707) 964,713 9,232,418 8,328,331 2,567,525 (7,254,445) 4,749,763 8,391,174 Individual Personal loans 74,435,554 8,225,083 - - 82,660,637 Real estate loans 13,376,859 407,070 - - 13,783,929 Other loans Total 1,090,931 2,117,699 - - 3,208,630 107,984,722 13,587,742 (10,010,152) 5,714,476 117,276,788 Dec. 31, 2013 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 209,551,228 118,563,373 - - 6,088,062 1,242,015,939 663,119,750 (6,811,042) 13,906,294 41,099,887 334,202,663 1,953,330,828 Corporate Syndicated loans 336,568,605 129,670,518 (81,425,110) 31,417,986 16,830,672 433,062,671 Other loans Total 5,101,908 (134,722) - - - 1,793,237,680 911,218,919 (88,236,152) 45,324,280 64,018,621 4,967,186 2,725,563,348 Dec. 31, 2012 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance Overdraft Credit cards 20,377,614 (9,624,567) - - 10,753,047 42,290,218 (8,977,018) (29,454,339) 4,469,470 8,328,331 Individual Personal loans 76,502,471 68,706 (2,135,623) - 74,435,554 Real estate loans 11,876,297 1,500,562 - - 13,376,859 Other loans Total 1,593,932 (503,001) - - 1,090,931 152,640,532 (17,535,318) (31,589,962) 4,469,470 107,984,722 Dec. 31, 2012 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans 167,655,394 39,209,960 - - 2,685,874 209,551,228 790,797,773 420,954,828 - 14,726,449 15,536,889 1,242,015,939 Corporate Syndicated loans 306,628,666 178,455,887 (154,721,287) - 6,205,339 336,568,605 Other loans Total 1,686,738 336,089 - - 3,079,081 5,101,908 1,266,768,571 638,956,764 (154,721,287) 14,726,449 27,507,183 1,793,237,680 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 ful- fill 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. 128 annual report 2013 annual report 2013 129 Financial StatementS: Separate Financial StatementS: Separate 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 deriva- tives 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 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) Dec. 31, 2013 Dec. 31, 2012 Notional amount Assets Liabilities Notional amount Assets Liabilities 1,250,176,084 13,375,501 18,954,700 1,996,990,255 16,812,998 959,570 1,990,431,463 38,331,489 22,576,221 13,794,115 49,745,837 12,311,533 13,794,115 45,060,348 1,258,600,443 770,698,823 9,781,221 7,723,601 34,317,820 3,612,239 7,723,601 12,295,410 389,501,781 - 6,679,325 6,679,325 - - 3,744,177 3,744,177 - - 859,324,209 12,149,920 12,630,731 12,630,731 134,026 134,026 8,739,696 8,739,696 134,026 134,026 56,425,162 48,804,525 47,082,577 21,169,132 603,658,200 3,847,747,181 - 57,476,340 549,753,000 - 97,708,858 46,660,376 46,660,376 8,597,718 66,074,058 4,293,389,812 90,377,184 90,377,184 221,270 97,930,128 103,085,538 114,878,583 137,459,761 119,099,260 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 57,476,340 at the December 31, 2013 against EGP 97,708,858 at the December 31, 2012, Resulting in net gain form hedg- ing instruments at the December 31, 2013 EGP 40,232,518 against net loss EGP 19,194,046 at the December 31, 2012. Losses arises from the hedged items at the December 31, 2013 reached EGP 48,856,503 against profits arises EGP 14,842,228 at the December 31, 2012. The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate customers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 38,062,657 at the end of December, 2013 against EGP 90,155,914 at the December 31, 2012, Resulting in net losses form hedging instruments at the December 31, 2013 EGP 52,093,256 against net profit EGP 32,507,675 at the December 31, 2012. Gains arises from the hedged items at the 31 December , 2013 reached EGP 60,223,650 against losses EGP 27,731,731 at the 31 December , 2012. 22. Financial investments Available for sale - Listed debt instruments with fair value - Listed equity instruments with fair value - 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 Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance Beginning balance Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance Available for sale financial investments 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 21,161,884,032 7,463,491,687 (4,518,397,511) 124,230,792 (834,813,374) (32,893,931) 23,363,501,695 22.1. profit (losses) from financial investments Profit (Loss) from selling available for sale financial instruments Impairment release (charges) of available for sale equity instruments Impairment release (charges) of available for sale debt instruments Impairment release (charges) of subsidiaries and associates Profit (Loss) from selling held to maturity debt investments Total Dec. 31, 2013 EGP Dec. 31, 2012 EGP 22,556,422,828 86,327,447 720,751,420 23,363,501,695 4,159,661,491 27,512,500 4,187,173,991 27,550,675,686 25,948,390,734 1,602,284,952 27,550,675,686 25,791,803,456 1,097,845,069 26,889,648,525 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 29,092,920 4,176,660,408 - Total EGP 15,441,658,989 14,339,854,217 (5,342,793,206) - 60,242,239 - - 4,205,753,328 4,205,753,328 - (18,579,337) 895,941,363 (27,266,242) 25,367,637,360 25,367,637,360 7,463,491,687 (4,536,976,848) - 124,230,792 - - 4,187,173,991 (834,813,374) (32,893,931) 27,550,675,686 Dec. 31, 2013 EGP 1,656,257 (32,893,931) - (349,909,000) (10,074) (381,156,748) Dec. 31, 2012 EGP 519,013 (27,859,838) 593,597 (89,736,000) (31,018) (116,514,246) 130 annual report 2013 annual report 2013 131 Financial StatementS: Separate Financial StatementS: Separate 23. Investments in associates Dec. 31, 2013 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 Secu- rity and Services (Falcon) Total Egypt 633,508,232 316,493,573 140,938,905 455,587 428,011,000 99.98 Egypt Egypt Egypt Egypt 2,202,120,593 2,124,146,722 302,442,516 5,621,494 49,020,250 1,921,220,750 4,573,801 434,219,114 1,723,876,875 199,111 379,404,778 378,253,425 581,125 32,679,897 16,884,595 478,935 425,843 75,054,600 600,000 40,590,810 Egypt 126,867,912 104,633,380 120,221,686 5,344,162 6,000,000 45 43 40 39 40 5,322,510,402 4,648,754,439 975,117,554 29,210,616 599,276,660 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 % Subsidiaries - CI Capital Holding Associates - Commercial International Life Insurance - Corplease - Haykala for Investment - Egypt Factors - International Co. for Secu- rity and Services (Falcon) Total Egypt 434,893,702 162,263,325 121,446,841 1,611,611 777,920,000 99.98 Egypt Egypt Egypt Egypt Egypt 1,768,401,691 1,711,942,438 253,087,786 (969,320) 1,539,490,355 3,875,454 203,984,151 1,361,597,602 180,722 151,643,286 317,924,102 270,000 18,514,114 9,974,915 209,835 (3,608,534) 49,020,250 67,527,300 600,000 36,966,150 91,085,635 79,197,211 106,514,090 1,219,081 6,000,000 45 40 40 39 40 4,041,730,988 3,466,824,584 817,756,933 8,437,587 938,033,700 24. Investment property* Commercial unit number f 35 in arkadia mall (14 elbahr st. Boulak kornish el nile ) 338.33 meters on a land and building the property number 16 elmakrizi st. Heliopolis 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, 2013 EGP 432,000 - 1,121,965 3,463,000 161,000 4,517,721 9,695,686 Dec. 31, 2012 EGP 432,000 700,000 1,121,965 3,463,000 161,000 4,517,721 10,395,686 * Including non registered properties by EGP 6,232,686 which were acquired against settlement of loans to customers and legal procedures is taking to registered these properties or sell them during the legal period. 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, 2013 EGP 1,703,814,782 114,869,733 134,327,476 906,536,702 20,245,803 2,879,794,496 Dec. 31, 2012 EGP 1,637,781,937 75,319,597 96,120,400 640,826,581 8,977,329 2,459,025,844 Land Premises IT Vehicles Fitting -out Machines and equipment 60,575,261 424,861,042 834,806,161 51,772,311 347,435,424 284,157,963 Dec. 31, 2013 Furniture and furnishing 114,072,032 2,117,680,194 Total 3,924,261 214,973,061 158,341,911 7,809,546 49,901,395 40,201,441 7,204,257 482,355,872 64,499,522 639,834,103 993,148,072 59,581,857 397,336,819 324,359,404 121,276,289 2,600,036,066 - - - 181,000,079 644,737,344 31,504,412 276,816,541 216,844,425 82,249,497 1,433,152,298 24,795,643 69,673,132 3,190,986 40,116,114 42,174,027 22,395,350 202,345,252 205,795,722 714,410,476 34,695,398 316,932,655 259,018,452 104,644,847 1,635,497,550 64,499,522 60,575,261 434,038,381 243,860,963 %5 278,737,596 190,068,817 %33.3 24,886,459 20,267,899 %20 80,404,164 70,618,883 %33.3 65,340,952 67,313,538 16,631,442 31,822,535 964,538,516 684,527,896 %20 %20 Beginning gross assets (1) Additions (deductions) during the year Ending gross assets (2) Accu.depreciation at beginning of the year (3) Current year depreciation 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 87,125,263.61 non registered assets while their registrations procedures are in pro- cess. 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, 2013 EGP 1,038,717,040 334,693,000 1,373,410,040 3,853,779 313,337,889 1,056,218,372 1,373,410,040 1,026,035,993 347,374,047 1,373,410,040 1,038,717,040 334,693,000 1,373,410,040 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 1,714,862,716 132 annual report 2013 annual report 2013 133 Financial StatementS: Separate Financial StatementS: Separate 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 Dec. 31, 2013 EGP 23,043,882,291 30,507,692,856 25,259,128,705 16,786,188,314 1,343,377,834 96,940,270,000 48,394,254,589 48,546,015,411 96,940,270,000 16,520,500,848 80,419,769,152 96,940,270,000 70,300,955,105 26,639,314,895 96,940,270,000 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 Interest rate % Maturity date Maturing through next year EGP Balance on Dec. 31, 2013 EGP Balance on Dec. 31, 2012 EGP Financial Investment & Sector Cooperation (FISC) Agricultural Research and Development Fund (ARDF) Social Fund for Development (SFD) Total 3.5 - 5.5 depends on maturity date 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which is more 3-5 years 555,556 555,556 19,095,238 3-5 years 28,310,000 31,380,000 61,400,000 35,486,000 100,217,671 - 64,351,556 132,153,227 80,495,238 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Income tax Other credit balances Total Dec. 31, 2013 EGP 574,521,952 331,203,778 471,928,260 1,179,708,811 68,392,690 2,625,755,491 Dec. 31, 2012 EGP 436,723,614 242,231,936 467,830,762 819,361,660 68,203,599 2,034,351,571 31. Other provisions Dec. 31, 2013 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent Provision for other claim* Total 6,909,685 28,363,664 - 257,900,430 17,474,334 310,648,113 - - - - 6,909,685 1,093,932 31,000,000 88,074,156 8,936,407 129,104,495 1,851 - 16,745,849 30,556 16,778,256 (545,510) - - (5,088,275) (5,633,785) (141,521) - - - (141,521) 28,772,416 31,000,000 362,720,435 21,353,022 450,755,558 Dec. 31, 2012 Provision for income tax claims Provision for legal claims Provision for contingent Provision for other claim Total Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 6,909,685 35,171,959 210,103,042 12,441,223 264,625,909 - - - - 6,909,685 4,668,841 40,594,505 6,353,586 51,616,932 11,983 7,202,883 16,075 7,230,941 (10,958,065) - (1,336,550) (12,294,615) (531,054) - - (531,054) 28,363,664 257,900,430 17,474,334 310,648,113 * Provision for other claim formed on December 31, 2013 amounted to 8,936,407 EGP to face the potential risk of banking operations against amount 6,353,586 EGP on December 31, 2012 .. 