Commercial International Bank (CIB) Egypt
Annual Report 2014

Plain-text annual report

AnnuAl RepoRt 2014 BANKING ON SUSTAINABILITY Contents CIB: An IntroduCtIon our History What We Do A snapshot of our Business Key Facts Key Financial Highlights A strategy that Delivers Chairman’s note Board of Directors’ Report 2014 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 (CIl) CoRpleAse Falcon Group SuStAInABIlIty At CIB What egypt needs now is sustainable Growth Corporate Governance executive Management Banking on sustainability 02 02 02 03 04 06 08 10 12 24 26 34 36 44 50 60 62 64 66 70 71 71 72 74 76 78 84 86 CommunIty development CIB Foundation 88 90 fInAnCIAl StAtementS 96 CIB: An IntRoDuCtIon our History and Strategic milestones 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. In 2014, Actis undertook a partial realization of its investment in CIB by selling 2.6% of its stake through the open market in March 2014, while keeping its Board seat. In May 2014, the pan- African emerging market investor sold its remaining 6.5% stake to several wholly owned subsidiaries of Fairfax Financial hold- ings Ltd “Fairfax”, thus becoming the only strategic shareholder in CIB. Fairfax Financial Services Holding Company is repre- sented on CIB’s board with a non-executive Board member. what we do 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 offers wealth management, securitization, direct invest- ment 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. 2 AnnuAl RepoRt 2014 A Snapshot of our Business 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 medium-sized businesses. debt Capital markets CIB’s global product knowledge, local expertise and capi- tal resources 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 li- quidity management, capital markets, foreign exchange and derivatives. direct Investment CIB actively participates in select direct investment opportu- nities in Egypt and across the region. Business Banking The Business Banking segment is responsible for SMEs under CIB’s portfolio, managing over 4,000 retail companies and of- fering them various products and services that best suit their needs and interests. Consumer Banking The Consumer Banking division continues to assert itself as a growing and developing business segment, dedicating ex- traordinary efforts to improving customer satisfaction and responding to their needs through focusing on promoting a consistent, positive customer experience. We offer a wide ar- ray of consumer banking products, including: • Personal Loans: Focusing on employees of our corporate banking clients and offering secured overdrafts and trade products. • Auto Loans: Positioned to actively 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, in- cluding tailored accounts for minors, youth and senior citizens, as well as certificates of deposit and care ac- counts. This is in addition to our standard range of cur- rent, savings and time deposit accounts. • Residential Property Finance: Providing loans to finance home purchases, residential construction and refurbish- ment and finishing. • Credit and Debit Cards: Offering a broad range of credit, debit and prepaid cards. • Wealth Management: CIB offers a wide array of invest- ment products and services to the largest number of af- fluent clients in Egypt. • Plus: Launched in June 2014, CIB Plus caters to the needs of medium-net-worth individuals and helps pave the way to move up to becoming a Wealth segment client using sim- plified products, fast track service and personalized service offerings through a network of Plus Bankers. • Insurance: The CIB Insurance Business provides Life and General Insurance programs that generate non-interest revenues in the form of fees for CIB Consumer Banking. 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. AnnuAl RepoRt 2014 3 CIB: An Introduction eGypt’s nuMBeR #1 BAnK In teRMs oF pRoFItABIlIty AnD sustAInABIlIty A sustainable future is one that strikes a good balance between profitability, financial health and serving the country’s broader socioeconomic and environmental health. CIB’s state-of-the-art Smart Village building #1 • Profitability achieving EGP 3.7 billion in net income • Revenue among all Egyptian private sector banks with EGP 8.0 billion in total revenues • Loan and deposit market share among all Egyptian private sector banks • Net worth among all Egyptian private sector banks • Market capitalization in the Egyptian banking sector Key fACtS our 5,697 employees serve some 697,936 active customers 125,000 Internet banking subscribers the installation of leD lighting will reduce energy consumption by 35% the installation of water restrictors has reduced water consumption by 30% eGp 143.8 billion in total assets over 500 of egypt’s largest corporations bank with CIB planting rooftop gardens and green walls is decreasing Co2 emissions Double-sided printing has decreased paper consumption by 45% 4 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 5 CIB: An Introduction Key FInAnCIAl HIGHlIGHts The installation of LED lighting in CIB branches was one of the bank’s major energy savings initiatives in 2014 Common Share Information Per Share Earning Per Share (EPS) * Dividends (DPS) Book Value (BV/No of Share) Share Price (EGP) ** High Low Closing Shares Outstanding (millions) Market Capitalization (EGP millions) Value Measures Price to Earnings Multiple (P/E) Dividend Yield (based on closing share price) Dividend Payout Ratio Market Value to Book Value Ratio Financial Results (EGP millions) Net Operating Income Provision for Credit Losses - Specific Provision for Credit Losses - General Total Provisions Non Interest Expense Net Profits Financial Measures Cost : Income Return on Average Common Equity (ROAE)*** Net Interest Margin (NII/average interest earning assets) Return on Average Assets (ROAA)**** Regular Workforce Headcount Balance Sheet and Off Balance Sheet Information (EGP millions) Cash Resources and Securities (Non. Governmental) Net Loans and Acceptances Assets Deposits Common Shareholders Equity Average Assets Average Interest Earning Assets Average Common Shareholders Equity Balance Sheet Quality Measures Equity to Risk-Weighted Assets*** Risk-Weighted Assets (EGP billions) Tier 1 Capital Ratio***** Adjusted Capital Adequacy Ratio***** FY 14 Consoli- dated FY 13 Consoli- dated FY 12 Consoli- dated FY 11 Consoli- dated FY 14 FY 13 FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 FY 05 3.55 1.2 16.31 51.3 32.6 49.2 908.2 2.67 1.0 13.46 45.4 27.4 32.6 900.2 2.42 1.25 18.94 39.8 21.1 34.6 597.2 2.43 1.00 15.03 47.4 18.5 18.7 593.5 3.00 1.00 14.59 79.49 33.75 47.4 590.1 2.63 1.50 23.75 59.7 29.5 54.68 292.5 4.89 1.00 19.25 93.4 27.87 37.2 292.5 3.73 1.00 20.93 95 53.61 91.77 195 3.64 1.00 15.59 79 42.11 57.87 195 2.77 1.00 19.44 63.5 39.91 58.68 130 44,673 29,330 20,646 11,098 27,973 15,994 10,881 17,895 11,285 7,628 13.9 12.2 14.3 7.7 15.8 20.8 7.6 24.6 15.9 21.2 2.44% 3.07% 3.62% 5.35% 2.11% 2.74% 2.69% 1.09% 1.73% 1.70% 29.88% 34.42% 33.9% 33.9% 27.6% 24.6% 18.1% 15.8% 27.5% 21.3% 3.02 3.02 2.42 3.25 1.93 2.30 3.71 1.24 1.83 4.38 8,001 6,700 5,344 3,934 7,717 6,206 5,108 3,837 3,727 3,173 3,200 2,288 1,741 1,450 589 916 610 321 589 916 610 321 6 9 346 193 589 1,876 3,741 916 1,608 3,006 610 1,653 2,226 321 1,557 1,615 589 1,705 3,648 916 1,450 2,615 610 1,445 2,203 321 1,337 1,749 6 1,188 2,141 9 1,041 1,784 395 950 1,615 250 636 1,233 49 57 176 18 193 668 802 197 167 364 474 610 22.66% 23.54% 30.64% 40.05% 21.32% 22.89% 28.01% 35.25% 33.11% 32.30% 29.89% 27.14% 35.65% 27.10% 31.31% 29.45% 25.49% 20.86% 30.25% 24.77% 24.18% 22.23% 30.46% 31.18% 34.98% 34.62% 28.81% 26.24% 5.41% 5.36% 4.74% 3.71% 3.62% 3.81% 3.54% 3.12% 3.06% 3.50% 2.94% 2.93% 2.51% 2.03% 2.87% 2.54% 2.47% 2.20% 3.11% 2.97% 3.10% 2.90% 2.37% 2.09% 5,697 5,490 5,181 4,867 5,403 5,193 4,867 4,517 4,360 4,162 3,809 3,132 2,477 2,301 19,328 16,413 16,140 18,990 19,430 16,646 16,764 19,821 16,854 16,125 14,473 21,573 13,061 10,537 48,804 41,866 143,813 113,752 96,846 121,975 11,960 14,754 128,783 103,854 94,749 117,031 41,877 93,957 78,729 10,765 89,731 80,063 41,065 49,398 41,970 85,506 143,647 113,752 96,940 71,468 122,245 12,115 8,712 14,816 80,480 128,700 104,079 94,605 70,913 117,133 41,877 94,405 78,835 11,311 90,017 79,834 41,065 85,628 71,574 8,921 80,361 70,549 35,175 75,093 63,480 8,609 69,578 61,624 27,443 64,063 54,843 6,946 60,595 53,431 26,330 57,128 48,938 5,631 52,396 44,602 20,479 47,664 39,515 4,081 42,543 36,603 17,465 37,422 31,600 3,040 33,906 29,277 14,039 30,390 24,870 2,527 29,183 25,619 13,357 11,362 9,738 8,640 13,465 11,713 10,116 8,765 7,777 6,288 4,856 3,560 2,784 2,325 15.77% 15.28% 14.88% 14.11% 15.84% 15.50% 15.69% 14.49% 15.85% 15.34% 13.93% 13.60% 11.69% 11.49% 22 15.70% 15.23% 14.33% 12.53% 15.70% 15.23% 14.33% 12.53% 15.66% 15.28% 13.74% 10.17% 9.59% 9.78% 84 84 65 70 37 30 55 65 41 70 55 49 26 16.77% 16.32% 15.71% 15.40% 16.77% 16.32% 15.71% 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 ** *** Total Equity after profit appropriation **** Total Assets after profit appropriation ***** 2014, 2013 and 2012 as per Basel II regulations after profit appropriation 6 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 7 CIB: An Introduction A stRAteGy tHAt DelIveRs Over the years, CIB has adopted a strategy that is simple, adaptable and has a proven record, that is, our customers are our top priority. As such, CIB works to produce long-term, profitable growth by building a strong brand equity and delivering value to our customers, shareholders and community. We strive not only to satisfy their evolving needs and have them served in prime time, but also to stand hand in hand with them and go the extra mile in order to ensure that they are better served. This was clearly evident during the tough times that our country faced over the past few years. CIB follows through on its mandate to develop high-quality products and an unrivalled banking experience in many ways than one. In order to achieve this goal, we consistently develop the capabilities of our staff, which we believe are a key com- ponent of our success. By offering our employees an attractive work environment, a myriad of career opportunities and com- prehensive training and feedback, we are able to attract and re- tain the strongest banking professionals in Egypt. our vision To uphold CIB’s distinct reputation as a leading and trusted financial institution in Egypt, respected for its people, strong core values, performance and commitment to inclusive, re- sponsible and sustainable growth. our mission To create outstanding stakeholder value by providing best in class financial solutions to individuals and enterprises that drive Egypt’s economy. Through our innovative products, superior customer service, development of staff, and commitment to sus- tainability 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. An outstanding track record Return on Average Common Equity (ROAE)* Return on Average Assets (ROAA)** 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * Total Equity after profit appropriation ** Total Assets after profit appropriation 8 AnnuAl RepoRt 2014 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 profes- sional 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. • 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 the CIB family to enhance the knowledge and skills of each and every one. • Each one of us consistently represents CIB’s total corpo- rate image. • There is only one CIB in the eyes of our clients. • We value and respect one another’s cultural backgrounds • 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. and unique perspectives. respect to the Individual: 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. • We at CIB partner with our clients, work as one team with one objective; success. Innovation: • Since our inception as the first joint venture bank in Egypt, CIB has been a pioneer in the financial services industry. We believe innovation is a core competitive advantage and promote it accordingly. • We strive to lead the Egyptian financial services industry to a higher level of performance and innovation in serving the millions of Egyptians 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 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 suggestions and offer constructive criticism. • CIB is a meritocracy, where all employees have equal op- portunity for development and advancement based only on their merits. mannerism • CIB focusses on business etiquette with our clients and has strict policies governing mannerism. • Peculiarity of manner in behavior, speech, actions, dress code, etc. AnnuAl RepoRt 2014 9 CIB: An Introduction CHAIRMAn’s note our greatest generation The events of the past four years have shaped a generation of Egyptian business leaders, entrepreneurs and bankers in a way Egypt has not witnessed since at least the 1919-25 nationalist period and perhaps even the days of Mohamed Ali. Having now passed through the crucible, it is inarguable that those who have lived and worked here in their respective fields — from retail to art, from banking and finance to manufacturing — in the period 2011-2015 are exceptionally lucky. Whether fresh grads, mid-career professionals or grey-hairs, those fortunate enough to have worked in Egypt in the past four years have gained experience and had both their skills and their world views tested in a way that harkens back to the builders of the modern Egyptian nation or perhaps to the generation that survived the Second World War and went on to reinvent politi- cal systems, industries and economies from Japan to the Middle East, from Europe to North America. Provided we do not lose focus today — provided we can stay the course and continue to deliver hard work in response to the many challenges of our age — history will one day record this as the “Greatest Generation” in the Arab world. This is a generation that paid its due not just during the du- ress of the past four years, but that conceived — and that will shoulder tomorrow the burden — of a constitutional obligation to spend 10% of GDP on healthcare and education. It is a genera- tion that opened up economic opportunities to people of all ages and backgrounds. It may yet be a generation that leapfrogs the growth challenges once faced by Western nations to ensure our children can take their rightful place in the global economy. From banking to manufacturing and the services industry, we have a generation of people who understand that everything — your career, your business — must change going forward. The winners realize this and have embraced it. The losers will cling doggedly to the past. It has become vogue in Western venture capital circles to ask, “What makes you special — what’s your unfair advantage?” Ours as a nation will be the hundreds of thousands of talented profes- sionals who passed through two revolutions in four years — and who in the process learned things about planning, budgeting, crisis management and working through adversity that can nev- er be learned from a textbook, a webinar or a corporate retreat. It is clear that Egypt, like other regional countries, faces chal- lenges. We must stay the course with difficult economic reforms. We face an imperative to achieve economic growth sufficient to absorb 600,000-700,000 new entrants to the workforce each year; to shore up our security climate while embracing universal values of human rights — and make up for decades of under- investment in public services and infrastructure alike, from health and education to infrastructure and public utilities. creativity upon which to call. And what makes me particularly optimistic is that it is not just CIB that has this advantage — it is every financial institution and home-grown multinational, ev- ery startup and every unincorporated koushk wondering if now might be the time to join the formal economy. This is the refrain that has played every time I have sat with junior or middle management throughout our 2015 budget pro- cess. Ask them, “What have you learned in the last four years?” and the answer will be a priceless experience. Ask them about their vision for the future, and you’ll hear ideas remarkable not just for their newfound optimism, but for the creativity and expe- riences upon which they plan to call to make this future tangible. We are harnessing this wellspring of experience and creativ- ity to institutionalize sustainability across our platform in 2015. If there is one macro-level lesson we have learned from the past four years, it is that sustainable platforms are shock absorbers that allow you to grow in good times and persevere amid adver- sity. This commitment to sustainability starts with green, pro- environment initiatives that have seen us reduce our waste and carbon footprints — and a redoubled commitment to the Foun- dation through dedication of a percentage of our P&L. It also deeply infuses how we aim to invest in our people, from training initiatives to our decision to go smoke-free in all of our buildings. But sustainability must not be merely an “organizational” or “corporate responsibility” principle to which one pays lip ser- vice. For it to truly serve as the bedrock of a business, it must be about the very way we leverage our team’s unique experience to grow our business. We are now engaged in a comprehensive re-thinking of how we can be leaders within our industry, an engine of economic growth for our nation, and how our poli- cies — from lending to reporting — should reflect the princi- ples of sustainability. While sustainability — in growth, in how we interact with each other and how we serve the economy — is at the heart of strategy for 2015, the thinking that gave rise to it has its roots in 2014, and the results are clear to see. In this context, Business Banking has been a significant highlight for the institution: The team has leveraged the en- tirety of the CIB platform to turn what had been a fragmented offering into a comprehensive bouquet of services that serves this critical growth segment. Also noteworthy is the Global Transaction Services team, which leveraged the infrastruc- ture in which we’ve invested over the past four years to create a nexus of trade hubs, trade platforms and cash management systems that have made it exceptionally difficult for the com- petition to rival our offering. Today, they’re going even further, anticipating market demand that may be opened by the New Suez Canal to create an entirely new product category and au- tomaete the processes of Suez Canal Authority payments. Heading into 2015, we as a nation, an industry and as a finan- cial institution have not just a clear planning horizon for the first time in half a decade, but a deep reservoir of experience and Aside from the positive impact these initiatives will have on CIB’s brand image — and how supportive we are of the New Suez Canal project — this will create an opportunity for us to grow our business with shipping agencies while making a notable contribution to the overall goal of the New Canal, namely contribute to the reduction of waiting time for vessels waiting to pass. This commitment to excellence percolates down to the level of our subsidiaries. All of them are, at heart, CIBians who share our culture, our values and the experience we have earned over the past four years, but particularly remarkable is the team at CI Capital, which amid exceptionally challeng- ing market conditions has built their brand into one of the two leading players in the market. From the introduction of a new digital platform that will see us once more leapfrog the competition in anticipating the demands of a young population whose wallet, computer, flashlight, compass and entertainment center is the smart- phone to continued investment of staff time in the projects of our Foundation, I look forward to reporting next year that 2015 was an exceptional one in the very best way possible. Hisham Ezz Al-Arab Chairman and Managing Director 10 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 11 CIB: An Introduction BoARD oF DIReCtoRs’ RepoRt Introduction We began the year certain that the economic environment would be tough. As it turned out, 2014 truly showcased the power of CIB’s business model, and we are extremely pleased with our results. In the 40 years CIB has been in operation, the market has changed considerably, constantly evolving with new struc- tures, rules, theories and factors increasing the pace of com- petition and changing market dynamics emerging regularly in the macro environment in general and the banking sector in particular. In such a dynamic market, it is critical to keep up with new developments and form future strategies with change in mind. Over the past three years of radical changes in the Egyp- tian market, CIB successfully navigated through political and economic volatility as the most profitable bank in the sector, guided by well-thought-out management decisions and forward-looking policies. CIB has proven yet again that it is the market leader and a major Egyptian economic powerhouse with an extensive reach, producing value in the banking sector and playing a vital role in shaping the financial future of thousands of indi- viduals and enterprises. Parting from that, we proudly present to you our Board of Di- rectors Report detailing how we managed to work through the unusual circumstances and come out even stronger yet again. macroeconomic and Banking Conditions in 2014 The year 2014 marked the three-year anniversary of an era that without a doubt has radically changed the political and eco- nomic arenas and led to structural changes across the board. The new government has introduced several measures and much needed structural initiatives that would help improve the Banking sector among other sectors and shape the coun- try’s economic DNA, thus allowing for continuity and sus- tainability for a disciplined free economy. In fact, Egypt’s economy, which suffered heavily against the backdrop of market fluctuations over the past three years, has re- 12 AnnuAl RepoRt 2014 covered with a GDP growth rate of 3.7% in Q4 FY 13/14, compared to 2.5% the previous year. There are also signs that foreign inves- tors are returning to the Egyptian market as indicated by the positive net purchases of Egyptian equities in recent months, gen- erally a leading indication of FDI. Another important indication of improvement in private sentiment and renewed confidence in the government direction is the successful sale of certificates of deposit to Egyptian nationals in the amount of EGP 64 billion to finance expansion of the Suez Canal in just 8 days; whereas it was expected by the CBE to be raised within 2-3 months. The budget deficit narrowed by one percentage point to 12.6% of GDP, thanks to increased official grants, estimated at 2.6% of GDP in FY 2013/14. Furthermore, the authorities have made some progress in addressing the problems of the energy sector, which seriously constrained industrial production in the past three years. The government has started to gradually clear arrears on its debt to foreign energy companies, leading to some renewed exploration and production activity. FDIs increased to record approximately USD 4.1 billion in FY 13/14, compared to USD 3 billion in FY12/13. The large grants and improvement in FDI have helped to stabilize of- ficial reserves at around USD 17 billion, equivalent to 2.8 months of imports. The banking sector has come through the recent period of economic instability relatively unscathed. Egyptian banks proved to be much more resilient than most market partici- pants had thought. International banks who remained com- mitted to the Egyptian market won significant market share and above market returns. Capital adequacy ratios have come down, but remain com- fortable; rates of return on assets and on capital have trended upwards (largely due to high yields on holdings of government se- curities); return on equity across most local banks in Egypt sus- tainably exceed 20%. Credit losses remain historically low. Banks remain well-funded and flush with liquidity (loan-to-deposits ra- tio system-wide of 41%) because of their strong deposit base. Nevertheless, the past three years did hamper capital ex- penditures of multinational and domestic corporations. The lack of CAPEX investment has resulted in the accumulation of almost 40 months of pent-up demand for credit. With the positive economic outlook, corporations are expected to re- sume their expansion plans, and their demand for credit will be comfortably met as the sector continues to maintain low loan-to-deposit ratios. It’s imperative to mention that this stark demonstration of the health of the sector throughout the recent global financial crisis, which was followed swiftly by Egypt’s political and eco- nomic changes starting in 2011, is a result of a long-term pro- cess of consolidation, privatization, increased foreign owner- ship of banks and recapitalization starting in the early 2000s. This process, led by the Central Bank of Egypt (the CBE) and accompanied by a raft of new regulations aimed at strength- ening the sector, has succeeded in creating a stable, liquid and well-capitalized banking industry in little under a decade, one that produces one of the best risk-adjusted-returns globally. outlook for 2015 Looking ahead, 2015 is expected be the turning point for Egypt. The nation’s road map that was set out in June 2013 to- wards achieving political stability will be completed with the election of Parliament by end of March 2015. A stable political environment is expected to induce higher rates of domestic investments that will further encourage FDI as well as lead to foreign exchange stability. With the government proactively addressing chronic eco- nomic and social issues, focusing on the deficit, infrastruc- ture, unemployment, and more, a more conducive environ- ment for investment seems to be forming, especially in light of the ongoing efforts to revive international institutions and investors’ confidence and interest in the Egyptian economy, where the government plans to: i) Change investment laws to be at par with our competitor markets (such as: amendments to disallow third-party dis- putes in contracts, amending bankruptcy and liquidation laws, simplifying the process to start a business in Egypt and building a one-stop-shop for licenses/permits). ii) Hold The Egyptian Economic Development Conference on the investment opportunities and climate in Egypt in March 2015, drawing attention to what has been done and what will be done to support domestic and international investors. With this economic conference, the government is presumed to have amended its investment laws and pre- pared the groundwork for the influx of FDI to contribute to the numerous state-led mega projects. Moreover, it is likely that in 2015 Egypt will enter into ne- gotiations with the International Monetary Fund. The IMF loan is primarily planned to certify that Egypt is able to serve its debt, and the Egyptian economy is strong and stable. This would open up opportunities for foreign investment and sup- port from multilateral and bilateral sources on favorable terms, and send a strong signal to investors and financial markets that Egypt is putting its economic house in order. Again, it all comes down to the existing cabinet and their current stance of focusing on the economy and commitment to revitalizing the private sector, ultimately leading to pri- vate sector investment and consequently FDIs. In light of prevailing conditions, opportunities in Egypt are limitless across all sectors. The banking sector offers many opportunities that remain untapped. In addition to the significant underlying opportunities in the SME, retail and mortgages segments, the Central Bank of Egypt (CBE) re- cently launched an initiative to encourage long-term lending to low and middle-income families. Another promising area for the banking sector is being generated by the government commitment to attract local and foreign investment through public-private partnership projects. All this untapped poten- tial is only possible through a strong and sensible, pro-busi- ness central bank with some of the best calibre in any regula- tor globally with hands-on control over the industry. exceeding performance targets of 2014 At its core, CIB works to produce long-term, profitable growth by building a strong brand equity and delivering value to our customers, shareholders and community. This fundamental strategy is simple, adaptable and has a proven winning record. AnnuAl RepoRt 2014 13 CIB: An Introduction Our growth strategy is to achieve sustainable and profit- able growth based on customer centricity, operational effi- ciency and organizational development in an effort to fulfill our vision and objectives. Our main objective is the healthy management of our portfolio while maintaining sound capi- tal, profitability and asset quality. Our approach to operating the Bank is key to accomplishing those objectives. The main pillars of such a strategy are as follows: I. A strong foundation and excellent franchise engineered to serve our clients II. Significant progress and continuous efforts to strengthen our Bank and adapt to the ever changing market dynamics III. Positive long-term outlook for Egypt I. A strong foundation and excellent franchise engineered to serve our clients Backed by its dynamic balance sheet management, consis- tent operational efficiency, visionary approach and custom- er-driven core banking strategy, CIB established a strong foundation that allowed the Bank to excel and outperform despite slow economic growth, market volatility and height- ened macro-economic challenges. The makings of such a strong foundation are as follows: A. Consistently good financial performance and strong balance sheet The Bank has consistently delivered solid financial performance over the last several years in terms of margins and returns on eq- uity. We have done this while meeting increasingly higher stan- dards in liquidity and capital. Our fortress balance sheet is stron- ger than ever as evident in: Best-in-Sector Asset Quality through Effective Risk Management The Bank is known for its conservative approach to risk manage- ment. Building on this track record, CIB took provisions of EGP 589 million for the full year. The Bank’s world-class risk manage- ment framework is reflected in its best-in-sector asset quality and a high-class corporate loan book. CIB maintained the stability of its asset quality with no signifi- cant deterioration despite prevailing circumstances thanks to its effective credit culture and stringent risk assessment measures. As the loan book continues to grow, non-performing loans are ex- pected to drop in absolute terms. Having one of the lowest ratio of NPLs to gross loans among its peer group, CIB reported a 4.71% NPL ratio in 2014, the result of a growth strategy that was under- pinned by an emphasis on maintaining quality standards. Healthy LDR Despite prevailing economic conditions, CIB maintained a healthy LDR ratio of 43.6%. The Bank has successfully attracted 10.6% of all new deposits in the system in 2014. High levels of market intelligence, expertise and knowledge of market needs are cornerstones of our Asset and Liability Management (ALM) Group. Having attracted such deposit inflows without significant increases to our cost of funding is a testament to the trust the market has in CIB as an institution. Having utilized excess liquid- ity to increase our returns through loans and sovereign notes without affecting the Bank’s asset quality was, management be- lieves, an important accomplishment. 14 AnnuAl RepoRt 2014 Increasingly Strong Capital Ratio CIB is distinguished by its capital structure and uses this advan- tage in the most appropriate manner. The year 2014 was no dif- ferent, with the Bank maintaining its strong and resilient capi- tal base, as reflected in a comfortable capital adequacy level of 14.05%, well above CBE requirements and Basel guidelines. Despite having many players in the banking sector space, CIB continues to enjoy an advantageous market position given its broad capital structure which differentiates it from the competi- tion. The existing players in the private sector are foreign nation- als, and with the sovereign downgrades Egypt has witnessed over the past four years, it has become expensive for these players to grow their balance sheets due to capital constraints; the lower sovereign rating means a higher required capital charge as the Egyptian balance sheet is consolidated to the home one. Accord- ingly, CIB benefited and continues to benefit from its strong capi- tal position in the competitive landscape, where most of the play- ers continue to have a fair amount of “catching up” to do. Consistently Good Returns on Equity Over the past several years, all of the Bank’s businesses have earned strong returns on equity and in 2014, consistent with its upward trajectory, ROAE recorded 31.3% (after profit appropria- tion based on the suggested profit appropriation schedule). Cost Controls Personnel and administrative expenses increased by 19.1% in 2014. We expect that expenses as a percentage of revenues will inch up a bit over the coming few years as we continue to invest for the long-term growth and sustainability of the Bank, namely in technology, training, and other investments geared towards automating and improving efficiency and op- erations. However, we will continue to be vigilant about our expenses and cost : income will be around the 30% bench- mark set with the Board of Directors. B. Scale and breadth of customer base create strong competitive advantage and large cross selling platform CIB’s personnel have deep understanding and experience in the Egyptian market and are able to anticipate and quickly react to changes in consumer needs and market trends. We build our of- ferings around our customers’ wants and needs, deliver better experiences, and make banking convenient. We aim to stay true to the great traditions of banking and create real value in the real economy. Parting from that notion, CIB is constantly developing its product range with its primary objective being a “one-stop- shop” able to fulfill all of our clients’ financial needs as they arise. CIB has been the bank of choice for over 600 of Egypt’s prime cor- porations throughout its history and is determined to extend the same leadership to the retail and mid-cap segments, where the Bank now has a special focus. In this respect, CIB aims not just to be the best provider of con- ventional banking services to corporate clients, but also to retail customers and mid-cap companies in Egypt. This has resulted in a sustained effort to improve the quality and breadth of products and services, which would allow the Bank to penetrate new seg- ments. CIB’s unrivalled market expertise and longstanding re- lationships on the institutional side of business has ensured our businesses operate at good economies of scale and gets signifi- cant additional advantages from the other businesses. The Bank has developed a cross-selling strategy set for the entire Bank with a product suite that includes the Bank’s af- filiates as well as advisory, Mergers and Acquisitions, and brokerage services through CI- Capital. Moreover, an active GCR (Global Customer Relations) program and GTS (Global Transactional Services) have and will continue to aid in the execution of this strategy. The Bank’s resources and capabili- ties are difficult to replicate, CIB can bring huge resources and extensive market expertise to bear for the benefit of the Bank and the clients. C. this has led to increasing market shares and customer satisfaction and loyalty to all of CIB’s businesses The aforementioned pillars are key because they contribute to increasing market share, customer satisfaction and, more im- portantly, customer loyalty. Such parameters are critical to the future growth of CIB’s businesses and drive both current and po- tential earnings power of the Bank. Our customers’ trust in our robust deposit structure — as well as the Bank’s ability to fulfill their lending needs — saw CIB gain market share of both depos- its and loans. CIB’s market share of deposits grew to 7.85% as of October 2014 ( Latest available figures), up from 7.63% in October 2013 and 7.37 in December 2013. Meanwhile, CIB’s market share of lending rose to 8.52% as of October 2014, up from 8.27% in Oc- tober 2013 and 8.28% in December 2013. II. Significant progress and continuous efforts to strengthen our Bank and adapt to the ever changing market dynamics CIB strives to provide comprehensive solutions to its customers by continuously investing in and developing its products, infra- structure, facilities and human capital. Significant investments, which might have been viewed by some as excessive, have been made over the years which have proven to be of substantial value and have turned into solid founding pillars that allow the Bank to become the “Bank of Tomorrow” we hope to be… A. Continuous investments in organic growth are paying off CIB owes its success in part to its strategy of continuous re- investment in the business, with a primary focus on organ- ic growth. Our main focus has been to improve our overall customer experience by investing in systems, services and resources. In addition to customer-related services, CIB con- tinues to improve its compliance- and regulatory-related sys- tems as well. Branch Network: CIB has a wide and ever-expanding dis- tribution network spread strategically across the country covering key governorates and locations within each gover- norate. As of December 2014 CIB had 161 branches and 588 ATMS. The key words for the Bank’s Branch expansion plans are convenience and easy access, to best serve its clients’ needs. With 40 years of experience in the Egyptian market, CIB was able to see the sector shift direction from corporate to retail banking early on and made significant capital ex- penditures in terms of branches and ATMS to accommodate the retail sector and deepen CIB’s penetration of the consum- er banking arena. Another key pillar is Technology, which is a core part of our value proposition to customers as it drives the experience of our customers as well as our risk and controls management.. 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. Over the years, we upgraded our IT in- frastructure and technical services. By having added criti- cal new functionality, additional capacity and working on streamlining our technical environment, CIB remains stead- fast in providing a better experience to our customers. With the great strides achieved in technology upgrades as well as ensuring the stability and sustainability of all our systems, we now have the foundation to help us build the advanced services that will better serve our business goals. The Bank is also focused on productivity gains through centralizing operations, while working on several automa- tion projects to enhance productivity. Moreover, developing robust Alternative Distribution Chan- nels to cater to all of our clients’ needs outside the premise of branches rates high on CIB’s strategic agenda. Investments in the alternate distribution channels namely ATMs, POS, mobile and online space are now helping CIB define what it means to be “The Better Bank” in the digital age. B. nurturing employee talent through significant investments in training and development programs CIB embraces values that foster a performance culture that at- tracts the best, and allows its people to do their best. In order to do so and position the Bank as a hub for the best talent in the industry, CIB adopts HR policies that are targeted at employee satisfaction through ensuring that all employee suggestions and ideas are heard and collected through the Innovation Lab and also through continuous improvement in competency and effi- ciency of human resources. Recruitment and Selection CIB’s selection criteria are constantly reviewed to ensure efficient selection of individuals based on job requirements, relevant qual- ifications and experience. In 2014, a major focus for recruitment was to provide CIB staff with opportunities for growth and career advancement; more- over inducing the culture of promoting from within to offer a cross exposure between lines of business and support areas and help develop best-in-class banking talent. Through campus visits, external job posting and having a presence at ten employment fairs; we were able to attract over 300 new hires to date. One of our main sources for summer and credit interns came from on-campus outreach, including employment fairs, winter training initiative, and events such as “An Em- ployer’s Perception of Your Resume at AUC.” We continued to provide a fourth round from our unique summer intern- ship program this year with a carefully selected group of 50 summer interns from reputable universities. Retention rate of new hires increased by 1% in 2014 versus 2013. Learning and Development In 2014, L&D objectives were conceptualized and used as a way to make learning more efficient through a very well- structured training strategy covering all bank areas and lev- els to ensure that all CIB employees have a fair opportunity of gaining the skills and knowledge required for their devel- AnnuAl RepoRt 2014 15 CIB: An Introduction opment and growth. As capability building is central to our organizational performance, L&D focused on implementing a comprehensive portfolio of programs that were tailored for senior managers involving strategy formulation, setting the vision and long term plans while middle management pro- grams aimed at expanding leadership capacities and skills. A bundle of more than 190 Business, Technical & Manage- ment programs took place, where 75% of CIB population re- ceived training. Furthermore in 2014, L&D introduced the “Job Families Ap- proach” in many areas of business with a focus on Consumer Banking, drawing the learning path for each level in every func- tion by offering different accreditation programs such as the “Wealth Accreditation” and “Plus Accreditation.” The core pro- grams for both Wealth and Plus segments covered all essential technical and business skills for performing the job at a higher and more complex level. New learning techniques have also been introduced such as: • E-Learning techniques and E-Library which played an important role in providing an easy accessible knowledge source. • Off-site Events which aimed at increasing loyalty and en- gagement of employees in addition to strengthening the team spirit. • Open Seminars which focused on adding new knowledge and enhancing employees existing skills. Organization Development The Organization Development (OD) department focused in 2014 on reviewing and updating all the Bank’s organization structures and job descriptions in order to ensure organiza- tion and role design effectiveness and alignment with CIB’s overall strategy. In addition to updating all HR policies and procedures to ensure effectiveness in supporting the de- sired culture within the Bank and in maintaining fairness and equity standards among all bank employees. One of the OD department’s main objectives is to identify and retain the Bank’s key talents. This was carried out in 2014 through the launch of the MADP program (Manage- ment Associates Development program) second batch which creates a pool of talented future leaders with profes- sional banking foundation to support the bank strategy in maintaining its market position and competitive edge. The Employee Effectiveness Survey project has been one of the major and ongoing initiatives of the OD department to measure employee engagement and enablement levels across the organi- zation and to identify various areas requiring organizational/ cultural improvements. CIB’s third Employee Effectiveness Sur- vey was administered in June 2014 by Hay Group – a global man- agement consulting firm. The OD team has worked closely with internal stakeholders on the development of integrated action plans targeting shortcomings identified in the survey results to ensure they are effectively addressed and ultimately to optimize overall employee satisfaction and organizational performance. sustain critical functions with minimal customer impact. Lead- ing as always, CIB was the first and only local bank in Egypt to begin enforcing Business Continuity standards since 2010. CIB started to put in place fully-fledged business continuity plans that cover all branches, and head-offices with advanced information technology disaster recovery capabilities that act- ed as a brick wall to lean on during disruption events. CIB ensured all standards and policies were in accordance with the British Standards - BS25999, and with a future plan to become ISO22301 certified. The Bank has responded to several incidents and crisis events since 2011 with minimal impact on customers. These have included: • Lack of access to the Bank’s headquarters. CIB, being al- ready prepared, re-invoked the business continuity plans and the Bank was able to have all its critical functions up and running at alternate sites within one hour. One of the main challenges during this time was the unavailability of personal and departmental shared data in the disaster re- covery location, for which a project was initiated to create a centralized data server to accommodate all users’ critical data and allow accessibility from alternate sites. • Frequent power outages. CIB has increased UPS capacity in branches, extending standby time, and installing electric generators at a number of branches. • Severe shortage of petroleum products. This directly affected all staff transportation and inter-branch mail cycles; however, this was effectively managed through different workarounds. Despite the fact that the past three years have not been smooth for most organizations, CIB has proven itself to be a reliable, trustworthy organization, ready to respond under severe circumstances. In recognition of CIB’s Business Continuity & Crisis Manage- ment efforts during 2013 and 2014, CIB was runner-up for one of the most globally-recognized Business Continuity & Crisis Man- agement excellence awards “Response & Recovery of the Year.” Such an acknowledgement by one of the leading certifica- tion bodies in Business Continuity & disaster recovery plan- ning (DRI) is a testament to CIB that adds a lot a value to- wards its competitive edge and reiterates CIB’s reliability and trustworthiness to respond to adverse events and continue to meet customer expectations as a “Bank-to-Trust” and pave the path for more excellence in the business continuity readi- ness and planning within the organization III. positive long-term outlook for egypt A. egypt has been getting better not worse… we have an abiding faith in our country Despite the political and economic challenges of the past few years, Egypt’s fundamentals remain solid. The diversity of our economy, in particular, buoyed the country’s resilience and the underlying Egyptian business growth story is a good one; prom- ising investment opportunities are still to be found in Egypt. C. ensuring business continuity through high-quality, relevant infrastructure CIB strove throughout the prevailing political and economic circumstances to continue providing high quality services and B. CIB is egypt and egypt is CIB Often, investors and analysts view CIB as a proxy for the Egyptian economy, where the Bank mirrors the local banking sector: the near-term recovery is captured in the credit outlook, while the 16 AnnuAl RepoRt 2014 longer-term story of low financial penetration is captured in the expansion of retail banking. posits and savings accounts. Deposit market share grew 48 bp during 2014 to reach 7.85% in October 2014. CIB is also one of Egypt’s most liquid stocks (with 6M average daily traded value of USD 6.7 million and 93% free float) and the most valuable financial institution with a market cap of 44.7 bil- lion as of end-December 2014. CIB plays a significant role in the indices of the Egyptian Exchange and has the highest weight (around 29.4%) in the EGX 30 index. Worthy to mention that upon calculating total cumulative shareholder returns over 10 years, EGP 100 invested in CIB share 10 years ago increased to EGP 829.5 whereas EGP 100 invested in the EGX 30 reached only EGP 335.7. Thus reaffirming CIB’s position as the gateway to Egypt. C. our clients are growing and they need us There is no doubt that risk and uncertainty remain, but we need to put it all into perspective. There are many positive factors as demonstrated in previous sections. CIB, as a firm believer in the Egyptian underlying growth story, along with management and employees will continue to deliver superior performance and enhance the Bank’s financial condition and prospects, and con- tinue to drive real development in the economy and produce val- ue for our customers, employees and shareholders. The financial needs of the country, companies and individuals will continue to grow over time. And CIB is there to harness and endorse that growth to grow and help others grow. Other than being the tag line for the Bank’s successful adver- tising campaign, being “A Bank to Trust” encapsulates a multi- tude of CIB’s values and priorities. We believe in relationships as a key to delivering quality growth. Being the Bank to Trust means providing our customers with appropriate solutions to their financial needs. Through listening and learning, the Bank will continue to develop innovative products and services to complement the existing transactional services that are safe, convenient, efficient and reliable. 