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 9,002,435,690 to be divided on 900,243,569 shares with EGP 10 par value for each share based on: • Increase issued and Paid in 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 in 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 tranch for E.S.O.P program. • Increase issued and Paid in 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 tranch for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 29,348,380 On April 7,2013 to reach EGP 6,001,623,790 according to Board of Directors decision on october 24,2012 by issuance of fourth tranch for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 3,000,811,895 on December 5, 2013 according to Board of Directors decision on May 15 ,2013 by distribution of a one share for every two outstanding shares by capitalizing on the General Reserve. • 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 maximum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2006 and delegated the Board of Directors 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. 134 annual report 2013 annual report 2013 135 Financial StatementS: Separate Financial StatementS: Separate 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, 2013 Assets (Liabilities) EGP (23,992,207) Dec. 31, 2012 Assets (Liabilities) EGP (18,477,693) 12,531,360 49,219,205 45,997,083 83,755,441 10,998,616 98,979,194 37,633,092 129,133,209 34. Share-based payments According to the extraordinary general assembly meeting on June 26, 2006, The Bank launched new Employees Share Owner- ship 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 vesting 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 year Granted during the year * Forfeited during the year Exercised during the year Outstanding at the end of the year Details of the outstanding tranches are as follows: Maturity date 2014 2015 2016 Total EGP Exercise price 10.00 10.00 10.00 Dec. 31, 2013 No. of shares 15,439,582 12,245,031 (832,456) (2,934,838) 23,917,319 EGP Fair value 14.17 6.65 16.84 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 7th tranche 10 34.57 3 14.49% 2.89% 40% Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% Dec. 31, 2012 No. of shares 12,676,036 7,208,355 (673,567) (3,771,242) 15,439,582 No. of shares 7,929,874 10,032,939 5,954,506 23,917,319 6th tranche 10 18.7 3 16.15% 5.35% 38% Volatility is calculated based on the daily standard deviation of returns for the last three years. * The equity instruments fair value and number of shares for the fifth, sixth and seventh trenches have been adjusted to reflect the dilution effect of the Stock dividend that took place in 2013. 136 annual report 2013 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 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, 2013 EGP 490,364,921 406,242,752 - 27,366,759 (720,468,079) 1,990,756 205,497,109 Dec. 31, 2013 EGP 103,716,932 (101,726,176) 1,990,756 Dec. 31, 2013 EGP 380,348,755 - 110,016,166 490,364,921 Dec. 31, 2012 EGP 380,348,755 2,037,107,372 1,001,979 117,805,566 153,506,781 103,716,932 2,793,487,385 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, 2013 153,506,781 (873,974,860) (720,468,079) Dec. 31, 2012 (723,070,818) 876,577,599 153,506,781 Dec. 31, 2013 1,001,979 (1,001,979) - - Dec. 31, 2012 15,105,920 (15,105,920) 1,001,979 1,001,979 Dec. 31, 2013 EGP 4,796,240,354 8,893,670,965 23,654,812,174 (3,224,658,841) (5,148,331,397) (17,212,737,025) 11,758,996,230 Dec. 31, 2012 EGP 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 annual report 2013 137 Financial StatementS: Separate Financial StatementS: Separate 37. Contingent liabilities and commitments 37.1. legal claims There are a number of existing cases filed against the bank on December.31,2013 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 42,693,921 as follows: Investments value EGP 101,813,351 Available for sale financial investments 37.2.2. Fixed assets and branches constructions TThe value of commitments for the purchase of fixed assets contracts and branches constructions that have not been implemented till the date of financial statement amounted to EGP 49,361,799. Remaining EGP 42,693,921 Paid EGP 59,119,430 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, 2013 EGP 14,959,372,507 750,766,099 472,350,554 16,182,489,160 Dec. 31, 2012 EGP 12,787,562,199 933,297,936 1,176,928,870 14,897,789,005 • 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 23,984,353 with redeemed value EGP 5,151,359,337. • The market value per certificate reached EGP 214.78 on December 31, 2013. • The Bank portion got 601,064 certificates with redeemed value EGP 129,096,526. istethmar fund thabat fund • CIB bank established an accumulated return mutual fund under license no.613 issued from financial supervisory author- ity on September 13, 2011. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 692,432 with redeemed value EGP 91,255,613. • The market value per certificate reached EGP 131.79 on December 31, 2013. • The Bank portion got 52,404 certificates with redeemed value EGP 6,906,323.. 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. 39.1. loans, advances, deposits and contingent liabilities Loans and advances Deposits Contingent liabilities EGP 798,500,693 255,620,430 74,610,853 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. Income EGP 1,120,494 63,349,222 2,450,265 9,365,639 1,303,059 8,378,800 119,362 3,176,971 Expenses EGP 39,767,569 48,194,625 1,170,156 4,845,660 824,049 6,436,956 11,266 1,998,015 40. Tax status • The Bank's corporate income tax position has been examined and settled with the tax authority from the start up of opera- • CIB bank established the second accumulated return mutual fund under license no.344 issued from capital market au- tions up to the end of year 1984. thority on February 26, 2006. CI Assets Management Co.- Egyptian joint stock co-manages the fund. • The number of certificates issued reached 2,192,761 with redeemed value EGP 160,619,743. • The market value per certificate reached EGP 73.25 on December 31, 2013. • The Bank portion got 194,744 certificates with redeemed value EGP 14,264,998. • 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 2006. • The Bank pays salary tax according to concerning domestic regulations and laws, and the disputes are under discussion aman fund ( ciB and Faisal islamic Bank mutual Fund) in the court of ow • The Bank and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capi- • The Bank stamp duty tax calculated according to concerning domestic regulations and laws,and settlement done in time tal market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co-manages the fund. according to the law, and the disputes are under discussion in the court of law . • The number of certificates issued reached 677,076 with redeemed value EGP 32,797,561. • The market value per certificate reached EGP 48.44 on December 31, 2013. • The Bank portion got 71,943 certificates with redeemed value EGP 3,484,919. 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 174,507 with redeemed value EGP 22,715,576. • The market value per certificate reached EGP 130.17 on December 31, 2013. • The Bank portion got 50,000 certificates with redeemed value EGP 6,508,500. 41. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro Dec. 31, 2013 In thousand EGP (34,719) 6,897 21,249 242 (297) 2,247 Dec. 31, 2012 In thousand EGP 12,800 (10,376) 1,670 (67) 179 8,598 138 annual report 2013 annual report 2013 139 Financial StatementS: conSolidated Financial StatementS: conSolidated 140 annual RepoRt 2013 annual RepoRt 2013 141 Financial StatementS: conSolidated Financial StatementS: conSolidated commercial international Bank (egypt) S.a.e Consolidated balance sheet on December 31, 2013 commercial international Bank (egypt) S.a.e Consolidated income statement for the year ended on December 31, 2013 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 Brokerage clients - debit balances Reconciliation accounts- debit balances Investment property Other assets Intangible Assets Deferred tax Property, plant and equipment Total assets Liabilities and equity Liabilities Due to banks Due to customers Brokerage clients - 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 (losses) Total equity Net profit for the year after tax Total equity and net profit for year Minority interest Total minority interest, equity and net profit for year Total liabilities, equity and minority interest Contingent liabilities and commitments Letters of credit, guarantees and other commitments The accompanying notes are an integral part of these financial statements. Notes Dec. 31, 2013 EGP Dec. 31, 2012 EGP 15 16 17 18 19 20 21 22 22 23 24 25 40 33 26 27 28 21 30 29 31 32 32 4,804,974,237 9,003,950,890 23,665,428,816 2,286,484,581 132,422,732 41,733,251,712 103,085,538 23,378,104,482 4,197,176,655 192,752,878 270,811,253 28,778,971 9,695,686 2,892,342,882 - 83,557,219 969,176,894 113,751,995,426 1,373,410,040 96,845,683,408 167,378,879 - 114,878,583 2,656,665,468 132,153,227 454,699,000 101,744,868,605 9,002,435,690 307,060,175 190,260,457 (546,531,497) 8,953,224,825 3,006,487,540 11,959,712,365 47,414,456 12,007,126,821 113,751,995,426 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 71,450,183 683,455,846 93,956,543,615 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 (568,853,097) 8,538,347,355 2,226,180,503 10,764,527,858 47,519,931 10,812,047,789 93,956,543,615 37 16,182,439,160 14,897,739,005 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 fee and commission income 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 Profit before income tax Income tax expense Deferred tax Net profit for the year Minority interest Bank shareholders Earning per share Basic Diluted Notes 6 7 8 9 22 10 11 12 13 33 & 13 14 Dec. 31, 2013 EGP 9,520,697,141 (4,466,949,161) 5,053,747,980 1,436,107,685 (128,827,179) 1,307,280,506 22,609,614 767,392,333 (28,672,126) - (1,850,944,036) (162,330,554) (915,581,874) (33,422,415) 16,402,285 4,176,481,713 (1,182,253,358) 12,148,228 3,006,376,583 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 (887,265,476) 33,338,781 2,226,990,473 (110,957) 3,006,487,540 809,970 2,226,180,503 2.67 2.63 2.34 2.31 Hisham Ezz El-Arab Chairman and Managing Director 142 annual RepoRt 2013 annual RepoRt 2013 143 Financial StatementS: conSolidated Financial StatementS: conSolidated commercial international Bank (egypt) S.a.e Consolidated cash flow for the year ended on December 31, 2013 (Cont.) 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, 2013 EGP Dec. 31, 2012 EGP 4,804,974,237 9,003,950,890 23,665,428,816 (3,224,658,841) (5,148,331,396) (17,212,737,030) 11,888,626,676 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 commercial international Bank (egypt) S.a.e Consolidated cash flow for the year ended on December 31, 2013 Cash flow from operating activities Profit before income 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 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 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 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 during the year Beginning balance of cash and cash equivalent Cash and cash equivalent at the end of the year Dec. 31, 2013 EGP Dec. 31, 2012 EGP 4,176,481,713 3,080,917,168 206,979,088 915,581,874 132,957,495 11,861,371 33,422,415 - (124,230,792) (6,136,494) (10,383,612) (141,521) 16,778,256 (740,692) (4,362,940) 89,181,563 (20,026,945) - 5,417,220,779 (642,434,022) (9,149,658,764) (783,020,450) 30,153,546 (904,074,806) (544,594,696) (341,452,676) 18,116,561,920 (543,778,286) 10,654,922,545 (7,527,299) (529,367,091) 18,611,305 - (7,463,491,687) 4,523,701,229 700,000 (3,457,373,543) 51,657,989 (1,055,843,162) 29,348,380 (974,836,793) 6,222,712,209 5,665,914,467 11,888,626,676 168,382,905 609,971,077 51,872,777 (86,525,026) 82,990,084 10,426,511 (60,242,239) 8,033,536 (13,886,192) (531,054) 7,230,941 (2,387,583) (519,013) 79,068,829 - (371,000) 3,934,431,721 521,695,379 758,289,224 (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) (18,838,138) (806,206,518) 37,712,420 (787,332,236) (2,541,602,668) 8,207,517,133 5,665,914,465 144 annual RepoRt 2013 annual RepoRt 2013 145 Financial StatementS: conSolidated Financial StatementS: conSolidated P G E l a t o T y t i r o n i M t s e r e t n I l a t o T e e y o l p m e r o f e v r e s e R s r e d l o h e r a h S k c o t s y t i u q E n a l p p i h s r e n w o t fi o r p t e N r a e y e h t f o s k s i r e v r e s e r g n i k n a B , 0 8 3 8 4 3 9 2 , - - , 8 5 8 7 2 5 4 6 7 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 , . S F A . r o F e v r e s e R . ff i d s t n e m t s e v n i n o i t a u l a v e r , 4 9 7 4 6 3 3 5 1 , - - , 0 8 3 8 4 3 9 2 , , 9 8 7 7 4 0 2 1 8 0 1 , , , ) 2 6 1 3 4 8 5 5 0 1 ( , , , 3 8 5 6 7 3 6 0 0 3 , , - - - - ) 7 5 9 0 1 1 ( , , 1 3 9 9 1 5 7 4 , - - , ) 2 6 1 3 4 8 5 5 0 1 ( , , , 0 4 5 7 8 4 6 0 0 3 , , - - - ) 3 3 5 0 4 1 ( , 2 8 4 5 , ) 5 1 0 6 4 1 ( , - , ) 9 9 7 3 4 8 3 7 8 ( , , 3 6 5 1 8 1 9 8 , - - - - , ) 9 9 7 3 4 8 3 7 8 ( , , 3 6 5 1 8 1 9 8 , - - - - - - - , ) 7 2 2 2 8 6 3 6 ( , , 3 6 5 1 8 1 9 8 , - - - , ) 2 1 4 2 4 8 , 5 2 3 , 1 ( , ) 4 9 5 9 6 4 , 3 2 ( , 0 4 5 7 8 4 , 6 0 0 , 3 , ) 3 8 1 1 4 8 , 4 5 0 , 1 ( - - - - - - - - - - - - - - - ) 9 9 7 , 3 4 8 , 3 7 8 ( , 6 7 1 6 2 7 , 1 0 1 ) 6 7 1 , 6 2 7 , 1 0 1 ( - - - - - - - - - - - ) 0 9 3 , 6 2 8 , 2 9 ( - - - - - 4 9 5 , 9 6 4 , 3 2 ) 9 7 9 , 1 0 0 , 1 ( ) 5 1 0 , 6 4 1 ( - - - - - - - 0 9 3 , 6 2 8 , 2 9 - - - - - - - - , 1 2 8 6 2 1 7 0 0 2 1 , , , 6 5 4 4 1 4 7 4 , , 4 6 3 2 1 7 9 5 9 1 1 , , , 7 5 4 0 6 2 0 9 1 , , 6 1 7 3 1 2 8 0 1 3 , , , 6 5 7 0 9 9 1 , , ) 5 0 0 9 7 4 0 2 7 ( , , 9 5 7 6 6 3 7 2 , , ) 7 9 4 1 3 5 6 4 5 ( , , 8 6 5 0 9 0 6 0 4 , , 1 2 9 4 6 3 0 9 4 , - - - - - - - - - , 0 9 6 5 3 4 2 0 0 9 , , e c n a l a b g n i n n i g e B 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 i a t e r d i a p d n e d i v i D ) s e s s o l ( r a e y e h t f o t fi o r p t e N l a i c e p s m o r f r e f s n a r T e h t g n i r u d e g n a h C e v r e s e r l a i c n a n fi S F A f o e u l a v r i a f t a e g n a h c t e N d o i r e p t n e m t s e v n i o t ) m o r f ( d e r r e f s n a r T e v r e s e r k s i r k n a b r o f e v r e s e R k c o t s s e e y o p m e l i n a l p p h s r e n w o ) P O S E ( d n e e h t t a e c n a l a B r a e y e h t f o - 3 8 5 , 7 8 3 , 2 - - , 6 6 5 5 0 8 7 1 1 , , ) 7 9 0 3 5 8 8 6 5 ( , 0 9 8 , 0 2 1 , 7 7 2 , 1 6 6 1 , 6 1 0 , 0 1 1 , 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 , , ) 0 0 9 , 1 1 8 , 0 0 0 , 3 ( - 0 8 2 , 0 6 1 , 0 3 0 , 3 l a i c e p S e v r e s e r d e n i a t e R s g n i 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 3 1 0 2 , 1 3 . c e D 3 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 ’ l s r e d 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 l a t o T P G E y t i r o n i M t s e r e t n I - e r a h S l a t o T e e y o l p m e r o f e v r e s e R y t i u q E s r e d l o h n a l p k c o t s p i h s r e n w o f o t fi o r p t e N g n i k n a B r a e y e h t e v r e s e r s k s i r d e d n e r a e y e h t r o f y t i u q e ’ l s r e d 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 . S F A . r o F e v r e s e R . ff i d s t n e m t s e v n i n o i t a u l a v e r l a i c e p S e v r e s e r d e n i a t e R s g n i n r a e ) s e s s o l ( k n a b r o f e l b i g n a t n I e u l a v s t e s s a n o i t i s i u q c a e r o f e b e r a h s 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 . 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 , 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 , , 9 3 0 5 7 4 8 5 7 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 , 6 4 5 6 5 3 6 4 , - - , 0 2 4 2 1 7 7 3 , , ) 8 1 5 6 0 2 6 0 8 ( , , 3 0 5 0 8 1 6 2 2 2 , , - - - , ) 1 9 6 6 0 9 7 5 ( , , 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 ( , 4 1 4 , 3 5 3 ) 4 1 4 3 5 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 ( , - - - - - - - - - ) 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 , - - - - - - - - - 9 2 8 , 8 6 0 , 9 7 - - - - 7 8 6 , 2 7 9 , 7 7 1 ) 7 8 6 , 2 7 9 , 7 7 1 ( , 9 8 7 7 4 0 2 1 8 0 1 , , , 1 3 9 9 1 5 7 4 , , 8 5 8 7 2 5 4 6 7 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 , - - - - - - - - - - 7 5 6 , 8 0 7 , 6 7 8 - 7 4 7 , 6 1 7 , 2 - - - - - ) 3 5 7 , 9 0 1 , 4 3 1 ( - ) 0 2 9 , 5 0 1 , 5 1 ( ) 6 9 4 , 2 4 8 , 0 7 ( 9 7 9 , 1 0 0 , 1 - - - - - - - - - ) 5 0 1 , 0 6 2 , 8 5 ( , 4 9 7 4 6 3 3 5 1 , , 6 6 5 5 0 8 7 1 1 , , ) 7 9 0 3 5 8 8 6 5 ( , - - - - - - - - - - - ) 1 2 4 , 4 9 7 , 2 0 3 ( 7 8 1 , 9 8 6 , 4 9 7 7 6 5 , 6 0 3 , 7 8 - - - - - - 5 2 2 , 3 4 1 , 8 2 9 2 , 7 9 6 , 1 6 - - - - - - - - - - - - - - - - - - - - - - 0 2 4 , 2 1 7 , 7 3 , 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 , , e c n a l a b g n i n n i g e B 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 i a t e r d i a p d n e d i v i D ) s e s s o l ( r a e y e h t f o t fi o r p t e N l a i c e p s m o r f r e f s n a r T e v r e s e r - n a n fi m o r f n o i t i d d A e h t g n i r u d e g n a h C d o i r e p t n e m t s e v n i l a i c 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 - r e n w o k c o t s s e e ) P O S E ( n a l p p h s i l - y o p m e r o f e v r e s e R - n a t n I f o t n e m e l t t e S e u l a v s t e s s a e l b i g e r a h s k n a b r o f n o i t i s i u q c a e r o f e b d n e e h t t a e c n a l a B n o i t a u l a v e r r a e y e h t f o 146 annual RepoRt 2013 annual RepoRt 2013 147 Financial StatementS: conSolidated Financial StatementS: conSolidated Notes to the consolidated financial statements for the year ended on December 31, 2013 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 125 branches, and 27 units employing 5193 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 Egyp- tian 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, 2013 the Bank directly owns 54,988,500 shares representing 99.98% of CI Capital Holding Company’s capital and on December 31, 2013 CI Capital Holding Co. Directly owns the following shares in its subsidiaries: Company name CIBC Co. CI Assets Management CI Investment Banking Co. Dynamic Brokerage Co. No. of shares 579,570 478,577 2,481,578 3,393,500 Ownership% 96.60 95.72 99.26 99.97 Indirect Share% 96.58 95.70 99.24 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 issued 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. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revalu- ation of trading, financial assets and liabilities held at fair value through profit or loss, available for sale and all derivatives contracts. 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 consoli- dated 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 activities. 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 voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are consid- ered 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, gen- erally 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 identifiable 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: • 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 recognized 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. 148 annual RepoRt 2013 annual RepoRt 2013 149 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 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 unless 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 subsequent- ly measured at fair value. Loans and receivables and held-to-maturity investments are subsequently measured at am- ortized 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 cumula- tive 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 in- terest 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 in- clude 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 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 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 recognized unreal- ized 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 rec- ognized 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 invest- ment 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 ob- tained 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. 150 annual RepoRt 2013 annual RepoRt 2013 151 Financial StatementS: conSolidated Financial StatementS: conSolidated Embedded derivatives in other financial instruments, such as conversion option in a convertible bond, are treated as separate 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. 