2014 financial position CIB produced yet another record financial performance in 2014. Consolidated net income for full year 2014 was EGP 3.74 billion, 24% over 2013. Standalone net income reached EGP 3.6 billion, 39% over 2013. Standalone revenues grew 24.4% over 2013 to reach EGP 7.7 billion. CIB recorded net interest income of EGP 6.3 billion, 24% over 2013. Non-interest income achieved the highest annual growth in the last 4 years reaching EGP 1.75 billion. Net fees and commis- sion income grew 31% year-on-year to reach EGP 1.71 billion. In a managed environment, CIB improved margins, spreads and performance across all indicators. Consolidated year-to- date ROAE was 31.3% (after appropriation) up from 29.5% in 2013. Consolidated ROAA recorded 2.91% up from 2.89% in 2013, Net interest margin increased by 5 bp to reach 5.41%. CIB improved its efficiency, cost-to-income recorded 22.7% compared to 23.5% in 2013; the lowest cost to income ratio in the last 5 years. Gross loans grew by 17%, adding EGP 7.7 billion during the year to reach EGP 53.1 billion. CIB market share reached 8.52% in Oc- tober 2014 compared to 8.27% in December 2013 as management focused on efficiency and loan portfolio quality. CIB grew deposits strongly during the year, adding EGP 25.1 billion to reach EGP 122 billion (26% increase over 2013). The Bank had the highest growth in deposits among its peers, driven by growth in local currency demand deposits, certificates of de- 1 CAR based on Basel II as modified by CBE before profit appropriation CIB maintained its strong and resilient balance sheet and capital base, reflected in a comfortable capital adequacy level1 (14.05%) 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 com- missions, deposit and balance sheet growth. Overall, CIB had a strong financial performance exceeding P&L targets in 2014. Appropriation of Income The Board of Directors has proposed the distribution of a divi- dend per share of EGP 1.20. In addition, CIB is increasing its Legal Reserve by EGP 182.2 million, to reach EGP 803.3 million, and its General Reserve by EGP 1,899 million, to reach EGP 3,749 million, thus reinforcing the Bank’s solid financial position as evidenced by a Capital Adequacy Ratio of 14.05% and an Adjusted CAR (in- cluding profits attributable to shareholders) reaching 16.77%. 2014 Activities CIB’s diverse mix of revenue streams enabled us to weather a challenging operating environment this year, and our business model enabled us to continue to invest for the future. And we con- tinue to stand out in the industry as the best Private Sector Bank, with a number of impressive recognitions on all sides of our busi- ness: Institutional, Consumer Banking and Operations. Institutional Banking Activities CIB sustained its preferred and most trusted business partner po- sition through meeting corporate clients’ expectations and needs in a most timely and precise manner, offering best-in-class finan- cial structures and advisory services to its clients with its compe- tent team, customer oriented approach and innovative product portfolio and distribution channel. The Group’s growth strategy focused on three key elements: • Enhancing profitability of current business • Increasing operating efficiency • Expanding synergies and cross selling initiatives with- in the bank By doing this, the IB Group continued to be the primary con- tributor to CIB’s bottom line profitability, generating almost 70% of the Bank’s profits. Institutional Banking’s net income before tax increased by 39% over last year to reach EGP 3.8 billion in 2014, mainly on higher net interest income, foreign exchange gains and strong trade services performance and controlled expense growth. On another note, the Bank’s strong disciplined and proac- tive risk framework has been essential in withstanding the uncertain economic environment in Egypt. As a result, the Bank was able to deliver strong results, serve our clients well and maintain our reputation as a market leader, despite eco- nomic challenges. Consumer Banking Activities The focus on 80+ million people as Egypt’s most precious re- source underpinned our vision several years ago when we made the strategic decision not to expand regionally, but rather AnnuAl RepoRt 2014 17 CIB: An Introduction to become the dominant player in Egypt. Creativity was at the heart of an endeavor that has seen us transform CIB in less than a decade from a niche, corporate-focused bank into the nation’s largest private-sector financial institution, helping individuals, small businesses and major corporations alike creatively mobi- lize the capital they need to grow. The Consumer Banking division continued to assert itself on all fronts throughout 2014, dedicating extraordinary ef- forts to improving customer satisfaction and responding to their needs through focusing on promoting a consistent, posi- tive customer experience. Such actions were achieved through adding and renovating the Bank’s extensive branch network, the introduction of an array of innovative new offerings and enhanced efficiencies and, most importantly, bridging client needs and our skill set derived through unrivalled insights into the dynamics of the local market. This enhanced customer service and attracted new customers, enabling CIB to achieve growth in its consumer assets book despite challenging con- ditions in 2014, and with no significant deterioration in credit quality, thus maintaining its competitive edge in the market. Consumer Banking net income rose 20% over last year to reach EGP 1.1 billion in 2014, contributing 30% to CIB’s gross profitabil- ity. Consumer Banking gathered EGP 17 billion in deposits aided by the launch of two tailored new products for the household seg- ment designed to add value. These products are Save & Safe sav- ing account bundled with several insurance benefits and Miles Everywhere Current to enhance CIB’s competitive advantage. operations The Operations Group sustained its focus to align with the Bank’s strategic direction and business plan, enhancing collaborations by placing the Information Technology Group and CIB Branding under the same operations domain. These changes aim to opti- mize work efficiencies and synergies between the operations and technology functions and streamlining the process flow. As the Bank moves towards an aggressive growth agenda and business aspirations in its five-year plan, and as we continue to explore different business opportunities and growth objectives, it becomes very important to apply effective controls from different aspects in support of the business plans through well-established policies and guidelines and proper governance of critical control functions. A new Chief Security Officer (CSO) function has been established to manage and mitigate security related risks across different aspects within the organization including physical, cy- ber & IT security as well as Information Security. In line with our continuous efforts to achieve the highest stan- dards of performance and customer experience, a set of surveys were conducted to identify our current position within the indus- try. Surveys such as Competition Benchmarking Analysis and Cus- tomer Satisfaction surveys conducted for individuals, corporate and mid-corporate clients assisted in identifying the approach for raising our service level standards in comparison to other banks within the industry. A brand awareness survey was also conduct- ed to support our objective for better brand positioning. The Alternate Channels delivered on stretched goals, which contributed to easing pressure on our branch network and improving our customer experience via improvements across the alternative channels. This included an expansion of our ATM network to about 600 machines, as well as the addition of new features. Also, Phase 2 of our new online banking por- 18 AnnuAl RepoRt 2014 tal has been launched, as part of our continuous effort to en- hance our services platform for our customers and improve their experience with CIB. In 2014 our Call Center supported inquiries, transactions, requests and complaints over the phone for more than 3 mil- lion self-service and agent handled calls. We also introduced the first banking social media platform in the Egyptian banking industry which is available 24x7 to handle all cus- tomer communication. Additionally, the interactive video call agent has been launched where customers can interact visually with the call center agents. The COO Group is setting the stage for 2015 by introducing a number of key projects that aim primarily to improve our opera- tional efficiency and customer experience. This will be achieved through fully fledged Customer Relationship Management and Business process Management systems. In addition to a number of key automation projects that will significantly improve our productivity and efficiency. Awards and recognition CIB has continued to receive global recognition for the Bank’s outstanding performance and reputation. Some such notable awards include: • Best Foreign Exchange Providers 2014 – Country Winner – Global finance • Best Trade Finance 2014 – Global Finance • Best Investment Bank 2014 – Global Finance • Best Trade Finance Bank by GTR • Best Emerging Markets Banks in Africa – By Global Finance • Best Bank in Egypt – Euromoney Excellence Award 2014 • Best Sub-Custodian by Global Finance • Best FX Services in Africa Award – by EMEA Finance • Best Corporate/Institutional Internet Bank in Egypt – Global Finance • Best Online Cash Management – Global Finance • Best Integrated Corporate Bank Site – Global Finance • Best Information Security Initiatives – Global Finance • Pan – Africa Award for Corporate Social Responsibility by EMEA Finance • Best local bank in Egypt Award – by EMEA Finance • Elite Quality Recognition Award from JP Morgan – MT 103 (99.23% for five consecutive years) • Elite Quality Recognition Award JP Morgan – MT 202 (99.8% for nine consecutive years) • Bank of the Year Egypt – The Banker • Best Company for Investor Relations in Egypt –2014 Middle East Investor Relations Study, carried out by Extel in part- nership with the Middle East Investor Relations Society • CEO of the Year - EMEA Finance African Banking Awards 2014 These awards came in recognition of the Bank’s leadership of the Egyptian banking sector, underpinned by the institution’s deep understanding of its customers’ needs as well as the vari- ables in the local and international markets. The Bank was also singled out for its adherence to rational credit principles and commitment to strict policies and risk management standards. 2015 Business outlook As discussed earlier, in light of the political stability and the government stance focusing more on the economy, the econ- omy is set to jump-start and companies as well as individu- als are regaining their faith in the country; in short, Egypt is now a go. CIB is ideally positioned to benefit from improving growth dynamics. Armed with deep corporate relationships geared to companies that are in stronger financial health – i.e., local and international blue-chips – than most, and therefore able to seize on growth opportunities early on by investing. Moreover, CIB is liquid and well capitalized, and its asset quality is strong with high coverage ratios in addi- tion to low funding costs and high operational efficiency. All these factors combined lead us to conclude that CIB can and will focus on growth without distractions, whether it be on the institutional or the consumer side of business. Synergy realization CIB’s businesses provide integrated and diversified products and services through its affiliation with CI Capital and its subsidiar- ies, which hold numerous opportunities for CIB and will acceler- ate our ability to increase product penetration with the aim of generating incremental value through cross-selling. CI Capital generated consolidated revenue of EGP 310 million, 2x over 2013. Brokerage revenue increased 3x over last year to reach EGP 180 million and was the second ranked brokerage house in 2014 as it was able to grow its market share of foreign participation in the Egyptian Stock Market at a CAGR of 40% 2012-2014, taking it from an average share of foreign flow of 17.6% in 2012 to 35% as of 2014 to date (a growth rate that sur- passes all other MENA-based brokers). The Group’s investment banking arm is the #1 ranked advisor in Egypt, having successfully executed ~EGP 90 billion in trans- actions since inception, with more than EGP 60 billion executed since the beginning of 2013. CI Asset Management maintained its market share at 11.5% (as of Sept-14) and had the best performing Egyptian equity funds of 2014. Finalizing the launch of CIB Balanced Fund, an open-ended fund with an initial size of EGP 100 million, CIAM was awarded the “Best Asset Manager in Egypt” by Global Inves- tor for the fifth consecutive year. CIB: Banking on Sustainability CIB is and continues to be committed to a perceptive longer term vision of the future that strikes a sound balance be- tween the strategic goal of increased profitability as well as serving broader socioeconomic and environmental interests; the backbone of any sustainable success and distinction. En- vironmental sustainability, corporate social responsibility and corporate governance are therefore the key factors in measuring sustainability. environmental Sustainability CIB has achieved several milestones on the environmental sus- tainability front during the past eighteen months: • Reinforced our resource-efficient efforts, decreased our carbon foot print and are expanding “quick wins,” engag- ing staff at every level. The Bank decreased its astronomi- cal paper consumption — which was almost the height of our great pyramid — through the practical expedient of ensuring double-sided printing and replacing personal la- ser printers and relying more on digital platforms such as archiving and email. CIB also planted organic rooftop gar- dens in several head offices and installed green walls. The Bank is developing an integrated solid waste management system and smoking restrictions continue to be more strin- gently enforced. • Worked diligently in the field of water conservation through the principle of “reduce for use.” This decreased water con- sumption by about 20%. • Enhanced energy efficiency. LED lamps are in the process of installment at all the head offices and branches. This will cut back on the Bank’s electricity bill by about 25%. CIB is concurrently moving forward on an air-conditioning ini- tiative to maintain a cool environment, and again, reduce costs. This mega project will be completed in 2015. • Developed its first Social and Environmental Management System (SEMS), which is a risk management framework that includes a set of actions and procedures enabling us to avoid exposure to credit, compliance and other detrimental risks as well as advance durable business opportunities. • Developed its first Sustainability Report, aligned with in- ternational best practices. It is based on the Global Report- ing Initiative (GRI), a globally-recognized initiative that provides a comprehensive sustainability reporting struc- ture that is widely used around the world. • CIB also participated in the second pollution abatement project (EPAP II). This project provides a financial package to support public and private industries to improve their environmental status. • Also on the Economic and Finance side, CIB is commit- ted to continuously and significantly increase its fa- cilities to a number of environmental friendly projects from the Corporate Banking side. Such projects include but are not limited to: CIB granted International Water Treatment “IWTC” facility amount of EGP 147 million. The company’s main objective is to design and imple- ment all types of tools, machinery, equipment and spe- cialty water treatment chemicals used in the waste wa- ter treatment process. Moreover, CIB provided facilities to power services companies such as Middle East Engi- neering & Telecommunication Co. (MEET) and Onera Systems, which is a subsidiary of MEET, to provide in- tegrated solar energy systems through the manufactur- ing and assembly of solar cells, energy systems, power systems and its related control units. Corporate Social responsibility We at CIB feel strongly about our country and giving back to our community is, and has always been, atop of the list of priorities and at the heart of our responsibilities. At CIB, we turn commitments into actions, with the ultimate goal of ensuring that our efforts are having a profound impact on people’s lives. Through our CSR programs, the CIB team is firmly dedicated to supporting Egypt; where we live and operate, and is proud of its achievements. Community development During the course of 2014, CIB took concrete steps towards achieving meaningful Corporate Social Responsibility (CSR) activities, and continued with its endeavors to give back to the community. At CIB, the concept of CSR has sprung up and is AnnuAl RepoRt 2014 19 CIB: An Introduction steadily becoming an important facet of its business’s strategy. CIB’s steadfast commitment has been clearly evidenced by a diverse range of CSR accomplishments that the Bank has em- barked on during the past 12 months. CIB Endowed Professorship in Banking: For the second con- secutive year, CIB has continued in its Endowed Professorship in Banking at AUC. The signature took place in 2013 to pro- mote knowledge of banking and enhance education in Egypt through teaching, research and service. The main objective of establishing the CIB professorship in banking is to design and implement banking curriculum in different educational pro- grams. AUC’s Partnership with CIB is a major step towards in- tegrating industrial trends into classrooms to reach students with fresh young minds. Through the professorship, 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 School of Business and key members of the banking commu- nity, including regulators, boards, executives and others. Kidzania: In 2014, CIB continued its five-year partnership with KidZania that was initiated in 2013 to build brand loyalty and exposure to the Bank for youth and their parents. This year, CIB organized two free trips to children with special needs to KidZania, under the supervision of the CIB Foundation. At KidZania, children perform ‘jobs’ and are either paid for their work as firefighters, doctors, police officers, journalists, etc., or pay to shop and play. Through CIB’s partnership with KidZa- nia, the Bank has opened a mini-branch on the premises which allows children to cash cheques, get debit cards, and deposit or withdraw kidZos, the official currency of KidZania, from ATMs around KidZania. KidZania Cairo offers kids a variety of fun and interesting role-playing activities in a realistic city setting. Job activities are associated with real-world brands, allowing kids to create and learn with realistic results. CIB is proud to be part of such an experience and taking part in enhancing community develop- ment through instilling sound financial skills and experiences. IMAX: In 2014, CIB sealed a partnership with the 3D IMAX cinema in Americana Plaza, where the CIB Foundation orga- nized a trip for c. 550 children. Through CIB’s corporate spon- sorship of the IMAX, five dedicated movie screenings have been allocated to the CIB Foundation as part of the Founda- tion’s ongoing CSR program. Children with various mental and physical disabilities, as well as children from an under- privileged area in Cairo, were shown the new Teenage Mutant Ninja Turtles movie, as well as an educational film about cli- mate change. The Foundation also provided the children with transportation to and from the cinema, as well as snacks and drinks during the movies. Sponsoring Talent: As part of CIB’s Corporate Social Respon- sibility (CSR) framework, the Bank has obtained 86 pieces of dis- tinguished art graduation projects of fresh graduates of Alexan- dria University’s Faculty of Fine Arts. The initiative is the first of its kind in CIB history and comes as a step in the Bank’s upcom- ing plan to support artists all over Egypt. A total of 56 artists were honored; the artists were selected from the departments of paintings, sculpture and design. Youth Salon: For the fourth consecutive year, CIB supported a new generation of young, aspiring, gifted artists through spon- soring a yearly national art competition, which exhibits a collec- 20 AnnuAl RepoRt 2014 tion of distinguished art works. CIB collaborated with the Fine Arts Division at the Egyptian Ministry of Culture to support the trending artists under the age of 35. El Sawy Cultural Wheel: Another effort to support arts and culture in Egypt was evident in CIB’s partnership with El Sawy Cultural Wheel. The sponsorship aimed at lending a support- ive hand to all artistic and cultural activities taking place in El Sawy Cultural Wheel, which include documentary films, cultural nights, concerts and art exhibitions. CIB’s role in El Sawy Cultural Wheel is more than a sponsorship, manifesting as an actual part- ner to all activities scheduled monthly in the Wheel’s premises. Zawya: Sponsoring Zawya, an art-house cinema located in Downtown, is another endeavor from CIB to support cul- ture. Zawya is an initiative by Misr International Films (IMF) which holds art-house screenings across the country. By making use of already existing theaters, Zawya will screen an alternative selection of films from the Arab region, Europe and the rest of the world. Zawya’s program focuses on local independent films to encourage and promote the work of young Egyptian and Arab filmmakers. School Concerts at Cairo Symphony Orchestra: CIB gives a supportive hand to children’s artistic talents. At the Cairo Op- era House, CIB sponsored two school concerts that brought students from governmental schools in under-privileged areas and organizations that cater for street children and orphan- ages to watch thrilling entertaining artistic shows performed by children in Cairo’s Opera House. Autism: CIB gives special attention to children with Autism and other disabilities. The Bank has sponsored a ceremony or- ganized by the Egyptian ADVANCE society for Persons with Autism and Other Disabilities that showed rhythmic and musi- cal paragraphs performed by the student’s society. During the event, the students demonstrated their potential and abilities, which brought joy to them, their parents and all the attendees. The concert aimed to raise awareness about the expressive and creative abilities in children and youth with disabilities; allow participants with disabilities to express themselves and inte- grate with others. Sponsoring Egyptian Squash Federation: CIB has al- ways been a strong advocate of sports in Egypt. This was evident in our sponsorship of the Egyptian Squash Federa- tion, in which Egypt won the women’s individual cham- pionship again this year in Namibia. The champions are eligible to compete for the World Junior titles in Egypt. As a matter of fact, according to the latest rankings, Egypt has some of the top male, female and juniors players in the world. where in Women we have the 3rd, 5th, 8th and 10th ranked players in the world. While in men, the 1st, 3rd, 8th and 9th ranked top players are Egyptian. On the Juniors level, Egypt has the 1st ranked Juniors Girl player and 2nd ranked Juniors Boys. CIB foundation In 2014, the CIB Foundation saw exponential growth with the expansion of its operations across several governorates in Egypt. In addition to supporting its existing projects, the CIB Founda- tion has recognized the importance of identifying new areas in need, both geographically and in terms of the health services it supports, with the ultimate goal of creating new beginnings for children across the country. Through the CIB Foundation’s supported projects, health in- stitutions in Mansoura, Sohag, and Aswan are being enhanced through the provision of state-of-the-art equipment. Minimal- ly invasive pediatric endoscopy equipment will help smooth operations at the Mansoura University Hospital, and essential intensive care units will be operational in both the Sohag and Aswan University Hospitals. Additionally, the CIB Foundation’s 6/6 Eye Exam Caravan program, which has been operational since 2012, was suc- cessful in providing over 12,000 elementary school students with eye health awareness and free eye exams in 12 gover- norates, including Fayoum, Minya, Beni Suef, Gharbeya, Da- kahlia, Suez, Assiut, and Aswan. Furthermore, the CIB Foun- dation established the Maxillo-Facial Center at the Cairo University Faculty of Dentistry, providing the first free-of- charge, pediatric prosthesis services in Egypt. Corporate governance One of the main pillars of CIB’s strategy is focusing on sustain- able banking through committing to sound Corporate Gover- nance practices. Parting from CIB’s conviction that adhering to good corporate governance standards is a key building block for managing the Bank effectively and achieving its strategic operational plans, goals and objectives, the Bank continually adjusts to reflect the latest local regulations and international best practices. CIB has always been a pace setter in the area of corporate gov- ernance as the Bank believes such practices are vital to the cre- ation of long-term, sustainable value for our stakeholders. CIB’s overall corporate governance framework assures the alignment of the interests of shareholders and managers as well as monitoring the management of the business through the dissemination of information and transparent reporting. In this context, the Bank’s governance framework is directed by a number of internal policies and regulations that cover a wide range of business and fiduciary aspects including risk manage- ment, compliance, audit, remuneration, evaluation, succession planning, ethics and conduct, budgeting and capital manage- ment. Clear and segregated reporting lines in different areas of the Bank together with highlighting any potential conflict of interest, are set in place throughout CIB along with a continu- ous chain of supervision and communication channels for the Board’s guidance and strategy. Transparency, fairness, disclo- sure and meritocracy are at the core of the Corporate gover- nance framework. The Board and its specialized committees both executive and non-executive constitute key elements of the governance frame- work and are governed by well-defined charters. The Board’s non-executive committees; consisting of Audit Committee, Corporate Governance and Compensation Committee, Risk Committee, Operations and IT Committee and Sustainability Advisory Board, along with the executive committees compris- ing Management Committee, High Lending and Investment Committee, Affiliate Committee are tasked with assisting the board members in accomplishing their responsibilities and ob- ligations with respect to their decision-making roles. CIB’s Board consists of eight members, one executive member and seven non-executive members, on of whom represents Fair- fax’s interest in CIB, while the majority of non-executive mem- bers are independent. The Board collectively possesses a wide range of industry expertise and knowledge that adequately en- ables it to set balanced strategic direction and to offer manage- ment a clear implementation route for the aspired goals. CIB’s Board met seven times over the course of 2014, during which, with the assistance of its committees, the board mem- bers effectively fulfilled their main responsibility of exerting the requisite oversight over the Bank and that CIB’s activities are run in a manner that meets the highest ethical and fidu- ciary standards, thus enhancing the long-term value for the shareholders, through: • Approving the Bank’s strategy and major policy decisions • Supervising the affairs of the Bank and overseeing the ex- ecution of the Bank’s strategy by the officers and employees under the direction of the CEO • Assuring that the long–term interests of the shareholders are advanced responsibly as well as assuring disclosure of reliable and timely information to shareholders • Evaluating, compensating and ensuring that there is proper succession for key management roles • Developing and monitoring the Bank’s internal audit and risk management policies and strategies. The Board sets the risk policies and the risk appetite and constantly mon- itors the Bank’s risk profile against said appetite, through the CIB risk department Moreover, the Board of Directors continued to work on en- hancing the comprehensiveness of the bank’s corporate gov- ernance framework especially in connection with risk and compliance matters. In an effort to reinforce its risk based ap- proach, the Board has and is in the process of moving towards an ERM (Enterprise Risk Management) Framework. The ERM concept aims to provide the Bank with the necessary con- trols, communication and risk-informed decision making to achieve the right balance between risk and reward. CIB has taken concrete steps to ensure accountability and institutionalize its corporate governance guidelines in compli- ance with the applicable laws and regulations of the regulators. During CBE regular audit missions, CIB’s management ensures that the auditors are provided with all necessary documents to fully perform their audits. CIB’s Internal Audit team closely follows up with the Bank’s management to take all corrective measures with regards to CBE’s audit comments. Furthermore, given the utmost attention to maintaining the highest levels of governance and adherence to the disclosure requirements of the stock exchanges where the Bank is listed, CIB’s investor rela- tions team is committed to consistently sharing high quality in- formation with all stakeholders regarding the Bank’s activities with emphasis on transparency. Finally and with the objective of continuously improving Com- pliance measures as key element of the Bank’s control framework, several channels for staff issues/code of conduct and petitions have been introduced and announced to employees. In 2014, the Compliance department received a total of 54 complaints all of which have been resolved, including 7 misconduct cases, 5 whistle bowing and 42 cases of Fair treatment of employees pertaining to delay in promotions, challenges in managing staff performance (evaluation disagreements), working environments, misuse of au- thority, management style and contracts renewal issues. AnnuAl RepoRt 2014 21 CIB: An Introduction In Closing: measuring CIB’s performance during 2014 Through our Performance measures we communicate our priorities and benchmark CIB’s performance versus its peers as we strive to be The Bank to Trust. The following table highlights our performance against these measures. 2014 performance measures results Key financial Highlights I. Balance Sheet (in egp millions): a. CIB Standalone • ROAE of 26.9% vs peer average of 22.7% ( As of total Assets • Maximize shareholders equity and deliver above-peer-average total shareholder re- turn • Grow earnings per share (EPS) • Deliver above-peer-average return on risk- weighted assets • Grow revenue faster than expenses • Identify market gaps and attain first mov- er’s advantage by laying the groundwork ahead of our peers to allow us the ability to benefit from rising opportunities as they present themselves. fInAnCIAl BuSIneSS operAtIonS CuStomer • Improve customer experience • Invest in core businesses to enhance cus- tomer experience 3Q14) • 34% EPS growth • Cost to income decreased to record 22.7% • Consumer Banking net income rose 20% over last year to reach EGP 1.1 billion and gathered 17 billion in deposits aided by the launch of tailored new products for the household segment designed to add value. • Institutional Banking net income before tax in- creased by 39% over last year to reach EGP 3.8 bil- lion, mainly on higher net interest income, foreign exchange gains and strong trade services perfor- mance and controlled expense growth. • Refer to “Significant progress and continuous efforts to strengthen our Bank and adapt to the ever changing market dynamics for details employee CommunIty SAfeguArdIng tHe IntereStS of SHAreHolderS • Improve employee engagement score year- over-year • Enhance the employee experience by: 1. Listening to our employees 2. Providing a healthy, safe and flexible work environment 3. Providing competitive pay, benefits and performance-based compensation 4. Investing in training and development • CIB conducts Employee Engagement Survey every two years with Hay Group to better un- derstand our staff members’ needs in order to unlock the full potential of people at work, and benchmark results across the best practices lo- cally, regionally and globally • The results are communicated to senior man- agement and accordingly, translated into action plan • Donate 1.5% of the Bank’s net annual profit through the CIB foundation • Make positive contributions by: • Supporting employees’ community involve- ment and fundraising efforts • Supporting advances in our areas of fo- cus, which include education, arts, culture, health and protecting and preserving the environment • CIB maintains a proactive investor relations program to keep shareholders abreast of de- velopments that could have had an impact on the Bank’s performance. The Investor Re- lations team and senior management invest significant time in one-on-one meetings, road shows, investor conferences, conference calls and a pro-active stream of disclosures while simultaneously ensuring analysts had the in- formation they needed to maintain balanced coverage of the Bank’s shares. • Refer to the CSR section for more details on CIB’s social involvement and giving back to society ini- tiatives • As a result of the IR team’s conscious efforts in asserting corporate access, in a 2014 Middle East Investor Relations Study, carried out by Extel in partnership with the Middle East Investor Rela- tions Society, CIB was named the “Best Company for Investor Relations in Egypt” and came in top three; 3rd place in the Overall Grand Prix “Lead- ing Corporates for Investor Relations” 22 AnnuAl RepoRt 2014 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 b. Consolidated CIB and CI-CH total Assets Contingent liabilities and Commitments loans and Advances to Banks and Customers Investments treasury Bills and other governmental notes due to Customers other provisions total equity II. Income Statement (in egp millions): a. CIB Standalone Interest and Similar Income Interest and Similar expense net Income from fee and Commission net profit After tax b. Consolidated CIB and CI-CH Balance as of 31/12/2014 Balance as of 31/12/2013 % Change 143,647 25,310 49,398 41,141 30,539 122,245 718 11,168 113,752 16,182 41,970 30,396 23,655 96,940 451 9,500 26% 56% 18% 35% 29% 26% 59% 18% Balance as of 31/12/2014 Balance as of 31/12/2013 % Change 143,813 25,310 48,804 40,807 30,549 121,975 730 11,013 113,752 16,182 41,866 30,063 23,665 96,846 455 8,953 26% 56% 17% 36% 29% 26% 61% 23% Jan.1, 2014 to dec.31, 2014 Jan.1, 2013 to dec.31, 2013 % Change 11,550 (5,274) 1,451 3,648 9,510 (4,460) 1,189 2,615 21% 18% 22% 39% Jan.1, 2014 to dec.31, 2014 Jan.1, 2013 to dec.31, 2013 % 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 11,545 (5,290) 1,710 3,743 3,741 9,521 (4,467) 1,307 3,006 3,006 21% 18% 31% 25% 24% AnnuAl RepoRt 2014 23 2014 In revIew 2014 in Review InstItutIonAl BAnKInG By supporting major industrial projects CIB is helping business- es and the economy to grow Corporate Banking group Recognized across the Egyptian market for its strong credit culture, the Corporate Banking Group is CIB’s fi- nancing arm, providing world-class financial structures and superior advisory services to its clients. The Group caters to the financing needs of large companies and has broadened its scope to serve medium-size companies as well, recognizing the importance of the latter’s role in the economy. 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. Competitive Advantages • A strong corporate business model. • Highly experienced staff supported by continuous train- ing to keep pace with the latest industry developments 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, petrochemi- cals, infrastructure, construction, food, tourism, shipping, ports, and real estate. • Ability to provide a wide and innovative array of fi- nancial schemes. 2014 Accomplishments • Corporate Banking Group remains a driving force for growth, and during fiscal year 2014 the Group financed ma- jor strategic projects that had a positive economic impact. These included: key projects in the power sector, leading to an increase in energy generation capacity of 2600 MW; supporting the Egyptian General Petroleum Cooperation’s trade and finance requirements; and landmark transac- tions in the real estate sector, to name a few. Corporate loan portfolio growth exceeded 14% in 2014. • Enhanced CIB’s share of wallet in the letters of credit busi- ness with our profitable corporate clients reaching 23%. 26 AnnuAl RepoRt 2014 • Captured approximately an 80% market share of shipping activities related to Suez Canal payments through facilitat- ing financial solutions for the Shipping sector, including shipping agencies, shipping service providers, container terminals and ship owners. • More than 90% of the trade business of our corporate clients is now conducted either through the Hubs or E- Trade portals, thus enhancing transactional efficiency and turnaround time. • Increased cross-selling of cash management and retail products — in collaboration with the GTS and Consum- er Banking Teams — to our eligible corporate customers with a 49% penetration rate for the GTS products and a 62% penetration rate for the payroll accounts to-date. • Continued restructuring of non-performing accounts to improve the overall risk profile of our loan portfolio and simultaneously positively impact the bank’s bot- tom-line profitability. • Introduction of the Hyperion Financial Modeling Solu- tion, which will be rolled-out throughout fiscal year 2015. • Introduction of an automated solution for checks across all of CIB’s branches, resulting in an enhanced follow-up system and reduced turnaround times. 2015 forward Strategy The Corporate Banking Group aims to achieve the follow- ing in 2015: • Continue selectively expanding our loan portfolio to achieve high-quality asset growth through a special focus on growth driving industries such as oil and gas, petro- chemicals, renewable energy, construction, infrastructure, real estate and tourism. • Place special emphasis on financing medium-sized compa- nies and multinationals while simultaneously enhancing our existing clients’ share of wallet. • Continue playing a vital role in supporting the Egyptian economy through financing the government’s planned mega projects during fiscal year 2015. AnnuAl RepoRt 2014 27 2014 in Review Corporate Banking Group remains a driving force for growth, and during fiscal year 2014 the Group financed major strategic projects that had a positive economic impact. • Increase customer loyalty and expand CIB’s market share in all sectors through the cross-selling of our Glob- al Transaction Services (GTS) products. • Enhance the Bank’s fee income stream through increasing trade business services. • Continue the introduction of non-conventional financial solutions to our distinguished corporate clients. • Further streamline the Business Enhancement Unit operational processes to ensure the extension of higher quality services and a quicker turnaround time to our corporate clients. • Implement the Electronic CAM Project. financial Institutions group (fIg) The Financial Institutions Group offers a variety of qual- ity banking products and financial services through three divisions: Correspondent Banking Division (CBD), Non-Banking Financial Institutions Division (NBFI) and Finance Programs & International 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 and 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. 2014 Achievements • Doubled the contingent trade finance portfolio through attracting letters of guarantee for mega and infrastruc- ture projects in Egypt. • Grew our relationships in Asia and Africa. • Maintained a well-diversified trade and forfeiting port- folio and continued expanding risk participation on both direct and contingent business focusing more on addressing the needs of CIB and its clients. 28 AnnuAl RepoRt 2014 2015 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. non-Banking financial Institutions division (nBfI) The Non-Banking Financial Institutions Division (NBFI) is a credit-lending division under the Financial Institutions Group. It provides credit facilities, liability products and ser- vices to all types of non-bank financial institutions. Targeted clients include companies involved in leasing, insurance, securities brokerage, auto finance, factoring and credit insurance, along with investment companies and non- governmental organizations (NGOs). 2014 Achievements: • Established new limits for existing companies and identi- fied new NGO accounts to accommodate Microfinance business. • Participated in landmark syndication and securitization transactions. • Maintained moderate levels of portfolio risk and managed an effective collection of loan portfolio payments. 2015 Strategy • Grow the loans and investments portfolio with quality play- ers in the leasing, mortgage and brokerage (clearing & set- tlements accounts) sectors in terms of volume and number of accounts. • Address our clients’ needs for trade finance and contingent facilities to support their business. • Aggressive marketing and cross selling of CIB liability products. finance programs and International donor funds (fp&Idf) The Finance Programs and International Donor Funds (FP&IDF) Division is uniquely specialized in managing sus- tainable development funds and credit lines provided by gov- ernmental entities and International Agencies that positively impact our community and environment. In collaboration with the Ministry of Agriculture and Land Reclamation, FP&IDF has encouraged private sector involvement in the agribusiness, while the division is also engaged in various en- vironmental and pollution abatement projects that aim to as- sist companies in making their operations more eco-friendly. FP&IDF also manages the CIB direct microfinance port- folio through a Microfinance services company and has re- cently extended its focus to include wholesale microfinance. Main Functions Agency Function: CIB acts as APEX (Agent Bank) for several funds, grants and credit lines providing an array of tailored operational servic- es including structuring and providing pre-loan assessment and post-loan monitoring. Participating Function CIB acts as a participating bank in several developmental programs that finance agricultural and environmental proj- ects with concessional terms. Microfinance The Division supports direct microfinance through a micro- finance service company that interacts directly with the end- users. FP&IDF expanded the focus to include microfinance wholesale lending in cooperation with banks and NGOs. Technical Assistance and Consulting Services FP&IDF offers an array of integrated and competitive consul- tancy services targeting development programs. 2014 Achievements • FP&IDF maintained CIB’s position as the leading agent bank in the market. • Provided CIB customers with preferential loans and grants to support the private sector in agriculture and pollution abatement projects. • Grew the microfinance and wholesale microfinance loans portfolio under a Social Fund for Development contract. • Contributed to cross-selling CIB’s various retail prod- ucts, including credit cards, consumer loans, and other consumer and corporate bank products. 2015 Strategy • Maintain our lead position as agent bank dominating donor funds. • Attract new developmental funds focusing on agricultural and renewable energy industries. • Strengthen relations with the Social Fund for Development and other governmental entities to better access new devel- opmental funds. • Address various market segments with creative products while capitalizing on guarantee mechanisms offered by multilateral financial institutions. • Grow the microfinance portfolio and adopt new business agreements to remain competitive in light of the new mi- crofinance law. debt Capital markets division (dCm) Business Profile The Debt Capital Markets (DCM) Division has an unprecedent- ed track record and unparalleled experience in underwriting, structuring and arranging large-scale project finance, syndi- cated loans, bond issues and securitization transactions, all of which are supported by a dedicated agency desk. The Division achieves its objectives by leveraging CIBs substantive under- writing capabilities, established relationships with interna- tional financial institutions and export credit agencies and placing capabilities in the local market with banks, insurance companies, money market and fixed income funds. Further- more, the Division provides large scale borrowers with better market access and greater ease and speed of execution. 2014 Achievements • In light of the gradual stabilization of the Egyptian mar- ket in 2014, the Debt Capital Markets Division successfully executed deals worth over EGP 31 billion in 2014, up from EGP 14.5 billion in 2013. The 2014 financing deals were pri- marily in the oil and gas, commercial real estate, petro- chemicals, building materials, power and infrastructure (PPP) 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 Book-runner in these trans- actions. Furthermore, the Debt Capital Markets Division has laid the foundation for future income generation with a substantial deal pipeline for an aggregate of EGP 21.8 billion expected to be closed during Q1 2015. The pipeline includes mega projects in the renewable energy and public services / utilities sectors, which the government is mak- ing a top national priority in the coming period. • The Debt Capital Markets Division also continues to be a leader in capital markets by playing a unique role in the local market through structuring and placing complex securitization structures. In 2014, the division structured and placed three local securitization deals for non-bank financial institutions with an aggregate issue size of EGP 1.28 billion while working on five other transactions worth a combined EGP 2.58 billion which are expected to close during the first half of 2015. 