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 commit- ments (fair value hedge). • Hedging of risks relating to future cash flows attributable to a recognized asset or liability or a highly probable forecast 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 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, 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 interest income after the settle- ment 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 transac- tion 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 finan- cial 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 (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. 152 annual RepoRt 2013 annual RepoRt 2013 153 Financial StatementS: conSolidated Financial StatementS: conSolidated • 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 measurable 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, wheth- er significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collec- tively 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 contractual 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 securi- ties, impairment losses previously recognized in profit or 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 impairment 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 Land and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less depreciation 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 mainte- nance 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 val- ues 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. Deprecia- ble 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. 154 annual RepoRt 2013 annual RepoRt 2013 155 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 ac- quired 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. Goodwill is allocated to the cash generating units for the purpose of impairment testing. The cash generating units rep- resented 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 benefits 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 statement 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. 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 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 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 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. 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’. 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. 2.16.2. 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 de- preciated 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. 2.20. 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 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 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 in- crease 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. 156 annual RepoRt 2013 annual RepoRt 2013 157 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 fi- nancial 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 identifies, 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 ex- posures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet financial 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). 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 customers are uses. The investments in those securities and bills are viewed as a way to gain a better credit quality map- ping 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 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. 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 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. 158 annual RepoRt 2013 annual RepoRt 2013 159 Financial StatementS: conSolidated Financial StatementS: conSolidated 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, guaran- tees 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. 3.1.3. Impairment and provisioning policies 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 dif- ferent 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 regula- tion 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 following 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 Loans and advances (%) 87.65 4.93 3.44 3.98 December 31, 2013 Impairment provision (%) 31.49 5.32 19.93 43.26 Loans and advances (%) 90.00 5.89 0.48 3.63 December 31, 2012 Impairment provision (%) 40.85 8.56 2.01 48.58 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 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 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% 0% 1% 1% 2% 2% 3% 5% 20% 50% 100% Internal rating 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 160 annual RepoRt 2013 annual RepoRt 2013 161 Financial StatementS: conSolidated Financial StatementS: conSolidated 3.1.6. Loans and advances Loans and advances are summarized as follows: Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: Impairment provision Unamortized bills discount Unearned interest Net Dec. 31, 2013 EGP Dec. 31, 2012 EGP Loans and advances to customers 40,727,364,380 2,790,527,143 1,773,225,040 45,291,116,563 2,842,840,136 6,634,495 708,390,220 41,733,251,712 Loans and advances to banks 123,630,395 - 30,202,899 153,833,294 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 1,176,571,369 - 31,595,000 1,208,166,369 21,410,562 - - 132,422,732 1,901,222,402 22,277,973 520,994,222 40,698,313,773 29,298,630 - - 1,178,867,739 Impairment provision losses for loans and advances reached EGP 2,864,250,698. During the period the Bank’s total loans and advances increased by 2.47% . 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. 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, 2013 EGP 23,665,428,816 2,096,838,419 153,833,294 (21,410,562) 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 4,910,810,545 24,125,578,810 9,630,556,651 109,231,797 (6,634,495) (2,842,840,136) (708,390,220) 103,085,538 26,899,651,189 192,752,878 94,823,431,284 2,480,059,591 472,350,554 750,766,099 14,959,322,507 18,662,498,751 Dec. 31, 2012 EGP 11,193,466,093 1,181,100,426 1,208,166,369 (29,298,630) 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 24,859,146,103 165,198,634 79,413,552,530 2,276,369,133 1,176,928,870 933,297,936 12,787,512,199 17,174,108,138 The above table represents the Bank Maximum exposure to credit risk on December 31, 2013, 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 44.26% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 30.58%. 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: • 92.60% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 96.04% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 1,803,427,939. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2013. • 95.01% of the investments in debt Instruments are Egyptian sovereign instruments. 162 annual RepoRt 2013 annual RepoRt 2013 163 Financial StatementS: conSolidated Financial StatementS: conSolidated P G E s k n a b o t s r e m o t s u c s e c n a v d a d n a o t s e c n a v d a s n a o l l a t o T d n a s n a o l l a t o T e t a r o p r o C r e h t O s n a o l s n a o l d e t a c i d n y S 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 s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O - - 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 8 7 0 , 7 5 5 , 8 5 4 2 , 8 4 8 , 4 9 5 6 5 , 8 4 5 , 7 4 1 - 8 8 1 , 9 5 9 , 6 1 - - 2 5 3 , 7 8 8 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 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 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 0 5 0 4 9 3 , , 7 3 6 2 2 9 9 , , 8 0 1 0 6 9 2 1 , , 1 5 8 5 7 9 9 3 , , 9 2 4 1 2 8 1 , , 3 5 2 7 7 8 6 , , 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 s k n a b o t s r e m o t s u c s e c n a v d a d n a o t s e c n a v d a s n a o l l a t o T d n a s n a o l l a t o T r e h t O s n a o l s n a o l d e t a c i d n y S s n a o l t c e r i D t f a r d r e v O e t a r o p r o C - - 6 0 0 , 9 6 1 , 1 1 8 5 1 , 8 7 6 , 9 7 0 , 2 7 8 9 , 2 1 7 5 8 2 , 0 6 4 , 9 8 9 3 9 2 , 3 5 2 , 3 5 5 - 4 3 5 , 2 0 5 9 4 0 , 6 4 4 , 5 6 7 6 , 2 8 3 , 6 6 7 6 1 , 3 2 7 , 9 5 4 5 1 6 , 5 4 6 , 1 1 8 5 4 7 , 3 5 4 , 1 6 3 7 9 5 , 6 4 4 , 9 3 4 , 1 2 5 7 , 5 6 7 , 9 6 6 0 1 , 7 4 8 , 6 2 1 6 6 1 , 4 0 2 , 7 7 6 2 7 , 3 5 2 , 1 2 1 1 9 6 , 4 8 8 , 5 2 8 , 8 3 0 9 0 , 9 4 0 , 3 0 1 8 8 0 , 2 4 9 , 5 6 6 , 8 5 2 0 , 2 0 7 , 9 5 5 , 9 1 8 5 8 , 0 9 7 , 2 0 3 , 4 r e h t O s n a o l - - 2 1 7 , 2 3 5 4 9 3 , 0 0 1 , 7 s e g a g t r o M s n a o l l a n o s r e P l a u d i v i d n I - - 7 1 3 , 6 1 5 , 2 8 9 6 , 7 4 5 , 4 4 5 3 7 , 8 1 5 , 4 2 9 4 4 , 3 9 3 , 3 3 4 2 4 , 3 4 8 , 6 6 3 3 7 8 , 5 6 2 , 6 9 9 , 3 , 2 3 7 2 2 4 2 3 1 , , 7 2 4 6 7 2 8 4 4 2 4 , , , 1 1 6 4 6 2 4 0 1 , , 0 8 9 3 9 4 7 9 1 9 , , , 2 8 9 7 4 2 2 7 1 2 2 , , , 2 8 8 7 0 6 6 7 5 4 , , , 6 0 1 3 3 6 7 , , 1 4 7 9 5 3 9 6 3 , , 5 5 7 5 2 7 8 9 0 4 , , , 5 9 2 3 7 2 2 , , 9 9 3 4 9 9 8 , , 8 7 6 4 9 8 3 , , 8 0 7 7 0 0 0 1 , , 5 2 0 4 6 3 4 1 , , 2 3 9 7 1 1 1 5 , , 2 9 7 0 0 7 6 3 7 , , 1 4 5 0 9 5 4 9 0 1 , , , 0 9 7 2 3 2 7 5 7 , , 0 8 5 0 1 7 4 6 1 1 , , s d r a c t i d e r C s t f a r d r e v O 3 1 0 2 , 1 3 . c e D : s e d a r G : 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 s n a o i l g n m r o f r e p - n o N s n a o i l g n m r o f r e P i g n h c t a w r a l u g e R t s i l h c t a W 2 1 0 2 , 1 3 . c e D : s e d a r G l a t o T s n a o i l g n m r o f r e p - n o N i g n h c t a w r a l u g e R t s i l h c t a W l a t o T s n a o i l g n m r o f r e P e t a r o p r o C l a t o T s n a o l d e t a c i d n y S 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 4 6 4 , 7 1 9 , 7 3 6 3 0 , 1 5 6 , 5 4 1 - - 0 6 1 , 7 1 6 , 7 1 4 4 5 , 1 5 9 , 5 6 4 0 3 , 0 0 3 , 0 2 2 9 4 , 9 9 6 , 9 7 9 4 6 , 9 8 3 , 9 6 2 7 4 , 6 1 4 , 7 1 2 4 8 , 0 5 2 , 1 8 0 , 2 2 5 3 , 4 8 8 , 2 2 7 8 8 , 7 4 2 , 9 4 7 3 0 6 , 8 1 1 , 9 0 3 , 1 1 8 6 , 1 0 9 , 8 3 4 , 2 4 3 9 1 8 4 6 2 2 , , , 2 5 3 4 8 8 2 2 , , 1 9 5 6 1 8 2 3 8 , , 9 9 3 8 1 1 9 0 4 1 , , , 2 0 8 7 0 7 5 2 5 , 0 8 5 , 1 4 7 2 3 3 , 9 9 1 0 6 1 , 6 1 2 7 0 7 5 9 , s n a o l l a n o s r e P 1 8 1 , 3 8 3 , 9 3 3 1 , 2 5 8 , 2 0 4 5 , 4 0 7 , 2 l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 1 2 2 , 6 4 6 , 4 2 6 9 , 6 2 1 , 5 1 2 2 2 , 1 1 2 , 1 5 1 5 5 , 9 4 0 , 0 1 2 8 2 , 3 1 9 , 5 4 1 8 3 6 , 3 6 8 , 2 8 2 , 4 5 8 9 3 9 4 1 , , 5 6 4 6 8 6 5 6 1 , , 1 1 4 4 2 1 4 4 3 , e t a r o p r o C l a t o T s n a o l d e t a c i d n y S 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 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 0 3 1 , 7 0 8 , 1 1 9 5 5 , 2 7 5 , 7 5 - 1 5 6 , 1 8 8 , 1 8 8 7 , 4 7 3 , 7 1 8 5 , 0 8 8 , 4 2 2 4 3 , 2 3 4 , 4 3 5 2 , 0 4 6 , 2 3 8 2 3 , 0 1 8 , 0 3 2 6 9 , 3 0 5 , 6 5 3 4 1 , 7 1 2 , 7 1 7 0 7 , 6 8 4 , 9 1 4 , 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 , , 2 1 8 7 0 2 3 9 4 , 6 2 6 , 1 9 5 9 9 , 0 0 7 0 0 4 , 0 1 1 1 2 0 3 0 9 , s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 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 8 0 7 , 6 3 1 , 0 4 6 8 3 , 7 1 1 , 0 1 0 9 8 , 8 4 4 , 1 1 2 7 4 , 1 3 8 , 6 3 1 0 5 3 , 5 0 5 , 0 7 2 , 2 9 1 9 2 2 6 1 , , 5 5 1 6 1 3 5 5 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 3 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 2 1 0 2 , 1 3 . c e D . 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 : 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 . , , , 9 3 9 7 2 4 3 0 8 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 l a t o T s n a o l r e h t O s n a o l d e t a c i d n y S e t a r o p r o C 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 s n a o l l a n o s r e P l a u d i v i d n I s d r a c t i d e r C s t f a r d r e v O 3 1 0 2 , 1 3 . c e D , 9 3 9 7 2 4 3 0 8 1 , , 5 7 6 , 3 7 1 , 3 9 3 1 , 9 2 2 , 2 7 2 3 8 0 , 5 8 0 , 8 2 1 , 1 6 8 6 , 6 6 4 , 2 6 2 9 5 7 , 4 8 3 , 1 3 1 7 , 5 6 0 , 3 1 9 5 9 , 8 1 5 , 2 0 1 5 2 9 , 9 3 9 , 5 0 0 0 , 4 6 5 , 4 1 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 l a t o T s n a o l r e h t O s n a o l d e t a c i d n y S e t a r o p r o C 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 s n a o l l a n o s r e P l a u d i v i d n I 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 , 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 a u d i v i d n I 164 annual RepoRt 2013 annual RepoRt 2013 165 Financial StatementS: conSolidated 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 year Loans and advances to customer Corporate Direct loans Total Dec. 31, 2013 Dec. 31, 2012 2,950,132,000 2,950,132,000 2,924,873,000 2,924,873,000 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: Dec. 31, 2013 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes Trading financial debt instruments - - - - 23,665,428,816 23,665,428,816 - - - 135,464,386 1,961,374,033 2,096,838,419 EGP Total Non-trading financial debt instruments 962,346,780 176,768,467 200,559,029 851,468,992 962,346,780 176,768,467 200,559,029 986,933,378 24,708,507,921 50,335,310,770 26,899,651,189 52,661,918,424 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, 2013 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: - 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 Cairo 23,665,428,816 Alex, Delta and Sinai - 2,096,838,419 153,833,294 (21,410,562) 788,301,456 577,101,742 2,809,768,674 317,339,513 9,563,433 4,037,234,996 18,759,464,871 8,869,001,700 105,176,241 (6,634,495) (2,842,840,136) (553,087,820) 103,085,538 - - - 260,325,730 158,976,345 1,097,553,129 56,881,818 1,278,303 634,425,280 4,753,247,203 761,554,951 4,055,556 - - (153,568,700) - Upper Egypt Total - - - - 23,665,428,816 2,096,838,419 153,833,294 (21,410,562) 125,315,812 29,545,877 274,064,589 8,922,339 - 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 239,150,269 612,866,736 - - - - (1,733,700) - 4,910,810,545 24,125,578,810 9,630,556,651 109,231,797 (6,634,495) (2,842,840,136) (708,390,220) 103,085,538 26,899,651,189 192,752,878 85,960,569,747 - - 7,574,729,615 - 26,899,651,189 - 192,752,878 94,823,431,284 1,288,131,922 t s r o c e s y r t s u d n I . 2 . 8 . 1 . 3 P G E l a t o T l a u d i v i d n I s e i t i v i t c a r e h t O r o t c e s t n e m n r e v o G e d a r t l i a t e r d n a e l a s e l o h W e t a t s e l a e R g n i r u t c a f u n a M l a i c n a n i F s n o i t u t i t s n i . 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 , 4 8 2 1 3 4 3 2 8 4 9 , , , 5 2 5 1 4 1 2 4 3 6 , , , 4 6 8 3 0 2 9 6 9 4 1 , , , 7 5 7 8 1 1 0 4 8 2 5 , , , 5 1 2 8 6 7 8 9 4 , , 8 3 4 5 5 9 0 2 0 2 , , , 6 1 8 8 2 4 5 6 6 3 2 , , , 9 1 4 8 3 8 6 9 0 2 , , , 4 9 2 3 3 8 3 5 1 , , ) 2 6 5 0 1 4 1 2 ( , , 8 9 9 2 4 9 3 7 1 1 , , , 4 6 9 3 2 6 5 6 7 , , 2 9 3 6 8 3 1 8 1 4 , , , 6 3 7 1 4 8 0 1 , , 0 7 6 3 4 1 3 8 3 , , 5 4 5 0 1 8 0 1 9 4 , , , 0 1 8 8 7 5 5 2 1 4 2 , , , 7 9 7 1 3 2 9 0 1 , , ) 5 9 4 4 3 6 6 ( , , 1 5 6 6 5 5 0 3 6 9 , , , ) 6 3 1 0 4 8 2 4 8 2 ( , , , ) 0 2 2 0 9 3 8 0 7 ( , , 8 3 5 5 8 0 3 0 1 , , 9 8 1 1 5 6 9 9 8 6 2 , , , 8 7 8 2 5 7 2 9 1 , - - - - 8 9 9 , 2 4 9 , 3 7 1 , 1 4 6 9 , 3 2 6 , 5 6 7 2 9 3 , 6 8 3 , 1 8 1 , 4 6 3 7 , 1 4 8 , 0 1 0 7 6 , 3 4 1 , 3 8 3 - - - - - - - - ) 5 9 2 , 8 2 3 , 9 3 ( ) 0 4 9 , 8 6 4 , 3 3 1 ( - - - - - - - - - - - - - - - - 6 1 8 , 8 2 4 , 5 6 6 , 3 2 9 1 4 , 8 3 8 , 6 9 0 , 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 2 2 , 6 5 2 , 3 - - ) 3 1 6 , 3 7 7 , 2 8 1 , 1 ( ) 7 4 3 , 7 9 3 , 5 1 ( - - - ) 7 5 4 , 0 0 5 , 7 5 3 ( - - - 9 4 2 , 4 3 1 , 5 9 4 , 5 2 - - - - 0 0 0 , 0 0 0 , 5 1 ) 9 9 3 , 4 1 ( ) 6 9 2 , 7 3 2 , 6 ( - - - - 8 8 2 , 4 2 0 , 5 6 7 , 3 2 2 2 , 2 2 7 , 4 3 - 6 9 8 , 5 8 1 , 6 4 0 , 1 5 4 2 , 4 2 6 , 4 8 7 , 4 1 7 0 , 5 5 5 , 4 3 9 , 1 3 1 2 , 6 9 0 , 8 6 4 0 5 3 , 2 4 6 , 6 0 8 , 0 1 5 8 1 , 6 9 2 , 5 9 0 , 1 9 7 3 , 7 6 4 , 4 7 2 1 3 5 , 2 5 5 , 5 1 2 8 8 4 , 5 4 2 , 3 1 0 , 1 5 1 5 , 4 9 7 , 1 0 3 , 1 - 3 5 9 , 4 7 7 , 4 2 2 , 1 1 ) 1 2 1 , 8 4 3 , 1 8 ( 1 9 7 , 2 1 3 , 3 8 7 - - - 2 7 5 , 5 7 9 , 0 9 ) 6 4 9 , 5 7 4 , 8 3 ( ) 8 6 5 , 0 6 3 , 4 5 4 , 1 ( ) 6 2 4 , 6 2 1 , 2 1 ( ) 9 6 0 , 7 4 5 , 1 1 3 ( - - - ) 5 9 4 , 4 3 6 , 6 ( 4 9 2 , 3 3 8 , 3 5 1 ) 2 6 5 , 0 1 4 , 1 2 ( - m o t s u c o t s e c n a v d a d n a s n a o l s s o r G s k n a b o t s e c n a v d a d n a s n a o l s s o r G n o i s i v o r p t n e m r i a p m I : s s e L s i s y l a n a e l b a t g n w o i l l o f e Th : s t e s s a l a i c n a n fi g n i d a r T 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 n r e v o g s t n e m u r t s n i t b e D - 3 1 0 2 , 1 3 . c e D t n u o c s i d s l l i b d e z i t r o m a n U n o i s i 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 s n a o l d e t a c i d n y S - s n a o l r e h t O - s n a o l l a n o s r e P - s d r a c t i d e r C - : l a u d i v i d n I s 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 - - : e t a r o p r o C s n a o l t c e r i D s t f a r d r e v O - - s r e - - - , 8 4 6 1 6 2 6 3 6 5 1 , , 8 3 5 , 5 8 0 , 3 0 1 s t n e m u r t s n i l a i c n a n fi e v i t a v i r e D 8 7 8 , 2 5 7 , 2 9 1 0 4 9 , 6 1 5 , 4 0 4 1 , , 7 3 8 1 8 9 5 1 5 2 , , d n a y r a i d i s b u s n i s t n e m t s e v n I - : s t n e m t s e v n i l a i c n a n i F s t n e m u r t s n i t b e D - s e t a i c o s s a l a t o T 166 annual RepoRt 2013 annual RepoRt 2013 167 Financial StatementS: conSolidated 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 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 cer- tain ‘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 Se- nior Management. In addition, monthly limits compliance is reported to the ALCO. The Bank has developed the internal model to calculate VaR and is not yet approved by the Central Bank as the regulator is currently applying and requiring banks to calculate the Market Risk Capital Requirements according to Basel II Stan- dardized Approach. 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 re- viewed 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 89,669 75,596,340 63,975,773 11,620,567 124,134 606,374 305,229 75,622,331 High 539,916 101,789,562 84,950,011 16,839,550 203,290 1,124,626 491,484 101,827,317 Dec. 31, 2013 Low 3,370 55,515,213 48,925,587 6,589,626 85,632 35,182 210,658 55,529,386 Medium 40,138 33,579,414 29,092,222 4,487,192 278,907 - 287,242 33,555,660 High 175,325 82,099,623 72,429,892 9,669,731 368,507 - 465,524 82,161,567 Foreign exchange risk Interest rate risk For non trading purposes For trading purposes Equities risk Investment fund Total VaR 168 annual RepoRt 2013 EGP Dec. 31, 2012 Low 4,756 3,045,986 919,482 2,126,504 149,646 - 169,518 3,139,829 Trading portfolio VaR by risk type Foreign exchange risk Interest rate risk - For trading purposes Equities risk Funds managed by others risk Investment fund Total VaR Medium 89,669 Dec. 31, 2013 High 539,916 Low 3,370 Medium 40,138 Dec. 31, 201 High 175,325 Low 4,756 11,620,567 124,134 606,374 305,229 11,654,395 16,839,550 203,290 1,124,626 491,484 16,875,949 6,589,626 85,632 35,182 210,658 6,621,300 4,487,192 278,907 - 287,242 4,553,070 9,669,731 368,507 - 465,524 9,721,129 2,126,504 149,646 - 169,518 2,218,253 Non trading portfolio VaR by risk type Medium Dec. 31, 2013 High Low Medium Dec. 31, 2012 High Low Interest rate risk For non trading purposes Total VaR 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. 72,429,892 72,429,892 29,092,222 29,092,222 63,975,773 63,975,773 84,950,011 84,950,011 48,925,587 48,925,587 919,482 919,482 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 monitored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk and Bank’s fi- nancial instruments at carrying amounts, categorized by currency. Dec. 31, 2013 Financial assets Cash and balances with Cen- tral Bank Due from banks Treasury bills and other gov- ernmental notes Trading financial assets Gross loans and advances to banks Gross loans and advances 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 Equivalent EGP Total Other 3,943,554,418 685,783,608 97,955,512 21,155,801 56,524,898 4,804,974,237 160,035,421 5,569,959,173 2,823,809,212 386,613,624 63,533,460 9,003,950,890 20,729,091,642 3,832,188,780 181,468,677 2,191,009,287 86,593,728 - 153,833,294 - - - - - - 24,742,749,099 8,881,566 2,286,484,581 - 153,833,294 25,863,179,074 18,702,088,432 645,731,167 46,134,574 33,983,316 45,291,116,563 35,951,722 65,733,199 1,400,617 - - 103,085,538 22,145,853,264 4,197,176,655 151,872,008 1,232,251,218 - 40,880,870 79,417,723,491 30,369,312,302 - - - 3,750,365,185 - - - 453,903,999 - - - 162,923,240 23,378,104,482 4,197,176,655 192,752,878 114,154,228,217 319,951,905 64,618,227,605 1,031,898,608 27,965,508,241 20,152,926 3,585,282,145 1,399,569 456,884,824 7,032 219,780,593 1,373,410,040 96,845,683,408 31,266,232 81,503,495 2,108,856 - - 114,878,583 132,153,227 65,101,598,969 - 29,078,910,344 - 3,607,543,927 - 458,284,393 - 219,787,625 132,153,227 98,466,125,258 14,316,124,522 1,290,401,958 142,821,258 (4,380,394) (56,864,385) 15,688,102,959 annual RepoRt 2013 169 Financial StatementS: conSolidated 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, 2013 Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total Financial assets Cash and balances with Central Bank Due from banks Treasury bills and other governmental notes* Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivatives financial instruments (including IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in associates Total financial assets Financial liabilities Due to banks Due to customers Derivatives financial instruments (including IRS notional amount) - - - 4,587,696,691 3,966,455,633 286,026,802 3,527,609,980 2,996,487,000 18,218,652,119 - - - - - - 4,804,974,237 4,804,974,237 163,771,764 9,003,950,890 - 24,742,749,099 184,878,423 - - 1,672,005,178 375,962,584 53,638,396 2,286,484,581 4,342,350 116,417,222 2,870,824 30,202,898 - 29,728,939,030 6,465,364,854 5,189,602,857 3,111,717,350 795,492,472 1,389,566,463 234,619,676 747,844,799 2,185,915,919 332,706,143 - - - 153,833,294 45,291,116,563 4,890,653,000 393,248,050 663,515,064 - - - - 40,086,548,001 14,172,592,435 2,815,541,814 197,841 - 27,260,737,056 13,567,604,319 4,196,978,814 - 24,764,424,478 5,351,673,079 - - 6,855,834,278 586,522,156 - 192,752,878 23,378,104,482 4,197,176,655 192,752,878 5,801,659,431 118,941,795,679 347,374,047 32,188,336,580 - 14,485,215,174 - 11,106,121,075 - 22,458,172,731 - 87,337,000 1,026,035,993 16,520,500,848 1,373,410,040 96,845,683,408 2,315,824,671 1,770,211,105 129,416,652 66,856,880 603,658,202 69,818,235 4,955,785,745 5,314,000 Long term loans Total financial liabilities 34,879,626,525 16,260,740,279 28,091,227 49,299,000 11,284,836,727 49,449,000 22,574,478,611 - 690,995,202 132,153,227 17,616,355,076 103,307,032,420 - Total interest re-pricing gap * After deducting Repos. 