2015 Strategy 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 investments infrastructure and power substantial (with a special focus on renewable and green energy), 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 and Capital Markets department (TCM) is a top profit center for the Bank, providing a wide range of products and services. TCM’s products include Foreign Exchange and Money Market trading activities, primary and secondary government debt trading, management of interest rate gaps (with associat- ed hedging), and pricing of local and foreign currency deposits. Fixed Income Eurobonds are also traded with clients covering AnnuAl RepoRt 2014 29 2014 in Review sovereign fixed income bonds, whose price and interest rate are usually denominated in US dollars, while foreign exchange and interest rate products are used by our customers for both invest- ment and hedging. Our hedging products cover direct forwards and 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, interest rate caps / floors / structured products and target redemption. Moreover, third party FX for cash payments is also available through CIB where clients are able to purchase un- conventional currencies (not regularly available in Egypt, such as the Chinese yuan) and promptly transfer to the currency’s coun- try of origin to make international payments. Other FX yield enhancement investment products include dual currency deposits (DCD) and dual one touch deposits. The DCDs provide clients with a much higher yield on their USD and EUR deposits when compared with internationally announced rates on these currencies. The Corporate Sales Desk provides CIB clients with unparalleled service around-the-clock, includ- ing weekends and holidays, with daily market commentary, weekly technical analysis, a monthly USD/EGP outlook report and an SMS service that displays rates of our main currencies and sovereign bonds. The TCM Department promptly accom- modates customer requests to help clients avoid market fluc- tuations, while the Fixed Income and Money Markets Desk (Pri- mary 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 TCM Department interacts with almost all of CIB’s cli- ents ranging from large corporate clients, Global Customer Relations (GCR), Business Banking, Retail, Wealth, and CIB Strategic Relations clients. TCM also interacts with financial institutions, including funds, insurance companies, brokerage companies and others. To enhance TCM’s FX service offerings, the Division was internally re-structured into two main desks: one covering Corporate Banking clients & GCR, and the other is responsible for the Business Banking, Retail, Wealth and the Strategic Relations clients. Within each area, every trader is responsible for handling specific clients to enhance specializa- tion and customer price sensitivity with the aim of promoting customer value added in the Treasury arena. 2014 Accomplishments In 2014, CIB’s TCM Department won the Best FX Service in Africa Award from EMEA Finance Treasury Services Awards, in addition to the Best Foreign Exchange Provid- er Award from Global Finance. CIB’s Fixed Income Desk was also 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. 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 depart- 30 AnnuAl RepoRt 2014 ment is also responsible for managing the Bank’s Nostro ac- counts, overseeing its proprietary book and setting loan and deposit prices. ALM’s main objectives are liquidity manage- ment, maximizing profitability and product development. 2014 performance Local and international interest rates have been considerably lower in 2014 than in 2013, which, in Egypt, was due to the signifi- cant improvement in sociopolitical conditions and the large fi- nancial support received from GCC countries since mid-2013. In Europe and the United States, the interest rate cuts were driven by low inflation and the fear of deflation. Nonetheless, ALM was able to maintain the Bank’s Net Interest Margin (NIM) in 2014 at the same levels as the previous year, and to enhance the Bank’s Net Interest Income (NII) through encouraging and participat- ing in aggressive deposit gathering — at low cost — while prop- erly managing the Bank’s interest maturity profile. Meanwhile, ALM continued to maintain healthy regulatory ratios and meet all internal and external controls. 2015 Strategy The ALM Department is anticipating growth in private sec- tor business, driven by a gradual pickup in several sectors and a boost in investor confidence. As such, ALM will con- tinue positioning the Bank to comfortably support all of its customers’ needs, while enhancing shareholder value. direct Investment group (dIg) A Local Partner with International Standards Business profile The Direct Investment Group is CIB’s investment arm, in- troducing equity finance as an additional solution to ex- isting and potential clients. DIG’s main focus is to identify, evaluate, acquire, monitor, administer and exit minority equity investments in privately owned companies that pos- sess commercial 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 dividend income and capital appreciation, as well as en- abling 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. This commitment is supported by our unique value proposi- tion and experienced team. Highlights and Accomplishments Exits CIB successfully exited from its investment in a major player in the Egyptian textile industry, with the exit gener- ating a lucrative IRR for CIB. DIG is currently in the advanced stage of offloading a sizable investment in the food sector. CIB is expected to achieve a cash-on-cash multiple in excess of three times the original investment cost. Portfolio Management In terms of portfolio management, DIG continued its ongoing support to its portfolio companies Direct Investment Group plans to continue providing support to existing portfolio companies, in addition to maintaining a positive long-term outlook grounded in a true belief in Egypt’s solid fundamentals. at all levels. Furthermore, DIG continued the capital increase plans for CIB’s affiliates, while simultaneously providing un- paralleled support on the Board of Directors level to promote synergies and further institutionalize CIB’s affiliates. In addi- tion, DIG supported one of its portfolio companies in the oil sector by extending the tenor and increasing the applicable in- terest rate for a previously approved shareholders loan, signifi- cantly improving the company’s liquidity and funding position in turbulent times and further reiterating CIB’s support. The Pipeline On the growth front, DIG has maintained its strong deal pipeline, leveraging on continuous market screen- ing and CIB’s brand equity. Accordingly, DIG has assessed the viability of several investment opportunities in multiple sec- tors, including oil and gas, pharmaceuticals, and healthcare. DIG is also currently engaged in exit negotiations for some of its portfolio investments in Telecom and Power in- dustries. Full exits are planned to materialize in 2015. Strategy going forward DIG plans to continue providing support to existing portfolio companies, in addition to maintaining a positive long-term outlook grounded in a true belief in Egypt’s solid fundamen- tals. Accordingly, DIG plans to pursue growth in sectors ex- pected to benefit from the anticipated economic growth. Strategic relations group (Srg) With a mission of achieving the highest levels of customer satisfaction among a customer base of world renowned non- profit organizations, SRG is truly consumer-focused. Global donor and development organizations — supported by their sovereign diplomatic missions, as well as tier-one educa- tional institutions and major charity foundations — make up the mix of strategic relationships in the SRG portfolio. SRG’s dedicated professionals are committed to working closely with each client individually, designing innovative tailor-made services to suit their various business and op- erational needs. As a result, these relationships have con- tinued to grow since the 1980s, achieving a healthy return on investment and positively impacting shareholder value. global transaction Services group (gtS) CIB Global Transaction Services is a leading provider of cash management, trade finance and securities services to a wide array of corporate clients in Egypt. With a comprehensive suite of services, GTS serves clients with both limited and unique working capital needs and provides integrated reporting and management of their cash, trade and custody business. Cash management Services The provision of automated services via a cash online plat- form forms the foundation of GTS’s Cash Management ser- vice and is complemented by payment and collection capa- bilities that assist customers in optimizing their cash flow cycle and improve operating efficiencies. Although the main focus in 2014 was on introducing innova- tive solutions customized to client needs, GTS remains keen on improving efficiency. The department redesigned the check collection process, reducing collection cycle, while also intro- ducing a tracking mechanism to reduce cash handling fees across branches, allowing the bank to impose future value dates on cash deposits. GTS also introduced a new sweeping and pooling service as a part of its Cash Management product inventory in 3Q14. As a part of our treasury services suit, the service introduces a means to optimize client working capital, combined with an investment element. The third quarter of 2014 also witnessed the launch of our Multibank Cash Concentration service that will allow the bank to attract working capital accounts of key clients, contributing to increasing our share of wallet. Additional 2014 Accomplishments • Provided SWIFT services for multinational companies, in addition to automating all the port’s payments. • Increased the STP process for Cash Management ser- vices by shifting all cash management tools from the old core banking system to the new one. • Worked jointly with Misr for Central Clearing, Depository & Registry Co. (MCDR) to launch the first investor card in the market enabling retail investors to collect cash divi- dends through ATMs using the pool A/C of MCDR, while also accessible through point of sales machines. • Collaborated with the Card’s Product Management team to develop Egypt’s first Commercial Purchasing Card / Deposit Card with the aim to replace the cash/ paper based procurement cycle. • Entered a partnership with the Egyptian government to automate the large number of payments occurring in a major governmental body. global Securities Services (gSS) With the industry’s largest market share and over EGP 244 billion in assets under custody in 2014 — compared to EGP 222 billion in 2013 — CIB is the leader in domestic and cross-border securities services for Egypt’s top issuers, in- termediaries and investors. AnnuAl RepoRt 2014 31 CIB’s Global Transaction Services team are creating a new product category to automate the process of Suez Canal Authority pay- ments which will reduce waiting time for vessels 2014 in Review In 2014, the main focus of GSS was to promote its services in the local and global markets, with a special concentration on corporate customers offering high returns at minimal process- ing cost aside from maintaining a large securities portfolio. 2014 Accomplishments • Provided custody services for assets owned by multination- al companies with a total market value of EGP 5.4 billion. • Maintained our leading position in the capital market as the sole provider of securitization services by obtaining two new portfolios with a value of EGP 1.3 billion. • Implemented a new custody system that is expected to launch in the first quarter of 2015 with the goal of strength- ening CIB’s leading market position and infrastructure. trade Services CIB Trade Services offer both the tools and expertise needed for a diverse set of clients to realize their business goals. CIB’s trade solutions are designed to enable clients to effectively manage risk and optimize cash flows. In pursuit of higher customer satisfaction levels, CIB achieved a 59% year-on-year increase in the number of trans- actions performed via trade online, bringing the percentage of transactions performed via 40 Trade hubs and Trade on- line to 95% of bank wide transactions. Process optimization, which is ongoing, remains a major goal, and in 2014 CIB performed a series of significant adjust- ments to the Export ODC execution process, decreasing the TAT to a few hours. A speed cycle for ODCs has been imple- mented along with a notification email sent to clients, includ- ing a courier tracking number improving customer experi- ence significantly and providing clients with a transparent look into every stage of ODC processing. forward Strategy For the coming five years, the focus of GTS will be on achiev- ing three strategic objectives that will enable CIB to transform Global Transaction Services into a comprehensive Global Transaction Banking proposition offering state of the art solu- tions and the best customer experience. These objectives are: • Large-scale projects to transform online GTS platforms Cash & Trade simultaneously with model review and trans- formation in the areas of IT and Operations to achieve the required level of support • Transition from a product-centric to a client-centric busi- ness model, focusing on product innovation and product development across Business Banking and Corporate Banking segments • Price and service discrimination policies in favor of clients utilizing online channels, with preferential pricing for cli- ents initiating transactions online and offering tiered ser- vice levels for higher fees gtS Awards for 2014 Best Trade Finance 2014 – Global Finance Best Trade Finance Bank by GTR Best Sub custodian by Global Finance Best Corporate/Institutional Internet Bank in Egypt - Glob- al Finance Best Online Cash Manage- ment - Global Finance Best Integrated Corporate Bank Site - Global Finance Best Information Security Initiatives - Global Finance 32 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 33 2014 in Review GloBAl CustoMeR RelAtIons Given the strategic role of the Global Customers Relation Group (GCR) and the healthy economic signals that began to emerge in mid-2014, the GCR has focused its efforts on cap- turing new business opportunities, widening CIB’s custom- ers base, introducing new innovate ideas and expanding the SOW of existing customer to ensure maximizing the profits, while maintaining our portfolio quality. In light of this role, GCR has set targets to ensure the efficiency and the effectiveness of CIB efforts as highlighted hereunder: target 1 - enforce the one Stop Shop Concept: • In line with GCR’s strategic goals and KPIs, special focus was directed toward our facilitative interdepartmental role within the Bank to align objectives across all areas to implement our overall profitability model for groups and clients under coverage. • Business development and portfolio enhancement was pursued through growth in the existing portfolio in ad- dition to new commitments. target 2 - Branding our Advisory role: • 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, construction and building materials. • Increased efforts towards recovering questionable and Non-Performing Loans to safeguard the quality of CIB’s asset portfolio. target 3 - Innovate and promote new Ideas: The Bank also took a more active role in designing and devel- oping tailor-made solutions to enhance, facilitate and improve bank-wide products and services. Initiatives were undertaken to improve product offerings to better meet client expecta- tions, deepening the Bank’s relationship with existing clients and enhancing both growth and profits. 2014 Achievements: • Contributed to the growth of the corporate portfolio by EGP 2.09 billion through increasing CIB share of wallet with 426 existing clients and 19 new-to-bank clients. • Contributed to the growth of corporate profitability by 38.7%, reaching EGP 1.20 billion as of December 31st, 2014 up from EGP 861 million as of December 31st, 2013. • Corporate Liabilities: Increase in liabilities worth EGP 2.16 billion (Existing clients for EGP 2.12 billion and New Clients for EGP 40 million). • GCR successfully introduced new names to CIB’s customer base in chemicals, construction, retailers, precious met- als, automotive, agriculture and gas industries along with non-profit institutions. • Penetrating a new industry, namely the livestock industry. 34 AnnuAl RepoRt 2014 Collaborated with other departments to introduce new products: • CIB – MCDR Prepaid Investor Card: CIB has introduced a new prepaid card in collaboration with MCDR; the card is an innovative idea to simplify the dividends withdrawal process for shareholders using the CIB ATM network. • New Mobile Payment Application • New Cash Pool Portal • CIB Foundation: EGP 3 million donated by the CIB Founda- tion to finance the establishment of the pediatric outpatient clinics of the National Cancer Hospital. 2014 Achievements in Consumer Banking: • A 16.6% increase in the number of payroll accounts. • A 31.8% increase in the amount of personal loans. • A 24.1% increase in the amount of personal deposits. 2014 Achievements in merchant Acquiring Services Merchant Acquiring Services expanded, with GCR’s help, to cover all GCR clients that require them, as a total of 150 POS machines were installed in 2014 at Emaar Misr, Carrefour, Mo- binil, Accor Group, Oro Egypt “Lazurde”, Etisalat, Vodafone, Consukorra & Retail Group Egypt. 2014 Achievements in global transaction Services (gtS) GTS successfully completed a total of 38 deals across the CIB Cash Online, E-Trade and ACH platforms. CIB Affiliates: • Egypt Factors: Receivables factoring services provided to GCR clients recorded revenues of EGP 66,000 throughout 2014. • Falcon: Falcon carried out Cash Transit Services for Mobinil, Vodafone, Coca Cola, Emaar Misr and Mansour Chevrolet. going forward — gCr Strategy 2015 • Develop, explore and extend relations with new selected accounts 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 on energy, EEA, transporta- tion, logistics and ports. • 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 towards 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 have well-round- ed solutions for clients. • Constant market screening to spot new opportunities with existing clients and expand with new-to-bank clients. Reusable water bottles were dis- tributed to all CIB staff members leading to an 80% reduction in the use of disposable plastic cups and water bottles AnnuAl RepoRt 2014 35 2014 in Review ConsuMeR & BusIness BAnKInG Cards CIB is leading the transformation of Egyptian society from a cash-based to a non-cash-based market through working on increasing card acceptance and making CIB cards the na- tion’s preferred payment vehicle, offering a full product suite of credit, debit, prepaid and POS. During 2014, the total credit cards portfolio grew by 23% and ENR increased by 30% — bringing ENR close to EGP 1 billion — while sales increased by 24%, generating a total an- nual volume of EGP 3.6 billion. Major accomplishments in 2014 include the inauguration of two major campaigns to launch five new credit card types. In the first quarter, the FIFA Credit Card was launched, leverag- ing FIFA World Cup Official Sponsorship in association with Visa. In the second quarter, the first airline co-brand credit card in Egypt, in collaboration with Egyptair through a strate- gic alliance, was successfully launched. The credit card comes in three different types: platinum, titanium and standard. The new product has been well received in the market and current- ly contributes 30% of total credit card acquisitions. On the Acquiring level, CIB continues to be the market leader, processing 34% of total market activity, representing 11.3 million transactions worth EGP 7.4 billion with year-on- year growth of 26%. Insurance Business The CIB Insurance Business provides Life and General Insur- ance 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 variety of consumer needs in Egypt through the Commercial Insur- ance 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 premiums are paid to cover unfortunate events. Our business targets different client segments based on consumer income, health condition and need analysis. A number of new life insurance programs were introduced in 2014 with upgraded benefits to better satisfy customer needs. Strategic goals: • Increase revenue 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 products from the best insurance providers. 2014 Achievements: life Insurance: • Achieved a remarkable net growth in fee income to reach 20 % year-to-date (EGP 61 million in 2014 compared to EGP 51 million in 2013). • Continued to provide a wide array of insurance plans to meet the needs of all consumers. 2014 Achievements: general Insurance: • Increased Credit Shield administrative fees by EGP 14.2 million in 2014 compared to EGP 10.5 million in 2013. • Increased Family Protection Plan administrative fees by EGP 2.7 million in 2014 compared to EGP 1.8 million in 2013. • Operational revenues reached EGP 1.2 million in 2014, com- pared to EGP 1 million in 2013. • Monitored and managed all insurance group policies relat- ed 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, and enhanc- ing the reviewing processes for smooth handling. • Created bundled insurance consumer products packages, such as Roadside Assistance and a Fleet Financing Program related to the Business Banking Segment. • Launched complete property insurance for the new mort- gage offered by the Egyptian government for the low and middle income segments. Business Banking The Business Banking segment is responsible for SMEs un- der CIB’s portfolio, managing over 4,500 companies and offering them various products and services that best suit their needs and interests. After successfully establishing the business model and strat- egy over the past couple of years and showing great potential in the segment, CIB has supported and allocated significant re- sources to help grow and mature the Business Banking segment. financials & Achievements We consider 2014 to have been an important chapter in the segment’s history. In 2014, the segment saw several success stories in segmentation strategies, new business directions, asset portfolio diversification and product programs. Overall segment performance and bottom line profit are as follows: • Deposits end net result grew from EGP 11.4 billion in FY13 to EGP 17.5 billion in FY14, an impressive 53% growth rate. • Total loan portfolio also witnessed significant growth from EGP 553.1 million in FY13 to EGP 997.9 million in FY14, a rise of 80%. 36 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 37 Water restrictors installed at CIB branches have helped reduce water consumption by 30% in 2014 2014 in Review • The Business Banking segment contributed EGP 346.3 million in Net Profit After Taxes, a 44% increase from the EGP 240.6 million in Net Profit After Taxes during FY13. Lastly, part of the Business Banking strategy is to increase its market share, as reflected in the segment’s NTB acquisi- tions, which saw a total of 1,369 new companies added to CIB’s portfolio, compared to a total of 638 in 2013. The Business Banking segment has exhibited an ongo- ing growth and performance improvement, as seen in the following graph: p&l performance 2013-2014 393 352 229 248 254 147 145 107 233 172 NII Fees Revenue Gross Cont. Net Profits In addition to solid growth and performance figures, the Busi- ness Banking segment has a moral role and obligation — aside from being one of CIB’s main revenue drivers — towards Egypt, and, in particular, the SME sector in the country. It is CIB’s belief that SMEs are the future of our country’s economy and that in order to see a true economic uptick, the sector needs sustained support, including opportunities from which to grow businesses into medium-sized and large companies. 33% 32% 11% 24% Business banking Wealth Management Plus Segment Branch banking To that end, the Business Banking segment has laid down the first blocks of comprehensive business programs and products that cater to the financial needs of our clients in key sectors, including agriculture, medicine, financing solutions, asset pro- grams, cash management solutions and, most importantly, E- Business and digital products that enable our clients to manage their businesses on-the-go and from the comfort of their offices. CIB has also invested a great portion of both our time and re- sources to hire and retain the best Relationship Managers (RM) in the country to serve these SMEs. Our RMs undergo an ex- tensive training program known as the “CIB Business Banking Academy,” which is a three month extensive training program aiming to ensure that our Relationship Managers are the best in the Egyptian market and will offer world-class financial advisory services to our customers. The purpose of the Business Banking Academy is to foster strong and ambitious talent, qualities that define and represent our segment, through extensive training on soft skills, essential selling tools, technical knowledge on key subjects such as the Trade Finance business and on-the-job training to put the ac- quired knowledge into practice. The Business Banking segment is planning for significant de- velopment and business growth in the coming years on the back of continuous support from CIB’s top management and Board of Directors, who have placed their trust in this segment. liabilities The success of CIB consumer banking is clearly demonstrat- ed by the exceptional growth in customer deposits, which reached EGP 87.7 billion in December 2014, an impressive 24% increase of EGP 17 billion over year-end 2013. In December 2014, CIB’s total liabilities reached EGP 121.6 bil- lion, a rise of EGP 25 billion or 26% over year-end 2013. CIB’s de- posit market share reached 7.85% as of October 2014, maintain- ing CIB’s leading position amongst all private-sector banks. This growth is an outstanding achievement in a highly-competitive market of 40 banks, and helped CIB increase its footprint of over- all deposits in the Egyptian banking system. Consumer Banking’s strategy was focused on the house- hold segment, which was clearly reflected in the household market share increase of 0.31 basis points to reach 6.64% as of October 2014. As a market leader, CIB also launched two new tailored products for the household segment. These products are Save & Safe saving accounts, bundled with several insur- ance benefits, and Miles Everywhere current accounts to enhance CIB’s competitive advantage. wealth CIB Wealth is continuing its excellent client-centric focus by providing tailored product and service offerings suited to the needs of Egypt’s affluent individuals. Wealth segment 38 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 39 2014 in Review deposits grew by 21% and assets grew by 25% year-on-year as of year-end 2014 as a result of new products and services offered in the market. With a focus on the training and de- velopment of our CIB Wealth Managers, a Wealth accredi- tation program was successfully launched in coordination with the American University in Cairo. In 2015, the Wealth segment will continue its tiered propo- sition offerings and communication strategies to target and affluent individuals, and will focus on customer behavior and a micro-segmentation approach to understand their behav- ioral needs in depth and offer special products and services catering those financial and non-financial needs. plus CIB Plus had a successful grand launch in June 2014. At CIB Plus, we are committed to catering to the needs of medium net worth individuals to help pave the way to becoming Wealth. Our ser- vice is being offered using simplified products, fast track service and personalized service offerings through a network of Plus Bankers. 2014 witnessed growth for the Plus segment on several fronts: • Plus segment customer base reached 7% of the total con- sumer customer base. • Total Deposits portfolio grew by 50% year-on-year as of Dec- 2014. • Total Assets portfolio grew by 33% year-on-year as of Dec- 2014. • Revenues generated grew by 47% year-on-year as of Dec- 2014. During 2015, we will continue to work towards opti- mizing the capacity of CIB Plus and capitalizing on our strength in the market, product and service offering, and positive word of mouth. payroll The Payroll business witnessed continued growth in 2014 achieving incremental net sales acquisition of around 61,000 live accounts as of September 2014, representing a 94% increase over 2013. This improvement was due to the application of a new sales structure within the branches network. The payroll business is considered a major channel for li- abilities and assets cross-sell, recording a significant rise in deposits and assets penetration with total deposits of EGP 3.3 billion, total assets portfolio reaching EGP 9 million and profit totaling EGP 54 million as of August 2014. Given the prominent role of the CIB Payroll business in the market, a quality assurance team was established to provide round-the-clock qualitative service calls to Payroll customers, increasing the number of customers, updating the database of more than 10,000 accounts and providing the most up-to-date encryption system to secure companies’ payroll files. Consumer loans Consumer Loans portfolios recorded positive trends during 2014. These trends were evident during year-to-date 2014, which were attributed to the application of new business ini- tiatives across all loan product lines. 40 AnnuAl RepoRt 2014 The Personal Loans portfolio grew by 43%, recording EGP 4.74 billion by year-end 2014 against EGP 3.33 billion in 2013. This growth was achieved as a result of an increase in the scope of un- secured personal loans programs which was expanded to focus on high yield approved programs. Moreover, this led to a shift in the sourcing mix towards high yield segments and an increase Net Interest Margins of 32% to reach 3.83% at year-end 2014 as opposed to 2.9% at year-end 2013. On the sales front, applied business initiatives led to an increase in single customer profitability by apply- ing a multiple product sales model and increasing unse- cured loans average ticket size by 58% to reach EGP 56,000 against EGP 35,000 in 2013. Personal Loans revenues re- corded a growth rate of 81%, achieving EGP 244 million in 2014 versus EGP 134 million in 2013. PIL has the highest contribution in the assets book and P&L, representing 53% and 42% of the total assets portfolio in terms of ENR and revenue, respectively, as shown below. product PIL SOD Credit Cards Auto Loans Mortgage ROD Total enr 4,731,209 2,340,425 984,360 572,503 250,581 6,685 % revenue 53% 26% 11% 6% 3% 0% 243,607 64,960 211,532 11,461 11,461 297 % 42% 11% 37% 8% 2% 0% 8,885,763 100% 577,700 100% In 2015, the Personal Loans Business will continue focus- ing on maximizing overall portfolio Net Interest Margin and gross contribution by prioritizing sourcing from unsecured lending with an increased focus on high-yield programs as well as increasing assets penetration to payroll customers. The business will focus on bundling products by providing comprehensive packages to different segments, increasing acquisitions through partnerships and co-branding for a higher market share and higher spreads. The Auto Loans Business saw a rebound in its market position towards the end of 2013 by doubling monthly un- secured sourcing in order to raise CIB auto loans’ market share from 11% in 2013 to reach 14% in 2014. This hike in sales performance resulted from applying several busi- ness initiatives such as introducing marketing activities and offering new dealer incentive schemes. This notable improvement in unsecured Auto lending led to a 88% growth in revenue to reach EGP 46 million in 2014, an EGP 21 million increase over 2013, while contributing to the growth of the Consumer Assets Unsecured portfolio. Sus- taining product proposition enhancement contributed to this achievement and served to grow CIB’s market share. By mid-October, a tie-up with Mansour Automotive was launched providing zero administrative fees on all Man- sour car brands financed through CIB. On the P&L level, Unsecured Auto Loans Gross Contri- bution started to break even as a result of the significant 50% growth rate of the ENR which had a direct impact on the Revenue lines associated with Lower Provisions, giv- en better portfolio quality and expenses rationalization. The Secured Overdraft portfolio reached EGP 2.3 bil- lion in 2014, as its strategy was centered on changing the portfolio mix towards Local Currency lending which also contributed to increasing the NIM to 2.17% in 2014 com- pared to 1.84% in 2013. The portfolio witnessed the intro- duction of unsecured overdraft programs to capitalize on payroll relations. The Mortgage Business started working on the new CBE project for low/medium income after signing a protocol with Subsidy fund, with the business receiving 150 initial files in November 2014. marketing & Communication The scope of CIB’s Marketing & Communication Depart- ment is comprehensive, working closely with the business lines to set a cohesive branding, marketing and communi- cation strategy across the Bank. This strategy is directed towards our clients and potential clients, including owning all marketing activities on the tactical and strategic level for our business partners. The Marketing & Communication Department focuses on providing CIB clients with all possible methodologies to allow them to interact with a top-notch financial in- stitution such as CIB, while focusing on the Unique Sell- ing Proposition (USPs) of each product and illustrating all banking product features that make our clients’ lives easier — all done in support of our overall efforts to satisfy our clients’ daily needs. At CIB, we believe that in the current digital era, consum- er financial and non-financial needs are changing, bring along a challenge to combine marketing tools and methods in order to better anticipate all aspects of consumer needs — one of the main focal points of the Marketing & Commu- nication Department. Our 360-degree marketing approach provides interactive tools, creative methods and diversified mediums to reach our target groups, including but not limited to: • Pre-launching product focus groups to determine consumer preferences. • Conducting field surveys on products and propositions sub- brands perception. • Adopting state-of-the-art and outside-the-box services such as The Moving ATM. • Efficiently using innovative digital media to extend our reach. • Securing a presence within our clients’ communities via on- ground activation and our customers’ interest touch points. • Enhancing our social media coverage to engage with vari- ous Egyptian communities. • Utilizing search marketing optimization for better expo- sure, as the audience for search engines is growing in Egypt. • Utilizing other methods of communication with our cli- ents via local channels, including our more than 590 ATMs, points of sales materials in more than 160 branches, client statements, e-mails and SMS messages. CIB’s Alliances & Sponsorships provide the Bank with ex- cellent exposure from a marketing standpoint, reinforc- ing the position of CIB as the leading and most innovative financial institution in Egypt. In 2014, we were proudly aligned with the Egyptian National Carrier, Egypt Air, in issuing the first co-branded credit card, Miles Everywhere, giving our clients air miles utilized in diversified shopping spots. CIB also partnered with Visa to be the Official Egyp- tian Bank in association with Visa for the 2014 FIFA World Cup in Brazil. At the same time, CIB collaborated with a number of retailers for extra benefits and lifestyle privi- leges for our card holders and proudly sponsored the elite gym Fibers in both Maadi and at the Four Seasons, Giza, to cater to CIB Wealth clients’ healthy lifestyles. 2014 Achievements The Marketing and Communication Department launched a number of innovative products and propositions in 2014, such as the grand launch of the CIB PLUS segment, the in- tegrated marketing campaign for the Save & Safe saving ac- count, and a facelift to CIB Business Banking, in addition to the aforementioned alliances and sponsorships. Our Mar- keting and Communication efforts will continue seeking new and innovative products and services to remain close to our clients and remain an integral part of their daily life. Alternative distribution Channels At CIB, one of our core beliefs is the importance of excelling at fundamental business lines, as these are the foundation upon which innovative capabilities that address diversified, sophisticated and dynamic customer demands are built. Accordingly, the strategic direction of the Alternative Dis- tribution Channels is to focus on providing customers with round-the-clock value-added services through simplified accessibility banking. online Banking: Online Banking is considered the core of the Bank’s digi- tal channels for inquires and non-cash transactions. This year witnessed an increase of 37% in the number of users and 45% in the number of transactions performed through Online Banking. The year 2014 also witnessed an improve- ment in the service interface design, user friendliness and an increase of the functions portfolio as well as the offer- ing of a differentiated treatment to the Bank’s segments: Wealth, Plus and Business Banking. The service was also offered in Arabic for our clients who prefer it over the Eng- lish interface. Atm network: One of the key purposes of the ATM network is to offload teller transactions from CIB branches to reduce the trans- action cost and concentrate on offering superior service in- side the branch, while the customer migration rate reached 85% of credit card payments and 65% of the transactions re- lated to deposits into individual account. The year 2014 wit- nessed horizontal growth in the services offered through our ATMs, such as person-to-person local remittance trans- actions as well as the corporate deposit cards. A vertical in- crease in the service capability was also seen through the offering of higher withdrawal and deposit limits over the channel. In regard to Fawry e-payments over ATMs, CIB was able to reach second place in the market in terms of the number of transactions in only 6 months since the offering AnnuAl RepoRt 2014 41 cial Services (MFS). CIB kicked off its Mobile Wallet initia- tive to be offer transformational solutions targeting banked and unbanked customers to perform a variety of payment transactions such as person-to-person and bill payment services through the comfort of a mobile device. CIB portal: As part of a newly offered public portal, 2014 witnessed the offering of valuable dynamic functionalities that improve in- teractions with the public and the generation of sales leads. New initiatives included the offering of a dynamic interface for provided merchant discounts on CIB cards, in addition to loan calculators that match the bank’s program for Personal Loans, Auto Loans and Mortgages. Such features, along with the online forms, are designed to support CIB customers in taking proper financial decisions and capturing quality digi- tal leads to improve sales of retail products. CIB Social media presence: CIB launched its official Facebook page which garnered about 50,000 likes since its launch in April 2014. Since then, the page has supported the digital brand presence leveraging on the ongoing marketing activities, in addition to improv- ing the customer experience by listening and responding to customers’ suggestions and inquiries through the 24/7 social care team. Social Baker, one of the largest independent so- cial media trackers, has named CIB Egypt as the number one growing financial-sector related fan page in Egypt in June. 2014 in Review of the service. The year 2014 also witnessed an increase in the number of ATMs, which grew to 588, with a concentra- tion on high traffic areas and gathering places to allow CIB ATMs to serve as a strong tool for brand visibility. Call Center: CIB’s 24/7 Call Center mission is to deliver world-class service that supports CIB’s vision, which aims at building and main- taining loyal and satisfied existing and prospective custom- ers. In 2014, our Call Center supported over 3 million agent- handled and self-service inquiries, transactions, requests and complaints. We increased our workforce by 23% in 2014 to more than 140 well-trained and veteran Call Center agents. The Call Center also started its transformation journey as a full-fledged contact center in Q2 2014, providing multimedia customer service interaction by offering the ultimate custom- er experience of serving CIB customers and answering public inquiries on CIB’s official Social Media platforms. phone Banking (Ivr): In 2014, CIB’s IVR channel saw some 900,000 inquiries, transactions and requests, continuing to offer an optimized customer journey and providing more personalized treat- ment according to the customer segment value. In this re- gard, CIB is revamping the Phone Banking Service to en- hance the navigation experience, introducing more value added services to CIB customers focusing on migrating heavy traffic from the call center agents to the unattended self-service menu. A current project planned to launch in Q1 2015 will offer multi login options, cards’ PIN setup and ac- tivation for non-resident clients, segmented treatment and surveys that capture the sentiments of the customer. e-payments: CIB continues to rank as the number one bank in collecting governmental e-payments with a market share of 34% with a collected amount of over EGP 17 billion. CIB expanded its e-payment services in 2014 to cover all Egyptian ports, with fees generated from such services increasing by 19% when compared to 2013. The bank has also increased its lead in the market by introducing the Corporate Payment Services (CPS), which provides governmental e-payment services for key corporate clients through secured portals that are ac- cessible 24/7 without the need to visit a CIB branch. mobile wallet: As mobile phones are becoming more common and versa- tile, they have started to play an increasing role in the inter- actions between consumers and financial services, retailers and other businesses. The massive global penetration of mobile services and the revolutionary pace of technology improvements resulted in the evolution of the Mobile Finan- 42 AnnuAl RepoRt 2014 The rooftop garden at CIB’s Tiba building in Mohandiseen AnnuAl RepoRt 2014 43 2014 in Review Coo AReA operations & It groups The Operations Group sustained its focus to align with the bank strategic directions and business plans where further collaborations were created by consolidating the Informa- tion Technology Group and CIB Branding under the same operations domain. These changes aim to optimize work ef- ficiencies and synergies between the operations and technol- ogy functions and streamlining the process flow. As the Bank moves towards an aggressive growth agenda and business aspirations in its five-year-plan, and as man- agement continues to explore different business opportu- nities and growth objectives, it becomes essential to apply effective controls in support of the business plans through well-established policies and guidelines and proper gover- nance of critical control functions. A new Chief Security Offi- cer (CSO) function has been established to manage and miti- gate security related risks across different aspects within the organization including physical, cyber and IT security as well as information security. In line with our continuous efforts to achieve the highest standards of performance and customer experience, a set of surveys have been conducted to identify our current position within the industry. Surveys such as Competition Bench- marking Analysis and Customer Satisfaction surveys con- ducted for individuals, corporate and mid-corporate clients have assisted in identifying the best approach for raising our service level standards in comparison to other banks within the industry. A brand awareness survey has also been con- ducted to support our objective for better brand positioning. Additional improvements in Alternate Channels delivered on stretched goals by offloading some of the work from our branch network and improving the overall customer experi- ence. This included an expansion of our ATM network to c. 600 machines, as well as the addition of new features. Also, Phase 2 of our new online banking portal has been launched as part of our continuous efforts to enhance our services platform for our customers and improve their experience with CIB. Our Call Center supported inquiries, transactions, re- quests and complaints over the phone for more than 3 million self-service and agent-handled calls in 2014. We also estab- lished a presence on social media through our official Face- book page, which is available 24 hours a day, 7 days a week to handle any customer communication. Additionally, the in- teractive video call service was launched whereby customers can interact visually with call center agents. Furthermore, the Operations Group plans to introduce a number of key projects in 2015 that primarily aim to improve our operational efficiency and customer experience. This will be achieved through a comprehensive Customer Relationship Management and Business Process Management systems, in addition to a number of key automation projects that will sig- nificantly improve our productivity and efficiency. 44 AnnuAl RepoRt 2014 Corporate Services Corporate Services continues to play a key role in sup- porting the Bank’s key strategic functions and important initiatives such as the Bank’s drive towards sustainable development. A new vendor risk management policy and methodologies have been introduced for more efficient and effective vendor management from both the opera- tional and risk mitigation standpoints. Moreover, providing effective security awareness, support and control in line with business readiness remains one of the division’s key ongoing objectives and commitments. Corporate Services continues to strive to increase effi- ciency across the Bank’s operations by applying effective controls on a number of key projects that are planned for 2015, such as enhancing the Assets and Inventory Man- agement System as well as other strategic initiatives aimed at helping the Bank achieve its overall goals. Information technology In 2014, IT continued to finalize key projects for the Bank to support strategic and business plans. Major achievements accomplished included the full launch of our core banking system, which continues to create an enhanced and better customer service platform. IT dedicated efforts to finalize the Disaster Recovery in- frastructure by launching the Alternative Data Center. A dedicated Quality Assurance and Governance function was established to provide a more efficient and effective manage- ment of internal recourses and processes within IT. The foundations of the Bank’s aggressive growth strategy are being set by our IT infrastructure through goal-oriented planning and clear implementation in which set projects are consistently upgraded and enhanced to ensure the continu- ous availability and reliability of our services. premises projects Moving into 2015 the Bank has begun implementing its re- cently issued “Premises Square” initiative which sets out its core philosophy moving forward. This core philosophy rests on four pillars focusing on Advanced Customer Experience, Corporate Social Responsibility, Sustainability and Safety. Two key initiatives of 2014 were the “Sustainable Ini- tiatives” and “Special Needs Customer Facilities” which profoundly expanded CIB’s scope in Corporate Social Re- sponsibility. Furthermore, we adopted several sustainable initiatives which were reflected in the design guidelines of our head offices and branches. Moreover, we also increased CIB’s reach by establishing around 11 new branches in addition to redesigning and expanding 7,500 sqm of the CIB Head Office complex to further enhance the working environment and stream- line workflow. The shaded rooftop terrace and garden at CIB’s smart vil- lage building helps minimize reliance on air-conditioning AnnuAl RepoRt 2014 45 2014 in Review The Operations Group plans to introduce a number of key projects in 2015 that primarily aim to improve our operational efficiency and customer experience. Business Continuity management As part of CIB’s vision to be the leading and most trusted financial institution in Egypt, the Bank has undertaken nu- merous protocols and procedures to guard against adverse contingencies and to ensure the safety of our employees and assets at all times. CIB received global recognition for its business continuity management by a number of leading global certification bod- ies and institution in Business Continuity and Disaster Recovery Planning. The Bank was first runner-up for Disaster Recovery Institute International’s (DRI) “Response & Recovery of the Year Award,” one of the most prestigious international awards in business continuity and crisis management excellence awards. The Bank received further acclaim when it was shortlisted by the UK-based Business Continuity Institute (BCI) to re- ceive its “Most Effective Recovery of the Year Award” and the “Business Continuity Team of the Year.” These global accolades acknowledging excellence in continu- ity management, technology recovery and crisis management practices worldwide add considerable value to our business as it enhances our image and highlights our commitment to provid- ing uninterrupted services and support to our customers as well as protecting their investments, assets, and funds. finance group The year 2014 was another transformative year for the Fi- nance Group, as it enhanced its human and IT capital to meet its expanded role within the organization. In keeping with the Group’s broader strategic role within the organization, the Management Reporting and Business Analysis segment was restructured to improve the quality of analysis and better facilitate implementation of the Board’s strategic initiatives across the firm. This has allowed greater focus on driving performance and supporting the daily deci- sion-making process to optimize long-term shareholder value. A prime example of this was the expanded use of Risk Adjusted Return on Capital (RAROC) metrics in policy-making across the business to drive greater efficiency in capital allocation. Another significant achievement was the introduction of fully IFRS-compliant financial statements to support CIB’s GDR program for our international investors on the Lon- don Stock Exchange. In 2014, CIB obtained clearance from the Egyptian tax authorities regarding income and payroll tax claims prior to 2013. This gives CIB shareholders unique transparency and certainty regarding the two largest tax li- abilities Egyptian companies face. The year 2014 also saw major IT infrastructure upgrades of our infrastructure and reporting platforms, with an ad- 46 AnnuAl RepoRt 2014 vanced enterprise performance management system imple- mented to provide more comprehensive and timely reporting capabilities. Our new budgeting and planning system also had a successful launch, resulting in a significant reduction of the firm’s budget cycle time. Additionally, Finance Group sponsored the cross-selling initiative across the Bank, implementing a new firm-wide policy and following up closely with the various stakeholders to drive a marked increase in referrals that have translated into significant new business for the firm. Human resources recruitment in 2014: On the recruitment side, the focus was on providing CIB staff with various opportunities for growth and career advance- ment, in addition to ingraining a culture of “promoting from within” by offering cross exposure between various business and support areas to help develop banking talent. Through campus visitations, external job postings and maintaining a presence at 10 employment fairs we attracted over 300 new hires to date. Our on-campus outreach programs, including employ- ment fairs, winter training initiative, and events such as “An Employer’s Perception of Your Resume” at AUC, served as one of our main conduits for summer and for-credit interns. The fourth round of our summer internship program was held this year with a carefully selected group of 50 summer interns from reputable universities. Moreover, the retention rate of new hires increased by 1% in 2014 versus 2013. organization development: This year saw the Organization Development Department (OD) redouble its focus on reviewing and updating the Bank’s organization structures and outlined job descrip- tions in order to ensure organizational effectiveness and alignment with CIB’s overall strategy. The department also worked on updating all HR policies and procedures to pro- mote greater fairness, equality and transparency among employees which in turn should raise staff motivation and commitment towards the organization leading to a healthy organizational culture. One of the OD department’s main objectives is to identify and retain the Bank’s key talents, which it did in 2014 through the launch of the second round of its Management Associates Development Program (MADP). MADP aims to cultivate a pool of talented future leaders with a solid professional bank- ing foundation to support the bank’s strategy in maintaining its market position and competitive edge. Soilless culture garden at the Smart Village building, which relies on minimal water consumption and reduces waste AnnuAl RepoRt 2014 47 2014 in Review Over the past 18 months, CIB has been committed to implementing several approaches to embed sustainability in its core functions. The “Employee Effectiveness Survey” project has been one of the major and ongoing initiatives of the OD department as it measures employee engagement and enablement levels across the organization in addition to identifying various areas requiring organizational and cultural improvement. CIB conducted its third Employee Effectiveness Survey in June 2014, which was administered by Hay Group, a glob- al management consulting firm. The OD team has worked closely with internal stakeholders on the development of integrated action plans targeting various shortcomings identified in the survey results to ensure they are effectively addressed, and ultimately, to optimize overall employee satisfaction and organizational performance. learning & development: Learning & Development (L&D) objectives were better con- ceptualized and formulated in 2014 and used as a means to make learning more efficient through a very well-struc- tured training strategy covering all of CIB’s areas and lev- els to ensure that all employees have a fair opportunity to obtain the skills and knowledge required for their develop- ment and growth. As capability building is central to our organizational performance, L&D focused on implementing a comprehen- sive series of programs that were tailored for senior manag- ers targeting strategy formulation, setting vision and long term plans; while middle management programs aimed at expanding the leadership capacities and skills. A bundle of more than 190 business, technical and man- agement programs took place and impacted 75% of CIB‘s staff. L&D introduced the “Job Families approach” in 2014 throughout CIB with a focus on Consumer Banking. The initia- tive offers different accreditation programs such as the “Wealth Accreditation” and “Plus Accreditation” by educating and certi- fying individuals in all essential technical and business skill sets required for performance at a higher and more complex level. New learning techniques introduced include: • E-Learning: Leveraging technology tools such as an E- Library to provide an easily accessible source knowl- edge material • Off-site Events: Aimed at increasing loyalty and engage- ment of employees in addition to strengthening the team spirit. • Open Seminars: focused on adding new knowledge and enhancing the employees existing skills. L&D plans for 2015 will build on the set learning strategy through an increased focus on the Job Families approach and 48 AnnuAl RepoRt 2014 expanding its role throughout the Bank. Furthermore, new training techniques such as e-learning solutions (as an alter- native to the conventional classroom approach) in 2015 target- ing specific organizational layers should greatly impact the training cost structure and would help in enhancing organi- zational efficiency, training, outreach, and accessibility which will result in an increasingly positive Return on Investment. Compensation & Benefits: The Compensation & Benefits team revisited CIB’s reward framework efficiency and effectiveness and decided to en- hance variable pay distribution mechanisms and linking them to individual and department performance to ensure fairness and consistency. Throughout the year CIB participated in many Banking HR Directors forums and Compensation and Benefits sur- veys to capture various industry insights and maintain the Bank’s competitive position against peers hunting for similar talents and future leaders. The C&B team has also worked closely with Recruitment and Selection in design- ing attractive packages for high potential candidates from inside and outside Egypt. Sustainable development department CIB is known to lead by example in the banking sector in various domains, including its new Corporate Sustainabil- ity Initiative, which was launched in March 2013. The Bank’s leadership position is rooted in senior management’s strong commitment to a perceptive longer term vision of the future that strikes a sound balance between the strategic goal of increased profitability and financial health, as well as serv- ing broader socioeconomic and environmental interests. The main underlying focus is anchoring sustainability as a bank-wide culture and mindset. Translating this ambition into a day-to-day reality is progressively being achieved through joint action and interaction between CIB’s budding Sustainability Development Department (SDD) and the rest of the CIB family. High on the agenda is the integration of social, environmental, economic and sound corporate governance considerations into the Bank’s DNA, policies, core business, code of conduct and day-to-day operations. This is coupled with tailor-made train- ing programs, regular awareness sessions, intranet announce- ments, effective communication, creative initiatives, periodic reporting and bonding with various departments, as well as CIB’s ever-expanding network of branches. We are encouraged by the momentum that has been gen- erated by this initiative, particularly the growing engage- ment of enthusiastic as well as passionate staff members; the Bank’s real and renewable wealth. We are also aware that CIB is charting new waters. However, we view this ini- tiative as the start of a gradual, challenging and inclusive journey that will ultimately lead to achieving international world-class standards and distinction. Steady Strides along the road to Sustainability Over the past 18 months, CIB has been committed to imple- menting several approaches to embed sustainability in its core functions. These include: • Reinforcing resource-efficient efforts and decreasing our carbon footprint by minimizing paper consumption. This was accomplished through double-sided printing and pho- tocopying as well as the removal of personal laser printers. • Planting organic rooftops in several head offices and in- stalling green walls to reduce greenhouse gas emissions. We are also introducing an integrated solid waste man- agement system and smoking restrictions continue to be enforced. • Increasing water conservation efforts through the prin- ciple of “reduce for use” which led to a 20% decrease in water consumption. • Expanding the energy conservation program through the installation of LED lamps across head offices and branch- es. This will lead to a 25% reduction in electricity bills. • Moving forward on green technology application such as relying on solar energy and natural cooling initiatives to maintain a healthy environment and reduce costs which will be finalized by the end of 2015. • Developing the Social and Environmental Management System (SEMS), which is a risk management framework identifying and quantifying social and environmental risks to avoid exposure to detrimental risks as well as advance durable business opportunities. • Publishing our first Sustainability Report aligned with international best practices. It is based on the Global Re- porting Initiative (GRI), a comprehensive sustainability reporting structure that is widely used around the world. CIB Brand & Corporate Communication department The CIB Brand & Corporate Communication department is geared towards establishing a favorable brand image and reputation within all the Bank’s stakeholder groups, so that these groups are better able to contribute to the success of CIB. The department’s main objective is to concentrate on Brand Marketing through managing sponsorships, events, creativity, production and public relations. Throughout 2014, CIB Brand has made key efforts to expand CIB’s image, brand loyalty, brand positioning and exposure, keeping in mind external and internal customers. A key exam- ple of this is CIB’s continued position in Cairo’s International Airport. The airport branding initiative creates exposure by attracting foreign investors while creating top-of-mind aware- ness to all potential clients and representing a strong and solid position for CIB compared to other banks in the market. Building upon what we achieved last year in the Branches Rebranding Project, we are proud to say that all CIB Branch- es feature the new branding materials. All CIB branches now contain a standardized look and feel, and we added 12 new locations to our network this year. New brand and branch de- sign guidelines have been established in order to support and improve the new brand position. As the CIB website is one of the most important com- munication tools for the Bank, the Branding and Corpo- rate Communication department continues to maintain a new and enhanced CIB website, which was redesigned with a simpler layout and more user-friendly navigation. The website continues to offer features such as support for both English and Arabic, a loan calculator, online forms, and an audio/video gallery. In 2014 and moving towards 2015, CIB intends to con- tinue to seal partnerships and sponsorships with a number of entities to enhance its brand image, relating to themes of quality lifestyle, CSR, art, culture and sports. CIB is now a sponsor of El Sawy Cultural Wheel, KidZania, IMAX 3D Cinema, Zawya, Euromoney, the Egyptian Squash Associa- tion, Youth Salon, and many more. CIB Awards CIB has continued to receive global recognition for the Bank’s outstanding performance and reputation. Some of such no- table awards include: • Best Foreign Exchange Providers 2014 – Country Winner – Global Finance • Best Trade Finance 2014 – Global Finance • Best Investment Bank 2014 - Global Finance • Best Trade Finance Bank - GTR • Best Emerging Markets Banks in Africa - Global Finance • Best Bank in Egypt – Euromoney Excellence Award 2014 • Best Sub-custodian - Global Finance • Best FX Services in Africa Award - EMEA Finance • Best Corporate/Institutional Internet Bank in Egypt - Glob- al Finance • Best Online Cash Management - Global Finance • Best Integrated Corporate Bank Site - Global Finance • Best Information Security Initiatives - Global Finance • Pan-Africa Award for Corporate Social Responsibility - EMEA Finance • Best local bank in Egypt Award –EMEA Finance • Elite Quality Recognition Award from JP Morgan - MT 103 (99.23% for five consecutive years) • Elite Quality Recognition Award JP Morgan - MT 202 (99.8% for nine consecutive years) • Bank of the Year Egypt – The Banker • CEO of the Year - EMEA Finance African Banking Awards 2014 AnnuAl RepoRt 2014 49 2014 in Review RIsK GRoup The Risk Group (RG) provides independent oversight and supports the enforcement of the enterprise risk management (ERM) framework across the organization. RG proactively as- sists in recognizing potential adverse events and establishes appropriate risk responses. This reduces costs and losses as- sociated with unexpected business disruptions. The Group works to identify, measure, monitor, control and manage risk exposure against limits and tolerance levels and reports to senior management and the Board of Directors. organization The Chief Risk Officer (CRO) manages the Risk Group and is responsible for the day-to-day monitoring of the follow- ing key areas: credit, investment, market, operational, li- quidity and interest rate risks. The CRO reports directly to the Chairman and Managing Director and is responsible for establishing a holistic risk management coverage by ensuring the following: • Oversight of the enterprise risk management framework. • Implementation of consistent risk management standards. • Strong risk management culture awareness through- out the organization. overview Our disciplined, integrated framework in managing risks continued in 2014, as the country began bouncing back to political and economic stability. The Bank continues to maintain its solid reputation as a market leader, serv- ing clients efficiently and delivering strong results. Our robust framework provides assessments of the following risk types: credit, investment, market, operational, inter- est rate, liquidity and funding as well as social and envi- ronmental. CIB operates through a comprehensive risk management framework which was successful in provid- ing oversight across the organization that aligns with our business strategy, ensuring the identification, measure- ment and control of material risks at all levels. All ele- ments of the framework are integrated to achieve an ap- propriate balance between risk and return. objectives • Provide independent risk analysis via measurement and monitoring processes that are closely aligned with the business and support Groups. • Review business decisions, adjusted for risk, to optimize capital utilization and return on shareholders’ value. • Enhance social responsibility and sustainable busi- ness growth. • Work on raising efficiency to reduce expected losses, while maintaining adequate impairments coverage. • Maintain our risk profile in line with the Bank’s risk strategy, and support our strategic management initia- tives with a focus on balance sheet optimization. Chief Risk Officer [CRO] Credit & Investment Exposure Management Credit & Investment Administration & Credit Information Risk Management Consumer & Business Banking Risk Credit Exposure Management Credit & Investment Administration ALM Risk Consumer Credit Policy, Application Fraud & Quality Assurance Non-Performing Exposure Management & Provisioning Investment Exposure Management Credit Information Market Risk Strategic Analytics Credit Risk Analytics Credit Assessment & Fulfillment Unit Operational Risk Business Banking Collection & Recovery Board of directors, Audit, risk, operations & technology Committees management first line of defense Second line of defense third line of defense Business Line Management Independent Risk, Compliance & Legal Independent Review and Challenge Identify and manage the risks inherent in the activities, products, processes and systems. Set frameworks and rules, monitor and report on execution, management and control. Provide an independent assessment for the whole process. manage Control evaluate Strategic pillars • Enterprise Risk Management (ERM) Implement an enterprise risk management (ERM) frame- work with the elements of risk strategy/risk appetite, pro- cess, infrastructure, and environment. • Principal Risks Maintain focus on credit (institutional, consumer and busi- ness banking), investment, liquidity, market, interest rate, foreign exchange and operational risks as well as recognize and cover new principal risks, such as environmental and social responsibility risks, under the overall sustainability framework and support the implementation of the social and environmental management system (SEMS). • Awareness Educate the organization on the lines of defense model and all key risk initiatives in order to embed a robust risk culture. risk framework enterprise risk management (erm) ERM is a framework designed to anticipate and analyze potential opportunities and threats that could affect the achievement of CIB’s objectives. The framework is integral to the management and future direction of the Bank and will be structured, consistent, and continuous across the entire organization. ERM will establish oversight, control and discipline to drive continuous improvements of CIB’s risk management capabilities in a changing operating environment. It will fur- ther advance the maturity of the organization’s capabilities around managing its priority risks. ERM includes identifying, assessing and reporting on strategic actions, human capital, compliance, operational, financial, and hazard-related expo- sures. These exposures include both, risks that might hinder CIB’s attainment of its strategic goals and opportunities that could help the Bank achieve its strategic goals. The Bank will use ERM as a competitive and innovative tool to effectively allocate economic and regulatory capital. When CIB accomplishes this, it will improve capital allocation through better understanding and management of risks, which can re- duce the risk premium the markets would demand on valuation, leading to reduced volatility of earnings and increased long- term shareholders’ value. Subsequently, the payoff for achieving an integrated view of risks is significant. In order to benchmark CIB’s ERM Framework, the Bank initi- ated a high level exploratory mission with European and North American peers in 2014. From the initial feedback, CIB is on track with the initial building blocks in place for the framework. The following will be the key focus areas: • ERM Governance: In 2014, the Board of Directors endorsed the framework and delegated oversight to the Board Audit and Risk Committees. The Board Committees will evaluate the progress of the framework in their planned meetings. The Chief Risk Officer (CRO) will lead and manage the im- plementation plan supported by key areas of the Bank. • Infrastructure: A critical pillar of ERM, with the initial focus placed on the data management strategy, with a cen- tralized and robust data foundation that enables straight- through processing and offers operational efficiencies. 50 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 51 2014 in Review With the enterprise data foundation, the Risk Group will leverage this into a robust technology platform, in order to generate forward-looking risk analytics. • Process: Focus on both a quantitative and qualitative ap- proach. The Bank’s medium-term objective is to migrate from a silo measure of risk into an integrated quantitative and qualitative approach linked to risk versus reward. • Environment: Focus on promoting a strong risk culture across the organization. Culture CIB’s risk culture encourages transparency among employ- ees and effective communication to facilitate alignment of business and risk strategies and promote an understanding of the prevailing risks throughout the organization. Integrity and reputation are embedded in CIB’s risk culture, being key requirements to operate successfully. CIB continues to add learning opportunities and expand risk training across the or- ganization to spread risk and internal control awareness, and ensure that the Bank’s employees are well equipped to make decisions in a professional, ethical and consistent manner. principles CIB’s take on risk is directed by the following principles: • Business activities are conducted within established risk categories which are further cascaded down to limits. • Decision making is based on a clear understanding of the given risk, accompanied by robust analysis, continuous monitoring and maintaining of a defined risk appetite. governance CIB’s risk governance structure includes a robust committee structure and a comprehensive set of policies and operating guidelines that are approved by the Board of Directors. The Board of Directors, directly or in conjunction with the Board Committees, provides oversight of approval process, risk levels, key performance and risk indicators. The CRO and other risk officers are key members of all credit, consumer, asset and liability management, and operational risk committees, who are responsible for the identification, assess- ment and reporting of all types of risks across all businesses. • The High Lending and Investment Committee (HLIC) is an Executive Committee composed of senior execu- tives of the Bank. Its primary mandate is to manage the assets side of the balance sheet; keeping an eye over as- sets allocation, quality and development while ensur- ing compliance with the Bank’s credit and investment policies and the Central Bank of Egypt (CBE) directives and guidelines. The HLIC reviews and approves the Bank’s credit facilities and equity investments while there are other Credit Committees responsible for ap- proving different exposures, with limits lower than those approved by the HLIC. • The Asset & Liability Committee (ALCO) is designat- ed 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 exposures. ALCO monitors the Bank’s liquidity and market risks, economic developments, 52 AnnuAl RepoRt 2014 market fluctuations and risk profile to ensure ongoing activities are compatible with the risk / reward guide- lines approved by the Board of Directors. • The Consumer Risk Committee’s (CRC) overall responsi- bility is managing, approving, and monitoring all aspects related to the quality and growth of the Consumer and Business Banking portfolio. CRC decisions are guided first and foremost by the current risk appetite of the Bank, as well as the prevailing market trends, while ensuring com- pliance with the stipulated guidelines set by the Consumer Credit Policy Guide and the Business Banking Policy Guide, as approved by the Board of Directors. • Operational Risk Committee’s (ORC) objective is to oversee, approve and monitor all aspects pertaining to the Bank’s compliance with the operational risk framework and regulatory requirements. High Lending & Investment Committee (HLIC) Asset & Liability Committee (ALCO) Consumer Risk Committee (CRC) Operational Risk Committee (ORC) Chief risk officer (Cro) risk Appetite Risk appetite is the maximum level of risk that the Bank is prepared to accept in order to accomplish its business ob- jectives. The Bank’s risk appetite is annually determined and reviewed by the Board of Directors, taking into account strategic and business planning. CIB’s risk appetite state- ment is defined in both qualitative and quantitative terms and is integrated into our strategic planning processes for each line of business. CIB’s risk appetite framework is guid- ed by the following principles: • Sound management of liquidity and funding risks. • Strong capital adequacy. • Stability of earnings. • Social and environmental risks coverage. As mentioned earlier, the Bank aligns business objectives with risk appetite and risk tolerance and quantifies them by earnings volatility, capital adequacy and stable funding, as the primary key risk indicators (KRIs) cascaded into risk tol- erances by risk category and risk limits. Based on the 2015 business strategy, the risk appetite statement remains the same with the objective being to continue having a moderate risk profile, as the risk appetite, risk tolerance, and risk tolerance per risk category (institu- tional banking credit risk, investment risk, consumer and business banking risks, liquidity, market, and operational, balance sheet and capital risks) parameters have not sig- nificantly changed. There are over 50 risk tolerance per risk category KRIs, which are monitored via the risk register, covering the major risk categories. By end of 2014, nine ex- isting KRIs were changed, and twenty new KRIs were added to solidify the risk appetite framework. Our robust framework provides assessments of the following risk types: credit, investment, market, operational, interest rate, liquidity and funding as well as social and environmental. risk Appetite Annual Cycle 3 Monitor, Report and Escalate via Risk Register 1 Risk Appetite Review 2 Align Budget Plan to Risk Appetite limits and policies A robust system of risk limits and policies is fundamental to ef- fective risk management and is guided by the risk appetite frame- work which is linked to business decisions and strategies. CIB has a comprehensive set of risk management policies, processes and procedures which are updated annually to be in line with the CBE regulations, the Bank’s strategy framework and market dy- namic requirements. CIB’s policies, processes, and procedures are communicated throughout the organization and are used as a tool of control over the Bank’s risks level and tolerance. The risk and policy limits reviewed and approved by the Board of Directors cover the following categories: • Credit, investment and counterparty risks (country, indus- try, products, segments, clients and groups). • Market risk (foreign exchange and equity risks). • Liquidity and funding risks. • Interest rate risk. • Operational risk. monitoring Enterprise-level risk monitoring, transparency and report- ing are crucial components of CIB’s framework and operating culture that ensure committees, senior management and the Board of Directors are effectively exercising their responsibil- ities. CIB has developed practices that are designed to moni- tor risk, ensure control measures are executed and complied with to make sure risks are assessed, monitored regularly, managed actively and minimized to practical levels, at both the transaction and portfolio levels. Stress testing Stress testing is performed on a regular basis to assess the im- pact of a severe economic downturn on our risk profile and fi- nancial position. Our methodologies undergo regular scrutiny from internal experts to review whether they correctly capture the impact of a given stress scenario. CIB is working towards having an integrated stress testing approach, as a key compo- nent of the ERM framework. Under the Risk Group, various risks are mainly managed by the Credit and Investment Exposure Management, Credit and Investment Administration, Credit Information, Consumer and Business Banking Risk and Risk Management Groups. These Groups actively monitor and review exposure to ensure a well-diversified and well-built portfolio in terms of capital adequacy and Basel regulations, customer base, diversifica- tion of geography, industry, tenor, currency and product. IB loan portfolio – december 2014 By line of Business IB loan portfolio – december 2014 By Sector 97% 3% Corporate Financial Institutions 50% 45% 2% 2% 1% Industry Services Trading Others Family AnnuAl RepoRt 2014 53 2014 in Review Credit & Investment exposure management The Credit and Investment Exposure Management (CIEM) Group’s primary objective is to evaluate the Institutional Banking lending and investment portfolio, using qualitative and quantitative analysis to properly build a quality portfo- lio, enhance the Bank’s seniority, establish adequate protec- tion and control, in addition to a solid provisioning process to ensure portfolios are adequately covered. Institutional Banking (IB) offers a full suite of products including Working Capital Loans, Term Loans, Syndicated loans and Contingent Facilities where lending to Corporate customers represents 97% of IB Portfolio mix with the major- ity being directed to the Manufacturing and Services sectors. CIB’s prudent risk scheme aided in the containment of loan losses and enabled the Bank to emerge from a volatile macro-economic credit environment since 2011 stronger than before. Furthermore, the successful navigation through the pitfalls of the 2014 stagnant market could not have been achieved without the application of our existing philosophy of conservatism, diversification and mitigation strategies in- cluding collateral and credit support arrangements. The above measures, backed by CIB’s high portfolio qual- ity, enabled the Bank to maneuver safely through a difficult period, reflected in CIB’s Default Ratio of 4.66% as of Decem- ber 2014 compared to 3.96% in December 2013 coupled with Coverage Ratio of 138.16% in December 2014 compared to 158.82% in December 2013. On the Institutional Bank level, Default Ratio recorded 5.14% as of December 2014 compared to 4.31% in December 2013 coupled with Coverage Ratio of 142.37% in December 2014 compared to 165.83% in 2013. Bank’s lending, financial market and investment activities and all transactions where actual, contingent or potential claims are measured against any counterparty or obligor. types of Credit risks monitored by CIem: • Default Risk is the failure of meeting contractual payment obligations by the customer or counterparty. • Business Risk is the possible changes in overall business conditions, such as market environment, client behavior or technological progress. • Concentration Risk is the risk of concentration within and across counterparties, businesses, regions / coun- tries, legal entities, industries, currencies, exposure duration or products. • Country Risk is the risk of suffering a loss in any given coun- try due to the probability of the following events occurring: a possible deterioration of economic conditions; political and social upheaval; nationalization and expropriation of assets; government repudiation of indebtedness; exchange controls; or disruptive currency depreciation. CIem objectives: • Work closely with different levels across the organization and support Groups to properly monitor portfolios and op- erations in order to provide adequate risk analysis. • Raise competencies to reduce expected losses, while main- taining satisfactory impairments coverage. • Evaluate business decisions, adjusted for risk, in order to optimize capital utilization and return on sharehold- ers’ value, as well as social responsibility and sustain- able business growth. 2012 2013 2014 CIem principles: Gross Loans (in EGP millions) 44,350 45,549 53,718 NPL (%) 3.63% 3.96% 4.66% General Ratio (Di- rect Exposure only) 2.32% 3.72% 3.42% Coverage Ratio 119.91% 158.82% 138.16% Charge Offs to Date (in EGP millions) Recoveries to Date (in EGP millions) Recoveries to Date/ Charge-offs to Date 2,057 2,155 2,182 403 454 464 19.59% 21.07% 21.26% Credit risk definition: • Credit exposure is the total amount of credit extended to the borrower. The magnitude of credit exposure indicates the extent to which the Bank is exposed to the risk of loss in the event of the borrower’s default. It can be measured on various levels, for example: obligor, Group, product, portfolio, customer type, industry, and country. • The risk includes default in settlement of principal or in- terest, disruption to cash flows, increased collection costs or decline in counterparties’ credit ratings. It arises in the 54 AnnuAl RepoRt 2014 • Credit risk management is part of the daily business ac- tivities and strategic planning to have an outstanding competitive advantage. • Decision making is based on a clear understanding of the given risk, accompanied by prudent analysis to be approved within the applied risk management framework. • Products and portfolios are structured, priced, approved, monitored and managed in compliance with internal and external policies and guidelines. • Authorities are delegated in accordance with the overall Bank strategy and risk appetite. • Business activities are conducted within established risk categories which are further cascaded down to limits whether obligor limitations, industry, country or coun- ter party limits. main measures and monitoring tools include: • Internal Rating System; CIEM uses a comprehensive in- ternal rating tool for all Institutional Banking borrowers. Moreover, analysis is done based on publicly available in- formation along with in house analysis from peer compari- sons, and industry research. • Risk Adjusted Return on Capital (RAROC); various RAROC tools are used to complement credit assessments and quan- titative/qualitative analysis. • Past Due Obligations; CIEM continuously measures the ex- posures in terms of dues settlement. The exposure is contin- FP & IDF-funded desert reclamation project AnnuAl RepoRt 2014 55 2014 in Review uously monitored in order to detect problematic accounts. An obligation is considered past due if an amount due for interest or principle is not paid on maturity. • Stress Testing; is used by CIEM as an additional safety tool to measure and monitor potential risks that may arise and may not be captured in the regular analysis. Such tests involve setting several scenario assumptions for the relevant macro-economic and market variables to assess the impact on borrowers. Credit & Investment Administration / Credit Information The Credit and Investment Administration function ensures administrative control over institutional and investment exposures as well as compliance with both the Credit Policy Guidelines and CBE directives. 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. Said system is processed through verification of assigned collateral and required documentation related to approved facilities prior to and post 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 and Business Banking clients, and is responsible for extracting all regulatory reports, in order to assist in the approval decision. Consumer and Business Banking risk The Consumer and Business Banking Risk Group operates as an independent function, under the Risk Group’s umbrella, managing the centralized risk for all Consumer and Business Banking asset products. Their main objective is to actively support the business growth and vision whilst ensuring sound quality of the portfolio. Active portfolio Concentration - Q4 2014 52% 16% 11% 11% 7% 3% Personal Loans Overdrafts Business Banking Credit cards Auto Loans Mortgage • The Consumer Banking Portfolio consists of an entire range of asset products including personal loans, credit cards, auto loans, real estate finance loans and over- drafts. The Business Banking segment, which has been one of CIB’s strategic initiatives, offers a full suite of products including Working Capital Loans, Term Loans, Contingent Facilities and Product Programs tailored to meet the spe- cific requirements of various sub-segments. In 2014, several new programs and parameter changes were implemented to target new segments and increase the 56 AnnuAl RepoRt 2014 competitiveness amongst the market. As part of CIB’s Cor- porate Social Responsibility, the Bank decided to participate in financing the low and middle income Residential Property Finance Program, as per the initiative introduced by the CBE. The lending programs and decisions are guided by the Consumer Credit Policy Guide (CCPG) which is comprised of directives from the Board of Directors and serves as boundaries for the consumer lending. These form the basis for detailed product programs parameters with clear del- egated authorities. On the Business Banking side, the Risk team along with the Business team have focused on identifying new seg- ments, sub-segments and implementing a simple product program approach addressing the needs of those segments and leveraging on the “Factory Approach”. This approach in- volves implementing a straight through process depending on standardized criteria and a set of support packages and documentation which facilitate a simplified evaluation and a shorter turnaround time. The Business Banking Risk Team has successfully part- nered with the business to achieve portfolio growth while maintaining solid portfolio quality, within the guidelines set in the Business Banking Credit Policy Guide. This was achieved through periodic portfolio reviews, parameter changes, close monitoring and managing of the high-risk segments. Continuous amendments are done based on the findings from several channels including in-depth analysis to ensure that the Bank maintains portfolio performance. The current Consumer and Business Banking Asset Port- folio stands at EGP 9.5 billion with an outstanding port- folio quality reflected in the loss rate of 0.3% in Decem- ber 2014. This has allowed CIB to focus on the high yield segment, thus increasing the profitability of the portfolio, which was complemented by the implementation of new parameters that ensure a diversified risk exposure and restrict excessive concentration to mitigate the impact of any unforeseen trend. The Consumer Asset Portfolio has shown strong growth throughout the year with an increase of EGP 2.3 billion, rep- resenting a growth rate of 32%. This growth was a result of the improved political and economic stability in the coun- try, which allowed the Bank to introduce new programs, pa- rameter changes and test new segments that gave the Bank an edge in the market. There has been an increased focus on unsecured lending to reach 41% of the sourcing, given the launching of several new programs to successfully move towards a strategic change in the mix of CIB’s portfolio to- wards the more profitable unsecured lending. The portfolio quality has been sustained ensuring ad- vanced portfolio management techniques through the moni- toring of all current and historical programs performance that helps in the identification of the potential growth seg- ments and in triggering of early warning signals. The Consumer and Business Banking Risk Group contin- ues to emphasize on achieving growth based on data driven decisions with predictive consumer life cycle examination which is managed through a robust analytics unit along with continuous review and refinement of our underwrit- ing process and collection strategies to meet the challenges imposed by the environment. The Consumer and Business Banking Risk Group continues to emphasize on achieving growth based on data driven decisions with predictive consumer life cycle examination. total portfolio delinquency risk management department The Risk Management Department (RMD) identifies, mea- sures, monitors and controls the Asset and Liability Man- agement (ALM), market and operational risks via the Bank’s policies and ensures that the Basel II and risk analytics re- quirements are adequately managed and that the status is reg- ularly reported to the management and the Board of Directors. Liquidity Risk is the risk that the Bank would find itself unable to meet its normal business obligations and regula- tory liquidity requirements. CIB has a comprehensive Liquid- ity Policy and Contingency Funding Plan to manage liquidity risk, taking into account the Bank’s risk profile, risk appetite as well as market and macroeconomic conditions. This cov- ers the identification, measurement, evaluation, monitoring, reporting and control of liquidity risk over an appropriate set of time horizons. main measures and monitoring tools include: • Regulatory and Internal Liquidity Ratios • Liquidity Gaps • Basel Liquidity Ratios • Minimum Liquidity Guidelines (MLG) • Funding Base Concentration In 2014, CIB continued to strengthen the balance sheet through ensuring that funding sources are mainly driven by deposit base with no reliance on wholesale funding. Diversi- fication of the Bank’s deposit base enables us to continue sup- porting our customers’ needs and maintaining appropriate concentration risk levels. 2014 Q1 Q2 Q3 Q4 Percentage of Deposit Base to Total Funding Base 99.2% 99.5% 98.7% 99.1% The Bank maintained a prudent liquidity position with both LCY and FCY liquidity ratios above regulatory and in- ternal targets. This supports growth opportunities, benefit- ing from steady inflows of customer deposits, in addition to complying to Basel III Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). deposit Base Concentration - december 2014 29% 25.4% 25.2% 17.7% 2.8% Time Deposits Certificate Deposits Current Account Saving Accounts Others AnnuAl RepoRt 2014 57 2014 in Review lCy liquidity ratio fCy liquidity ratio operational risk Heat map for 2014 72.25% 70.57% 70.47% 72.01% 42.82% 46.23% 47.37% 42.38% 25% 20% 28% 25% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Liquidity Ratio CBE Mandatory Limit CIB Internal Limit Liquidity Ratio CBE Mandatory Limit CIB Internal Limit Liquidity stress testing is conducted to assess and simulate the Bank’s ability to survive under sudden and unexpected run-off in a survival horizon of 30 days. Different scenarios are designed and assumed to cover both the Bank specific as well as the possible systemic stress events. Liquidity Stress Scenarios are regularly updated according to the changes in the economic environment. Throughout the year, the stress testing scenarios (specific and systemic) showed no immedi- ate action required in the Contingency Funding Plan (CFP), as we have ample liquid assets. Interest Rate Risk is the potential loss from unexpected changes in interest rates, which can significantly alter the Bank’s profitability. Interest rate risk primarily arises from the re-pricing maturity structure of interest-sensitive as- sets and liabilities and off-balance sheet instruments. The measurement process includes all material interest rate positions of the Bank and considers all relevant re-pricing and maturity data. ket risk. These include exposure, stop loss and Value at Risk (VaR) limits. The limits are set by considering both the risk ap- petite of the Bank as well as the projected business plan. The Bank primarily uses VaR for capturing the market risk in its trading book. VaR is defined as the worst case loss predicted at a specific confidence level over a certain period of time. As the Bank’s Trading Book portfolio includes linear level 1 assets, the Variance-Covariance approach is used for measuring VaR, using a 95% confidence level and one day holding period. 95% 1-day minimum Average maximum Trading Book VaR 8.8 12.5 18.8 95% 1-day Q1 Q2 Q3 Q4 CIB uses complementary technical approaches to measure and control interest rate risk including: Trading Book VaR 12.1 8.8 14.2 11.5 • Interest Maturity Gaps • Earnings at Risk (EaR) • Duration of Equity(DOE) In 2014, the balance sheet was strategically positioned to benefit from the interest rate environment and CIB proactively managed this sensitivity to safeguard against adverse shocks. CIB uses Earnings at Risk (EaR) for measuring the sensi- tivity of various adverse changes in interest rates levels, to identify the potential impacts associated with interest rate risk, showing the impact on the Bank’s forecasted consoli- dated net interest income over the following 12 months. Furthermore, CIB measures the total Interest Rate sensi- tivity of 1% parallel shift in all currencies versus the Bank’s Capital Base (Tier 1 and Tier 2) through calculating the Dura- tion of Equity (DOE). Market Risk is the exposure to adverse movements in mar- ket prices of trading book positions including interest rates, foreign exchange and equity as well as the changes in the cor- relations and volatility levels between these risk factors. The Bank is using various techniques to monitor and control mar- 58 AnnuAl RepoRt 2014 In order to check the integrity and the accuracy of the VaR model, the Bank performs daily backtesting to compare be- tween the trading results (P&L) and the model generated risk measure (VaR). The Bank also calculates the Stress Value at Risk (SVaR) on a daily basis. Stress tests are designed to estimate the potential economic losses in abnormal markets. Stress test- ing combined with VaR gives a more comprehensive view of market risk. SVaR is calculated using the maximum volatility levels witnessed in the observation period and estimated at 95% confidence level with a one day holding period. Further- more, monthly SVaR is estimated by considering the extreme historical events to assess the ability of the Bank to survive under possible stress events. 