5,206,921,476 (2,088,147,844) 15,975,900,329 2,189,945,867 6,164,839,076 (11,814,695,645) 15,634,763,259 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 moni- tored 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 regula- tions. • 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. Total EGP Three months to one year One to three months One year to five years Over five years Up to 1 month Dec. 31, 2013 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (con- tractual and non contractual maturity dates) Dec. 31, 2012 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contractual and non contractual maturity dates) Total financial assets (con- tractual and non contractual maturity dates) 1,373,410,040 14,262,658,315 28,091,227 - - - - 14,355,336,031 5,314,000 31,020,534,031 49,299,000 36,171,294,031 49,449,000 1,035,861,000 - 1,373,410,040 96,845,683,408 132,153,227 15,664,159,582 14,360,650,031 31,069,833,031 36,220,743,031 1,035,861,000 98,351,246,675 16,226,910,823 11,735,431,147 29,841,046,583 41,734,405,803 14,830,199,429 114,367,993,785 Up to 1month One to three months Three months to one year One year to five years Over five years Total EGP 1,714,862,716 11,421,205,560 - - - - 9,736,841,059 - 20,452,119,693 59,508,571 35,809,584,757 20,986,667 - 1,309,370,420 - 1,714,862,716 78,729,121,488 80,495,238 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 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 extend- ed. 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. 170 annual RepoRt 2013 annual RepoRt 2013 171 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 Dec. 31, 2013 Liabilities Derivatives financial instruments Foreign exchange derivatives Interest rate derivatives Total Off balance sheet items Dec. 31, 2013 Letters of credit, guarantees and other commitments Total Up to one month One to three months Three months to one year One year to five years Over five years Total 28,748,121 - 28,748,121 4,157,915 - 4,157,915 12,154,312 1,707,852 13,862,164 - 9,904,184 9,904,184 - 58,206,199 58,206,199 45,060,348 69,818,235 114,878,583 Up to 1 year 1-5 years Over 5 years Total 10,428,458,630 5,449,818,970 304,161,560 16,182,439,160 10,428,458,630 5,449,818,970 304,161,560 16,182,439,160 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. 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 Book value Fair value Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 9,003,950,890 153,833,294 8,047,820,388 1,208,166,369 9,003,950,890 153,833,294 8,047,820,388 1,208,166,369 6,514,938,760 38,776,177,803 5,981,587,224 37,161,221,146 6,514,938,760 38,776,177,803 5,981,587,224 37,161,221,146 4,197,176,655 58,646,077,402 4,215,787,960 56,614,583,086 4,197,176,655 58,646,077,402 4,215,787,960 56,614,583,086 1,373,410,040 96,845,683,408 132,153,227 98,351,246,675 1,714,862,716 78,729,121,488 80,495,238 80,524,479,442 1,373,410,040 96,845,683,408 132,153,227 98,351,246,675 1,714,862,716 78,729,121,488 80,495,238 80,524,479,442 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 using 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 othe parties dealing with the bank. 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 tier 1. 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. 172 annual RepoRt 2013 annual RepoRt 2013 173 Financial StatementS: conSolidated Financial StatementS: conSolidated The tables below summarizes the compositions of teir 1, teir 2 and the capital adequacy ratio . According to Basel II : Tier 1 capital Share capital (net of the treasury shares) Reserves Retained Earnings (Losses) 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, 2013 In thousands EGP Dec. 31, 2012 In thousands EGP Restated 9,002,436 1,001,869 (546,531) (726,847) 8,730,927 1,123 21,510 742,938 765,571 9,496,498 59,514,861 2,429,715 8,135,709 70,080,285 13.55% 5,972,275 3,909,853 (510,946) (4,701) 9,366,481 41,821 147,873 709,302 898,996 10,265,477 56,891,117 1,994,962 6,478,218 65,364,297 15.71% 4.3. Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation tech- niques. 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 prac- tical, 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 * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. • Investment banking – incorporating financial instruments Trading, structured financing, Corporate leasing,and merger 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 ex- pectations of future events that are believed to be reasonable under the circumstances and available information. 4.1. impairment losses on loans and advances 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 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 economic 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 sched- uling its future cash flows. The methodology and assumptions used for estimating both the amount and timing 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% 4.2. impairment of available for-sale equity investments 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. 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. Dec. 31, 2013 Corporate banking SME’s Investment banking Retail banking EGP Total Revenue according to busi- ness segment Expenses according to busi- ness segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2012 Revenue according to busi- ness segment Expenses according to busi- ness segment Profit before tax Tax Profit for the year Total assets 4,433,071,220 698,163,082 291,097,803 1,666,363,119 7,088,695,224 (1,626,606,779) (316,973,281) (90,547,864) (877,974,630) (2,912,102,554) 2,806,464,441 (802,003,135) 2,004,461,306 99,625,963,987 381,189,801 (119,972,068) 261,217,733 2,601,325,392 200,549,939 - 200,549,939 788,388,489 (248,129,927) 540,258,562 1,275,407,237 10,249,298,810 4,176,592,670 (1,170,105,130) 3,006,487,540 113,751,995,426 Corporate banking SME’s Investment banking Retail banking Total 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 80,503,587,353 422,873,981 (107,289,406) 315,584,575 2,626,503,517 (298,687,476) - (298,687,476) 1,451,894,947 751,203,355 (190,591,442) 560,611,913 9,374,557,798 3,080,107,198 (853,926,695) 2,226,180,503 93,956,543,615 174 annual RepoRt 2013 annual RepoRt 2013 175 Financial StatementS: conSolidated Financial StatementS: conSolidated 5.2. By geographical segment Dec. 31, 2013 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 201 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 6,082,887,675 (2,169,461,195) 3,913,426,480 (1,084,005,294) 2,829,421,186 104,133,954,438 Cairo 4,361,404,048 (1,834,683,705) 2,526,720,343 (699,773,113) 1,826,947,230 83,616,308,538 Alex, Delta & Sinai 907,098,338 (654,444,883) 252,653,455 (82,660,394) 169,993,061 8,163,839,552 Alex, Delta & Sinai 887,705,321 (399,008,070) 488,697,251 (136,133,396) 352,563,855 9,048,557,087 Upper Egypt 98,709,211 (88,196,476) 10,512,735 (3,439,442) 7,073,293 1,454,201,436 UpperEgypt 148,693,225 (84,003,621) 64,689,604 (18,020,186) 46,669,418 1,291,677,989 EGP Total 7,088,695,224 (2,912,102,554) 4,176,592,670 (1,170,105,130) 3,006,487,540 113,751,995,426 Total 5,397,802,594 (2,317,695,396) 3,080,107,198 (853,926,695) 2,226,180,503 93,956,543,615 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 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 201,284,007 3,915,076,745 4,116,360,752 5,234,074,523 27,135,663 132,463,454 3,523,926,754 3,656,390,208 4,021,144,937 17,423,270 143,080,215 164,324,240 45,988 9,520,697,141 91,504,193 4,345,497,789 4,437,001,982 25,580,494 4,366,685 4,466,949,161 5,053,747,980 29,184 7,859,311,839 181,169,862 3,449,759,729 3,630,929,591 310,995,070 3,760,975 3,945,685,636 3,913,626,203 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 761,430,244 166,688,052 507,989,389 1,436,107,685 128,827,179 128,827,179 1,307,280,506 470,471,721 133,589,290 429,567,003 1,033,628,014 107,365,742 107,365,742 926,262,272 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 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 Dec. 31, 2013 EGP - 16,915,364 5,694,250 22,609,614 Dec. 31, 2012 EGP 578,098 28,015,018 4,517,707 33,110,823 Dec. 31, 2013 EGP 442,009,259 4,293,215 (20,513,102) (1,097,874) 4,095,705 332,508,008 6,097,122 767,392,333 Dec. 31, 2012 EGP 249,583,425 3,010,519 6,669,087 212,030 (2,963,355) 311,074,819 6,988,651 574,575,176 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 858,673,775 34,795,512 32,515,510 924,959,239 1,850,944,036 761,672,607 30,542,233 30,941,993 736,244,948 1,559,401,781 Dec. 31, 2013 EGP 89,858,233 740,692 (133,065,974) (119,863,505) (162,330,554) Dec. 31, 2012 EGP 36,631,170 2,387,583 (47,537,825) (94,788,020) (103,307,092) 176 annual RepoRt 2013 annual RepoRt 2013 177 Financial StatementS: conSolidated Financial StatementS: conSolidated 12. Impairment (charge) release for credit losses 16. Due from banks Loans and advances to customers 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 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 178 annual RepoRt 2013 Dec. 31, 2013 EGP (915,581,874) (915,581,874) Dec. 31, 2012 EGP (609,971,077) (609,971,077) Dec. 31, 2013 EGP Dec. 31, 2012 EGP 4,176,481,713 - 4,176,481,713 25.00% 1,044,120,427 55,869,494 (71,693,816) 140,691,487 1,117,537 1,170,105,129 28.02% Dec. 31, 2013 EGP 2,716,110,919 (40,741,664) (271,611,092) 2,403,758,163 900,243,569 2.67 914,378,753 2.63 3,080,917,168 (65,137,014) 3,015,780,155 24.98% 753,445,039 