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, policies and processes designed to provide a sound and well- controlled environment. The framework uses the following ap- proaches to measure and control operational risk: 43% 50% 0% 50% Green: Represents Low Frequency & Low Severity, Yellow: Represents Medium Frequency & Medium Severity, Red: Represents High & Catastrophic Frequency & Severity. 7% 100% • Loss Events Database: Includes the operational risk events collected from concerned parties in the Bank and all their related details. • Risk and Control Self-Assessment (RCSA): The identifi- cation of operational risks and controls effectiveness of each unit and related assessments with operational risk management validation of processes, risks categories, controls assessments and implementation of action plans and processes and their related tracking and testing. The outcome of the RCSA exercise is the risk heat map report which represents the residual risk assessment that evalu- ates the adequacy and effectiveness of the controls. • Residual Risk Assessment is represented by the risk heat map report, which considers both the risks and the related response mechanisms and control activities which are in place to determine the impact and the probability of their occurrence. Assessment of a specific department processes is based on the likelihood of occurrence and the signifi- cance of impact. • Key Risk Indicators (KRIs): Implementation and moni- toring of indicators and their results, and assisting the concerned parties on identified issues and gaps for KRIs above threshold. • Procedures and Products Revision and Approval: Applies to the Bank’s standard operating procedures, products, inter- nal processes and new business initiatives. Procedures and products revision and approval results in proposals on risk mitigating actions and the acceptance of remaining risks. • Outsourcing Essential Activities Contracts Review: the identification and assessment of risks arising from out- sourced services, as well as their related controls protect- ing the Bank’s rights, identifying the gaps and implement- ing action plans. After fulfilling the operational risk action points, 43% of the as- sessments were green, 50% were yellow and 7% were red, which declined from 8% pre-implementation of ORM action plans. 2014 Achievements • Board of Directors endorsed the ERM framework and del- egated oversight to the Board Audit and Risk Committees. • Enhancement of the risk appetite framework by adding new key risk indicators (KRI) for all risk categories. • Enhancement of the operational risk management frame- work initiated by the champions program which represents the communication channel between operational risk management (ORM) and the Bank’s various departments. • Initiation of Social and Environmental Management System (SEMS) and conducted training in preparation for the adoption of the Equator Principles (EP). • Adoption of a new approach to target certain segments leveraging on the “Factory Approach” through tailored product programs, while launching new programs which are expected to further boost the Consumer and Business Banking portfolio growth. • Launching the low and middle income mortgage schemes in line with the CBE country-wide initiative, in addition to revamping the policy program to cater for the growth. • Continuous spreading of awareness and understanding through extensive training spanning consumer credit, business banking and operational risk and encouraged continuous learning led by our Risk Group profession- als through designing and offering educational train- ing programs. • Consumer Credit Policy Unit partnered with the busi- ness team to enhance products’ development in or- der to drive unsecured portfolio growth through the launching of multiple programs, tests and campaigns to facilitate the aggressive growth • Consumer Underwriting Unit continued its endeavors to focus on turnaround time and service quality for customers. This was improved through multiple re-en- gineering initiatives that were implemented. • Enhanced Collections infrastructure and strategies were put in place to meet new challenges and growth aspiration for the medium term, which was reflected in our portfolio quality. • Advanced forecasting models and emphasis on behav- ioral analysis were initiated to further enhance the risk ability to support business. AnnuAl RepoRt 2014 59 Green walls are a part of CIB’s initiative to reduce CO2 emissions 2014 in Review CoMplIAnCe The Policies and Procedures Division ensures the Bank’s compliance with policies, regulations, laws and procedures to manage and assess compliance risks including regulatory, legal and fraud risks. In 2014 the division focused on coordinating with Internal Audit and Risk Management to align control effectiveness together with business to achieve the Bank’s strategy within the agreed upon risk appetite. The Complaints Division was established in 2010 and is responsible for investigating high level complaints received from CBE and the Chairman’s office. The department inves- tigates the root causes of such complaints in order to initiate remedial action. The division coordinates with the Customer Care Unit which is in charge of all customer complaints. The division’s goal in 2015 remains to address customer complaints, improve processes and enhance staff awareness by introducing e-learning. The Anti-Money Laundering and Terrorism Financing (AML) Division is directly involved in monitoring transac- tions, customer account behavior, and screening transac- tions against negative lists and those related to sanctioned countries to avoid the Bank’s involvement and guard it against money laundering and terrorism financing crimes. In 2014, the division focused on enhancing staff AML knowledge and provided special training as well as aware- ness sessions across all levels and areas of the Bank. By the end of 2015, a fully implemented AML automated monitoring solution will be established in order to apply a comprehensive risk based approach. Implementation of the executive regulations of the recent amendments in the AML law will also be the focus of the division in order to ensure full compliance. In order to be FATCA (Foreign Account Tax Compliance Act) compliant, CIB registered as a Participating Foreign Financial Institution with the United States Internal Rev- enue Service (IRS). Its first phase of implementation for Individual clients be- gan on 1 July of this year, with the second phase covering entities and institutions to being on 15 January. As part of the Bank’s Enterprise Risk Management frame- work, CIB will focus on one of its main components, Conduct Risk, which is the risk of customer detriment and subsequent damage to the reputation of the firm and to the achievement of its strategic objectives. 60 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 61 2014 in Review InteRnAl AuDIt The Internal Audit Group issues independent, objective as- surance reports through the evaluation of the adequacy and effectiveness of internal control, risk management and cor- porate governance. The independence of the Internal Audit department is re- alized by reporting functionally to Board Audit Committee and administratively to the Chairman of the Bank. During fiscal year 2014, Internal Audit continued imple- menting its Business Partners approach, serving the Board of Directors and Bank management. This was witnessed in the increased number of consulting engagements rendered by Internal Audit Group, which used 15% of the Internal Au- dit available man/day. In addition, the Internal Audit Group participated as a non-voting member in the majority of the Bank’s strategic committees, sharing Internal Audit’s views regarding risk and control. Internal Audit Group continued its activities under the comprehensive risk based audit approach, expressed in the three-year audit plan that incorporates CIB business strat- egy and covers all banking segments. Complying with Institute of Internal Auditors (IIA) stan- dards is a central theme of the Bank’s Audit processes. To ensure ongoing compliance with IIA standards, the Audit Committee approved the appointment of one of the leading four Audit firms to assess CIB Internal Audit in the quality assurance process and its Audit team. The assessment pro- gram will start in the beginning of 2015. training The Audit Committee and IAG management support the continuing education and comprehensive training of In- ternal Audit staff. • Currently 45% of IAG staff are certified auditors (CIA, CBA, CPA, CISA). • In addition, an ongoing exchange of experiences is demon- strated in conducting visits to multinational financial insti- tutions and holding in-house knowledge transfer sessions attended by members of the Internal Audit Group. Other activities of CIB Internal Audit teams have added value to the efficient delivery of Bank services. Internal Au- dit conducted 15 audit engagements during 2014 which were end-to-end to cover the whole cycle of each function in the audited unit. This resulted in 139 recommendations regard- ing risk exposure, internal control and service quality. These recommendations were overseen by Bank management and implemented by business owners, and were followed up by visits from the Audit teams. Fully 60% of the recommenda- tions were properly resolved and the applicable target dates have been set for the other outstanding issues. 62 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 63 StrAtegIC SuBSIdIArIeS Strategic Subsidiaries CI CApItAl HolDInG Rooftop gardens have been built at a number of CIB branches in Cairo to help reduce CO2 emissions CI Capital Holding (“CI Capital” or the “Group”) is a leading Egyptian investment banking, securities, and investment management firm, wholly owned by CIB. Through its head- quarters in Cairo and representative office in New York, CI Capital offers a wide range of financial services to a diver- sified client base that includes individuals, high net worth and institutional investors and corporate clients. The Group offers its services across five business lines: securities bro- kerage, equity research, asset management, and investment banking advisory, private equity and custody. The Group’s investment banking arm is the #1 ranked advisor in Egypt, having successfully executed EGP 90 bil- lion in transactions since inception, with more than EGP 60 billion executed since the beginning of 2013. The com- pany advises on mergers & acquisitions, private and public equity and debt capital raising, and financial restructures. The securities brokerage arm is a market-leading bro- kerage house in Egypt; currently ranked #2 on the Egyp- tian Exchange. It is complemented by an industry-leading research platform covering 59 companies across 11 sec- tors in 6 markets, with top-tier analysts ranked #9 world- wide in MENA Research by the 2014 Extel Survey, #2 in the MENA region, and #1 in Egypt. In January 2014, CI Capital hosted one of the largest Egypt-focused investor confer- ences in London and New York. The asset management division manages fixed income, money market and equity products, with AUM in excess of EGP 8.7 billion. The division managed to position itself as a top quartile asset manager in all of its types of funds and portfolios. The division manages [eight] diverse funds and provides portfolio management services to a wide client base, and offers discretionary services to high net worth individuals and institutional investors. Cli- ents are provided with comprehensive personalized ser- vices tailored to their investment and reporting require- ments. The asset management team has always been at the forefront of innovation, launching Egypt’s first one- year open-ended capital-protected fund and first-ever Shari’ah-compliant fund. 66 AnnuAl RepoRt 2014 During 2014, CI Capital announced the launch of its first private equity fund, the USD 300 million Egypt Opportuni- ties Fund in partnership with the DUET Group. CI Capital has been recognized as the “Best Investment Bank in Egypt” by Global Finance in 2014, and by EMEA Fi- nance in 2013 and 2014. 2014 review Securities Brokerage • In order to better compartmentalize tasks and protect the interest of each segment, CI Capital’s securities brokerage arm is comprised of two companies: Dynamic Securities, which caters to local individual investors; and CIBC, which services large-holding investors. • Over the past two years, the division has diversified its in- stitutional client base to encompass the majority of foreign and GCC institutions operating in the MENA region in ad- dition to a wide clientele base of high net worth individuals and family offices. • CIBC managed to grow its market share of foreign partici- pation in the Egyptian Stock Market at a CAGR of 40% dur- ing the period 2012-2014, taking it from an average share of foreign flow of 17.6% in 2012 to 35% in 2014 (a growth rate surpassing all other MENA-based brokers). • Such a growth story is supported by adept sales and trad- ing teams of c. 200 employees with an average of 10 years of experience in MENA capital markets. • The firm’s trading platform facilitates trading activ- ity in Egypt and most recently, Oman, where the firm has successfully established on-the-ground presence by acquiring 51% of International Financial Company, a local broker in Muscat. CIBC will capitalize on this acquisition to facilitate trading in Omani equities as well as other GCC and international equities. • Furthermore, CIBC and CI Capital Research divisions collaborate to provide their clients with unrivalled cor- porate access through corporate roadshows, reverse roadshows, country visits, and investor/analyst con- AnnuAl RepoRt 2014 67 Strategic Subsidiaries CI Capital has been recognized as the “Best Investment Bank in Egypt” by Global Finance in 2014, and by EMEA Finance in 2013 and 2014. Recycling bins have been put in place at CIB’s head office in Giza nificant interest from international investors (which repre- sented >65% of total demand). Since the IPO, the stock has performed strongly, gaining >50% above the offering price (as of year-end 2014). • CI Capital Investment Banking successfully advised Actis, a leading global private equity firm that manages in excess of USD 5.0 billion in emerging markets, as Exclusive Sell- Side Advisor on the divestiture of their stake in CIB, Egypt’s leading private sector bank. The USD 420 million deal rep- resents the largest book-building transaction on the Egyp- tian Exchange since 2005, and one of the largest M&A deals in Egypt during 2014. The stake was sold exclusively to a group of global institutional investors from the US, Europe, and the Gulf, including Fairfax Financial Holding, the Ca- nadian insurance company. • CI Capital Investment Banking acted as Exclusive Buy Side Advisor to global private equity player Ripplewood on its acquisition of a minority stake in SODIC, a leading real es- tate developer listed on the Egyptian Exchange (OCDI.CA). The EGP 210 million transaction was executed in May 2014. • CI Capital Investment Banking acted as Joint Lead Manag- er on SODIC’s EGP 1 billion rights issue. The highly success- ful offering was 99% subscribed from the first round. cicapital.com.eg ference calls. In 2014, the divisions organized four cor- porate roadshows to the UK, USA, and GCC, 10 analyst roadshows to the UK, USA, and GCC, and more than 17 client visits to Egypt meeting with top officials of Egyp- tian corporation, businessmen, and policy makers. • Finally, CI Capital’s Third Annual Egypt Conference in January 2015 spanned three cities, Cairo, London, and New York, and hosted 35 publicly-listed Egyptian corpora- tions. The 188 representatives of the 110 foreign and MENA investment institutions in attendance are responsible for Assets Under Management exceeding USD 5 trillion. Asset management: • CIAM was awarded the “Best Asset Manager in Egypt” by Global Investor for the fifth consecutive year. • Finalized the launch of CIB Balanced Fund, an open-ended fund with an initial size of EGP 100 million. • New cash injection into equity portfolio business amounted c. EGP 160 million. • Launched Arope Money Market Fund, an open- ended fund with an initial size of EGP 100 million. • CIB Equity Fund Estithmar and its Shari’ah-compliant fund, Aman, were ranked among the top quartile funds in their equity funds categories. Estithmar was ranked first amongst 25 equity funds in 2014 and ranked second for the previous 12 months performance (as per the latest EIMA quarterly bulletin – FY14). • Blom Money Market Fund was ranked among the top quar- tile money market funds in the Egyptian market for the fourth year in a row. • Osoul Money Market Fund remains the best-performing money market fund relative to its peers in size. Investment Banking • CI Capital Investment Banking acted as Global Coordina- tor and Bookrunner on the USD 110 million IPO of Arabian Cement Company, the first IPO on the Egyptian Exchange since the 25 January 2011 Revolution. The highly successful global offering was 13.4x oversubscribed, generating sig- 68 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 69 along with the global economic unease, Egypt Factors has succeeded in maintaining its market position. According to Factors Chain International (FCI) statistics, EGF has, for the sixth 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. egyptfactors.com 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 extend- ing to over 85 countries around the world, including Egypt, EGF is able to bridge differences in culture, language, mar- ket 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 periodically evaluated 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 ben- efit from the increased purchasing power without tying up banking facilities. 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. 2014 Accomplishments Despite the turbulence that rocked both the region in general and Egypt’s economy, in particular over the past four years, 70 AnnuAl RepoRt 2014 CoMMeRCIAl InteRnAtIonAl lIFe InsuRAnCe CoMpAny (CIl) 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 In- ternational Bank, CIL delivers a successful bancassurance sales model. The company has risen to become one of the largest play- ers in the Egyptian life insurance industry, winning the Most In- novative Insurer in the MENA Insurance Awards for 2014. 2014 performance Despite challenging conditions in the Egyptian market, CIL successfully met its annual targets thanks to the positive enhancements in efficiency, productivity and quality mea- sures applied by CIL. Currently, CIL provides insurance benefits for 63,836 individual clients and 356,266 employees. CIL Insurance benefits vary from savings and protection packages cater- ing to different life events to more complex pension and life insurance benefits for employees in coordination with their respective employers. 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. cileg.com || Hotline: 16245 CoRpoRAte leAsInG CoMpAny (eGypt) sAe – CoRpleAse CORPLEASE is one of the three leading financial leasing companies in Egypt; it has been successfully operating in the Egyptian leasing market since 2004. The company provides leasing products and services tailored to meet corporate capital expenditure needs for a wide variety of assets, which includes commercial real estate, equipment financing, plant and machinery financing, transportation assets, systems & IT, office equipment and fleet management. CORPLEASE has a strong nationwide presence through its offices in Cairo, Alexandria, Mansoura, Assiut, Hurghada and Suez. Further- more, the company established CORPLEASE Emirates, its fully-owned regional subsidiary in the GCC located at Dubai International Financial Center (DIFC). CORPLEASE Emir- ates extends lease finance services in local and foreign cur- rency to the UAE business community. In 2014, CORPLEASE once again continued to strengthen its market position with a balanced and healthy portfolio, by placing significant emphasis on the soundness of each individual credit story and overall portfolio risk diversifi- cation measures. Despite the challenging economic envi- ronment, CORPLEASE achieved a robust financial perfor- mance during 2014, increasing its lease booking volumes compared to 2013. The company continues to enjoy a strong financial position with favorable coverage, liquidity, capi- talization and funding ratios, making it well -positioned for future growth. CORPLEASE seeks to bolster economic development while maintaining the progressive growth rate of the company, by providing lease financing to SMEs and large enterprises in the most efficient and effective manner. The company’s sys- tem and procedures are designed to place its clients at the heart of its business, through developing an efficient and pro- fessionally trained human resource that implements the best practices and solutions in the leasing market. corplease.com.eg || Hotline 19490 AnnuAl RepoRt 2014 71 Strategic Subsidiaries FAlCon GRoup Falcon Group is an Egyptian joint venture between CIB, the CIB Employees Fund, Al-Ahly for Marketing, and other pri- vate entities. CIB owns 40% of the Group, while other share- holders own the remainder. Falcon Group provides all types of Security Services such as; private security, premises protection, cash In Transit, Electronic Security System Solutions, General and Facility Management Services, and Touristic and Governmental Concierge Service. Falcon Group has been the main security service provider to a number of top-tier government and non-government organiza- tions such as the United Nations offices and number of embas- sies in Egypt. Falcon Group operates in over 1,200 locations in all market segments through its branches in Egypt and controlled by the Central Operation Room 24 hours a day, seven days a week. In addition to being ISO 9001 & 9002 certified, the Group re- ceived the Knight Award by the ISO association in the UAE in 2013. Achievements &Accomplishments in 2014 Falcon increased its issued capital in 2014 from EGP 10 mil- lion to EGP 30 million, and realized an average increase on assets of over 32%. As of December 2014, the Group achieved consolidated revenues of EGP 235 million. Operationally, 2014 was a milestone year for Falcon Group, as the company was selected to provide security services and se- curity electronic systems to the El Sisi presidential campaign. Furthermore, the company signed a contract with the Ministry of Higher Education to provide 12 universities with security elec- tronic systems and security guards and supervisors, which boost- ed Falcon’s visibility and standing in the private security sector. This year also witnessed Falcon strengthen its presence in the tourism sector, as it added seven hotels in Sharm El Shiekh and on the North Coast to its roster of clients, in addition to securing many tours in Cairo. The group aims to make further inroads and new deals with additional touristic companies. Concerning Money Transfer Services, the Group augmented its ar- mored vehicles fleet, boosting the number of armored vehicles to 113. Moreover, revenues for this line of business grew 46% year-on-year. Falcon started the soft opening of the New Cash Centre in New Cairo in October 2014 which will be the cornerstone for developing new services for banking institutions. Improved performance of the Audit and Inspection cycle, and other customer-care processes helped reduce service problems and allowed Falcon to achieve an 80% customer satisfaction rate in 2014, a 6% increase over customer satisfaction figures in 2013. Falcon Group renewed its (SLA) for Concierge Services with CIB Wealth Segment and signed a new SLA for Concierge Services with CIB Non-Resident Egyptians Business Consumer Banking. forward Strategy Falcon’s goal in 2015 is to increase its client portfolio, specifi- cally targeting banks and other financial institutions, govern- mental bodies, tourism facilities, and the construction sector. The company’s marketing plan for 2015 seeks to upgrade and develop our lines of services, especially the Touristic and Governmental Concierge Services, as a means of bolstering our position in the market. Falcon for Money Transfer plans to develop and renovate four branches to include small cash centers in Mansoura, Tanta, Alexandria and Assiut. Furthermore, Falcon Tech is cooperating with the Ministry of Interior to equip and install CCTV surveillance systems in main and vital squares across all governorates. Finally, Falcon for Security Services is plan- ning to open a Certified Security Training Academy. To read more about Falcon Group, its projects and how to hire us, please visit falcongroupinternational.org || Hotline: 19561 Once the security ban on football attendance was lifted, Falcon was once again contracted to provide security servic- es for Egyptian National Team during international games. To meet with one of our representatives in person please do not hesitate to visit our corporate offices, located at 417, Road 90, by Future University. New service lines launched in 2014 include the Backup & Emergency Service that strengthened operations in the field of static protection field. 72 AnnuAl RepoRt 2014 CIB client, OHD’s flag- ship project El Gouna is aiming to become Egypt and Africa’s first carbon neutral city AnnuAl RepoRt 2014 73 SuStAInABlIty At CIB Sustainablity at CIB WHAt eGypt neeDs noW Is sustAInABle GRoWtH dr nadia makram ebeid CIB Board Member and Member of the CIB Foundation’s Board of Trustees “Banks are influential! With influence comes responsibil- ity,” says CIB Board Member, Nadia Makram Ebeid. “At CIB responsibility is something that we never shy away from. The bank is firmly committed to pursuing a longer term, perceptive vision of the future, rooted in operational in- tegrity, accountability and inclusion in all aspects of its day-to-day business.” As Egypt’s first Minister of the Environment, a post that she held for five years, and as the present Executive Director of the Center for Environment and Development for the Arab Region and Europe (CEDARE), Ebeid’s many contributions in the area of sustainability are a testament to her genuine be- lief that nature and business make ideal partners. “Preserving the environment is a strong cornerstone in ad- vancing the country’s sustainable economic growth and is a shared duty of every corporation and individual in Egypt. We cannot grow and prosper on a bankrupt environment!” As both a CIB Board Member and member of the CIB Foun- dation’s Board of Trustees, Ebeid has championed the bank’s role as one of Egypt’s leading advocates of sustainability. “Sustainability is the advancement of responsible busi- ness and rewarding investments within a structured, bal- anced, steady, participatory and durable approach. It is about embedding a progressive culture and mindset into the very fabric of the bank, one that considers economic, so- cial, environmental and governance implications within all aspects of the business.” “Launching CIB’s promising sustainability initiative about two years ago was CIB’s Chairman, Hisham Ezz Al-Arab’s idea. I am simply proud to be a member of this remarkable team, along with all the young “CIBians” who have eagerly jumped on board with the various creative initiatives that the bank continues to undertake,” says Ebeid. “Seeing this kind of growing enthusiasm on the part of our radiant younger employees continues to be a true inspiration.” According to Ebeid, the central aspiration of the bank is to strike a sound balance between the strategic goal of profit- ability and the equally important challenge of meeting the broader socioeconomic and environmental needs of Egypt; the backbone of any sustainable success and distinction. “We owe it to our country and to future generations to be- have in a responsible and honorable manner,” said Ebeid. The former Environment Minister has remained active after leaving her government post by spearheading nu- merous sustainability initiatives and is fully cognizant of the fact that tangible down-to-earth results are ultimately what really matter. “Wishful rhetoric may sound good, but actions always speak louder than words! CIB is known to “lead by example” and this is one of the things that differentiates us from other organizations. It is my sincere hope that all of Egypt jumps on board with what we are doing. This is not a short-sighted vi- sion for tomorrow, it is what we all have to consistently strive for as a society.” Having worked in both the public and private sectors, Ebeid feels that while matters can sometimes be done quicker with the private sector, the success or failure of a project depends on a clear vision, progressive management and how well you can engage with people to create a posi- tive spirit of teamwork. The unique thing about CIBians is that they are hard- nosed bankers, and yet they never lose sight of the human face and the society and environment in which they live and love. “The 5,000-plus staff of CIB are refreshingly inspirational. Throughout the bank we have what we call sustainability ambassadors who are responsible for spreading awareness and promoting knowledge-sharing. Thus far we have about 70 (and counting) of these young volunteers who are being trained on how to interact with their fellow employees to an- chor a bank-wide sustainability mindset and culture in CIB. The basic message they are delivering is that people must take into account the impact of their actions.” This budding initiative has already started making concrete achievements on several fronts (read more in the sustainabil- ity section of this report on pg. 86), but why should this matter to the bank’s clients, shareholders and employees? According to Ebeid, there are significant benefits for all stakeholders, in- cluding higher productivity, improved health conditions, cost savings and increased competitiveness, all of which have a positive impact on the bank’s bottom line and revenue growth, with a healthy ripple effect. Success breeds success! “When you couple those benefits with the positive public perception of the bank as a responsible corporate citizen, it is obvious that there is both economic and social value in what we are doing. I also believe that the timing of our initiative could not be better as, for example, renewable and alterna- tive energy solutions are now at the forefront of Egypt’s na- tional agenda, and CIB is always there.” “While we are still at the beginning of our journey we al- ready have a success story to share. The bank has launched an energy efficiency program which includes installing LED lighting in all our branches resulting in a cost saving of EGP 3 million in 2014 and that is just for one branch. In 2015 we ex- pect the savings to increase exponentially as we rollout LED lighting to 162 branches. “In 2015 we will also be launching our tailor-made Social and Environmental Management System (SEMS), to identify and quantify environmental and social risks, and to avoid ex- posure to detrimental risks. Prevention is better than cure!” “I am delighted that sustainability is now part and parcel of CIB’s vision and mission statements. Every member of the business community, not just government, needs to help cre- ate a more favorable investment climate. Establishing an in- vestment environment that is more conducive to responsible business is also part of that process.” “The unique thing about CIBians is that they are hard- nosed bankers, and yet they never lose sight of the human face and the society and environment in which they live and love. As the Chairman always says, they are the real driving force behind the work we do. The simple fact that our de- voted staff identifies itself as “CIBians” is proof that they are proud of who they are and what they stand for. They are all committed professionals who take their work very serious- ly. We also have an exceptional Chairman who has a steady hand on the wheel and a terrific Board of Directors who are firmly behind our sustainability initiatives. We are all part of CIB’s invigorating “can-do-spirit!” 76 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 77 Sustainablity at CIB CoRpoRAte GoveRnAnCe We at CIB strongly believe that the concrete principles of corporate governance are the crucial factor not only to gain investors’ valued trust, but also to sustain it. Based on this belief, our Bank has been following numerous codes derived from the core of corporate governance for a long time. In fact, the foundations of good governance had been laid out in CIB long ago, and it became the framework for which our five- year plan revolves around. Striving for the best interests of our shareholders guides everything we do at CIB, and we have therefore established a sound reporting system that ensures dissemination of mate- rial information in a timely, transparent and accurate man- ner. The Bank continues its mandate in creating value for its shareholders; something that we are firmly committed to do- ing at present, and in the future. We take pride in our strong corporate governance struc- tures, which include an experienced team of senior man- agement professionals, competent board committees, as well as a distinguished group of non-executive directors, who believe that while business requires mandated laws and rules, these can never substitute for ethical behavior and voluntary compliance. CIB’s highly qualified Board of Directors is supported by internal and external auditors, as well as other internal con- trol functions (Risk, Compliance, and Internal Audit), and ef- fectively utilizes the work carried out by those functions to ensure that the Bank adheres to international best practices in corporate governance. CIB also changes auditors every five years to ensure objectivity and exposure to new practices. the Board of directors A successful board of directors is one that ensures the organiza- tion is being run effectively by the right people today, and that tomorrow’s generation is competent enough and ready to take the lead. CIB is privileged with its renowned Board of Directors; the ultimate decision-making body of the Bank. We consider our Board to be one of our key assets and a vital point of strength. The Board realizes that taking the responsibility of addressing any stakeholder’s concern will benefit the whole organization. 78 AnnuAl RepoRt 2014 The Board primarily focuses on long-term financial returns and the best interest of all CIB’s stakeholders: customers, share- holders and employees of the Bank, as well as the communities in which the Bank operates. The Board’s role is to set the Bank’s values, strategy and key policies, along with pursuing and main- taining its long-term success. CIB’s Board has successfully dis- charged its duties with entrepreneurial leadership, sound strat- egies and risk management oversight to ensure that risks are assessed and properly managed. CIB’s Board is composed of eight members, with a diverse knowledge base and a balanced skill set that gives the Bank a distinct competitive edge. The Directors meet at least six times per year for discussions on matters that are important to shareholders. Over the course of 2014, CIB’s Board met sev- en times. Being the single largest shareholder in CIB, Fairfax Financial Holding Ltd, through its wholly owned number of subsidiaries currently owns 6.76% of CIB’s local shares on the back of its transaction with Actis in May 2014, 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, risk man- agement and the buildup of a modern banking culture. With that effort, CIB stock is now viewed by the international invest- ment 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 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 November 2012. In March 2013, Mr. Ezz Al-Arab was also elected as Chairman of the Federation of Egyptian Banks. In February 2014, he became a member of the Institute of International Fi- nance Emerging Markets Advisory Council – EMAC. 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 has solid record of accomplishments in all facets of financial, technology, risk and operations manage- ment. Before joining CIB’s Board as a non-executive member in May 2013, Mr. Mirza had a long successful journey with CIB in which he had blended in its culture, started in 2008, serving as the COO, a post he has held for two years. In 2010, Mr. Mirza’s experience was further benefiting the Bank as he was assigned the responsibility of senior advisor to the Chairman as well as the Board of Directors. 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 perfor- mance and streamlining system across the board to deliver cost savings, enhance efficiency, and improve bottom line profitabil- ity. His core competencies extend to Strategic Business Plan- ning, Performance Management, Operation Risk Management, Offshore and Shared Services, Audit, Compliance and Central Controls, 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 attended various business management courses at repu- table institutions including the Queens Business School and the Wharton Business School. dr. nadia makram ebeid non-executive Board member Dr. Nadia Makram Ebeid is the Executive Director of the Cen- tre for Environment and Development for the Arab Region and Europe (CEDARE), an international diplomatic position that she has held since January 2004. She joined CIB Board of Di- rectors in March 2005, and also acts as a member of the CIB Foundation Board of Trustees. 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. One of her most no- table achievements was declaring the River Nile free from pol- luted industrial wastewater discharge. Proudly, Dr. Ebeid is the Chairperson of CIB Sustainability Advisory Board as well as the Governance and Compensation Committee. Early in her career, Dr. Ebeid held several managerial posts with the United Nations Development Program (UNDP), the United Nations Food and Agriculture Organi- zation’s Regional Office for the Near East, and the Council for Environment and Development Research. In recogni- tion of her role in environmental policy and advocacy, Dr. Ebeid has been awarded numerous awards and distinc- tions from local and international NGOs, leading institu- tions 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, Econom- ics & Communication at the American University in Cairo. He joined CIB Board of Directors in 2009 and also acts as the Chair- person of the Board Audit Committee. 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 developed and instituted the second generation of fiscal public policy reforms for the Government of Egypt. Dr. Hassanein has also served as Chairman and Board 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 Uni- versity (with Honors), an MBA from New York University (with Distinction) and a PhD from Wharton School of Business, Uni- versity of Pennsylvania, USA. mr. yasser Hashem non-executive Board member Mr. Hashem began his career as a Partner at Zaki Hashem & Partners after his graduation from the Faculty of Law, Cairo University in 1989. He joined CIB Board of Directors in 2013. In 1996, He became the Managing Partner of Zaki Hashem & Partners, Attorneys at Law, where he became responsible for managing the day-to-day business of the firm and represent- ing the firm with major clients and international law firms. Mr. Hashem has specialized knowledge of Corporate, Capital Market, Mergers & Acquisitions and Telecom Law matters. Mr. Hashem has participated in a number of restructurings and in- corporations of foreign and domestic companies, in addition to providing advisory services to many local and foreign investors on aspects of doing business in Egypt. Mr. Hashem handled all IPOs that took place during the past eight years in Egypt, as well as represented acquirers in ma- jor M&A transactions and tender offers. Moreover, he partici- pated 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. AnnuAl RepoRt 2014 79 ment and Group Strategy, Chief Financial Officer, and Head of Strategy, Planning and Corporate Development. Moreover, Mr. Richards is a member of World Economic Forum expert panel on SME development, and a regular contributor to financial press including FT, The Banker, and Business Day South Africa, as well as being a judge for “The Banker” magazine annual awards. mr. Bijan Khorsowshahi non-executive Board member Mr. Bijan Khosrowshahi joined Fairfax Financial Holdings Lim- ited in June 2009. He joined CIB Board of Directors in October 2014. Fairfax is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management and is listed on Toronto stock exchange. Mr. Khosrowshahi also represents Fairfax’s interest as a board member in Gulf Insurance Group in Kuwait, Bahrain Kuwait Insurance Company in Bahrain, Arab Misr Insurance Company in Egypt, Arab Orient Insurance Company as well as the Jordan Kuwait Bank in Jordan and Alliance Insurance Company in United Arab Emirates. Prior to joining Fairfax, Mr. Khosrowshahi was the Presi- dent and CEO of Fuji Fire & Marine Insurance Company Lim- ited, based in Japan. From 2001 until 2004, he was the Presi- dent of AIG’s General Insurance operations based in Seoul, Korea. From 1997 until 2001, he was the Vice Chairman and Managing Director of AIG Sigorta based in Istanbul, Turkey. He has held various underwriting and management positions with increasing responsibilities at AIG’s headquarters in New York since joining AIG in 1986. Mr. Khosrowshahi obtained an MBA in 1986, following an undergraduate degree in Mechanical Engineering in 1983 from Drexel University. He participated in the Executive De- velopment Program at the Wharton School of the University of Pennsylvania in 2003 and is a regular lecturer at universi- ties and insurance institutes. He has served on the boards of the Foreign Affairs Coun- cil and the Insurance Society of Philadelphia. He has also been a council member of USO in Korea, the Chairman of the insurance committee of the American Chamber of Commerce in Korea, and a member of the Turkish Busi- nessmen’s Association. the Board of directors’ Committees CIB’s Board of Directors has eight standing committees that assist the Board in fulfilling its responsibilities. Accord- ingly, the Board is provided with all necessary resources to enable them to carry out their duties in an effective manner. Each committee operates under a written charter that sets out its responsibilities and composition requirements. Sustainablity at CIB 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), and also an Hon- orary Counsel to the British Ambassador in Egypt. dr. Sherif H Kamel non-executive Board member Dr. Sherif Kamel is a professor of management information systems and was a former and founding dean of the School of Business (2009-2014) at the American University in Cairo (AUC). He joined CIB Board of Directors in 2013. Dr. Kamel was associate dean for executive education (2008-2009) and director of the Management Center (2002- 2008) at the American University. Before joining AUC, he was director of the Regional IT Institute (1992-2001) and managed the training department of the Cabinet of Egypt Information and Decision Support Center (1989-1992). His experience focuses on investing in human capital, build- ing and managing executive development institutions ad- dressing IT, management, governance, entrepreneurial, and leadership issues. Dr. Kamel is the executive vice-president of the Ameri- can Chamber of Commerce in Egypt and board member of the Egyptian American Enterprise Fund. He is a member of the Egypt-US Business Council, the World Bank Knowledge Advisory Commission, a founding member of the Internet Society of Egypt and a member of the Egyptian Council for Foreign Affairs. He is also an Eisenhower Fellow (2005). Dr. Kamel holds a PhD in Information Systems from Lon- don School of Economics and Political Science (1994); an MBA (1990); and an MA in Islamic Art and Architecture (2013) from the American University in Cairo. His research and teaching interests include IT proliferation in develop- ing nations, IT management, electronic business and deci- sion support systems. Kamel received a number of organizational leadership awards for serving the IT community from the Cabinet of Egypt (2011), BITWorld, Mexico (2000) and IRMA, USA (1999). He also received AUC Distinguished Alumni Facul- ty Service Award (2014); UNDP National Human Resource Development Award (2014); School of Business Leadership Award (2013); AUC President’s Catalyst of Change Award for Citizenship and Service (2013); and AUC School of Busi- ness, Economics and Communication Excellence in Re- search Award (2005). mr. mark richards non-executive Board member Mr. Richards is the Head of Financial Services of Actis, one of the world’s leading emerging market private equity groups. He joined CIB Board of Directors in 2014 and acts also as the Chairperson of the Board Risk Committee. Mr. Richards has 26 years of banking and financial services experience, having worked in the UK, Africa, and Asia. His global responsibility extends to making and leading investments in fast growth financial services groups where Actis manages USD 6 billion, and in ensuring good governance. Prior to joining Actis, Mr. Richards spent 18 years in Barclays in various positions as Director of Group Corporate Develop- 80 AnnuAl RepoRt 2014 Committee members Key responsibilities Audit Committee supervising the quality and integrity of CIB’s financial reporting Chair: Dr. Medhat Hassanein Members: Dr. Sherif Kamel Mr. Yasser Hashem The Governance and Compensation Committee is responsible for corporate governance of CIB as well as being responsible for the Board’s performance evaluation, compensation and succession planning Chair: Dr. Nadia Makram Ebeid Members: All other Non-Executive Board Members The Risk Committee supervising the management of risk of CIB Chair: Mr. Mark Richards Members: Mr. Jawaid Mirza Mr. Bijan Khorsowshahi The Management Committee is responsible for execution of the Bank’s strategy Chair: Mr. Hisham Ezz Al-Arab Members: Senior Executive Officers of the Bank The Committee’s mandate is to ensure compliance with the highest levels of professional conduct, re- porting 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 poli- cies and procedures. In performing its critical func- tions, 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 4 times in 2014. The Governance and Compensation Committee (GCC) is an integral part of the overall responsibili- ties of the Board of Directors. As such, and in line with CIB’s corporate governance framework, the GCC is re- sponsible for establishing corporate governance stan- dards, providing assessment of Board effectiveness and determining the compensation of members of the Board. The Committee also determines the appro- priate compensation levels for the Bank’s senior ex- ecutives and ensures that compensation is consistent with the Bank’s objectives, performance, and strategy and control environment. The Governance and Com- pensation Committee (GCC) met 6 times in 2014. The primary mission of the Risk Committee is to as- sist the Board in fulfilling its oversight risk respon- sibilities by establishing, monitoring and reviewing internal control and risk management systems to ensure the Bank has the proper focus on risk. It also recommends to the Board the Bank’s risk strategy with all its associated limits. The Risk Committee met 4 times in 2014. The Management Committee is an Executive com- mittee, responsible for executing the Bank’s strategy as approved by the Board. It manages the day-to-day functions of the Bank to ensure alignment with strat- egy, effective controls, risk assessment and efficient use of resources in the Bank. The committee adheres to high ethical standards and ensures compliance with regulatory and internal CIB policies. The com- mittee 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 12 times in 2014. AnnuAl RepoRt 2014 81 CIB Chairman Hisham Ezz Al-Arab hands out jackets to workers at the New Suez Canal construction site Sustainablity at CIB The High Lending and Investment Committee is responsible for assets’ allocation, quality and development Chair: Mr. Hisham Ezz Al-Arab Members: Senior Executive Officers of the Bank. This committee is an Executive Committee responsi- ble for managing the assets side of the balance sheet; keeping an eye on assets allocation, quality and de- velopment. Per its mandate, the High Lending and Investment Committee convened weekly throughout 2014, and met 47 times. The Affiliates Committee is responsible for steering and managing CIB’s affiliates Chair: Mr. Hisham Ezz Al-Arab Members: Senior Executive Officers of the Bank. The Affiliates Committee is a committee reporting to the Board of Directors, and is 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 commit- tee met 6 times throughout 2014. The Sustainability Advisory Board concentrates on long- term value drivers that advance the twin objectives 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 Hassanein Mr. Jawaid Mirza The Sustainability Committee is delegated by the Board of Directors to oversee, approve and monitor all sustainability strategies, initiatives and projects. It concentrates on long-term value drivers that ad- vance the twin objective of sustained success of the Bank as well as the well-being and betterment of so- ciety as a whole. The committee met twice over the course of 2014. The Operations and IT Committee assists the Board in overseeing 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 Direc- tors to assist the Board in its oversight of the Bank’s operations and technology strategy and significant investments in support of such strategy as well as Op- erations and Technology Risk. The Committee met 4 times in 2014. 82 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 83 Sustainablity at CIB 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 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 in- clude 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 inter- national 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 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 November 2012. In March 2013, Mr. Ezz Al-Arab was also elect- ed as Chairman of the Federation of Egyptian Banks. In Febru- ary 2014, he became a member in the Institute of International Finance Emerging Markets Advisory Council – EMAC. 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. Hussein Abaza Chief executive officer, Institutional Banking Mr. Hussein Abaza assumed his duties as CEO of Institution- al Banking in October 2011. Prior to his current role, Mr. Aba- za was CIB’s Chief Operating Officer, Chairman of CIAM and a member of the High Lending and Investment Committee, and the Management Committee, The Affiliates Committee and the Board of the CI Capital Holding Company. In addition to these positions, he has a long history with CIB where, as General Manager and Chief Risk Officer, he was responsible for Bank-wide Credit, Market and Opera- tional Risk, and Investor Relations. Outside CIB, Mr. Aba- za worked as Head of Research at EFG Hermes Asset Man- agement from March 1995 until October 1999. He began his career at Chase National Bank of Egypt, the forerunner to CIB. He holds a BA in Business Administration from the American University in Cairo. mr. Ahmed maher Abdel wahed Ceo Consumer Banking and operations Mr. Ahmed Maher Abdel Wahed , CEO Consumer Banking and Operations came to CIB with over 25 years of experience in international banks across the Middle East, and strong track records in diversified banking structures. 84 AnnuAl RepoRt 2014 Since he joined the CIB in December 2013, Mr. Abdel Wa- hed has made a positive contribution to the bank, through his devotion and his dedicated work and well-rounded exper- tise in the banking business. As CEO, Mr. Abdel Wahed man- ages and controls Consumer and Business Banking as well as all aspects of bank operations by ensuring the effective, efficient, and economical utilization of resources as well as planning for the future of the bank. 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 grad- uating from Cairo University. Now with more than 25 years of experience and international exposure, he has returned to his home country, Egypt, and his extended CIB family. mr. mohamed Abdel Aziz el toukhy Head of retail and Business Banking Mr. Mohamed Abdel Aziz El Toukhy is leading the trans- formation of the organization into a modern consumer banking 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 General Manager of Con- sumer Banking and has since led the CIB Branch Network and Retail Banking areas to unprecedented success. During his tenure, CIB branches have grown in number to 161 as of December 2014, covering all key governorates in Egypt. Moreover, all of the Bank’s Asset and Liabilities busi- nesses are on solid growth trajectories, with CIB taking lead- ership positions in credit cards, auto loans, personal loans, current and savings accounts, time deposits, certificates of deposit and investment / insurance products. In terms of profitability, the Consumer Banking Division has increased its share of the Bank’s net income from only 10% in 2006 to 30% as of December 2014. Under Mr. Toukhy’s leadership, CIB’s Branch Network and Retail Banking Group grew its December 2014 Consumer Banking balance sheet to over EGP 87 billion in customer deposits. From left to right: Ahmed Maher Abdel Wahed; Hisham Ezz Al-Arab; Hussein Abaza; Mohamed Abdel Aziz El Toukhy AnnuAl RepoRt 2014 85 Sustainablity at CIB BAnKInG on sustAInABIlIty 86 AnnuAl RepoRt 2014 unDeRlyInG FoCus Anchoring a sustainability bank-wide culture and mindset in CIB through the integration of social, environmental, economic and cultural considerations in the Bank’s consciousness, policies, core business, code of conduct and day-to-day operations, within a responsible, inclusive and sustainable approach. CIB continues to be steadfastly committed to a perceptive long-term vision of the future that strikes a sound balance be- tween the strategic goal of increased profitability as well as serving broader socioeconomic and environmental interests; the backbone of any sustainable success and distinction. It was in this positive spirit that the Bank established its Sus- tainable Development Department in March 2013, to advance our social, environmental, economic and cultural sustain- ability endeavors and as part of CIB’s steady and steadfast ef- forts to “lead by example.” Promising strides along this worthwhile road include: 1. Social Sustainability: The CIB Foundation was established in May 2010 with the main aim of strengthening health and nutritional services for under-privileged children in Egypt. This young foundation has over the years become a leading supporter of Corporate Social Responsibility and pediatric health care in Egypt. The Founda- tion’s main initiatives include: • Supporting several public hospitals by equipping their pediat- ric units with the latest technologies. • Performing 6/6 eye exams on over 20 thousand students throughout the country. • Establishing the first free of charge pediatric prosthodontics center in Egypt. • Sponsoring Sir Magdy Yacoub’s pediatric heart hospital. • Establishing a partnership with the pediatric cancer hospital to launch new units/divisions. Based on its solid achievements on multiple fronts, the Foun- dation is expanding its activities and maximizing its reach and impact across Egypt. With a view to promoting knowledge and advancing educa- tional opportunities, CIB retained its banking chair in the “CIB Endowed Professorship in Banking” program at the American University in Cairo. The main purpose of the program is to ex- pose students to multiple perspectives on retail banking chal- lenging their thinking and encouraging new practices that will result in world-class business leadership. CIB also sponsored a ceremony for autistic children to empower their potential creative capabilities and introduce healthy modes of social integration between them and the outside world. 2. environmental Sustainability: Our commitment to the environment we live and operate in is one of our key values. CIB has accordingly implemented several initiatives that have a direct impact on creating a healthy envi- ronment as well as preserving our precious natural resources on which sustainable growth – and our children’s future – depends. These include: • Installation of water restrictors to reduce water consump- tion by 30%. • Planting rooftop gardens and the installation of green walls to decrease CO2 emissions. • Restriction on smoking indoors and the allocation of smoking areas in all premises. • Enforcement of double-sided printing, which signifi- cantly decreased our paper consumption by 45%, as a first step towards our strategic objective of becoming a paperless financial institution. • Development of a waste management system for proper waste segregation. • Implementation of a leading energy saving program to replace all lighting with LED lamps, which will reduce up to 35% of our energy consumption. 3. economic Sustainability: CIB is working on several initiatives that contribute to sustain- able economic growth. High on the agenda is the development of a Social and Environmental Management System, to iden- tify and quantify environmental and social risks, as part of the Bank’s prudent risk assessment and management approach, to avoid exposure to detrimental risks as well as advance durable and responsible business opportunities. To this end, we continue to influence customer attitudes and needs to create a market for sustainable investments, products and services. In addition a sus- tainability report will be published about the economic, environ- mental and social impacts of our daily activities. This will be the first environmental report in Egypt, guided by the framework of the globally recognized Global Reporting Initiative “GRI”. And there is more! CIB’s Finance programs and International Donor Funds team provide financial packages with conces- sional terms together with awareness sessions to customers to encourage them to use eco-friendly mechanisms. This con- tributes to the advancement of organic agriculture, healthy food, clean water, water recycling, solar energy, and pollution abatement industries. The Business Banking Sector provides tailored business solutions to smaller sized companies and en- trepreneurs to support their growth. Our belief in reinforcing the Egyptian economy has led CIB to proudly direct its investments and financial services to- wards supporting investors and officials in charge of the tow- ering New Suez Canal project. 4. Cultural Sustainability: Our responsibility towards the community extends to invest- ing in multiple cultural development initiatives to enrich the knowledge of our employees, who are known to serve the society enthusiastically and selflessly. Our Branding and Learning & De- velopment teams organized several events and visits to explore different historical and cultural sites in Egypt, such as natural protectorates. In addition, CIB sponsors talented Egyptian art- ists “Painters and Sculptures” by acquiring their artwork and adding it to the Bank’s growing and impressive art collection. As Egypt’s upcoming No. 1 Green Bank, we have all the in- gredients to chart a sustainable future and the determina- tion to make it happen! CIB A model of wHAt CAn Be AnnuAl RepoRt 2014 87 CommunIty development Community Development CIB FounDAtIon The CIB Foundation has witnessed another year of growth and commitment to the Egyptian community. Established in 2010 as a non-profit organization dedicated to enhancing health and nutrition services for underprivileged children in Egypt, and registered under the Ministry of Social Solidarity as per the Ministry’s Decree No. 588 of 2010, the Foundation focuses on sustainable development initiatives that result in positive long-term outcomes. the CIB foundation is governed by a seven-member Board of trustees: Mr. Hisham Ezz Al-Arab Chairman Mr. Rafik Madkour Treasurer Ms. Maha El-Shahed Secretary General Dr. Nadia Makram Ebeid Member Mr. Hossam Abou Moussa Member Ms. Pakinam Essam El Din Mahmoud Member Ms. Nadia Mostafa Hosny Member Following the annual shareholder’s General Assembly meet- ing in early 2014, the CIB Foundation was allocated over EGP 40 million, representing 1.5% of CIB’s net annual profit. With this funding, the CIB Foundation expanded its operations geographically, creating new beginnings for Egypt’s youngest citizens across the country. Through its 2014 operations, the Foundation established health centers that offer services previously unavailable at the public hospital level, and expanded the scope of its ongoing proj- ects to maximize the number of beneficiaries it is able to reach. In early September 2014, the CIB Foundation was recognized for its work in the arena of corporate social responsibility from EMEA Finance, winning the EMEA Finance Pan-Africa Award for Corporate Social Responsibility. The Foundation’s partnerships and initiatives over the course of 2014 included: Children’s Cancer Hospital 57357: Annual donation In late 2013, the CIB Foundation renewed its long-term part- nership with the 57357 Hospital. Recognizing growing infla- tion rates, the rising cost of cancer medication, and the hos- pital’s expansion plans, the CIB Foundation raised its annual 90 AnnuAl RepoRt 2014 donation from EGP 2 million to EGP 3.5 million in January 2014. In the first year of the renewed partnership, the dona- tion will be used to fund patient care as well as construction costs of the hospital’s 60 bed expansion. magdi yacoub Heart foundation: 50 open-Heart Surgeries The Magdi Yacoub Heart Foundation has been a long-stand- ing partner of both CIB and the CIB Foundation. In June 2014, the CIB Foundation allocated EGP 3.5 million to the Magdi Yacoub Heart Foundation to cover the costs associated with 50 pediatric open-heart surgeries. Through its ongoing dona- tions, the CIB Foundation supports the Magdi Yacoub Foun- dation’s efforts to drastically minimize the number of chil- dren on the open-heart surgery waiting list. 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 the Abou El Reesh El Mounira Children’s Hospital’s Emergen- cy Ward and Reception Area. The renovation and upgrade of the Emergency Ward is critical to allow the hospital to provide top quality services and care to incoming patients. The renovation period in- cluded restructuring the areas to streamline movement and operations, providing services such as lab work, x-rays, and blood transfusions at high speed and efficiency, establishing reporting mechanisms to facilitate accurate diagnoses, fully equipping the unit to handle high-risk cases, and providing previously unavailable intensive care areas in the Ward. In 2014, the CIB Foundation made the third and fourth payments of EGP 2 million each to the Friends of Abou El Reesh Children’s Hospitals Organization. The expected dis- bursement date for the final EGP 2 million installment will take place in the first quarter of 2015. Additionally, the CIB Foundation renewed its ongoing part- nership with the Organization to support the operating costs of the El Mounira Hospital’s Intensive Care Unit (ICU). In No- vember 2014, the CIB Foundation donated EGP 2 million to the Organization to support the CIB Foundation-funded ICU. rotary Club of Kasr el nil: 1,000 eye Surgeries In late 2011, the CIB Foundation committed EGP 1.5 million to fund 1,000 eye surgeries for children through the Rotary Club of Kasr El Nil’s Children’s Right to Sight (CRTS) program. The CRTS program is dedicated to eradicating blindness by supporting children and infants requiring immediate eye surgery. Through partnerships with El Nour Eye Hospital in Mohandiseen and the Eye Care Hospital in Maadi, the CRTS team has overseen between 750 and 1,000 ophthalmological operations for under- privileged children, including correcting crossed eyes, cataracts, CIB’s sustainability ambassadors vol- unteer their time to various community service initiatives and help to spread awareness through- out the bank AnnuAl RepoRt 2014 91 Community Development glaucoma, and tear duct drainage. The CIB Foundation distrib- uted EGP 577,548 to cover the costs associated with the 435 sur- geries completed in 2014. Due to the success of the project, and recognizing the critical demand for ophthalmological interventions, the CIB Foundation renewed its partnership with the Rotary Club of Kasr El Nil in May 2014, allocating another EGP 1.5 million to the CRTS project. for the units, as well as training the nurses and doctors working in these units. The CIB Foundation strongly believes in ensur- ing the sustainability of its projects, and believes that support- ing the operations of the Yahiya Arafa Foundation ensures the smooth running of the other supported units. The donation is used to cover human resources, equipment maintenance, oper- ating costs and academic research. gozour foundation for development: eye exam Caravans In July 2013, the CIB Foundation reaffirmed its long-standing partnership with the Gozour Foundation for Development to fund 12 eye exam caravans in public elementary schools across Egypt over the 2013/2014 school year. 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 the governorates of Giza, Qalioubeya, Minya, Beni Suef and Fayoum through the 6/6 Eye Exam Caravan Pro- gram. 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 com- plex cases. Each caravan included 15-20 doctors, nurses, and coordinators, and is fully equipped with eye exam machines, a fully stocked pharmacy and an eyeglass shop. Each one-day caravan targeted 450 children, with a total of 5,400 children re- ceiving free eye exams and care by the end of the project. The first tranche of EGP 350,460 was distributed to the Go- zour Foundation in August 2013, and the second tranche of 333,300 was distributed in February 2014. In mid-2014, the partnership with the Gozour Foundation was renewed, with EGP 1.5 million allocated for the fourth phase of the project. From September to December 2014, the CIB Foundation conducted 18 one-day caravans in seven new governorates, including Port Said, Suez, Al Gharbia, Al Da- kahlia, Assiut, Aswan and the Red Sea. The program was ex- panded to examine 500 children per caravan, reaching over 9,000 students by the end of the phase. These caravans also presented valuable opportunities for vol- unteers from the CIB family to engage with the local commu- nity and spend quality time with the less privileged. Due to the distance of these governorates from CIB Head Offices, over 150 volunteer staff members participated in the caravans in their respective governorates. In December 2014, the CIB Foundation approved the fifth phase of the project, which will see the implementation of an- other 18 caravans in various governorates around Egypt, tar- geting another 9,000 elementary school students. yahiya Arafa Children’s Charity foundation: Annual donation The Yahiya Arafa Children’s Charity Foundation is a long-stand- ing partner of the CIB Foundation. In December 2014, the CIB Foundation allocated its annual donation of EGP 2 million to the Yahiya Arafa Foundation for the upkeep of three previously- supported Pediatric Units at the Ain Shams University Hospi- tal, as well as the partial operation of a second neonatal unit and a newly opened cardiology unit. The Yahiya Arafa Founda- tion has been instrumental in purchasing high-end equipment 92 AnnuAl RepoRt 2014 rotary Club of Zamalek: maxillo-facial Center in the pediatric prosthodontics department in the Cairo university faculty of oral and dental medicine In July 2013, the CIB Foundation’s Board of Trustees approved the development of a c. EGP 300,000 Maxillo-Facial Center in the Pediatric Prosthodontics Department in the Cairo Univer- sity Faculty of Oral and Dental Medicine. The highly specialized center offers treatment for oral and nasal cavity deformities in the facial palette, congenital deformities in newborn babies, and 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. The first payment of EGP 140,786 for the Center was made in late 2013, with the second and third payments totaling EGP 140,786 were made in February and April 2014. The Center opened in late April 2014, and is now able to provide treatment to children from across the country as one of the sole providers of the specialized procedures. Aswan university Hospital: renovation and outfitting of pediatric units In early 2014, the CIB Foundation was approached by Aswan University Hospital to renovate and outfit several units in the Pediatrics Department. Due to the lack of medical services and resources, the hospital had been transferring approximately 70% of its patients to other governorates, such as Assiut, the closest governorate which is 70 kilometers away, and Cairo. The CIB Foundation allocated EGP 6 million to the hospital to renovate and outfit the Pediatric Intensive Care Unit, Neona- tal Unit, Inpatient Unit, Outpatient Clinic and One-Day Emer- gency Clinic. The hospital’s renovated units are expected to open in February 2015. Sohag university Hospital: outfitting of three pediatric Intensive Care units In early 2014, Sohag University Hospital approached the CIB Foundation with a request to outfit its Free Treatment Depart- ment with necessary equipment for three intensive care units (ICUs). The importance of the project could not be overlooked, as there were no existing ICU facilities in the entire Governorate of Sohag. The hospital had recently completed all construction work for the ICUs and was solely requesting equipment. The CIB Foundation approved a donation of EGP 5,950,000 to equip the Neonatal ICU, Pediatric ICU, and Medium Care ICU. The ICUS are expected to open in February 2015. Bolak el dakroor Hospital: purchasing equipment for the obstetrics and gynecology department The CIB Foundation donated EGP 71,600 to the Bolak El Da- kroor Hospital’s Obstetrics and Gynecology Department for the purchasing of two fetal monitors and two delivery beds. The hospital serves a huge number of residents in the area, and the department performs roughly 3,000 check-ups per month. This project allowed the CIB Foundation to reach an under- served segment of society with a great level of impact, due to the high foot traffic in the hospital. The fetal monitors are used on approximately 30-40 women a day, and approximately 1,200 women deliver at the hospital monthly. AdvAnCe Society for persons with Autism & other disabilities: finishing works in the Society’s new premises In April 2014, the CIB Foundation allocated EGP 1.5 million to the ADVANCE Society for Persons with Autism & Other Dis- abilities to complete finishing works in Building 2 of their new premises in New Cairo. The ADVANCE Society is a non-profit organization founded in 1999 by a group of parents of persons with autism and other developmental disabilities to allow those with developmental disabilities to reach their utmost potential. Building 2, where workshops, specialized therapies, trainings and administration work will be conducted, required certain finishings including water, sewage, fire and irrigation net- works, concrete works, and landscaping. mansoura university Children’s Hospital: endoscopy equipment for the gastroenterology and liver unit In early 2014, the Gastroenterology and Liver Unit at the Mansou- ra University Children’s Hospital requested three pieces of endos- copy equipment from the CIB Foundation. Mansoura University Hospital is a 25-year-old teaching hospital, and through the unit, patients are treated for various diseases including Gaucher’s Disease and Hepatitis. Additionally, the unit currently performs roughly 100 endoscopy procedures a month. Mansoura University Children’s Hospital is a major referral center for pediatric patients in Egypt and the surrounding re- gion. The unit’s endoscopy facilities are of high quality and stan- dard, and its medical professionals have received training from specialists both inside and outside of Egypt. Through the Foundation’s EGP 1,050,000 donation, the unit was able to purchase a high-tech light source to make endos- copy procedures less invasive for pediatric patients, as well as two additional pediatric endoscopes. This equipment has allowed the unit to double the number of endoscopy proce- dures it is able to perform. egyptian liver Care Society: Children without virus C program In early 2014, the CIB Foundation dedicated over EGP 6 mil- lion to fund the Egyptian Liver Care Society’s Children With- out Virus C (C-Free Child) program. The Egyptian Liver Care Society was established in 2008 with specific goals of caring for Hepatitis patients, raising doctor and nurse Hepatitis- care skills, providing financial support to Hepatitis patients (including liver transplants), and increasing the number and quality of Hepatitis centers in Egypt. The C-Free Child pro- gram is the only program of its kind in Egypt screening and treating children with Hepatitis C free of charge. Over the course of 24 months, beginning in September 2014, the Egyptian Liver Care Society, in partnership with the National Committee for Combatting Viral Hepatitis, will screen 2,000 children and treat 600 identified with Hepatitis C. The project The CIB Foundation’s 6/6 Eye Exam Caravan program was successful in providing over 12,000 children in 12 governorates with free eye exams AnnuAl RepoRt 2014 93 sociation’s premises. The Association is a center for school- ing and rehabilitation for people of all ages with mental and physical disabilities, and caters to roughly 60 children under the age of 18. The Foundation’s donation will be used towards renovating classrooms, restroom facilities, and the outdoor activity area. The project will also allow for CIB employees to actively participate in the renovation process, by painting murals inside the classroom. Blood donation Campaigns: the triple effect In June 2014, the CIB Foundation hosted blood donation cam- paigns in six of its corporate offices in Cairo and Alexandria. As part of the Triple Effect initiative, the campaigns were held in collaboration with the Takatof Foundation, a Pricewater- houseCoopers initiative. Through the initiative, the Founda- tion seeks to triple the number of voluntary blood donors in Egypt. Over the course of the campaign, a total of 247 bags of blood were collected. ImAX theater In September 2014, the CIB Foundation organized a trip for roughly 550 children to the IMAX cinema in Americana Plaza. Through CIB’s corporate sponsorship of the IMAX, dedicated movie screenings have been allocated to the CIB Foundation as part of the Foundation’s ongoing corporate social responsi- bility (CSR) program. Children with mental and physical disabilities, as well as children from underprivileged areas in Cairo, were shown a newly-released movie and an educational film about climate change. The Foundation also provided the children with trans- portation to and from the cinema, as well as healthy refresh- ments during the movies. KidZania Cairo Through CIB’s long-term corporate sponsorship of KidZania Cairo, the CIB Foundation is allocated 50 tickets quarterly. Over 2014, the CIB Foundation organized multiple visits to the edutainment city, where children were provided the opportu- nity to experience adult professions on a child-friendly scale. By performing sector-specific jobs, children could spend the Kidzos, the official currency of KidZania, which they earned on games and other entertaining activities. The CIB Founda- tion afforded this opportunity to underprivileged children as well as children with physical and mental disabilities. Through these events children from marginalized groups of society were given the ability to experience activities that would have previously been unavailable to them. To read more about the projects that the CIB Foundation has helped support and to learn about ways in which you can contribute, please visit www.cibfoundationegypt.org. Community Development will also train a cadre of doctors and nurses, and raise general awareness on Hepatitis among families and caregivers of chil- dren with the virus. AfnCI: pediatric outpatient Clinics In mid-2014, the CIB Foundation partnered with the Asso- ciation of Friends of the National Cancer Institute well as the Children’s Cancer Hospital 57357 Foundation to spon- sor the pediatric outpatient clinics at the National Cancer Institute. This EGP 3 million project is intended to serve as the first stepping stone in the Association and 57357 Foundation’s goal to renovate and refurbish the entire Na- tional Cancer Institute. The 450-square-meter clinics receive more than 300 patients daily, and include six examination rooms, a sampling room, a pharmacy, nutrition clinic, library, play room, and a 98-seat waiting room. Zewail university of Science and technology: CIB foundation fellowship for Science and technology In line with its commitment to quality education, the CIB Foundation disbursed its year-two donation of EGP 5 million to the Zewail University of Science and Technology to cover the tuition expenses of its 50 CIB Foundation Fellows. The Fellowship supports 50 public school graduates pursuing de- grees in the advanced sciences or engineering. egyptian Clothing Bank: warm egypt national Campaign In its third year of partnership with the Egyptian Clothing Bank (ECB), the CIB Foundation donated EGP 1 million to support the Warm Egypt National Campaign. This campaign, a new element of the Clothing Bank’s ‘One Million Blankets National Campaign,’ includes the production of heavy cot- ton pullovers for the needy of both genders in all sizes for the needy. Not only does this allow ECB to provide support to families in their homes through the blankets campaign, but also outside their homes with heavy clothing. Addition- ally, the program will help increase production levels in many small and middle sized factories, generating increased eco- nomic activity. The CIB Foundation’s donation was used to provide 50,000 children in Upper Egypt with pullovers for the winter. egyptian red Crescent: Community Health Center renovation In December 2014, the CIB Foundation approved an EGP 900,000 donation to the Egyptian Red Crescent to renovate the pediatric outpatient clinics and operating room in the Al Nahda area’s community health center. The Red Crescent- managed health center includes seven clinics, including pe- diatrics, a lab, dentistry, ear nose and throat (ENT), ophthal- mology, internal medicine, and gynecology. The renovations will help to provide quality medical services to the roughly 24,000 children that visit the clinic yearly. right to life Association: premises renovation of premises In December 2014, the CIB Foundation allocated just over EGP 300,000 to renovate and upgrade the Right to Life As- 94 AnnuAl RepoRt 2014 Each one-day caravan targeted 450 children, with a total of 5,400 children receiv- ing free eye exams and care by the end of the project The CIB Foundation’s 6/6 Eye Exam Caravan program was successful in providing over 12,000 children in 12 governorates with free eye exams. AnnuAl RepoRt 2014 95 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  98 100 101 102 104 106 150 152 153 154 156 158 Financial Statements: Separate 98 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 99 Financial Statements: Separate Commercial International Bank (Egypt) S.A.E Separate balance sheet as at December 31, 2014 Commercial International Bank (Egypt) S.A.E Separate income statement for the year ended December 31, 2014 Assets Notes 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 Current income tax obligations Other liabilities Long term loans Other provisions Total liabilities Equity Issued and paid in capital Reserves Reserve for employee stock ownership plan (ESOP) Total equity Net profit for the year after tax Total equity and net profit for year Total liabilities and equity 15 16 17 18 19 20 21 22 22 23 24 25 33 26 27 28 21 30 29 31 32 32 Dec. 31, 2014 EGP Thousands 7,502,256 9,279,896 30,539,402 3,727,571 118,091 49,279,817 52,188 Dec. 31, 2013 EGP Thousands 4,796,240 8,893,671 23,654,813 2,246,348 132,422 41,837,952 103,085 27,688,410 9,160,746 564,686 884,094 3,745,362 122,110 982,296 143,646,925 1,131,385 122,244,933 137,175 1,814,609 2,541,965 242,878 718,356 128,831,301 9,081,734 1,908,594 177,766 11,168,094 3,647,530 14,815,624 143,646,925 23,363,501 4,187,174 599,277 - 2,889,491 83,755 964,539 113,752,268 1,373,410 96,940,270 114,879 1,179,709 1,446,047 132,153 450,755 101,637,223 9,002,435 307,224 190,261 9,499,920 2,615,125 12,115,045 113,752,268 Contingent liabilities and commitments Letters of credit, guarantees and other commitments The accompanying notes are an integral part of these financial statements . 37 25,309,960 16,182,490 Hisham Ezz Al-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 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, 2014 EGP Thousands 11,549,834 (5,274,133) 6,275,701 Dec. 31, 2013 EGP Thousands 9,509,874 (4,460,113) 5,049,761 1,632,397 (181,498) 1,450,899 28,514 717,001 (29,335) (1,704,500) (725,702) (588,794) 5,423,784 (1,814,609) 38,355 3,647,530 3.55 3.49 1,316,916 (127,965) 1,188,951 19,803 759,973 (381,157) (1,449,945) (431,592) (915,582) 3,840,212 (1,179,709) (45,378) 2,615,125 2.65 2.62 Hisham Ezz Al-Arab Chairman and Managing Director 100 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 101 Financial Statements: Separate Commercial International Bank (Egypt) S.A.E Separate cash flow for the year ended December 31, 2014 Commercial International Bank (Egypt) S.A.E Separate cash flow for the year ended December 31, 2014 (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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 7,502,256 9,279,896 30,539,402 (3,497,164) (5,007,412) (22,110,186) 16,706,792 4,796,240 8,893,670 23,654,812 (3,224,660) (5,148,331) (17,212,737) 11,758,994 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 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 Income tax obligations paid 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 Purchases of 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 5,423,784 3,840,212 213,771 588,794 278,514 (4,468) (38,176) 65,736 (6,600) (456) (3,857) (2,106) (82,907) 99,857 52,479 6,584,365 (131,586) (4,897,448) (1,476,755) 73,193 (8,016,328) (845,028) (242,025) 25,304,663 (1,179,709) 1,095,918 16,269,260 (17,888) (240,265) - (4,973,572) (9,080,132) 4,937,801 (884,094) (10,258,150) 110,725 (1,253,338) 79,299 (1,063,314) 4,947,796 11,758,996 16,706,792 202,345 915,582 129,104 17,696 (124,231) (6,268) (5,634) (142) 16,778 (741) (1,656) 89,182 346,285 5,418,512 (642,434) (9,149,659) (791,762) 30,154 (1,008,775) (381,862) (341,453) 18,105,543 (819,362) 231,057 10,649,959 (7,528) (519,822) 18,579 - (7,463,492) 4,520,054 - (3,452,209) 51,658 (1,055,843) 29,349 (974,836) 6,222,914 5,536,080 11,758,994 102 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 103 Financial Statements: Separate l a t o T s d n a s u o Th P G E 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 t fi o r p t e N r a e y e h t r o f s k s i r e v r e s e r g n i k n a B e v r e s e R . S F A . r o F s t n e m t s e v n i . ff i d 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 ( 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 , 5 4 0 5 1 1 2 1 , - 9 9 2 , 9 7 1 3 2 , 7 2 1 0 3 5 , 7 4 6 , 3 ) 8 3 3 , 3 5 2 , 1 ( - 7 5 8 , 9 9 , 4 2 6 5 1 8 4 1 , - - - - - , 1 6 2 0 9 1 ) 2 5 3 , 2 1 1 ( 7 5 8 , 9 9 6 6 7 7 7 1 , - - ) 2 2 5 ( - ) 4 1 5 , 3 6 4 , 1 ( ) 8 3 3 , 3 5 2 , 1 ( 0 3 5 , 7 4 6 , 3 - - - - - - 2 2 5 - - - - - - 1 3 2 , 7 2 1 - - - - - - 1 4 7 , 2 5 8 6 1 7 2 , 1 9 9 1 , ) 8 6 4 0 2 7 ( , 7 6 3 7 2 , , 8 0 0 7 4 6 3 , 3 1 5 2 , ) 7 3 2 3 9 5 ( , 8 0 1 8 2 , - - - - - - - - - - - 9 9 2 , 9 7 2 4 2 6 0 4 , 5 6 3 0 9 4 , , 5 3 4 2 0 0 9 , 6 0 4 , 4 4 4 , 1 9 1 7 , 0 3 1 - - - - - , 8 4 6 0 5 8 1 , - - - - - 4 8 0 1 2 6 , - - - - - - , 4 3 7 1 8 0 9 , 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 f o e u l a v r i a f t a e g n a h c t e N r a e y e h t r o f t fi o r p t e N 4 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 S F A 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 k s i r k c o t s l 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 r a e y e Th f o d n E e Th t a e c n a l a B 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 e t a r a p e S E . A . S ) t p y g E ( k n a B l a n o i t a n r e t n I l a i c r e m m o C 4 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 e t a r a p e S E . A . S ) t p y g E ( k n a B l a n o i t a n r e t n I l a i c r e m m o C 3 1 0 2 , 1 3 r e b m e c e D l a t o T s d n a s u o Th P G E 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 t fi o r p t e N r a e y e h t r o f s k s i r e v r e s e r g n i k n a B e v r e s e R . S F A . r o F s t n e m t s e v n i . ff i d 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 ( 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 , 8 0 2 1 1 3 1 1 , - - 8 4 3 , 9 2 5 2 1 , 5 1 6 , 2 ) 3 4 8 , 5 5 0 , 1 ( ) 5 7 9 , 3 7 8 ( - 2 8 1 , 9 8 , 5 4 0 5 1 1 2 1 , Commercial International Bank (Egypt) S.A.E proposed appropriation account for the year ended on December 31, 2014 Dec. 31, 2014 EGP Thousands 3,647,530 (2,106) Dec. 31, 2013 EGP Thousands 2,615,125 (741) (522) 3,644,902 101,726 2,716,110 - 3,644,902 - 2,716,110 182,271 1,898,985 1,089,808 364,490 54,674 54,674 3,644,902 130,719 1,332,052 900,244 271,611 40,742 40,742 2,716,110 - - - - - - 1 6 7 4 6 1 , ) 2 8 6 , 3 6 ( 2 8 1 , 9 8 , 1 6 2 0 9 1 Net profit after tax Profits selling property, plant and equipment transferred to capital reserve according to the law Bank risk reserve Available net profit for distributing , 4 8 6 0 8 3 2 , , 7 1 7 3 0 1 7 0 5 3 5 1 , 6 0 8 7 1 1 , 2 0 0 1 , , 7 0 1 7 3 0 2 , 9 4 3 0 8 3 , , 5 7 2 2 7 9 5 , Add: Retained earnings (losses) Total To be distributed as follows: Legal reserve General reserve Dividends to shareholders Staff profit sharing Board members bonus CIB’s foundation Total - - 6 2 7 , 1 0 1 ) 6 2 7 , 1 0 1 ( - - - - - ) 2 4 8 , 5 2 3 , 1 ( ) 1 4 8 , 4 5 0 , 1 ( 5 2 1 , 5 1 6 , 2 - - - - - - - - - - - ) 5 7 9 , 3 7 8 ( - - - - - - 7 8 3 , 2 ) 6 2 8 , 2 9 ( , 2 5 8 6 1 7 2 , 1 9 9 1 , ) 8 6 4 0 2 7 ( , 7 6 3 7 2 , - - - - - - - - ) 2 0 0 , 1 ( - - - - - 6 2 8 , 2 9 - - - - - - ) 2 1 8 , 0 0 0 , 3 ( - 1 2 1 , 7 7 2 , 1 6 1 0 , 0 1 1 2 4 2 6 0 4 , 5 6 3 0 9 4 , - - - - - - - 0 6 1 , 0 3 0 , 3 , 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 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 r a e y e h t r o f t fi o r p t e N 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 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 k s i r k c o t s l 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 r a e y e h t f o d n e e h t t a e c n a l a B 104 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 105 Financial Statements: Separate notes to the separate financial statements for the year ended on December 31, 2014 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 135 branches, and 26 units employing 5403 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 separate financial statements of the Bank should be read with its consolidated financial statements, for the period ended on December 31, 2014 to get complete information on the Bank’s financial position, results of operations, cash flows and changes in ownership rights. 2.2. Subsidiaries and associates 2.2.1. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Bank has owned directly or indirectly the control to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are 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. 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 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. 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. 106 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 107 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. 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 as available for sale, the value is measured at cost less impairment. 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. 2.5.4. 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. 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. 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. 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. 108 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 109 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. 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. 110 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 111 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 settlement of debts. The accounting treatment is the same used with property, plant and equipment. 2.14. Property, plant and equipment Lands and buildings comprise mainly branches and offices. All property, plant and equipment are stated at historical cost less 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. 112 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 113 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. 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. 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 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. When a provision is wholly or partially no longer required, it is reversed through profit or loss under other operating in- come (expenses). 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. 2.23. Comparatives Comparative figures have been adjusted to conform with changes in the presentation of the current period where neces- sary. 114 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 115 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 foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial in- struments. In addition, credit risk management is responsible for the independent review of risk management and the control environment. 3.1. Credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components (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. 116 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 117 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, 2014 December 31, 2013 Loans and advances (%) 86.69 6.70 1.95 Impairment provision (%) 33.91 11.24 5.53 Loans and advances (%) 87.71 4.90 3.43 Impairment provision (%) 31.49 5.32 19.93 4.66 49.32 3.96 43.26 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 118 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 119 Financial Statements: Separate 3.1.5. Maximum exposure to credit risk before collateral held 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands Loans and advances to customers 48,711,552 2,397,998 2,476,644 53,586,194 3,441,757 5,568 859,052 49,279,817 Loans and advances to banks 107,617 - 25,056 132,673 14,582 - - 118,091 Loans and advances to customers 40,832,064 2,790,527 1,773,225 45,395,816 2,842,840 6,634 708,390 41,837,952 Loans and advances to banks 123,630 - 30,203 153,833 21,411 - - 132,422 Impairment provision losses for loans and advances reached EGP 3,456,339 thousand. During the year the Bank’s total loans and advances increased by 17.93% . 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. 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, 2014 EGP Thousands 30,461,627 Dec. 31, 2013 EGP Thousands 23,654,813 3,335,297 132,673 (14,582) 1,438,217 1,010,014 5,729,054 325,266 20,934 7,192,728 25,008,383 12,645,169 216,429 (5,568) (3,441,757) (859,052) 52,188 36,383,095 564,686 120,194,801 2,453,307 757,509 1,289,834 23,262,617 27,763,267 2,047,967 153,833 (21,411) 1,173,943 765,624 4,181,386 383,144 10,842 5,015,511 24,125,579 9,630,556 109,232 (6,635) (2,842,840) (708,390) 103,085 26,889,648 599,277 95,265,164 2,480,060 472,351 750,766 14,959,373 18,662,550 The above table represents the Bank Maximum exposure to credit risk on December 31, 2014, 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 41.14% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 33.05%. 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: • 93.39% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 95.34% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 2,501,700. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on Decmber 31, 2014. • 96.46% of the investments in debt Instruments are Egyptian sovereign instruments. 120 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 121 Financial Statements: Separate s d n a s u o Th P G E - - 0 3 3 , 1 1 , 1 9 0 8 1 1 s k n a b o t 1 6 7 , 6 0 1 s n a o l l a t o T s e c n a v d a d n a 6 1 8 , 6 5 8 4 2 6 , 5 8 7 9 6 4 , 8 0 2 , 3 8 2 5 , 3 9 2 , 5 4 s n a o l l a t o T s e c n a v d a d n a s r e m o t s u c o t , 7 3 4 4 4 1 0 5 , s d n a s u o Th P G E - - 9 6 1 , 1 1 2 2 4 2 3 1 , s k n a b o t 3 5 2 , 1 2 1 s n a o l l a t o T s e c n a v d a d n a 1 6 4 , 9 8 9 3 5 2 , 3 5 5 9 7 6 , 9 7 0 , 2 3 8 5 , 0 3 9 , 8 3 s n a o l l a t o T s e c n a v d a d n a s r e m o t s u c o t , 6 7 9 2 5 5 2 4 , - - r e h t O s n a o l 6 6 5 , 7 1 3 1 0 , 4 9 1 , 9 7 5 1 1 2 - 3 1 7 3 0 5 r e h t O s n a o l 8 4 0 , 3 0 1 4 6 2 4 0 1 , e t a r o p r o C 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 s n a o l r e h t O s e g a g t r o M 4 2 9 , 9 7 4 3 5 6 , 6 7 3 5 3 8 , 3 7 6 0 5 , 0 9 3 2 9 7 , 3 7 4 2 8 3 , 2 7 2 , 2 7 4 8 , 7 4 7 9 1 , 3 1 3 3 2 1 , 2 7 1 2 3 5 , 0 7 0 , 1 1 7 7 2 , 9 9 6 , 9 1 8 9 7 , 7 6 1 , 6 , 4 4 9 0 0 0 2 1 , , 7 5 9 5 3 8 2 2 , , 5 6 9 0 0 7 6 , - - - - - - - 2 6 3 , 5 1 3 2 8 4 , 1 4 4 8 6 1 3 , l a u d i v i d n I 8 6 8 , 7 7 1 4 4 , 1 3 6 0 3 , 0 5 s n a o l l a n o s r e P 6 8 2 , 8 8 4 , 5 s d r a c t i d e r C s t f a r d r e v O 7 0 3 , 5 0 8 9 , 2 8 2 1 , 7 1 5 6 1 , 7 7 9 2 6 0 , 5 4 0 4 , 0 3 6 0 1 , 1 1 5 9 0 , 1 8 3 , 1 , 1 0 9 7 4 6 5 , , 0 8 5 2 0 0 1 , , 7 6 6 7 2 4 1 , e t a r o p r o C l a u d i v i d n I 6 4 4 , 5 3 8 3 , 6 6 s n a o l d e t a c i d n y S 3 2 7 , 9 5 4 0 4 9 , 5 6 6 , 8 , 2 9 4 7 9 1 9 , 6 4 6 , 1 1 8 4 5 4 , 1 6 3 7 4 4 , 9 3 4 , 1 1 0 7 , 9 5 5 , 9 1 6 6 7 , 9 6 4 0 2 , 7 7 7 4 8 , 6 2 1 2 9 4 , 7 0 4 , 4 , 8 4 2 2 7 1 2 2 , , 9 0 3 1 8 6 4 , - - 3 3 5 0 0 1 , 7 3 3 6 7 , - - 4 4 8 , 6 6 3 6 1 5 , 2 0 6 3 9 6 3 , 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 8 4 5 , 4 4 9 1 5 , 4 2 3 9 3 , 3 3 s n a o l l a n o s r e P 5 6 2 , 6 9 9 , 3 , 5 2 7 8 9 0 4 , s d r a c t i d e r C s t f a r d r e v O 5 9 8 , 3 3 7 2 , 2 4 6 3 , 4 1 1 0 7 , 6 3 7 3 3 2 7 5 7 , 8 1 1 , 1 5 8 0 0 , 0 1 4 9 9 , 8 2 9 5 , 4 9 0 , 1 , 2 1 7 4 6 1 1 , 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 4 1 0 2 , 1 3 . c e D : s e d a r G s n a o i l g n m r o f r e p - n o N 3 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 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 : ) n o i s i v o r p t n e m r i a p m i g n i t c u d e d r e t f a ( 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 d n a s u o Th P G E e t a r o p r o C s d n a s u o Th P G E e t a r o p r o C l a t o T 2 4 1 , 6 5 5 5 7 , 0 9 1 8 2 1 , 5 4 5 , 1 , 5 2 0 2 9 7 1 , - - 2 6 9 2 9 , s n a o l 2 6 9 , 2 9 d e t a c i d n y S 6 0 8 , 3 3 8 2 1 , 1 9 9 8 0 , 1 7 8 , 3 2 0 6 9 9 6 3 3 , 2 2 7 2 6 , 9 9 7 7 0 , 1 8 5 , 0 4 0 3 0 7 3 9 0 , 3 5 9 8 9 , 4 1 1 9 8 , 7 3 5 3 7 9 5 0 6 , 5 7 9 9 1 2 , 1 1 2 3 1 , s n a o l t c e r i D t f a r d r e v O l a t o T s e g a g t r o M l a t o T 7 1 9 , 7 3 1 5 6 , 5 4 1 1 5 2 , 1 8 0 , 2 , 9 1 8 4 6 2 2 , - - 4 8 8 2 2 , s n a o l 4 8 8 , 2 2 d e t a c i d n y S 7 1 6 , 7 1 2 5 9 , 5 6 8 4 2 , 9 4 7 , 7 1 8 2 3 8 0 0 3 , 0 2 9 9 6 , 9 7 9 1 1 , 9 0 3 , 1 , 8 1 1 9 0 4 1 , 9 8 3 , 9 6 7 1 4 , 7 1 2 0 9 , 8 3 4 8 0 7 5 2 5 , 2 4 7 9 9 1 6 1 7 5 9 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 s n a o l 7 8 5 , 2 1 4 9 5 , 4 9 6 5 , 3 0 5 7 0 2 , l a n o s r e P l a u d i v i d n I s n a o l 3 8 3 , 9 2 5 8 , 2 5 0 7 , 2 0 4 9 4 1 , l a n o s r e P l a u d i v i d n I 6 8 2 , 6 5 4 9 , 7 1 4 6 0 , 3 7 1 5 9 2 7 9 1 , 9 2 1 , 5 7 5 4 , 0 3 1 2 0 , 1 5 3 7 0 6 6 8 3 , s d r a c t i d e r C s t f a r d r e v O 6 4 6 , 4 7 2 1 , 5 1 3 1 9 , 5 4 1 6 8 6 5 6 1 , 1 1 2 , 1 5 0 5 0 , 0 1 4 6 8 , 2 8 2 5 2 1 4 4 3 , s d r a c t i d e r C s t f a r d r e v O 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 4 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 3 1 0 2 , 1 3 . c e D 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 . 