23,146,604 (82,115,715) 88,495,041 5,818,873 788,789,842 26.16% Dec. 31, 2012 EGP 2,379,297,994 (35,689,470) (237,929,799) 2,105,678,724 900,243,569 2.34 911,239,406 2.31 Dec. 31, 2013 EGP 1,683,360,064 3,121,614,173 4,804,974,237 4,804,974,237 Dec. 31, 2012 EGP 1,744,700,680 3,649,273,444 5,393,974,124 5,393,974,124 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 18. Trading financial assets Debt instruments - Governmental bonds - Other debt instruments Total Equity instruments - Companies 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 Dec. 31, 2013 EGP 630,960,653 8,372,990,237 9,003,950,890 3,225,196,041 757,539,078 5,021,215,771 9,003,950,890 163,771,764 8,840,179,126 9,003,950,890 9,003,950,890 9,003,950,890 Dec. 31, 2012 EGP 317,264,173 7,730,556,215 8,047,820,388 3,093,850,399 590,696,679 4,363,273,310 8,047,820,388 152,732,954 7,895,087,434 8,047,820,388 8,047,820,388 8,047,820,388 Dec. 31, 2013 EGP 6,534,713,622 7,197,085,800 11,010,949,677 (1,077,320,283) 23,665,428,816 - - 23,665,428,816 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, 2013 EGP Dec. 31, 2012 EGP 2,047,967,761 48,870,658 2,096,838,419 43,071,616 146,574,546 189,646,162 2,286,484,581 1,138,056,688 43,043,738 1,181,100,426 15,877,741 318,347,334 334,225,076 1,515,325,502 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 153,833,294 1,208,166,369 (21,410,562) 132,422,732 102,219,834 30,202,898 132,422,732 (29,298,630) 1,178,867,739 1,172,317,036 6,550,703 1,178,867,739 annual RepoRt 2013 179 Financial StatementS: conSolidated Financial StatementS: conSolidated analysis for impairment provision of loans and advances to banks Bgining balance Charge (release) during the year Exchange revaluation difference Ending balance 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, 2013 EGP 29,298,630 (9,224,786) 1,336,718 21,410,562 Dec. 31, 2012 EGP 37,950,503 (11,450,369) 2,798,496 29,298,630 Dec. 31, 2013 EGP Dec. 31, 2012 EGP 1,173,942,998 765,623,964 4,181,386,392 383,143,670 10,841,736 6,514,938,760 4,910,810,545 24,125,578,810 9,630,556,651 109,231,797 38,776,177,803 45,291,116,563 (6,634,495) (2,842,840,136) (708,390,220) 41,733,251,712 16,679,527,211 25,053,724,501 41,733,251,712 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 analysis for impairment provision of loans and advances to customers Dec. 31, 2013 Beginning balance Charged (Released) during the year Write off during the year Recoveries from written off debts Ending balance Overdraft Credit cards 10,753,047 270,365 (2,755,707) 964,713 9,232,418 8,328,331 2,567,525 (7,254,445) 4,749,763 8,391,174 Individual Personal loans 74,435,554 8,225,083 - - 82,660,637 Real estate loans 13,376,859 407,070 - - 13,783,929 Other loans Total 1,090,931 2,117,699 - - 3,208,630 107,984,722 13,587,742 (10,010,152) 5,714,476 117,276,788 Dec. 31, 2013 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 209,551,228 118,563,373 - - 6,088,062 1,242,015,939 663,119,750 (6,811,042) 13,906,294 41,099,887 334,202,663 1,953,330,828 Corporate Syndicated loans 336,568,605 129,670,518 (81,425,110) 31,417,986 16,830,672 433,062,671 Other loans Total 5,101,908 (134,722) - - - 1,793,237,680 911,218,919 (88,236,152) 45,324,280 64,018,621 4,967,186 2,725,563,348 Dec. 31, 2012 Beginning balance Charged (Released) during the year Write off during the year Recoveries from written off debts Ending balance Overdraft Credit cards 20,377,614 (9,624,567) - - 10,753,047 42,290,218 (8,977,018) (29,454,339) 4,469,470 8,328,331 Individual Personal loans 76,502,471 68,706 (2,135,623) - 74,435,554 Real estate loans 11,876,297 1,500,562 - - 13,376,859 Other loans Total 1,593,932 (503,001) - - 1,090,931 152,640,532 (17,535,318) (31,589,962) 4,469,470 107,984,722 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 167,655,394 39,209,960 - - 2,685,874 790,797,773 420,954,828 - 14,726,449 15,536,889 209,551,228 1,242,015,939 Corporate Syndicated loans 306,628,666 178,455,887 (154,721,287) - 6,205,339 336,568,605 Other loans Total 1,686,738 336,089 - - 3,079,081 5,101,908 1,266,768,571 638,956,764 (154,721,287) 14,726,449 27,507,183 1,793,237,680 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 ful- fill 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. 180 annual RepoRt 2013 annual RepoRt 2013 181 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 deriva- tives 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 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) Dec. 31, 2013 Dec. 31, 2012 Notional amount Assets Liabilities Notional amount Assets Liabilities 1,250,176,084 13,375,501 18,954,700 1,996,990,255 16,812,998 959,570 1,990,431,463 38,331,489 22,576,221 13,794,115 49,745,837 12,311,533 13,794,115 45,060,348 1,258,600,443 770,698,823 9,781,221 7,723,601 34,317,820 3,612,239 7,723,601 12,295,410 389,501,781 0 6,679,325 6,679,325 - - 3,744,177 3,744,177 - - 859,324,209 12,149,920 12,630,731 12,630,731 134,026 134,026 8,739,696 8,739,696 134,026 134,026 56,425,162 48,804,525 47,082,577 21,169,132 603,658,200 3,847,747,181 - 57,476,340 549,753,000 - 97,708,858 46,660,376 46,660,376 8,597,718 66,074,058 4,293,389,812 90,377,184 90,377,184 221,270 97,930,128 103,085,538 114,878,583 137,459,761 119,099,260 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 57,476,340 at the December 31, 2013 against EGP 97,708,858 at the December 31, 2012, Resulting in net gain form hedg- ing instruments at the December 31, 2013 EGP 40,232,518 against net loss EGP 19,194,046 at the December 31, 2012. Losses arises from the hedged items at the December 31, 2013 reached EGP 48,856,503 against profits arises EGP 14,842,228 at the December 31, 2012. The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate customers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 38,062,657 at the end of December, 2013 against EGP 90,155,914 at the December 31, 2012, Resulting in net losses form hedging instruments at the December 31, 2013 EGP 52,093,256 against net profit EGP 32,507,675 at the December 31, 2012. Gains arises from the hedged items at the 31 December , 2013 reached EGP 60,223,650 against losses EGP 27,731,731 at the 31 December , 2012. 22. Financial investments Available for sale - Listed debt instruments with fair value - Listed equity instruments with fair value - 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 Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance Beginning balance Addition Deduction (selling - redemptions) Exchange revaluation differences for foreign financial assets Profit (losses) from fair value difference Impairment (charges) release Ending Balance Available for sale financial investments 15,421,546,277 10,169,757,165 (5,342,793,206) 60,242,239 895,941,363 (27,266,242) 21,177,427,597 21,177,427,597 7,463,491,687 (4,519,338,289) 124,230,792 (834,813,374) (32,893,931) 23,378,104,482 22.1. profit (losses) from financial investments Profit (Loss) from selling available for sale financial instruments Impairment release (charges) of available for sale equity instruments Impairment release (charges) of available for sale debt instruments Profit (Loss) from selling held to maturity debt investments Total Dec. 31, 2013 EGP Dec. 31, 2012 EGP 22,556,422,828 86,327,447 735,354,207 23,378,104,482 4,169,664,155 27,512,500 4,197,176,655 27,575,281,137 25,972,996,185 1,602,284,952 27,575,281,137 25,801,806,120 1,097,845,069 26,899,651,189 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 25,393,215,557 23,771,302,303 1,621,913,254 25,393,215,557 23,621,268,407 1,237,877,696 24,859,146,103 Held to maturity financial investments 39,159,519 4,176,628,441 - Total EGP 15,460,705,796 14,346,385,606 (5,342,793,206) - 60,242,239 - - 4,215,787,960 4,215,787,960 - (18,611,305) 895,941,363 (27,266,242) 25,393,215,557 25,393,215,557 7,463,491,687 (4,537,949,594) - 124,230,792 - - 4,197,176,655 (834,813,374) (32,893,931) 27,575,281,137 Dec. 31, 2013 EGP 4,362,940 (32,893,931) - (141,135) (28,672,126) Dec. 31, 2012 EGP 519,013 (27,859,838) 593,597 (162,078) (26,909,306) 182 annual RepoRt 2013 annual RepoRt 2013 183 Financial StatementS: conSolidated Financial StatementS: conSolidated 23. Investments in associates Dec. 31, 2013 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 Egypt Egypt Egypt Egypt 2,202,120,593 2,124,146,722 302,442,516 5,621,494 53,757,396 1,921,220,750 4,573,801 434,219,114 1,723,876,875 199,111 379,404,778 378,253,425 581,125 32,679,897 16,884,595 478,935 425,843 88,281,648 1,465,478 40,880,870 126,867,912 104,633,380 120,221,686 5,344,162 8,367,485 45 43 40 39 40 4,689,002,170 4,332,260,866 834,178,649 28,755,029 192,752,878 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 24. Investment property * 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 3,875,454 203,984,151 1,361,597,602 180,722 151,643,286 317,924,102 270,000 18,514,114 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 45 40 40 39 40 3,606,837,286 3,304,561,259 696,310,092 6,825,976 165,198,634 Commercial unit number f 35 in arkadia mall (14 elbahr st. Boulak kornish el nile ) 338.33 meters on a land and building the property number 16 elmakrizi st. Heliopolis 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, 2013 EGP 432,000 - 1,121,965 3,463,000 161,000 4,517,721 9,695,686 Dec. 31, 2012 EGP 432,000 700,000 1,121,965 3,463,000 161,000 4,517,721 10,395,686 * Including non registered properties by EGP 6,232,686 which were acquired against settlement of loans to customers and legal procedures is tak- ing to registered these properties or sell them during the legal period. 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, 2013 EGP 1,695,498,707 131,518,888 134,327,476 910,752,008 20,245,803 2,892,342,882 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, 2013 Land Premises IT Vehicles Fitting -out Machines and equipment 60,575,261 407,137,289 855,453,783 54,254,811 347,435,424 290,416,691 Furniture and furnishing 127,403,538 2,142,676,797 Total 3,924,261 214,973,061 161,704,212 8,609,546 49,901,395 41,204,706 12,382,955 492,700,136 64,499,522 622,110,350 1,017,157,995 62,864,357 397,336,819 331,621,397 139,786,493 2,635,376,933 - - - 181,000,079 656,413,664 32,187,369 276,816,541 220,840,761 91,962,537 1,459,220,951 24,795,643 72,485,723 4,033,008 40,116,114 42,810,367 22,738,233 206,979,088 205,795,722 728,899,387 36,220,377 316,932,655 263,651,128 114,700,770 1,666,200,039 64,499,522 60,575,261 416,314,628 226,137,210 %5 288,258,608 199,040,119 %33.3 26,643,980 22,067,442 %20 80,404,164 70,618,883 %33.3 67,970,269 69,575,930 25,085,723 35,441,001 969,176,894 683,455,846 %20 %20 Beginning gross assets (1) Additions (deductions) during the year Ending gross assets (2) Accu.depreciation at beginning of the year (3) Current year depreciation 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 procedures 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, 2013 EGP 1,038,717,040 334,693,000 1,373,410,040 3,853,779 313,337,889 1,056,218,372 1,373,410,040 1,026,035,993 347,374,047 1,373,410,040 1,038,717,040 334,693,000 1,373,410,040 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 1,714,862,716 184 annual RepoRt 2013 annual RepoRt 2013 185 Financial StatementS: conSolidated Financial StatementS: conSolidated 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 Dec. 31, 2013 EGP 22,949,345,699 30,507,692,856 25,259,128,705 16,786,188,314 1,343,327,834 96,845,683,408 48,299,667,997 48,546,015,411 96,845,683,408 24,292,673,533 72,553,009,875 96,845,683,408 70,206,368,513 26,639,314,895 96,845,683,408 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 Interest rate % Maturity date Maturing through next year EGP Balance on Dec. 31, 2013 EGP Balance on Dec. 31, 2012 EGP Financial Investment & Sector Coopera- tion (FISC) Agricultural Research and Development Fund (ARDF) Social Fund for Development (SFD) Total 3.5 - 5.5 depends on maturity date 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which is more 3-5 years 555,556 555,556 19,095,238 3-5 years 28,310,000 31,380,000 61,400,000 35,486,000 100,217,671 - 64,351,556 132,153,227 80,495,238 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Income tax Other credit balances Total Dec. 31, 2013 EGP 564,960,679 351,865,685 481,478,219 1,179,708,811 78,652,074 2,656,665,468 Dec. 31, 2012 EGP 430,377,730 256,350,678 478,367,052 819,361,660 74,547,893 2,059,005,013 31. Other provisions Dec. 31, 2013 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent Provision for other claim* Total Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 14,962,108 3,625,000 - (4,541,827) - 14,045,281 28,619,510 - 257,900,430 14,006,334 315,488,382 1,321,932 31,000,000 88,074,156 8,936,407 132,957,495 1,851 - 16,745,849 30,556 16,778,256 (753,510) - - (5,088,275) (10,383,612) (141,521) - - - (141,521) 29,048,262 31,000,000 362,720,435 17,885,022 454,699,000 Dec. 31, 2012 Provision for income tax claims Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts Ending balance EGP 16,553,685 - - (1,591,577) - 14,962,108 Provision for legal claims Provision for contingent Provision for other claim Total * Provision for other claim formed on December 31, 2013 amounted to 8,936,407 EGP to face the potential risk of banking operations against (10,958,065) - (1,336,550) (13,886,192) 28,619,510 257,900,430 14,006,334 315,488,382 35,171,960 210,103,042 8,973,223 270,801,909 4,924,686 40,594,505 6,353,586 51,872,777 11,983 7,202,883 16,075 7,230,941 (531,054) - - (531,054) amount 6,353,586 EGP on December 31, 2012 . 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 9,002,435,690 to be divided on 900,243,569 shares with EGP 10 par value for each share based on: • Increase issued and Paid in 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 in 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 tranch for E.S.O.P program. • Increase issued and Paid in 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 tranch for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 29,348,380 On April 7,2013 to reach EGP 6,001,623,790 according to Board of Directors decision on october 24,2012 by issuance of fourth tranch for E.S.O.P program. • Increase issued and Paid in Capital by amount EGP 3,000,811,895 on December 5, 2013 according to Board of Directors decision on May 15 ,2013 by distribution of a one share for every two outstanding shares by capitalizing on the General Reserve. • 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 maximum of 5% of issued and paid-in capital at par value ,through 5 years starting year 2006 and delegated the Board of Directors 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. 186 annual RepoRt 2013 annual RepoRt 2013 187 Financial StatementS: conSolidated Financial StatementS: conSolidated 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, 2013 Assets (Liabilities) EGP (25,569,586) Dec. 31, 2012 Assets (Liabilities) EGP (19,439,154) 12,531,360 49,219,205 47,376,240 83,557,219 10,998,616 41,089,042 38,801,679 71,450,183 34. Share-based payments According to the extraordinary general assembly meeting on June 26, 2006, The Bank launched new Employees Share Owner- shipPlan (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 vesting 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 year Granted during the year * Forfeited during the year Exercised during the year Outstanding at the end of the year Details of the outstanding tranches are as follows: Maturity date 2014 2015 2015 Total EGP Exercise price 10.00 10.00 10.00 Dec. 31, 2013 No. of shares 15,439,582 12,245,031 (832,456) (2,934,838) 23,917,319 EGP Fair value 14.17 6.65 16.84 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 7th tranche 10 34.57 3 14.5% 2.89% 40% Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% Dec. 31, 2012 No. of shares 12,676,036 7,208,355 (673,567) (3,771,242) 15,439,582 No. of shares 7,929,874 10,032,939 5,954,506 23,917,319 6th tranche 10 18.7 3 16% 5.35% 38% Volatility is calculated based on the daily standard deviation of returns for the last three years. * The equity instruments fair value and number of shares for the fifth, sixth and seventh trenches have been adjusted to reflect the dilution effect of the Stock dividend that took place in 2013 188 annual RepoRt 2013 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 Change during the period Transferred from special reserve Transferred to retained earnings (losses) 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, 2013 EGP 490,364,921 406,090,568 (546,531,497) 27,366,759 (720,479,005) 1,990,756 (341,197,498) Dec. 31, 2013 EGP 103,716,932 (101,726,176) 1,990,756 Dec. 31, 2013 EGP 380,348,755 - 110,016,166 490,364,921 Dec. 31, 2013 153,364,794 (873,843,799) (720,479,005) Dec. 31, 2013 (568,853,097) (1,001,979) (146,015) - 23,469,594 (546,531,497) Dec. 31, 2012 EGP 380,348,755 2,036,955,188 (568,853,097) 117,805,566 153,364,794 103,716,932 2,223,338,138 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 (723,343,863) 876,708,657 153,364,794 Dec. 31, 2012 (362,379,298) (15,105,920) (58,260,105) 1,001,979 (134,109,753) (568,853,097) Dec. 31, 2013 EGP 4,804,974,237 9,003,950,890 23,665,428,816 (3,224,658,841) (5,148,331,396) (17,212,737,030) 11,888,626,676 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 annual RepoRt 2013 189 Financial StatementS: conSolidated Financial StatementS: conSolidated 37. Contingent liabilities and commitments 37.1. legal claims There are a number of existing cases filed against the bank on December.31,2013 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 42,693,921 as follows: Investments value EGP 101,813,351 Available for sale financial investments 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 49,361,799. Paid EGP 59,119,430 Remaining EGP 42,693,921 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, 2013 EGP 14,959,322,507 750,766,099 472,350,554 16,182,439,160 Dec. 31, 2012 EGP 12,787,512,199 933,297,936 1,176,928,870 14,897,739,005 • 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 23,984,353 with redeemed value EGP 5,151,359,337. • The market value per certificate reached EGP 214.78 on December 31, 2013. • The Bank portion got 601,064 certificates with redeemed value EGP 129,096,526. 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 2,192,761 with redeemed value EGP 160,619,743. • The market value per certificate reached EGP 73.25 on December 31, 2013. • The Bank portion got 194,744 certificates with redeemed value EGP 14,264,998. 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 677,076 with redeemed value EGP 32,797,561. • The market value per certificate reached EGP 48.44 on December 31, 2013. • The Bank portion got 71,943 certificates with redeemed value EGP 3,484,919. Hemaya fund thabat fund • CIB bank established an accumulated return mutual fund under license no.613 issued from financial supervisory author- ity on September 13, 2011. CI Assets Management Co.- Egyptian joint stock co-manages the fund. • The number of certificates issued reached 692,432 with redeemed value EGP 91,255,613. • The market value per certificate reached EGP 131.79 on December 31, 2013. • The Bank portion got 52,404 certificates with redeemed value EGP 6,906,323. 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. 39.1. loans, advances, deposits and contingent liabilities Loans and advances Deposits Contingent liabilities EGP 798,500,693 255,620,430 74,610,853 39.2. other transactions with related parties International Co. for Security & Services Corplease Co. Commercial International Life Insurance Co. 40. Intangible assets 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 (674,672,406) - Income EGP 1,120,494 63,349,222 2,450,265 Expenses EGP 39,767,569 48,194,625 1,170,156 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 • 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 • The Bank's corporate income tax position has been examined and settled with the tax authority from Year 2001 up to Year 2006. • CIB bank established an accumulated return mutual fund under license no.585 issued from financial supervisory • The Bank pays salary tax according to concerning domestic regulations and laws, and the disputes are under discussion Authority on June 23, 2010. CI Assets Management Co.- Egyptian joint stock co-manages the fund. • The number of certificates issued reached 174,507 with redeemed value EGP 22,715,576. • The market value per certificate reached EGP 130.17 on December 31, 2013. • The Bank portion got 50,000 certificates with redeemed value EGP 6,508,500. in the court of low • The Bank stamp duty tax calculated according to concerning domestic regulations and laws,and settlement done in time according to the law, and the disputes are under discussion in the court of law . 190 annual RepoRt 2013 annual RepoRt 2013 191 Financial StatementS: conSolidated 42. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro Dec. 31, 2013 In thousand EGP (34,719) 6,897 21,249 242 (297) 2,247 Dec. 31, 2012 In thousand EGP 12,800 (10,376) 1,670 (67) 179 8,598 192 annual RepoRt 2013 Commercial International Bank S.A.E Nile Tower Building 21/23 Charles De Gaulle Street Giza, Cairo, P.O. Box 2430 Tel: (+20) (0)2 3747 2000 Fax: (+20) (0)2 3570 3632 cibeg.com 

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