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 . d n a s u o h t 0 0 7 1 0 5 , , 2 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 d n a s u o Th P G E e t a r o p r o C 0 0 7 , 1 0 5 , 2 - l a t o T s n a o l r e h t O s n a o l 8 7 1 , 4 8 2 d e t a c i d n y S 1 5 0 , 2 4 5 , 1 5 9 9 , 8 1 5 6 2 9 , 0 2 1 9 7 , 6 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 d n a s u o Th P G E e t a r o p r o C 8 2 4 , 3 0 8 , 1 4 7 1 , 3 l a t o T s n a o l r e h t O s n a o l 9 2 2 , 2 7 2 d e t a c i d n y S 5 8 0 , 8 2 1 , 1 7 6 4 , 2 6 2 5 8 3 , 1 6 6 0 , 3 1 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 4 5 2 , 6 0 1 l a u d i v i d n I s n a o l l a n o s r e P 9 1 5 , 2 0 1 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 4 1 0 2 , 1 3 . c e D 9 6 3 , 5 6 3 1 , 7 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 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 0 4 9 , 5 3 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 122 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 123 Financial Statements: Separate Loans and advances restructured Restructuring activities include rescheduling arrangements, obligatory management programs, modification and defer- ral 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. Re- structuring 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, 2014 Dec. 31, 2013 3,243,393 3,243,393 2,950,132 2,950,132 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 year, based on Standard & Poor’s ratings or their equivalent: Dec. 31, 2014 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 30,539,402 30,539,402 Trading financial debt instruments - - - - 3,335,297 3,335,297 Non-trading financial debt instruments 866,024 231,004 75,469 973,469 34,237,129 36,383,095 EGP Thousands Total 866,024 231,004 75,469 973,469 68,111,828 70,257,794 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, 2014 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 124 AnnuAl RepoRt 2014 Cairo 30,461,627 3,335,297 132,673 (14,582) 914,041 848,436 3,619,793 273,295 20,934 6,166,152 18,269,216 11,990,771 196,029 (5,568) (3,441,757) (612,291) 52,188 36,383,095 564,686 109,154,035 Alex, Delta and Sinai - - - - 369,149 150,098 1,719,194 45,098 - 918,164 6,364,643 654,398 20,400 - - (244,534) - - - 9,996,610 EGP Thousands Upper Egypt Total - - - - 155,027 11,480 390,067 6,873 - 108,412 374,524 - - - - (2,227) - 30,461,627 3,335,297 132,673 (14,582) 1,438,217 1,010,014 5,729,054 325,266 20,934 7,192,728 25,008,383 12,645,169 216,429 (5,568) (3,441,757) (859,052) 52,188 - - 1,044,156 36,383,095 564,686 120,194,801 s r o t c e s y r t s u d n I . 2 . 8 . 1 . 3 . s e i t i v i t c a s r e m o t s u c k n a B e h t y b d e z i r o g e t a c e u l a v k o o b r i e h t t a e r u s o p x e t i d e r c n i a m ’ s p u o r G e h t s i s y l a n a e l b a t g n w o i l l o f e Th , 7 2 6 1 6 4 0 3 , , 7 9 2 5 3 3 3 , 3 7 6 2 3 1 , ) 2 8 5 4 1 ( , , 7 1 2 8 3 4 1 , , 4 1 0 0 1 0 1 , , 4 5 0 9 2 7 5 , 4 3 9 0 2 , , 6 6 2 5 2 3 , 8 2 7 2 9 1 7 , , 3 8 3 8 0 0 5 2 , , 9 6 1 5 4 6 2 1 , 9 2 4 6 1 2 , ) 8 6 5 5 ( , , ) 7 5 7 1 4 4 3 ( , 8 8 1 2 5 , ) 2 5 0 9 5 8 ( , , 5 9 0 3 8 3 6 3 , 6 8 6 4 6 5 , , 1 0 8 4 9 1 0 2 1 , - - - - 7 1 2 , 8 3 4 , 1 4 1 0 , 0 1 0 , 1 4 5 0 , 9 2 7 , 5 4 3 9 , 0 2 6 6 2 , 5 2 3 - - - - - - - - ) 6 2 3 , 2 1 ( ) 3 1 8 , 4 4 1 ( - - - - - - - - - , 6 4 3 6 6 3 8 , , 6 3 3 1 3 2 1 1 , , 6 3 8 9 6 1 6 7 , , 7 9 1 3 3 0 1 , - 0 9 6 , 1 3 2 1 , 4 4 0 , 2 6 4 2 , 9 5 3 , 8 9 4 8 , 0 5 4 , 2 - - 3 7 6 , 7 4 9 9 5 7 , 3 1 9 , 2 4 5 9 , 0 1 3 , 3 ) 2 9 7 , 8 4 3 , 1 ( ) 1 7 0 , 0 1 ( - - - ) 0 8 7 , 5 7 2 ( - - - 7 9 5 , 0 1 2 , 5 3 - - - 5 5 6 , 6 5 6 4 1 0 , 5 7 3 - - 0 1 1 , 1 1 ) 7 1 ( ) 5 6 5 , 9 ( - - - - - - - r o t c e s t n e m n r e v o G 7 2 6 , 1 6 4 , 0 3 7 9 2 , 5 3 3 , 3 - - - - - - - - - - - - - - - - - - - - - 6 1 9 , 5 9 3 - 3 1 6 , 0 1 5 ) 7 2 6 , 2 1 ( - - - - 2 0 9 3 9 8 , - - - - - - - - - - - - - 9 2 6 , 8 8 1 9 8 2 , 7 3 1 , 3 3 5 7 , 2 7 3 , 6 5 1 8 , 2 6 3 , 2 1 ) 0 4 7 , 3 5 4 ( ) 1 7 7 , 5 9 8 , 1 ( , 5 7 9 1 1 7 9 1 , s d n a s u o Th P G E l a t o T l a u d i v i d n I r e h t O s e i t i v i t c a e d a r t e l a s e l o h W l i a t e r d n a e t a t s e l a e R g n i r u t c a f u n a M - - 3 7 6 , 2 3 1 ) 2 8 5 , 4 1 ( l a i c n a n i F s n o i t u t i t s n i - - - - - - 2 7 0 , 1 1 9 4 5 , 7 9 9 0 0 0 , 5 1 ) 8 6 5 , 5 ( 8 8 1 , 2 5 ) 8 1 1 , 0 2 ( ) 9 8 1 , 7 1 1 ( 6 8 6 , 4 6 5 8 9 4 , 2 7 1 , 1 , 9 0 2 8 8 7 2 , s e t o n 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 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 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 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 - 4 1 0 2 , 1 3 . c e D s e t a 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 - l a t o T 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 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 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 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 n a o l d e t a c i d n y S - s n a o l r e h t O - AnnuAl RepoRt 2014 125 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-mar- ket. Non-trading portfolios include positions that primarily arise from the interest rate management of the group’s retail and commercial banking assets and liabilities, financial investments designated as available for sale and held-to-maturity. 3.2.1. Market risk measurement techniques As part of the management of market risk, the Bank undertakes various hedging strategies. the Bank also enters into interest rate swaps to match the interest rate risk associated with the fixed-rate long-term debt instrument and loans to which the fair value option has been applied . 3.2.1.1. Value at Risk The Bank applies a “Value at Risk” methodology (VaR) to its trading and non-trading portfolios, to estimate the market risk of positions held and the maximum losses expected under normal market conditions, based upon a number of as- sumptions for various changes in market conditions. VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’ amount the Bank might lose , but only to a certain level of confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed ( 1 Day). The Bank is assessing the historical movements in the 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 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Equities risk Portfolio managed by others risk Investment fund Total VaR Medium 42 81,711 70,306 11,405 84 4,132 357 81,859 Dec. 31, 2014 High 351 125,871 107,791 18,080 141 6,817 549 126,094 Low 3 63,594 56,307 7,288 - 1,108 223 63,618 Medium 90 75,596 63,976 11,621 124 606 305 75,622 Dec. 31, 2013 High 540 101,790 84,950 16,840 203 1,125 491 101,827 Low 3 55,515 48,926 6,590 86 35 211 55,529 EGP Thousands 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 Non trading portfolio VaR by risk type Medium 42 Dec. 31, 2014 High 351 11,405 84 4,132 357 12,451 18,080 141 6,817 549 18,815 Low 3 7,288 - 1,108 223 8,790 Medium 90 Dec. 31, 2013 High 540 11,621 124 606 305 11,654 16,840 203 1,125 491 16,876 Low 3 6,590 86 35 211 6,621 Medium Dec. 31, 2014 High Low Medium Dec. 31, 2013 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. 107,791 107,791 84,950 84,950 48,926 48,926 70,306 70,306 56,307 56,307 63,976 63,976 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, 2014 Financial assets Cash and balances with Central Bank Due from banks Treasury bills and other govern- mental notes Trading financial assets Gross loans and advances to banks Gross loans and advances to customers 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 Other Equivalent EGP Thousands Total 6,541,660 628,368 107,245 48,561 176,422 1,257,705 5,509,635 2,296,965 87,485 128,106 27,721,800 4,121,980 164,843 3,727,571 - - - 117,655 15,018 - - - - - - 7,502,256 9,279,896 32,008,623 3,727,571 132,673 32,314,684 20,335,620 700,353 175,562 59,975 53,586,194 22,221 29,874 26,418,195 9,160,746 1,270,215 - 564,686 - 93 - - - - - - - - - - - 52,188 27,688,410 9,160,746 564,686 107,729,268 32,013,347 3,284,517 311,608 364,503 143,703,243 178,703 88,698,067 61,803 242,878 89,181,451 923,502 28,936,406 75,112 - 29,935,020 11,306 4,015,901 260 - 4,027,467 17,862 455,847 - - 473,709 12 138,712 - - 138,724 1,131,385 122,244,933 137,175 242,878 123,756,371 18,547,817 2,078,327 (742,950) (162,101) 225,779 19,946,872 126 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 127 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, 2014 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 ad- vances to banks Gross loans and ad- vances to customers Derivatives financial in- struments (including IRS notional amount) Financial investments - Available for sale - Held to maturity Investments in subsid- iary and associates Total financial assets Financial liabilities Due to banks Due to customers Derivatives financial in- struments (including IRS notional amount) Long term loans Total financial li- abilities Total interest re-pric- ing gap * After deducting Repos. - - - 3,927,159 4,085,145 847,115 2,976,212 5,631,430 23,400,981 - - - - - - 7,502,256 7,502,256 420,477 9,279,896 - 32,008,623 150,806 40,597 - 432,584 2,023,899 878,814 241,468 3,727,571 53,255 13,765 25,056 - - 132,673 35,376,384 7,440,054 5,459,800 4,354,690 955,266 - 53,586,194 677,816 337,516 590,117 3,597,289 - 27,121 5,229,859 634,699 2,765,022 1,454,716 - 3,532,552 17,481,915 5,008,560 1,150,082 4,205,046 237,082 379,482 27,688,410 9,160,746 - 46,548,695 19,002,116 35,426,996 32,491,409 6,276,208 9,135,490 148,880,914 196,028 45,699,172 - 17,721,716 14,675,496 22,466,531 35,700 - - 686,676 899,657 1,131,385 20,995,342 122,244,933 1,533,838 3,051,479 35,640 - 621,189 72,700 5,314,846 36,598 21,049 143,678 41,553 - - 242,878 47,465,636 20,794,244 14,890,514 22,508,084 1,307,865 21,967,699 128,934,042 (916,941) (1,792,128) 20,536,482 9,983,325 4,968,343 (12,832,209) 19,946,872 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. 128 AnnuAl RepoRt 2014 - - - - - 564,686 564,686 Dec. 31, 2013 • 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 re- maining contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec. 31, 2014 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (con- tractual and non con- tractual maturity dates) Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 1,095,684 19,313,598 36,598 - 18,440,963 21,049 35,701 41,652,782 143,678 - 41,041,666 41,553 - 1,795,924 - 1,131,385 122,244,933 242,878 20,445,880 18,462,012 41,832,161 41,083,219 1,795,924 123,619,196 20,615,797 17,495,479 39,589,765 52,400,429 13,549,584 143,651,054 Financial liabilities Due to banks Due to customers Long term loans Total liabilities (contrac- tual and non contractual maturity dates) Total financial assets (con- tractual and non con- tractual maturity dates) Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 1,373,410 14,357,245 28,091 - 14,355,336 5,314 - 31,020,534 49,299 - 36,171,294 49,449 - 1,035,861 - 1,373,410 96,940,270 132,153 15,758,746 14,360,650 31,069,833 36,220,743 1,035,861 98,445,833 16,226,911 11,735,431 29,841,047 41,734,406 14,830,199 114,367,994 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. 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. AnnuAl RepoRt 2014 129 Financial Statements: Separate The table below analyses the Bank’s derivative undiscounted financial liabilities that will be settled on a net basis into maturity groupings based on the remaining period of the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows: Dec. 31, 2014 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Off balance sheet items Dec. 31, 2014 Letters of credit, guarantees and other commitments Total Dec. 31, 2014 Loans commitments (Customers limit authorized not utilized) Total Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 20,477 - 20,477 22,965 259 23,224 22,065 - 22,065 9 7,998 8,007 - 63,402 63,402 65,516 71,659 137,175 Up to 1 year 15,614,673 15,614,673 Up to 1 year 16,376,222 16,376,222 1-5 years 7,769,366 7,769,366 1-5 years 1,494,023 1,494,023 Over 5 years 1,925,921 1,925,921 Over 5 years 191,099 191,099 EGP Thousands Total 25,309,960 25,309,960 EGP Thousands Total 18,061,344 18,061,344 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 cus- tomers - 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, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 9,279,896 132,673 8,893,671 153,833 9,279,896 132,673 8,893,671 153,833 8,523,485 45,062,709 9,160,746 72,159,509 1,131,385 122,244,933 242,878 123,619,196 6,514,939 38,880,878 4,187,174 58,630,495 1,373,410 96,940,270 132,153 98,445,833 8,523,485 45,062,709 9,160,746 72,159,509 1,131,385 122,244,933 242,878 123,619,196 6,514,939 38,880,878 4,187,174 58,630,495 1,373,410 96,940,270 132,153 98,445,833 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 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. Capital management 3.5 For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and other parties dealing with the bank. • Maintaining a strong capital base to enhance growth of the Bank’s operations. Capital adequacy and the use of regulatory capital are monitored on a daily basis by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee as implemented by the banking supervision unit in the Central Bank of Egypt. The required data is submitted to the Central Bank of Egypt on a quarterly basis. Central Bank of Egypt requires the following: • Maintaining EGP 500 million as a minimum requirement for the issued and paid-in capital. • Maintaining a minimum level of capital adequacy ratio of 10%, calculated as the ratio between total value of the capital elements, and the risk-weighted assets and contingent liabilities of the Bank. Tier one: Tier one, comprised of paid-in capital (after deducting the book value of treasury shares), retained earnings and reserves resulting from the distribution of profits except the banking risk reserve and deducting previously recognized goodwill and any retained losses Tier two: Represents the gone concern capital which comprised of general risk provision according to the impairment provision guidelines issued by the Central Bank of Egypt for to the maximum of 1.25% risk weighted assets and contingent liabili- ties, subordinated loans with more than five years to maturity (amortizing 20% of its carrying amount in each year of the remaining five years to maturity) and 45% of the increase in fair value than book value for available for sale , held to maturity, subsidiaries and associates investments. When calculating the numerator of capital adequacy ratio, the rules set limits of total tier 2 to no more than tier 1 capital and also limits the subordinated to no more than 50% of tier1. 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. 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. 130 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 131 Financial Statements: Separate 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, 2014 EGP Thousands 9,081,734 2,556,950 (155,160) (625,080) 10,858,444 49 15,763 879,836 895,648 11,754,092 70,426,788 3,179,692 10,064,534 83,671,014 14.05% Dec. 31, 2013 EGP Thousands Restated** 9,002,436 2,553,824 (155,168) (726,847) 10,674,245 1,123 21,510 742,938 765,571 11,439,816 59,514,861 2,429,715 8,135,709 70,080,285 16.32% 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 * Based on consolidated financial statement figures and in accordance with Central Bank of Egypt regulation issued on and acquisitions advice. 24 December 2012. ** After 2013 profit distribution. 4. Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expecta- tions of future events that are believed to be reasonable under the circumstances and available information. Impairment losses on loans and advances 4.1. The Bank reviews its loan portfolios to assess impairment on monthly basis a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or national or local 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. • 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, 2014 Revenue according to busi- ness segment Expenses according to busi- ness segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2013 Revenue according to busi- ness segment Expenses according to busi- ness segment Profit before tax Tax Profit for the year Total assets Corporate banking 5,338,428 (1,425,955) 3,912,473 (1,281,309) 2,631,164 130,622,076 Corporate banking 4,446,600 (1,626,607) 2,819,993 (856,985) 1,963,008 99,626,237 SME’s 922,342 (401,102) 521,240 (170,703) 350,537 1,043,034 EGP Thousands Investment banking Retail banking Total 3,017 1,967,225 8,231,012 (15,917) (12,900) 4,225 (8,675) 997,115 (964,254) (2,807,228) 1,002,971 (328,467) 674,504 10,984,700 5,423,784 (1,776,254) 3,647,530 143,646,925 SME’s Investment banking Retail banking Total 698,163 (58,811) 1,666,363 6,752,315 (316,973) 381,190 (119,972) 261,218 2,601,325 (90,548) (877,975) (2,912,103) (149,359) - (149,359) 1,275,407 788,388 (248,130) 540,258 10,249,299 3,840,212 (1,225,087) 2,615,125 113,752,268 132 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 133 Financial Statements: Separate 5.2. By geographical segment Dec. 31, 2014 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2013 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 6,941,749 (2,236,547) 4,705,202 (1,540,923) 3,164,279 131,734,761 Cairo 5,746,508 (2,169,462) 3,577,046 (1,138,988) 2,438,058 104,134,227 Alex, Delta & Sinai 1,027,532 (468,508) 559,024 (183,077) 375,947 10,839,735 Alex, Delta & Sinai 907,098 (654,445) 252,653 (82,660) 169,993 8,163,840 EGP Thousands Upper Egypt Total 261,731 (102,173) 159,558 (52,254) 107,304 1,072,429 8,231,012 (2,807,228) 5,423,784 (1,776,254) 3,647,530 143,646,925 Upper Egypt Total 98,709 (88,196) 10,513 (3,439) 7,074 1,454,201 6,752,315 (2,912,103) 3,840,212 (1,225,087) 2,615,125 113,752,268 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 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 216,234 4,361,909 4,578,143 6,855,935 6,456 109,300 - 11,549,834 (77,885) (5,194,167) (5,272,052) - (2,081) (5,274,133) 6,275,701 201,284 3,915,077 4,116,361 5,228,659 27,136 137,673 45 9,509,874 (91,504) (4,338,662) (4,430,166) (25,580) (4,367) (4,460,113) 5,049,761 8. Dividend income 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 1. Staff costs - Wages and salaries - Social insurance - Other benefits 2. 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 7. Net fee and commission income 12. Impairment (charge) release for credit losses 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 933,311 58,404 640,682 1,632,397 (181,498) (181,498) 1,450,899 761,430 43,812 511,674 1,316,916 (127,965) (127,965) 1,188,951 Loans and advances to customers Total Dec. 31, 2014 EGP Thousands 27,502 1,012 28,514 Dec. 31, 2013 EGP Thousands 14,109 5,694 19,803 Dec. 31, 2014 EGP Thousands 258,844 Dec. 31, 2013 EGP Thousands 442,009 1,569 (6,266) (1,282) (38,002) 501,421 717 717,001 2,708 (20,513) (1,098) 4,096 332,508 263 759,973 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands (834,488) (44,716) (38,530) (786,766) (1,704,500) (777,016) (34,796) (32,516) (605,617) (1,449,945) Dec. 31, 2014 EGP Thousands 3,396 2,106 (278,058) (453,146) (725,702) Dec. 31, 2013 EGP Thousands 89,858 741 (128,963) (393,228) (431,592) Dec. 31,2014 EGP Thousands (588,794) (588,794) Dec. 31,2013 EGP Thousands (915,582) (915,582) 134 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 135 Financial Statements: Separate 13. Adjustments to calculate the effective tax rate 17. Treasury bills and other governmental notes Profit before tax Tax rate Income tax based on accounting profit Add / (Deduct) Non-deductible expenses Tax exemptions Effect of provisions Depreciation Income tax Effective tax rate Dec. 31, 2014 EGP Thousands 5,423,784 25%-30% 1,627,085 Dec. 31, 2013 EGP Thousands 3,840,212 25.00% 960,053 39,860 (51,448) 165,555 (4,798) 1,776,254 32.75% 196,289 (72,040) 140,285 500 1,225,087 31.90% * An additional temporary tax was imposed for three years starting year 2014 by tax rate 5% over one million Egyptian pound from the taxable income amount on the juridical persons’ income as per the law no. 44 of 2014. 14. Earning per share Net profit for the year available for distribution Board member’s bonus Staff profit sharing Profits shareholders’ Stake Number of shares Basic earning per share By issuance of ESOP earning per share will be: Number of shares including ESOP shares Diluted earning per share 15. Cash and balances with Central Bank Cash Obligatory reserve balance with CBE - Current accounts Total Non-interest bearing balances 16. Due from banks Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Fixed interest bearing balances Total Current balances Total 136 AnnuAl RepoRt 2014 Dec. 31, 2014 EGP Thousands 3,644,902 (54,674) (364,490) 3,225,738 908,173 3.55 924,749 3.49 Dec. 31, 2013 EGP Thousands 2,716,110 (40,742) (271,611) 2,403,757 908,173 2.65 919,211 2.62 Dec. 31, 2014 EGP Thousands 2,109,660 Dec. 31, 2013 EGP Thousands 1,674,626 5,392,596 7,502,256 7,502,256 3,121,614 4,796,240 4,796,240 Dec. 31, 2014 EGP Thousands 775,320 8,504,576 9,279,896 4,297,194 870,215 4,112,487 9,279,896 420,477 8,859,419 9,279,896 9,279,896 9,279,896 Dec. 31, 2013 EGP Thousands 520,681 8,372,990 8,893,671 3,225,196 647,259 5,021,216 8,893,671 163,772 8,729,899 8,893,671 8,893,671 8,893,671 91 Days maturity 182 Days maturity 364 Days maturity Unearned interest Total 1 Reverse repos treasury bonds 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 Analysis for impairment provision of loans and advances to banks Beginning balance Charge (release) during the year Exchange revaluation difference Ending balance Dec. 31, 2014 EGP Thousands 8,529,866 8,293,655 15,107,327 (1,469,221) 30,461,627 77,775 77,775 30,539,402 Dec. 31, 2013 EGP Thousands 6,524,097 7,197,086 11,010,950 (1,077,320) 23,654,813 - - 23,654,813 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 3,335,297 3,335,297 - 150,806 150,806 241,468 3,727,571 2,047,967 2,047,967 8,882 136,008 144,890 53,491 2,246,348 Dec. 31, 2014 EGP Thousands 132,673 Dec. 31, 2013 EGP Thousands 153,833 (14,582) 118,091 93,035 25,056 118,091 (21,411) 132,422 102,220 30,202 132,422 Dec. 31, 2014 EGP Thousands 21,411 (6,915) 86 14,582 Dec. 31, 2013 EGP Thousands 29,299 (9,225) 1,337 21,411 AnnuAl RepoRt 2014 137 Financial Statements: Separate 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 1,438,217 1,010,014 5,729,054 325,266 20,934 8,523,485 7,192,728 25,008,383 12,645,169 216,429 45,062,709 53,586,194 (5,568) (3,441,757) (859,052) 49,279,817 21,190,611 28,089,206 49,279,817 1,173,943 765,624 4,181,386 383,144 10,842 6,514,939 5,015,511 24,125,579 9,630,556 109,232 38,880,878 45,395,817 (6,635) (2,842,840) (708,390) 41,837,952 16,679,527 25,158,425 41,837,952 Analysis for impairment provision of loans and advances to customers Dec. 31, 2014 Overdraft Credit cards Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance 9,231 1,318 - 1 10,550 8,391 635 (7,245) 5,653 7,434 Individual Personal loans 82,661 (1,538) - 30 81,153 Real estate loans 13,784 (5,362) - - 8,422 Other loans Total 3,209 17,725 - - 20,934 117,276 12,778 (7,245) 5,684 128,493 Dec. 31, 2014 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans 334,202 155,711 - - 1,850 491,763 1,953,331 221,618 (19,982) 4,285 13,174 2,172,426 Corporate Syndicated loans 433,064 205,719 - - 5,442 644,225 Other loans Total 4,967 (117) - - - 4,850 2,725,564 582,931 (19,982) 4,285 20,466 3,313,264 Dec. 31, 2013 Overdraft Credit cards Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance 10,753 270 (2,756) 964 9,231 8,328 2,568 (7,254) 4,749 8,391 Individual Personal loans 74,436 8,225 - - 82,661 Real estate loans 13,377 407 - - 13,784 Other loans Total 1,091 2,118 - - 3,209 107,985 13,588 (10,010) 5,713 117,276 Dec. 31, 2013 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans 209,551 118,563 - - 6,088 334,202 1,242,016 663,120 (6,811) 13,906 41,100 1,953,331 Corporate Syndicated loans 336,569 129,671 (81,425) 31,418 16,831 433,064 Other loans Total 5,102 (135) - - - 4,967 1,793,238 911,219 (88,236) 45,324 64,019 2,725,564 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. 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. 138 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 139 Financial Statements: Separate 21.1.1. For trading derivatives Foreign currencies derivatives - Forward foreign exchange contracts - Currency swap - Options Total 1 Interest rate derivatives - Interest rate swaps Total 2 - Commodity 3 Total assets (liabilities) for trading derivatives (1+2+3) 21.1.2. Fair value hedge Interest rate derivatives - Governmental debt instru- ments hedging - Customers deposits hedging Total 4 Total financial derivatives (1+2+3+4) Notional amount 1,761,253 3,928,336 319,390 278,504 1,041 Dec. 31, 2014 Dec. 31, 2013 Assets Liabilities Notional amount Assets Liabilities 2,364 19,857 3,887 26,108 1,575 1,575 - 14,209 1,250,176 47,594 3,713 65,516 434 434 - 1,990,431 38,331 389,502 - 13,376 22,576 13,794 49,746 6,679 6,679 - 18,955 12,312 13,794 45,061 3,744 3,744 - 27,683 65,950 56,425 48,805 621,189 4,276,937 - 24,505 24,505 52,188 63,402 7,823 71,225 137,175 603,658 3,847,747 - 46,660 46,660 57,476 8,598 66,074 103,085 114,879 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 63,402 thousand at December 31, 2014 against EGP 57,476 thousand at the December 31, 2013, Resulting in net losses form hedging instruments at December 31, 2014 EGP 5,926 thousand against net gain EGP 40,233 thousand at the Decem- ber 31, 2013. Losses arises from the hedged items at December 31, 2014 reached EGP 232 thousand against losses arises EGP 48,857 thousand at December 31, 2013. The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate cus- tomers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 16,682 thousand at the end of December 31, 2014 against EGP 38,063 thousand at December 31, 2013, Resulting in net losses form hedging instruments at December 31, 2014 EGP 21,380 thousand against net losses EGP 52,093 thousand at December 31, 2013. Gains arises from the hedged items at December 31, 2014 reached EGP 45,094 thousand against gains EGP 60,224 thousand at December 31 , 2013. 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 22.1. Profit (Losses) from financial investments Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 27,249,861 87,770 350,779 27,688,410 9,133,233 27,513 9,160,746 22,556,423 86,327 720,751 23,363,501 4,159,661 27,513 4,187,174 36,849,156 27,550,675 35,603,511 1,245,645 36,849,156 35,211,927 1,171,168 36,383,095 Available for sale financial investments 21,161,884 7,463,492 (4,518,398) 124,231 (834,814) (32,894) 23,363,501 Held to maturity financial investments 4,205,753 - (18,579) - - - 4,187,174 23,363,501 9,080,132 (4,854,894) 38,176 121,246 (59,751) 27,688,410 4,187,174 4,973,572 - - - - 9,160,746 25,948,390 1,602,285 27,550,675 25,791,803 1,097,845 26,889,648 Total EGP Thousands 25,367,637 7,463,492 (4,536,977) 124,231 (834,814) (32,894) 27,550,675 27,550,675 14,053,704 (4,854,894) 38,176 121,246 (59,751) 36,849,156 Profit (Loss) from selling available for sale financial instruments Impairment release (charges) of available for sale equity instruments Impairment release (charges) of subsidiaries and associates Profit (Loss) from selling held to maturity debt investments Total Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 82,907 (59,751) (52,480) (11) (29,335) 1,656 (32,894) (349,909) (10) (381,157) 140 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 141 Financial Statements: Separate 23. Investments in subsidiary and associates Dec. 31, 2014 Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value EGP Thousands Stake % Subsidiaries - CI Capital Holding Associates - Commercial International Life Insurance - Corplease - Haykala for investment - Egypt Factors - International Co. for Security and Services (Falcon) Total Egypt 1,438,265 1,031,208 289,183 89,855 428,011 99.98 Egypt Egypt Egypt Egypt Egypt 2,861,447 2,762,148 2,374,952 4,742 401,466 2,148,954 236 345,515 141,818 102,994 267,286 413,070 276 33,711 148,811 8,671 22,437 155 (1,488) 8,229 49,020 75,055 600 - 12,000 45 43 40 39 40 7,222,690 6,391,055 1,152,337 127,859 564,686 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 Thousands Stake % Subsidiaries - CI Capital Holding Associates - Commercial International Life Insurance - Corplease - Haykala for Investment - Egypt Factors - International Co. for Security and Services (Falcon) Total 24. Investment property * Egypt 633,508 316,494 140,939 456 428,011 99.98 Egypt Egypt Egypt Egypt Egypt 2,202,121 2,124,147 1,921,221 4,574 434,219 1,723,877 199 379,405 126,868 104,633 302,443 378,253 581 32,680 120,222 5,621 16,885 479 426 5,344 49,020 75,055 600 40,591 6,000 45 43 40 39 40 5,322,511 4,648,755 975,118 29,211 599,277 Land No. A2-Q46 Al-koseer Marsa Allam Land, warehouse, 9 property and 2 housing units Al-koseer Marsa Allam Land No. M8A and M8A8 and M9A Al-koseer Marsa Allam Total Dec. 31, 2014 EGP Thousands 2,642 65,950 815,502 884,094 Dec. 31, 2013 EGP Thousands - - - - * Including non registered properties by EGP 884,094 thousand 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 Insurance and Testament Total Dec. 31, 2014 EGP Thousands 1,871,618 102,250 145,170 1,590,106 27,351 8,867 3,745,362 Dec. 31, 2013 EGP Thousands 1,703,815 106,470 134,327 906,537 29,942 8,400 2,889,491 26. Property, plant and equipment Land Premises IT Vehicles Fitting -out 64,500 639,834 993,148 59,582 397,337 Machines and equipment 324,359 Furniture and furnishing 121,276 Dec. 31, 2014 Total EGP Thousands 2,600,036 209 74,318 66,584 5,897 45,456 34,635 4,429 231,528 64,709 714,152 1,059,732 65,479 442,793 358,994 125,705 2,831,564 - - - 205,796 714,410 34,695 316,933 259,018 104,645 1,635,497 31,589 81,088 4,266 53,664 34,977 8,187 213,771 237,385 795,498 38,961 370,597 293,995 112,832 1,849,268 64,709 64,500 476,767 434,038 %5 264,234 278,738 %33.3 26,518 24,887 %20 72,196 80,404 %33.3 64,999 65,341 %20 12,873 16,631 %20 982,296 964,539 Beginning gross assets (1) Additions (deductions) dur- ing the year Ending gross assets (2) Accu.depreciation at begin- ning 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 65,376 thousand 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 28. Due to customers Demand deposits Time deposits Certificates of deposit Saving deposits Other deposits Total Corporate deposits Individual deposits Total Non-interest bearing balances Fixed interest bearing balances Total Current balances Non-current balances Total Dec. 31, 2014 EGP Thousands 945,684 185,701 1,131,385 12,386 221,043 897,956 1,131,385 899,657 231,728 1,131,385 945,684 185,701 1,131,385 Dec. 31, 2014 EGP Thousands 30,772,031 35,408,462 31,001,139 21,603,688 3,459,613 122,244,933 62,204,313 60,040,620 122,244,933 20,995,342 101,249,591 122,244,933 88,570,065 33,674,868 122,244,933 Dec. 31, 2013 EGP Thousands 1,038,717 334,693 1,373,410 3,854 313,338 1,056,218 1,373,410 1,026,036 347,374 1,373,410 1,038,717 334,693 1,373,410 Dec. 31, 2013 EGP Thousands 23,043,882 30,507,693 25,259,129 16,786,188 1,343,378 96,940,270 48,394,255 48,546,015 96,940,270 16,520,501 80,419,769 96,940,270 70,300,955 26,639,315 96,940,270 142 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 143 Financial Statements: Separate 29. Long term loans 32. Equity Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Dec. 31, 2014 EGP Thousands Balance on Dec. 31, 2013 EGP Thousands Financial Investment & Sector Coop- eration (FISC) Environmental Compliance Project (ECO) Agricultural Research and Develop- ment Fund (ARDF) Social Fund for Development (SFD) Total 3.5 - 5.5 depends on maturity date 3.5 - 5.5 depends on maturity date 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which is more 3-5 years - - 3-5 years 1,315 1,690 556 - 3-5 years 83,811 105,075 31,380 57,222 136,113 100,217 142,348 242,878 132,153 Dec. 31, 2014 EGP Thousands 636,876 458,842 1,160,511 285,736 2,541,965 Dec. 31, 2013 EGP Thousands 574,522 331,204 471,928 68,393 1,446,047 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 6,910 28,772 31,000 362,720 21,353 450,755 - 13,143 - 261,689 3,682 278,514 - 18 - (3,863) (12) (3,857) - (1,230) - - (5,370) (6,600) - (456) - - - (456) Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 6,910 28,364 - 257,900 17,474 310,648 - 1,094 31,000 88,074 8,936 129,104 - 2 - 16,746 31 16,779 - (546) - - (5,088) (5,634) - (142) - - - (142) Ending balance EGP Thousands 6,910 40,247 31,000 620,546 19,653 718,356 Ending balance EGP Thousands 6,910 28,772 31,000 362,720 21,353 450,755 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 31. Other provisions Dec. 31, 2014 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent * Provision for other claim Total Dec. 31, 2013 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent Provision for other claim Total 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 9,081,734 thousand to be divided on 908,173 thousand shares with EGP 10 par value for each share based on: • Increase issued and Paid in Capital by amount EGP 33,119 thousand 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 thousand 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 thousand On April 7,2013 to reach EGP 6,001,624 thousand ac- cording 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 3,000,812 thousand on December 5, 2013 according to Board of Di- rectors decision on May 15 ,2013 by distribution of a one share for every two outstanding shares by capitalizing on the General Reserve. • Increase issued and Paid in Capital by amount EGP 79,299 thousand On March 23,2014 to reach EGP 9,081,734 thousand according to Board of Directors decision on December 10, 2013 by issuance of fourth tranch for E.S.O.P program. • The Extraordinary General Assembly approved in the meeting of June 26, 2006 to activate a motivating and rewarding program for the Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a 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. 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 Assets (Liabilities) Dec. 31, 2014 EGP Thousands (26,145) Assets (Liabilities) Dec. 31, 2013 EGP Thousands (23,992) 17,970 82,888 47,397 122,110 12,531 49,219 45,997 83,755 * Provision for other claim formed on December 31, 2014 amounted to EGP 3,682 thousand to face the potential risk of banking operations against amount EGP 8,936 thousand on December 31, 2013 . 144 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 145 Financial Statements: Separate 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 year 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 2015 2016 2017 Total Dec. 31, 2014 No. of shares in thousand 23,918 7,038 (1,154) (7,930) 21,872 EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 6.65 16.84 22.84 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 8th tranche 10 32.58 3 12.40% 3.07% 35% Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% Volatility is calculated based on the daily standard deviation of returns for the last three years. Dec. 31, 2013 No. of shares in thousand 15,440 12,245 (832) (2,935) 23,918 No. of shares in thousand 9,475 5,636 6,761 21,872 7th tranche 10 34.57 3 14.49% 2.89% 40% 35. Reserves and retained earnings (losses) Legal reserve General reserve 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 Dec. 31, 2014 EGP Thousands 621,084 1,850,648 28,108 (593,237) 2,513 1,909,116 Dec. 31, 2013 EGP Thousands 490,365 406,242 27,367 (720,468) 1,991 205,497 Dec. 31, 2014 EGP Thousands 1,991 522 2,513 Dec. 31, 2013 EGP Thousands 103,717 (101,726) 1,991 35.2. Legal reserve Beginning balance 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 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, 2014 EGP Thousands 490,365 130,719 621,084 Dec. 31, 2013 EGP Thousands 380,349 110,016 490,365 Dec. 31, 2014 EGP Thousands (720,468) 127,231 (593,237) Dec. 31, 2013 EGP Thousands 153,507 (873,975) (720,468) Dec. 31, 2014 EGP Thousands - - - Dec. 31, 2013 EGP Thousands 1,002 (1,002) - Dec. 31, 2014 EGP Thousands 7,502,256 9,279,896 30,539,402 (3,497,164) (5,007,412) (22,110,186) 16,706,792 Dec. 31, 2013 EGP Thousands 4,796,240 8,893,671 23,654,812 (3,224,659) (5,148,331) (17,212,737) 11,758,996 37. Contingent liabilities and commitments 37.1. Legal claims There are a number of existing cases filed against the bank on December 31,2014 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 26,991 thousand as follows: EGP Thousands Available for sale financial investments Investments value 88,658 Remaining 26,991 Paid 61,666 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 21,801 thousand. 146 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 147 Financial Statements: Separate 37.3. Letters of credit, guarantees and other commitments 39.1. Loans, advances, deposits and contingent liabilities Letters of guarantee Letters of credit (import and export) Customers acceptances Total Loans commitments (Customers limit authorized not utilized) 38. Mutual funds Osoul fund Dec. 31, 2014 EGP Thousands 23,262,617 1,289,834 757,509 25,309,960 Dec. 31, 2013 EGP Thousands 14,959,373 750,766 472,351 16,182,490 Dec. 31, 2014 EGP Thousands 18,061,344 Dec. 31, 2013 EGP Thousands 17,335,889 • 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 21,767,210 with redeemed value EGP 5,075,460 thousands. • The market value per certificate reached EGP 233.17 on December 31, 2014. • The Bank portion got 601,064 certificates with redeemed value EGP 140,150 thousands. Istethmar fund • CIB bank established the second accumulated return mutual fund under license no.344 issued from capital market au- thority on February 26, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 2,165,060 with redeemed value EGP 210,790 thousands. • The market value per certificate reached EGP 97.36 on December 31, 2014. • The Bank portion got 194,744 certificates with redeemed value EGP 18,960 thousands. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • The Bank and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capi- tal market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 792,639 with redeemed value EGP 46,219 thousands. • The market value per certificate reached EGP 58.31 on December 31, 2014. • The Bank portion got 71,943 certificates with redeemed value EGP 4,195 thousands. 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 170,505 with redeemed value EGP 25,893 thousands. • The market value per certificate reached EGP 151.86 on December 31, 2014. • The Bank portion got 50,000 certificates with redeemed value EGP 7,593 thousands. 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 1,128,851 with redeemed value EGP 163,604 thousands. • The market value per certificate reached EGP 144.93 on December 31, 2014. • The Bank portion got 52,404 certificates with redeemed value EGP 7,595 thousands. Loans and advances Deposits Contingent liabilities EGP Thousands 930,665 461,488 118,289 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. 40. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 41. Tax status Income EGP Thousands 911 41,715 5,028 31,006 1,536 20,957 248 33,494 Dec. 31, 2014 EGP Thousands (141,124) 63,391 (279) 20 (442) 2,348 Expenses EGP Thousands 49,296 31,338 3,300 18,957 1,063 15,597 59 25,836 Dec. 31, 2013 EGP Thousands (34,719) 6,897 21,249 242 (297) 2,247 Corporate income tax The Bank’s corporate income tax position has been examined, paid and settled with the tax authority from the start up of operations up to the end of year 1984. Corporate income tax for the years from 1985 up to 2000 has been examined, paid and settled 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, paid and settled with the tax authority from Year 2001 up to Year 2006. The Bank’s corporate income tax position has been examined and paid with the tax authority from Year 2007-2012. Salary tax The Bank’s salary tax has been examined, paid and settled from the beginning of the activity until the end of 2010. The Bank’s salary tax has been examined and paid for the period 2011-2012. The Bank’s salary tax under examination for the year 2013. 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. Stamp duty tax The Bank stamp duty tax has been examined and paid from the beginning of the activity until 31/7/2006 and the disputes are under discussion in the court of law and the tax appeal committee. 148 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 149 The Bank stamp duty tax were examined stamp tax for the period from 1/8/2006 until 31/12/2010 according to law No. 143 for the year 2006 points of disagreement were converted into internal committee. The Bank’s stamp duty tax position under examination for the period from 2011 until the first quarter of 2013. Financial Statements: Consolidated 150 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 151 Financial Statements: Consolidated Commercial International Bank (Egypt) S.A.E Consolidated balance sheet on December 31, 2014 Notes Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 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 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 Current income tax obligations 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 . 15 16 17 18 19 20 21 22 22 23 24 25 33 26 27 28 21 30 29 31 32 32 7,502,256 9,521,999 30,548,890 3,762,718 118,091 48,685,630 52,188 27,702,122 9,160,746 181,661 771,611 - 884,094 3,814,075 121,737 985,504 143,813,322 1,131,385 121,974,959 360,145 8,975 137,175 1,814,609 2,609,452 242,878 730,312 129,009,890 9,081,734 1,908,443 177,765 (155,160) 11,012,782 3,741,456 14,754,238 49,194 14,803,432 143,813,322 4,796,240 9,003,951 23,665,429 2,295,220 132,422 41,733,252 103,085 23,378,104 4,197,177 192,753 270,811 28,779 - 2,902,039 83,557 969,176 113,751,995 1,373,410 96,845,683 167,379 - 114,879 1,179,709 1,476,957 132,153 454,699 101,744,869 9,002,435 307,060 190,260 (546,531) 8,953,224 3,006,488 11,959,712 47,414 12,007,126 113,751,995 37 25,309,960 16,182,440 Hisham Ezz Al-Arab Chairman and Managing Director Commercial International Bank (Egypt) S.A.E Consolidated income statement for the year ended on December 31, 2014 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 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, 2014 EGP Thousands 11,544,829 (5,289,793) 6,255,036 Dec. 31, 2013 EGP Thousands 9,520,697 (4,466,949) 5,053,748 1,892,119 (182,135) 1,709,984 32,270 718,261 (29,122) (1,875,672) (710,135) (588,794) - 24,510 5,536,338 (1,831,273) 38,180 3,743,245 1,789 3,741,456 3.55 3.49 1,436,107 (128,827) 1,307,280 16,915 767,392 (28,672) (1,574,369) (438,906) (915,582) (33,422) 22,097 4,176,481 (1,182,253) 12,149 3,006,377 (111) 3,006,488 2.65 2.62 Hisham Ezz Al-Arab Chairman and Managing Director 152 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 153 Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2014 (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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 7,502,256 9,521,999 30,548,890 (3,497,164) (5,007,462) (22,110,185) 16,958,334 4,804,974 9,003,951 23,665,429 (3,224,659) (5,148,331) (17,212,738) 11,888,626 Financial Statements: Consolidated Commercial International Bank (Egypt) S.A.E Consolidated cash flow for the year ended on December 31, 2014 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 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 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 Income tax obligations paid 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 Purchases of 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 5,536,338 4,176,481 218,322 588,794 286,724 (4,957) - (38,176) 65,748 (6,798) (456) (3,857) (2,106) (83,131) 99,857 27,969 6,684,271 (131,636) (4,897,448) (1,462,541) 73,193 (7,526,841) (1,373,214) (242,025) 25,129,276 (1,179,709) 1,317,572 16,390,898 (16,877) (243,387) - (4,963,569) (9,079,241) 4,938,025 (884,094) (10,249,143) 110,725 (1,253,338) 79,299 (1,063,314) 5,078,441 11,879,893 16,958,334 206,979 915,582 132,957 11,861 33,422 (124,230) (6,136) (10,383) (142) 16,778 (741) (4,363) 89,182 (20,027) 5,417,220 (642,434) (9,149,658) (783,020) 30,154 (904,075) (543,895) (341,453) 18,116,562 (819,362) 275,584 10,655,623 (7,527) (529,367) 18,611 - (7,463,492) 4,523,701 - (3,458,074) 51,658 (1,055,843) 29,348 (974,837) 6,222,712 5,665,914 11,888,626 154 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 155 Financial Statements: Consolidated , 2 3 4 3 0 8 4 1 , 4 9 1 9 4 , , 8 3 2 4 5 7 4 1 , , 5 6 7 7 7 1 , 4 3 9 0 4 7 3 , 3 1 5 2 , ) 6 3 2 3 9 5 ( , 8 0 1 8 2 , ) 0 6 1 5 5 1 ( , , 6 9 4 0 5 8 1 , P G E l a t o T s d n a s u o Th t s e r e t n I y t i r o n i M 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 p i h s r e n w o t fi o r p t e N r a e y e h t r o f s k s i r e v r e s e r g n i k n a B 3 4 2 , 7 2 1 - 7 5 8 , 9 9 - - - - - 9 9 2 , 9 7 ) 8 3 3 , 3 5 2 , 1 ( - - - - 5 4 2 , 3 4 7 , 3 9 8 7 , 1 , 6 2 1 7 0 0 2 1 , 4 1 4 7 4 , - ) 9 ( 9 , 2 1 7 9 5 9 1 1 , n a l p , 0 6 2 0 9 1 9 9 2 , 9 7 - - - - 6 5 4 , 1 4 7 , 3 ) 8 3 3 , 3 5 2 , 1 ( - 3 4 2 , 7 2 1 ) 2 5 3 , 2 1 1 ( ) 4 1 5 , 3 6 4 , 1 ( - - - - - - - - ) 2 2 5 ( ) 2 6 3 , 1 9 3 ( 6 5 4 , 1 4 7 , 3 ) 8 3 3 , 3 5 2 , 1 ( 7 5 8 , 9 9 7 5 8 , 9 9 - - - - - - - - - - - - - - 3 4 2 , 7 2 1 - 2 2 5 - - - - - - - - - - - 9 - - - 2 6 3 , 1 9 3 - - - - - - - , 4 1 2 8 0 1 3 , 1 9 9 1 , ) 9 7 4 0 2 7 ( , 7 6 3 7 2 , ) 1 3 5 6 4 5 ( , 0 9 0 6 0 4 , 5 6 3 0 9 4 , , 5 3 4 2 0 0 9 , - 1 4 7 - - 6 0 4 , 4 4 4 , 1 9 1 7 , 0 3 1 - - 9 9 2 , 9 7 . S F A . r o F . 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 ( 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 - - - - - - - 4 8 0 1 2 6 , - - - - - - - - , 4 3 7 1 8 0 9 , - n r a e d e n i a t e r o t d e r 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 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 - r e p p h s i r e n w o n i e g n a h C r a e y e h t f o t fi o r p t e N e g a t n e c f o e u l a v r i a f t a e g n a h c t e N ) s e s s o l ( s g n i d i a p d n e d i v i D 4 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 S F A 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 k s i r k c o t s l 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 e h t f o d n e e h t t a e c n a l a B r a e y 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 a i c r e m m o C e v r e s e R 4 1 0 2 , 1 3 r e b m e c e D n o - - 8 4 3 , 9 2 ) 3 4 8 , 5 5 0 , 1 ( - - - - 7 7 3 , 6 0 0 , 3 ) 1 1 1 ( - ) 1 4 1 ( - 1 8 1 , 9 8 ) 4 4 8 , 3 7 8 ( - 5 - - - , 8 4 0 2 1 8 0 1 , 0 2 5 7 4 , - - - - ) 6 4 1 ( 8 8 4 , 6 0 0 , 3 ) 3 4 8 , 5 5 0 , 1 ( ) 4 4 8 , 3 7 8 ( - - - - - - - - - - ) 0 7 4 , 3 2 ( 8 8 4 , 6 0 0 , 3 ) 1 4 8 , 4 5 0 , 1 ( - - - - - - - - P G E l a t o T s d n a s u o Th t s e r e t n I y t i r o n i M 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 p i h s r e n w o t fi o r p t e N r a e y e h t r o f s k s i r e v r e s e r g n i k n a B , 8 2 5 4 6 7 0 1 , n a l p , 1 6 7 4 6 1 8 4 3 , 9 2 - - ) 2 8 6 , 3 6 ( ) 2 4 8 , 5 2 3 , 1 ( 1 8 1 , 9 8 1 8 1 , 9 8 - - 6 2 7 , 1 0 1 ) 6 2 7 , 1 0 1 ( . S F A . r o F . 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 ( 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 - - - - - - - - - ) 4 4 8 , 3 7 8 ( - 7 8 3 , 2 - - - - - - - - - ) 6 2 8 , 2 9 ( 0 7 4 , 3 2 ) 2 0 0 , 1 ( - - ) 6 4 1 ( - - - - - - - - - - 6 2 8 , 2 9 - - - - - - - - 1 2 1 , 7 7 2 , 1 6 1 0 , 0 1 1 - - - - - - - - - ) 2 1 8 , 0 0 0 , 3 ( - 0 6 1 , 0 3 0 , 3 , 3 5 1 4 0 4 2 , 7 1 7 3 0 1 , 5 6 3 3 5 1 , 6 0 8 7 1 1 , ) 3 5 8 8 6 5 ( , , 5 5 9 6 3 0 2 , 9 4 3 0 8 3 , , 5 7 2 2 7 9 5 , , 6 2 1 7 0 0 2 1 , 4 1 4 7 4 , , 2 1 7 9 5 9 1 1 , , 0 6 2 0 9 1 , 4 1 2 8 0 1 3 , 1 9 9 1 , ) 9 7 4 0 2 7 ( , 7 6 3 7 2 , ) 1 3 5 6 4 5 ( , 0 9 0 6 0 4 , 5 6 3 0 9 4 , , 5 3 4 2 0 0 9 , - n r a e d e n i a t e r o t d e r 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 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 ) s e s s o l ( s g n i d i a p d n e d i v i D 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 e p p h s i r e n w o n i e g n a h C r a e y e h t f o t fi o r p t e N f o e u l a v r i a f t a e g n a h c t e N e g a t n e c 3 1 0 2 , 1 3 . r a M t n e m t s e v n i l a i c n a n fi S F A 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 k s i r k c o t s l 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 e h t f o d n e e h t t a e c n a l a B r a e y 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 a i c r e m m o C e v r e s e R 3 1 0 2 , 1 3 r e b m e c e D n o 156 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 157 Financial Statements: Consolidated notes to the consolidated financial statements for the year ended on December 31, 2014 1. General information Commercial International Bank (Egypt) S.A.E. provides retail, corporate and investment banking services in various parts of Egypt through 135 branches, and 26 units employing 5403 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, 2014 the Bank directly owns 54,988,500 shares representing 99.98% of CI Capital Holding Company’s capital and on December 31, 2014 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, 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. 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 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. 158 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 159 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 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 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 subsequently measured at fair value. Loans and receivables and held-to-maturity investments are subsequently measured at amortized cost. Gains and losses arising from changes in the fair value of the ‘financial assets designated at fair value through profit or loss’ are recognized in the income statement in ‘net income from financial instruments designated at fair value’. Gains and losses arising from changes in the fair value of available for sale investments are recognized directly in equity, until the financial assets are either sold or become impaired. When available-for-sale financial assets are sold, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. Interest income is recognized on available for sale debt securities using the effective interest method, calculated over the asset’s expected life. Premiums and discounts arising on the purchase are included in the calculation of effective interest rates. Dividends are recognized in the income statement when the right to receive payment has been established. The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, or no current demand prices available, the Bank measures fair value using valuation models. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation models commonly used by market participants. If the Bank has not been able to estimate the fair value of equity instru- ments classified as available for sale, the value is measured at cost less impairment. 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. 160 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 161 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). 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. • 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. 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. 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, 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. At the inception of the hedge, and on ongoing basis, the Bank documents whether the hedging instrument is expected to be highly effective in offsetting changes in fair values of the hedged item attributable to the hedged risk. 2.7.1. Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in profit or loss immediately together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The effective portion of changes in the fair value of the interest rate swaps and the changes in the fair value of the hedged item attributable to the hedged risk are recognized in the ‘net interest income’ line item of the income state- ment. Any ineffectiveness is recognized in profit or loss in ‘net trading income’. When the hedging instrument is no longer qualified for hedge accounting, the adjustment to the carrying amount of a hedged item, measured at amortized cost, arising from the hedged risk is amortized to profit or loss from that date using the effective interest method. 2.7.2. Derivatives that do not qualify for hedge accounting All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in the income statement. These gains and losses are reported in ‘net trading income’, except where deriva- tives are managed in conjunction with financial instruments designated at fair value , in which case gains and losses are reported in ‘net income from financial instruments designated at fair value’. Interest income and expense 2.8. Interest income and expense for all financial instruments except for those classified as held-for-trading or designated at fair value are recognized in ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that ex- actly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that represents an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once loans or debts are classified as nonperforming or impaired, the revenue of interest income will not be recognized and will be recorded off balance sheet, and are recognized as income subsequently based on a cash basis according to the following: • When all arrears are collected for consumer loans, personnel mortgages and micro-finance loans. • When calculated interest for corporate are capitalized according to the rescheduling agreement conditions until paying 25% from rescheduled payments for a minimum performing period of one year, if the customer continues to perform, the 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. 162 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 163 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 finan- cial assets classify under available for sale is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. During periods start from first of January 2009, the decrease consider significant when it became 10% from the book value of the financial instrument and the decrease consider to be extended if it continues for period more than 9 months, and if the mentioned evidences become available then any cumulative gains or losses previously recognized in equity are recognized in the income statement , in respect of available for sale equity securities, impairment losses previously recognized in profit or loss are not reversed through the income statement. 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 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, 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. 164 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 165 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. 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 in- come (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 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 and performance conditions and market performance conditions are taken into account when estimating the fair value of eq- uity instruments at the date of grant. At 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 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. 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’. 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. 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 Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.18. Other provisions Provisions for restructuring costs and legal claims are recognized when the Bank has present legal or constructive obliga- tions as a result of past events; where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. 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. 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. 166 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 167 Financial Statements: Consolidated 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 exposures arise principally in loans and advances, debt securities and other bills. There is also credit risk in off-balance sheet finan- cial arrangements such as loan commitments. The credit risk management and control are centralized in a credit risk management team in Bank treasury and reported to the Board of Directors and head of each business unit regularly. 3.1.1. Credit risk measurement 3.1.1.1. Loans and advances to banks and customers In measuring credit risk of loans and facilities to banks and customers at a counterparty level, the Bank reflects three components: • The ‘probability of default’ by the client or counterparty on its contractual obligations • Current exposures to the counterparty and its likely future development, from which the Bank derive the ‘exposure at default. • The likely recovery ratio on the defaulted obligations (the ‘loss given default’). These credit risk measurements, which reflect expected loss (the ‘expected loss model’) are required by the Basel commit- tee on banking regulations and the supervisory practices (the Basel committee), and are embedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under EAS 26, which are based on losses that have been incurred at the balance sheet date (the ‘incurred loss model’) rather than expected losses (note 3.1). The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judg- ment and are validated, where appropriate. Clients of the Bank are segmented into four rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their 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 gen- erally unsecured. In addition, in order to minimize the credit loss the Bank will seek additional collateral from the coun- terparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instru- ment. Debt securities, treasury and other governmental securities are generally unsecured, with the exception of asset- backed securities and similar instruments, which are secured by portfolios of financial instruments. 3.1.2.2. Derivatives The Bank maintains strict control limits on net open derivative positions (i.e., the difference between purchase and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the Bank (i.e., assets with positive fair value), which in relation to derivatives is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties. Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a cor- responding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank market transactions on any single day. 168 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 169 Financial Statements: Consolidated 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 at 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, 2014 December 31, 2013 Loans and advances (%) 86.55 6.77 1.97 4.71 Impairment provision (%) 33.91 11.24 5.53 49.32 Loans and advances (%) 87.65 4.93 3.44 3.98 Impairment provision (%) 31.49 5.32 19.93 43.26 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: 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 170 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 171 Financial Statements: Consolidated 3.1.5. Maximum exposure to credit risk before collateral held In balance sheet items exposed to credit risk Treasury bills and other governmental notes Trading financial assets: - Debt instruments Gross loans and advances to banks Less: Impairment provision Gross loans and advances to customers Individual: - Overdraft - Credit cards - Personal loans - Mortgages - Other loans Corporate: - Overdraft - Direct loans - Syndicated loans - Other loans Unamortized bills discount Impairment provision Unearned interest Derivative financial instruments Financial investments: -Debt instruments -Investments in associates Total Off balance sheet items exposed to credit risk Financial guarantees Customers acceptances Letter of credit Letter of guarantee Total 3,370,444 132,673 (14,582) 1,438,217 1,010,014 5,729,054 325,266 20,934 6,598,541 25,008,383 12,645,169 216,429 (5,568) (3,441,757) (859,052) 52,188 36,383,095 181,661 119,262,224 2,453,307 757,509 1,289,834 23,262,617 27,763,267 2,096,838 153,833 (21,411) 1,173,943 765,624 4,181,386 383,144 10,842 5,015,511 24,125,579 9,630,556 109,232 (6,635) (2,842,840) (708,390) 103,085 26,899,651 192,753 94,928,130 2,480,060 472,351 750,766 14,959,323 18,662,500 Dec. 31, 2014 EGP Thousands 30,471,115 Dec. 31, 2013 EGP Thousands 23,665,429 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, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands Loans and advances to customers 48,117,365 2,397,998 2,476,644 52,992,007 3,441,757 5,568 859,052 48,685,630 Loans and advances to banks 107,617 - 25,056 132,673 14,582 - - 118,091 Loans and advances to customers 40,727,364 2,790,527 1,773,225 45,291,116 2,842,840 6,634 708,390 41,733,252 Loans and advances to banks 123,630 - 30,203 153,833 21,411 - - 132,422 Impairment provision losses for loans and advances reached EGP 3,456,339 thousand. During the year the Bank’s total loans and advances increased by 16.90% . 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. The above table represents the Bank Maximum exposure to credit risk on December 31, 2014, 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 40.97% of the total maximum exposure is derived from loans and advances to banks and customers while investments in debt instruments represents 33.33%. 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: • 93.32% of the loans and advances are concentrated in the top two grades of the internal credit risk rating system. • 95.34% of loans and advances portfolio are considered to be neither past due nor impaired. • Loans and advances assessed individualy are valued EGP 2,501,700. • The Bank has implemented more prudent processes when granting loans and advances during the financial year ended on December 31, 2014. • 96.46% of the investments in debt Instruments are Egyptian sovereign instruments. 172 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 173 Financial Statements: Consolidated - - s k n a b 1 6 7 , 6 0 1 0 3 3 , 1 1 1 9 0 8 1 1 , s d n a s u o Th P G E d n 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 o t s e c n a v d a s r e m o t s u c o t s e c n a v d a 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 6 1 8 , 6 5 8 4 2 6 , 5 8 7 9 6 4 , 8 0 2 , 3 1 4 3 , 9 9 6 , 4 4 , 0 5 2 0 5 5 9 4 , - - 6 6 5 , 7 1 3 1 0 , 4 9 1 9 7 5 1 1 2 , 4 2 9 , 9 7 4 3 5 6 , 6 7 3 5 3 8 , 3 7 2 3 5 , 0 7 0 , 1 1 6 0 5 , 0 9 3 2 9 7 , 3 7 4 2 8 3 , 2 7 2 , 2 7 7 2 , 9 9 6 , 9 1 7 4 8 , 7 4 7 9 1 , 3 1 3 3 2 1 , 2 7 1 1 1 6 , 3 7 5 , 5 , 4 4 9 0 0 0 2 1 , , 7 5 9 5 3 8 2 2 , , 8 7 7 6 0 1 6 , - - - - - 2 6 3 , 5 1 3 6 8 2 , 8 8 4 , 5 - - 2 8 4 , 1 4 4 8 6 1 3 , 8 6 8 , 7 7 1 4 4 , 1 3 6 0 3 , 0 5 , 1 0 9 7 4 6 5 , s d r a c t i d e r C s t f a r d r e v O 7 0 3 , 5 0 8 9 , 2 8 2 1 , 7 1 5 6 1 , 7 7 9 4 0 4 , 0 3 2 6 0 , 5 6 0 1 , 1 1 5 9 0 , 1 8 3 , 1 , 0 8 5 2 0 0 1 , , 7 6 6 7 2 4 1 , s d n a s u o Th P G E s k n a b o t s n a o l l a t o T s e c n a v d a 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 l a t o T 1 6 4 , 9 8 9 3 5 2 , 3 5 5 9 7 6 , 9 7 0 , 2 3 8 8 , 5 2 8 , 8 3 , 6 7 2 8 4 4 2 4 , - 3 1 7 3 0 5 8 4 0 , 3 0 1 , 4 6 2 4 0 1 6 4 4 , 5 3 8 3 , 6 6 3 2 7 , 9 5 4 0 4 9 , 5 6 6 , 8 6 4 6 , 1 1 8 4 5 4 , 1 6 3 7 4 4 , 9 3 4 , 1 1 0 7 , 9 5 5 , 9 1 6 6 7 , 9 6 4 0 2 , 7 7 7 4 8 , 6 2 1 2 9 7 , 2 0 3 , 4 , 2 9 4 7 9 1 9 , , 8 4 2 2 7 1 2 2 , , 9 0 6 6 7 5 4 , 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 - - 3 3 5 0 0 1 , 7 3 3 6 7 , s e g a g t r o M s n a o l l a n o s r e P 4 4 8 , 6 6 3 5 6 2 , 6 9 9 , 3 - - 6 1 5 , 2 0 6 3 9 6 3 , 8 4 5 , 4 4 9 1 5 , 4 2 3 9 3 , 3 3 , 5 2 7 8 9 0 4 , s d r a c t i d e r C s t f a r d r e v O 5 9 8 , 3 3 7 2 , 2 4 6 3 , 4 1 1 0 7 , 6 3 7 3 3 2 7 5 7 , 8 1 1 , 1 5 8 0 0 , 0 1 4 9 9 , 8 2 9 5 , 4 9 0 , 1 , 2 1 7 4 6 1 1 , e t a r o p r o C l a u d i v i d n I s n a o i l g n m r o f r e p - n o N 3 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 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 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 4 1 0 2 , 1 3 . c e D : s e d a r G : ) n o i s i v o r p t n e m r i a p m i g n i t c u d e d r e t f a ( 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 - - 3 5 2 , 1 2 1 9 6 1 , 1 1 2 2 4 2 3 1 , l a t o T 2 4 1 , 6 5 5 5 7 , 0 9 1 8 2 1 , 5 4 5 , 1 , 5 2 0 2 9 7 1 , l a t o T 7 1 9 , 7 3 1 5 6 , 5 4 1 1 5 2 , 1 8 0 , 2 , 9 1 8 4 6 2 2 , - - 4 8 8 2 2 , s n a o l 4 8 8 , 2 2 d e t a c i d n y S 7 1 6 , 7 1 2 5 9 , 5 6 8 4 2 , 9 4 7 , 7 1 8 2 3 8 0 0 3 , 0 2 9 9 6 , 9 7 9 1 1 , 9 0 3 , 1 , 8 1 1 9 0 4 1 , 9 8 3 , 9 6 7 1 4 , 7 1 2 0 9 , 8 3 4 8 0 7 5 2 5 , 2 4 7 9 9 1 6 1 7 5 9 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 e t a r o p r o C e t a r o p r o C - - 2 6 9 2 9 , s n a o l 2 6 9 , 2 9 d e t a c i d n y S 6 0 8 , 3 3 8 2 1 , 1 9 9 8 0 , 1 7 8 , 3 2 0 6 9 9 6 3 3 , 2 2 7 2 6 , 9 9 7 7 0 , 1 8 5 , 0 4 0 3 0 7 3 9 0 , 3 5 9 8 9 , 4 1 1 9 8 , 7 3 5 3 7 9 5 0 6 , 5 7 9 9 1 2 , 1 1 2 3 1 , 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 s n a o l 7 8 5 , 2 1 4 9 5 , 4 9 6 5 , 3 0 5 7 0 2 , l a n o s r e P l a u d i v i d n I l a n o s r e P l a u d i v i d n I s n a o l 3 8 3 , 9 2 5 8 , 2 5 0 7 , 2 0 4 9 4 1 , s d r a c t i d e r C s t f a r d r e v O 4 1 0 2 , 1 3 . c e D 6 8 2 , 6 5 4 9 , 7 1 4 6 0 , 3 7 1 5 9 2 7 9 1 , 9 2 1 , 5 7 5 4 , 0 3 1 2 0 , 1 5 3 7 0 6 6 8 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 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 6 4 6 , 4 7 2 1 , 5 1 3 1 9 , 5 4 1 6 8 6 5 6 1 , 1 1 2 , 1 5 0 5 0 , 0 1 4 6 8 , 2 8 2 5 2 1 4 4 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 . 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 . d n a s u o h t 0 0 7 1 0 5 , , 2 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 a u d i v i d n I 0 0 7 , 1 0 5 , 2 - l a t o T s n a o l r e h t O 8 2 4 , 3 0 8 , 1 4 7 1 , 3 l a t o T s n a o l r e h t O s n a o l 8 7 1 , 4 8 2 e t a r o p r o C d e t a c i d n y S s n a o l 9 2 2 , 2 7 2 e t a r o p r o C d e t a c i d n y S l a u d i v i d n I 1 5 0 , 2 4 5 , 1 5 9 9 , 8 1 5 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 6 2 9 , 0 2 1 9 7 , 6 s e g a g t r o M s n a o l l a n o s r e P 4 5 2 , 6 0 1 t i d e r C s d r a c 9 6 3 , 5 6 3 1 , 7 1 s t f a r d r e v O 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 4 1 0 2 , 1 3 . c e D l a u d i v i d n I 5 8 0 , 8 2 1 , 1 7 6 4 , 2 6 2 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 5 8 3 , 1 6 6 0 , 3 1 s e g a g t r o M s n a o l l a n o s r e P 9 1 5 , 2 0 1 t i d e r C s d r a c 0 4 9 , 5 3 6 5 , 4 1 s t f a r d r e v O 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 3 1 0 2 , 1 3 . c e D 174 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 175 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, 2014 Dec. 31, 2013 3,243,393 3,243,393 2,950,132 2,950,132 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 year, based on Standard & Poor’s ratings or their equivalent: Dec. 31, 2014 AAA AA- to AA+ A- to A+ Lower than A- Unrated Total Treasury bills and other gov. notes - - - - 30,548,890 30,548,890 Trading financial debt instruments - - - 35,147 3,335,297 3,370,444 Non-trading financial debt instruments 866,024 231,004 75,469 973,469 34,237,129 36,383,095 EGP Thousands Total 866,024 231,004 75,469 1,008,616 68,121,316 70,302,429 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, 2014 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 176 AnnuAl RepoRt 2014 Cairo Alex, Delta and Sinai Upper Egypt Total 30,471,115 3,370,444 132,673 (14,582) 914,041 848,436 3,619,793 273,295 20,934 5,571,965 18,269,216 11,990,771 196,029 (5,568) (3,441,757) (612,291) 52,188 36,383,095 181,661 108,221,458 - - - - 369,149 150,098 1,719,194 45,098 - 918,164 6,364,643 654,398 20,400 - - (244,534) - - - 9,996,610 - - - - 155,027 11,480 390,067 6,873 - 108,412 374,524 - - - - (2,227) - 30,471,115 3,370,444 132,673 (14,582) 1,438,217 1,010,014 5,729,054 325,266 20,934 6,598,541 25,008,383 12,645,169 216,429 (5,568) (3,441,757) (859,052) 52,188 - - 1,044,156 36,383,095 181,661 119,262,224 s r o t c e s y r t s u d n I . 2 . 8 . 1 . 3 s d n a s u o Th P G E l a t o T l a u d i v i d n I r e h t O s e i t i v i t c a r o t c e s t n e m n r e v o G e d a r t e l a s e l o h W l i a t e r d n a e t a t s e l a e R g n i r u t c a f u n a M 5 1 1 , 1 7 4 , 0 3 3 7 6 , 2 3 1 ) 2 8 5 , 4 1 ( 4 4 4 , 0 7 3 , 3 - - - - 7 1 2 , 8 3 4 , 1 4 1 0 , 0 1 0 , 1 4 5 0 , 9 2 7 , 5 4 3 9 , 0 2 6 6 2 , 5 2 3 9 2 4 , 6 1 2 ) 8 6 5 , 5 ( 1 4 5 , 8 9 5 , 6 3 8 3 , 8 0 0 , 5 2 9 6 1 , 5 4 6 , 2 1 8 8 1 , 2 5 ) 2 5 0 , 9 5 8 ( ) 7 5 7 , 1 4 4 , 3 ( 1 6 6 , 1 8 1 5 9 0 , 3 8 3 , 6 3 7 1 2 , 8 3 4 , 1 4 1 0 , 0 1 0 , 1 4 5 0 , 9 2 7 , 5 4 3 9 , 0 2 6 6 2 , 5 2 3 - - - - - - - - ) 6 2 3 , 2 1 ( ) 3 1 8 , 4 4 1 ( - - - - - - - - - - - - - - - - 5 1 1 , 1 7 4 , 0 3 4 4 4 , 0 7 3 , 3 - - - - - - - - - - - - - 0 9 6 , 1 3 2 1 , 4 4 0 , 2 6 4 2 , 9 5 3 , 8 9 4 8 , 0 5 4 , 2 ) 0 8 7 , 5 7 2 ( ) 2 9 7 , 8 4 3 , 1 ( 3 7 6 , 7 4 9 9 5 7 , 3 1 9 , 2 4 5 9 , 0 1 3 , 3 - - - - ) 1 7 0 , 0 1 ( - 7 9 5 , 0 1 2 , 5 3 - - - 5 5 6 , 6 5 6 4 1 0 , 5 7 3 - - 0 1 1 , 1 1 ) 7 1 ( ) 5 6 5 , 9 ( , 4 2 2 2 6 2 9 1 1 , , 6 4 3 6 6 3 8 , , 6 3 3 1 3 2 1 1 , , 1 7 4 4 1 2 6 7 , , 7 9 1 3 3 0 1 , - - - - - - - - - - - - - - - - 6 1 9 , 5 9 3 3 1 6 , 0 1 5 ) 7 2 6 , 2 1 ( 2 0 9 3 9 8 , - - - - - - - - - - - - - 9 2 6 , 8 8 1 2 0 1 , 3 4 5 , 2 3 5 7 , 2 7 3 , 6 5 1 8 , 2 6 3 , 2 1 ) 0 4 7 , 3 5 4 ( ) 1 7 7 , 5 9 8 , 1 ( , 8 8 7 7 1 1 9 1 , - - 3 7 6 , 2 3 1 ) 2 8 5 , 4 1 ( l a i c n a n i F s n o i t u t i t s n i - - - - - - 2 7 0 , 1 1 9 4 5 , 7 9 9 0 0 0 , 5 1 ) 8 6 5 , 5 ( 8 8 1 , 2 5 ) 8 1 1 , 0 2 ( ) 9 8 1 , 7 1 1 ( 1 6 6 , 1 8 1 8 9 4 , 2 7 1 , 1 , 4 8 1 5 0 4 2 , 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 - 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 4 1 0 2 , 1 3 . c e D - 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 u r t s n i l a i c n a n fi e v i t a v i r 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 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 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 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 - AnnuAl RepoRt 2014 177 . 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 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-mar- ket. Non-trading portfolios include positions that primarily arise from the interest rate management of the group’s retail and commercial banking assets and liabilities, financial investments designated as available for sale and held-to-maturity. 3.2.1. Market risk measurement techniques As part of the management of market risk, the Bank undertakes various hedging strategies. the Bank also enters into interest rate swaps to match the interest rate risk associated with the fixed-rate long-term debt instrument and loans to which the fair value option has been applied . 3.2.1.1. Value at Risk The Bank applies a “Value at Risk” methodology (VaR) to its trading and non-trading portfolios, to estimate the market risk of positions held and the maximum losses expected under normal market conditions, based upon a number of as- sumptions for various changes in market conditions. VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’ amount the Bank might lose , but only to a certain level of confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed ( 1 Day). The Bank is assessing the historical movements in the 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 Foreign exchange risk Interest rate risk - For non trading purposes - For trading purposes Equities risk Portfolio managed by others risk Investment fund Total VaR 178 AnnuAl RepoRt 2014 EGP Thousands Medium 42 81,711 70,306 11,405 84 4,132 357 81,859 Dec. 31, 2014 High 351 125,871 107,791 18,080 141 6,817 549 126,094 Low 3 63,594 56,307 7,288 - 1,108 223 63,618 Medium 90 75,596 63,976 11,621 124 606 305 75,622 Dec. 31, 2013 High 540 101,790 84,950 16,840 203 1,125 491 101,827 Low 3 55,515 48,926 6,590 86 35 211 55,529 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 Non trading portfolio VaR by risk type Medium 42 Dec. 31, 2014 High 351 11,405 84 4,132 357 12,451 18,080 141 6,817 549 18,815 Low 3 7,288 - 1,108 223 8,790 Medium 90 Dec. 31, 2013 High 540 11,621 124 606 305 11,654 16,840 203 1,125 491 16,876 Low 3 6,590 86 35 211 6,621 Medium Dec. 31, 2014 High Low Medium Dec. 31, 2013 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. 107,791 107,791 63,976 63,976 70,306 70,306 48,926 48,926 56,307 56,307 84,950 84,950 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, 2014 Financial assets Cash and balances with Central Bank Due from banks Treasury bills and other govern- mental notes Trading financial assets Gross loans and advances to banks Gross loans and advances to customers Derivative financial instruments Financial investments - Available for sale - Held to maturity Investments in 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 Equivalent EGP Thousands Total Other GBP 6,541,660 628,368 107,245 1,499,808 5,509,635 2,296,965 48,561 87,485 176,422 128,106 27,731,288 4,121,980 164,843 3,762,718 - - 117,655 - 15,018 - - - - - - 7,502,256 9,521,999 32,018,111 3,762,718 132,673 31,720,497 20,335,620 700,353 175,562 59,975 52,992,007 22,221 29,874 93 - - 52,188 26,431,907 9,160,746 180,845 107,051,690 1,270,215 - 816 32,014,163 - - - 3,284,517 178,703 88,428,093 61,803 242,878 88,911,477 923,502 28,936,406 75,112 - 29,935,020 11,306 4,015,901 260 - 4,027,467 - - - 311,608 17,862 455,847 - - 473,709 - - - 27,702,122 9,160,746 181,661 364,503 143,026,481 12 138,712 - - 1,131,385 121,974,959 137,175 242,878 138,724 123,486,397 18,140,213 2,079,143 (742,950) (162,101) 225,779 19,540,084 AnnuAl RepoRt 2014 179 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, 2014 Up to1 Month 1-3 Months 3-12 Months 1-5 years Over 5 years Non- Interest Bearing Total - - - 4,169,262 4,085,145 847,115 2,976,212 5,631,430 23,410,469 - - - - - - 7,502,256 7,502,256 420,477 9,521,999 - 32,018,111 185,953 - 432,584 2,023,899 878,814 241,468 3,762,718 40,597 53,255 13,765 25,056 - 34,782,197 7,440,054 5,459,800 4,354,690 955,266 677,816 337,516 590,117 3,597,289 - - - - 132,673 52,992,007 5,202,738 634,699 2,765,022 - 17,481,915 5,008,560 - 46,231,758 19,015,828 35,436,484 32,491,409 3,532,552 1,150,082 - 1,468,428 - - 4,205,046 237,082 - 6,276,208 379,482 - 181,661 27,702,122 9,160,746 181,661 8,725,344 148,177,031 196,028 - 45,429,198 17,721,716 35,700 14,675,496 - 22,466,531 - 686,676 899,657 1,131,385 20,995,342 121,974,959 1,533,838 3,051,479 35,640 - 621,189 72,700 5,314,846 36,598 21,049 143,678 41,553 - - 242,878 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) Long term loans Total financial liabili- ties Total interest re-pricing gap * After deducting Repos. 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 re- maining contractual maturities and the maturities assumption for non contractual products are based on there behavior studies. Dec. 31, 2014 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 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) 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) 1,095,684 19,043,624 36,598 - 18,440,963 21,049 35,701 41,652,782 143,678 - 41,041,666 41,553 - 1,131,385 1,795,924 121,974,959 242,878 - 20,175,906 18,462,012 41,832,161 41,083,219 1,795,924 123,349,222 20,615,797 17,495,479 39,589,765 52,400,429 13,549,584 143,651,054 Up to 1 month One to three months Three months to one year One year to five years Over five years Total EGP Thousands 1,373,410 14,262,658 28,091 - 14,355,336 5,314 - 31,020,534 49,299 - 36,171,294 49,449 - 1,035,861 - 1,373,410 96,845,683 132,153 15,664,159 14,360,650 31,069,833 36,220,743 1,035,861 98,351,246 16,226,911 11,735,431 29,841,047 41,734,406 14,830,199 114,367,994 47,195,662 20,794,244 14,890,514 22,508,084 1,307,865 21,967,699 128,664,068 Dec. 31, 2013 (963,904) (1,778,416) 20,545,970 9,983,325 4,968,343(13,242,355) 19,512,963 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. 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. 180 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 181 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: Dec. 31, 2014 Liabilities Derivatives financial instruments - Foreign exchange derivatives - Interest rate derivatives Total Up to 1 month One to three months Three months to one year One year to five years Over five years Total 20,477 - 20,477 22,965 259 23,224 22,065 - 22,065 9 7,998 8,007 - 63,402 63,402 65,516 71,659 137,175 Off balance sheet items Dec. 31, 2014 Letters of credit, guarantees and other commitments Total Loans commitments (Customers limit authorized not utilized) Total Up to 1 year 15,614,673 15,614,673 Up to 1 year 16,376,222 16,376,222 1-5 years Over 5 years 1,925,921 7,769,366 1,925,921 7,769,366 1-5 years Over 5 years 191,099 1,494,023 191,099 1,494,023 Total 25,309,960 25,309,960 Total 18,061,344 18,061,344 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 custom- ers - 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, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 9,521,999 132,673 9,003,951 153,833 9,521,999 132,673 9,003,951 153,833 8,523,485 44,468,522 9,160,746 71,807,425 1,131,385 121,974,959 242,878 123,349,222 6,514,939 38,880,878 4,197,177 58,750,778 1,373,410 96,845,683 132,153 98,351,246 8,523,485 44,468,522 9,160,746 71,807,425 1,131,385 121,974,959 242,878 123,349,222 6,514,939 38,880,878 4,197,177 58,750,778 1,373,410 96,845,683 132,153 98,351,246 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 advancesrepresents the discounted value of future cash flows expected to be collected. Cash flows are discounted us- ing the current market rate to determine fair value. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Financial Investments Investment securities include only interest-bearing assets held to maturity assets classified as available for sale are mea- sured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Due to other banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar maturity date. 3.5. Capital management For capital management purposes, the Bank’s capital includes total equity as reported in the balance sheet plus some other elements that are managed as capital. The Bank manages its capital to ensure that the following objectives are achieved: • Compliance with the legally imposed capital requirements in Egypt. • Protecting the Bank’s ability to continue as a going concern and enabling it to generate yield for shareholders and other 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 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 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. 182 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 183 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, 2014 EGP Thousands 9,081,734 2,556,950 (155,160) (625,080) 10,858,444 49 15,763 879,836 895,648 11,754,092 70,426,788 3,179,692 10,064,534 83,671,014 14.05% Dec. 31, 2013 EGP Thousands Restated** 9,002,436 2,553,824 (155,168) (726,847) 10,674,245 1,123 21,510 742,938 765,571 11,439,816 59,514,861 2,429,715 8,135,709 70,080,285 16.32% * Based on consolidated financial statement figures and in accordance with Centeral Bank of Egypt regulation issued on 24 December 2012. ** After 2013 profit distribution. 4. Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expecta- tions of future events that are believed to be reasonable under the circumstances and available information. Impairment losses on loans and advances 4.1. The Bank reviews its loan portfolios to assess impairment on monthly basis a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable 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 condi- tions 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 techniques. Where valuation techniques (as models) are used to determine fair values, they are validated and periodically reviewed by quali- fied personnel independent of the area that created them. All models are certified before they are used, and models are calibrat- ed to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. 184 AnnuAl RepoRt 2014 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, 2014 Revenue according to business segment Expenses according to business seg- ment Profit before tax Tax Profit for the year Total assets Dec. 31, 2013 Revenue according to business segment Expenses according to business seg- ment Profit before tax Tax Profit for the year Total assets EGP Thousands Corporate banking 5,341,245 SME’s 922,342 Investment banking 110,965 Retail banking 1,967,225 Total 8,341,777 (1,425,955) (401,102) 3,915,290 (1,292,163) 2,623,127 130,788,473 521,240 (170,703) 350,537 1,043,034 (15,917) 95,048 (1,760) 93,288 997,115 (964,254) (2,807,228) 1,002,971 (328,467) 674,504 10,984,700 5,534,549 (1,793,093) 3,741,456 143,813,322 Corporate banking 4,433,072 SME’s 698,163 Investment banking 291,098 Retail banking 1,666,363 Total 7,088,696 (1,626,607) (316,973) (90,548) (877,975) (2,912,103) 2,806,465 (802,003) 2,004,462 99,625,964 381,190 (119,972) 261,218 2,601,325 200,550 - 200,550 1,275,407 788,388 (248,130) 540,258 10,249,299 4,176,593 (1,170,105) 3,006,488 113,751,995 5.2. By geographical segment Dec. 31, 2014 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Dec. 31, 2013 Revenue according to geographical segment Expenses according to geographical segment Profit before tax Tax Profit for the year Total assets Cairo 7,052,514 (2,236,547) 4,815,967 (1,557,762) 3,258,205 131,901,158 Cairo 6,082,890 (2,169,463) 3,913,427 (1,084,006) 2,829,421 104,133,954 Alex, Delta & Sinai 1,027,532 (468,508) 559,024 (183,077) 375,947 10,839,735 Alex, Delta & Sinai 907,098 (654,445) 252,653 (82,660) 169,993 8,163,840 EGP Thousands Upper Egypt Total 261,731 (102,173) 159,558 (52,254) 107,304 1,072,429 8,341,777 (2,807,228) 5,534,549 (1,793,093) 3,741,456 143,813,322 Upper Egypt Total 98,709 (88,196) 10,513 (3,439) 7,074 1,454,201 7,088,697 (2,912,104) 4,176,593 (1,170,105) 3,006,488 113,751,995 AnnuAl RepoRt 2014 185 Financial Statements: Consolidated 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 8. Dividend income Available for sale securities Total 9. Net trading income Profit (losses) from foreign exchange Profit (losses) from revaluations of trading assets and liabilities in foreign currencies Profit (Loss) from forward foreign exchange deals revaluation Profit (Loss) from interest rate swaps revaluation Profit (Loss) from currency swap deals revaluation Trading debt instruments Trading equity instruments Total Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 216,234 4,341,742 4,557,976 6,856,847 6,456 123,550 - 11,544,829 (77,885) (5,209,827) (5,287,712) - (2,081) (5,289,793) 6,255,036 201,284 3,915,077 4,116,361 5,234,075 27,136 143,080 45 9,520,697 (91,504) (4,345,498) (4,437,002) (25,580) (4,367) (4,466,949) 5,053,748 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 933,311 318,126 640,682 1,892,119 (182,135) (182,135) 1,709,984 761,430 166,688 507,989 1,436,107 (128,827) (128,827) 1,307,280 Dec. 31, 2014 EGP Thousands 32,270 32,270 Dec. 31, 2013 EGP Thousands 16,915 16,915 Dec. 31, 2014 EGP Thousands 258,844 Dec. 31, 2013 EGP Thousands 442,009 2,340 (6,266) (1,282) (38,002) 501,421 1,206 718,261 4,293 (20,513) (1,098) 4,096 332,508 6,097 767,392 10. Administrative expenses 1. Staff costs - Wages and salaries - Social insurance - Other benefits 2. Other administrative expenses Total 11. Other operating (expenses) income Profits (Losses) from non-trading assets and liabilities revaluation Profits (losses) from selling property, plant and equipment Release (charges) of other provisions Others Total 12. Impairment (charge) release for credit losses Loans and advances to customers Total 13. Adjustments to calculate the effective tax rate Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands (955,765) (44,716) (38,531) (836,660) (1,875,672) (858,674) (34,796) (32,516) (648,383) (1,574,369) Dec. 31, 2014 EGP Thousands 3,396 2,106 (281,805) (433,832) (710,135) Dec. 31, 2013 EGP Thousands 89,858 741 (133,066) (396,439) (438,906) Dec. 31, 2014 EGP Thousands (588,794) (588,794) Dec. 31, 2013 EGP Thousands (915,582) (915,582) Dec. 31, 2014 EGP Thousands 5,536,338 30%-25% 1,660,851 Dec. 31, 2013 EGP Thousands 4,176,481 25.00% 1,044,120 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 * An additional temporary tax was imposed for three years starting year 2014 by tax rate 5% over one million Egyptian pound from the taxable 27,023 (55,634) 166,302 (5,449) 1,793,093 32.39% 55,869 (71,694) 140,691 1,117 1,170,103 28.02% income amount on the juridical persons’ income as per the law no. 44 of 2014. 14. Earning per share Net profit for the year 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 separate financial statement profits. Dec. 31, 2014 EGP Thousands 3,644,902 (54,674) (364,490) 3,225,738 908,173 3.55 924,749 3.49 Dec. 31, 2013 EGP Thousands 2,716,110 (40,742) (271,611) 2,403,757 908,173 2.65 919,211 2.62 186 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 187 Financial Statements: Consolidated 15. Cash and balances with Central Bank 19. Loans and advances to banks Cash Obligatory reserve balance with CBE - Current accounts Total Non-interest bearing balances 16. Due from banks Current accounts Deposits Total Central banks Local banks Foreign banks Total Non-interest bearing balances Fixed interest bearing balances Total Current balances Total 17. Treasury bills and other governmental notes 91 Days maturity 182 Days maturity 364 Days maturity Unearned interest Total 1 Reverse repos treasury bonds Total 2 Net 18. Trading financial assets Debt instruments - Governmental bonds - Other debt instruments Total Equity instruments - Companies shares - Mutual funds Total - Portfolio managed by others Total financial assets for trading Dec. 31, 2014 EGP Thousands 2,109,660 Dec. 31, 2013 EGP Thousands 1,674,626 5,392,596 7,502,256 7,502,256 3,121,614 4,796,240 4,796,240 Dec. 31, 2014 EGP Thousands 1,017,373 8,504,626 9,521,999 4,297,194 1,112,318 4,112,487 9,521,999 420,477 9,101,522 9,521,999 9,521,999 9,521,999 Dec. 31, 2014 EGP Thousands 8,539,354 8,293,655 15,107,327 (1,469,221) 30,471,115 77,775 77,775 30,548,890 Dec. 31, 2013 EGP Thousands 630,961 8,372,990 9,003,951 3,225,196 757,539 5,021,216 9,003,951 163,772 8,840,179 9,003,951 9,003,951 9,003,951 Dec. 31, 2013 EGP Thousands 6,534,713 7,197,086 11,010,950 (1,077,320) 23,665,429 - - 23,665,429 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 3,335,297 35,147 3,370,444 - 150,806 150,806 241,468 3,762,718 2,047,967 48,871 2,096,838 8,883 136,008 144,891 53,491 2,295,220 Time and term loans Less: Impairment provision Total Current balances Non-current balances Total 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, 2014 EGP Thousands 132,673 Dec. 31, 2013 EGP Thousands 153,833 (14,582) 118,091 93,035 25,056 118,091 (21,411) 132,422 102,220 30,202 132,422 Dec. 31, 2014 EGP Thousands 21,411 (6,915) 86 14,582 Dec. 31, 2013 EGP Thousands 29,299 (9,225) 1,337 21,411 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 1,438,217 1,010,014 5,729,054 325,266 20,934 8,523,485 6,598,541 25,008,383 12,645,169 216,429 44,468,522 52,992,007 (5,568) (3,441,757) (859,052) 48,685,630 21,190,611 27,495,019 48,685,630 1,173,943 765,624 4,181,386 383,144 10,842 6,514,939 4,910,811 24,125,579 9,630,556 109,232 38,776,178 45,291,117 (6,635) (2,842,840) (708,390) 41,733,252 16,679,527 25,053,725 41,733,252 Analysis for impairment provision of loans and advances to customers Dec. 31, 2014 Overdraft Credit cards Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance 9,231 1,318 - 1 10,550 8,391 635 (7,245) 5,653 7,434 Individual Personal loans 82,661 (1,538) - 30 81,153 Real estate loans 13,784 (5,362) - - 8,422 Other loans Total 3,209 17,725 - - 20,934 117,276 12,778 (7,245) 5,684 128,493 188 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 189 Financial Statements: Consolidated Dec. 31, 2014 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans 334,202 155,711 - - 1,850 491,763 1,953,331 221,618 (19,982) 4,285 13,174 2,172,426 Corporate Syndicated loans 433,064 205,719 - - 5,442 644,225 Other loans Total 4,967 (117) - - - 4,850 2,725,564 582,931 (19,982) 4,285 20,466 3,313,264 Dec. 31, 2013 Overdraft Credit cards Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Ending balance 10,753 270 (2,756) 964 9,231 8,328 2,568 (7,254) 4,749 8,391 Individual Personal loans 74,436 8,225 - - 82,661 Real estate loans 13,377 407 - - 13,784 Other loans Total 1,091 2,118 - - 3,209 107,985 13,588 (10,010) 5,713 117,276 Dec. 31, 2013 Beginning balance Charged (Released) during the year Write off during the year Recoveries during the year Exchange revaluation difference Ending balance Overdraft Direct loans 209,551 118,563 - - 6,088 334,202 1,242,016 663,120 (6,811) 13,906 41,100 1,953,331 Corporate Syndicated loans 336,569 129,671 (81,425) 31,418 16,831 433,064 Other loans Total 5,102 (135) - - - 4,967 1,793,238 911,219 (88,236) 45,324 64,019 2,725,564 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. 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 currencies derivatives - Forward foreign exchange contracts - Currency swap - Options Total 1 Interest rate derivatives - Interest rate swaps Total 2 - Commodity 3 Total assets (liabilities) for trading derivatives (1+2+3) 21.1.2. Fair value hedge Interest rate derivatives - Governmental debt instruments hedging - Customers deposits hedging Total 4 Total financial derivatives (1+2+3+4) Notional amount 1,761,253 3,928,336 319,390 278,504 1,041 621,189 4,276,937 Dec. 31, 2014 Dec. 31, 2013 Assets Liabilities Notional amount Assets Liabilities 2,364 19,857 3,887 26,108 1,575 1,575 - 14,209 1,250,176 47,594 3,713 65,516 434 434 - 1,990,431 38,331 389,502 - 13,376 22,576 13,794 49,746 6,679 6,679 - 18,955 12,312 13,794 45,061 3,744 3,744 - 27,683 65,950 56,425 48,805 - 63,402 603,658 - 57,476 24,505 24,505 52,188 7,823 3,847,747 71,225 137,175 46,660 46,660 8,598 66,074 103,085 114,879 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 63,402 thousand at December 31, 2014 against EGP 57,476 thousand at the December 31, 2013, Resulting in net losses form hedging instruments at December 31, 2014 EGP 5,926 thousand against net gain EGP 40,233 thousand at the Decem- ber 31, 2013. Losses arises from the hedged items at December 31, 2014 reached EGP 232 thousand against losses arises EGP 48,857 thousand at December 31, 2013. The Bank uses interest rate swap contracts to cover part of the risk of potential increase in fair value of its fixed rate cus- tomers deposits in foreign currencies. Net derivative value resulting from the related hedging instruments is EGP 16,682 thousand at the end of December 31, 2014 against EGP 38,063 thousand at December 31, 2013, Resulting in net losses form hedging instruments atDecember 31, 2014 EGP 21,380 thousand against net losses EGP 52,093 thousand at December 31, 2013. Gains arises from the hedged items at December 31, 2014 reached EGP 45,094 thousand against gains EGP 60,224 thousand at December 31 , 2013. 190 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 191 Financial Statements: Consolidated 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 Dec. 31, 2014 EGP Thousands Dec. 31, 2013 EGP Thousands 27,249,861 87,770 364,491 27,702,122 9,133,233 27,513 9,160,746 36,862,868 35,617,223 1,245,645 36,862,868 35,211,927 1,171,168 36,383,095 Available for sale financial investments 21,177,428 7,463,492 (4,519,339) Held to maturity financial investments 4,215,788 - (18,611) 124,231 (834,814) (32,894) 23,378,104 23,378,104 9,079,241 (4,854,894) 38,176 121,246 (59,751) 27,702,122 - - - 4,197,177 4,197,177 4,963,569 - - - - 9,160,746 22,556,423 86,327 735,354 23,378,104 4,169,664 27,513 4,197,177 27,575,281 25,972,996 1,602,285 27,575,281 25,801,806 1,097,845 26,899,651 Total EGP Thousands 25,393,216 7,463,492 (4,537,950) 124,231 (834,814) (32,894) 27,575,281 27,575,281 14,042,810 (4,854,894) 38,176 121,246 (59,751) 36,862,868 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 subsidiaries and associates Profit (Loss) from selling held to maturity debt investments Total Dec. 31, 2014 EGP Thousands 83,131 (59,751) (52,480) (22) (29,122) Dec. 31, 2013 EGP Thousands 4,363 (32,894) - (141) (28,672) 23. Investments in associates Dec. 31, 2014 Company’s country Company’s assets Company’s liabilities (without equity) Company’s revenues Company’s net profit Investment book value EGP Thousands Stake % Associates - Commercial Internation- al Life Insurance - Corplease - Haykala for investment - Egypt Factors - International Co. for Security and Services (Falcon) Total Egypt Egypt Egypt Egypt Egypt 2,861,447 2,762,148 2,374,952 4,742 401,466 2,148,954 236 345,515 267,286 413,070 276 33,711 8,671 22,437 155 (1,488) 59,500 102,237 1,518 816 141,818 102,994 148,811 8,229 17,590 45 43 40 39 40 5,784,425 5,359,847 863,154 38,004 181,661 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 Thousands Stake % Associates - Commercial Internation- al Life Insurance - Corplease - Haykala for Investment - Egypt Factors - International Co. for Security and Services (Falcon) Total 24. Investment property * Egypt Egypt Egypt Egypt 2,202,121 2,124,147 1,921,221 4,574 434,219 1,723,877 199 379,405 302,443 378,253 581 32,680 5,621 16,885 479 426 53,757 88,282 1,465 40,881 Egypt 126,868 104,633 120,222 5,344 8,367 45 43 40 39 40 4,689,003 4,332,261 834,179 28,755 192,753 Land No. A2-Q46 Al-koseer Marsa Allam Land, warehouse, 9 property and 2 housing units Al-koseer Marsa Allam Land No. M8A and M8A8 and M9A Al-koseer Marsa Allam Total Dec. 31, 2014 EGP Thousands 2,642 65,950 815,502 884,094 Dec. 31, 2013 EGP Thousands - - - - * Including non registered properties by EGP 884,094 thousand which were acquired against settlement of loans to customers and legal proce- dures 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 Insurance and Testament Total Dec. 31, 2014 EGP Thousands 1,870,423 109,115 145,170 1,653,149 27,351 8,867 3,814,075 Dec. 31, 2013 EGP Thousands 1,695,499 123,119 134,327 910,752 29,942 8,400 2,902,039 192 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 193 Financial Statements: Consolidated 26. Property, plant and equipment 29. Long term loans 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 Dec. 31, 2014 Land Premises IT Vehicles Fitting -out 64,500 622,110 1,017,158 62,864 397,337 Machines and equipment 331,621 Furniture and furnishing Total EGP Thousands 139,786 2,635,376 209 74,318 68,571 6,414 45,456 34,312 5,370 234,650 64,709 696,428 1,085,729 69,278 442,793 365,933 145,156 2,870,026 - - - 205,796 728,899 36,220 316,933 263,651 114,701 1,666,200 31,589 83,594 4,889 53,664 35,190 9,396 218,322 237,385 812,493 41,109 370,597 298,841 124,097 1,884,522 64,709 64,500 459,043 416,314 %5 273,236 288,259 %33.3 28,169 26,644 %20 72,196 80,404 %33.3 67,092 67,970 %20 21,059 25,085 %20 985,504 969,176 Net fixed assets value on the balance sheet date includes EGP 65,376 thousand 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 28. Due to customers Demand deposits Time deposits Certificates of deposit Saving deposits Other deposits Total Corporate deposits Individual deposits Total Non-interest bearing balances Fixed interest bearing balances Total Current balances Non-current balances Total Dec. 31, 2014 EGP Thousands 945,684 185,701 1,131,385 12,386 221,043 897,956 1,131,385 899,657 231,728 1,131,385 945,684 185,701 1,131,385 Dec. 31, 2014 EGP Thousands 30,502,057 35,408,462 31,001,139 21,603,688 3,459,613 121,974,959 61,934,339 60,040,620 121,974,959 33,961,670 88,013,289 121,974,959 88,300,091 33,674,868 121,974,959 Dec. 31, 2013 EGP Thousands 1,038,717 334,693 1,373,410 3,854 313,338 1,056,218 1,373,410 1,026,036 347,374 1,373,410 1,038,717 334,693 1,373,410 Dec. 31, 2013 EGP Thousands 22,949,345 30,507,693 25,259,129 16,786,188 1,343,328 96,845,683 48,299,668 48,546,015 96,845,683 24,292,673 72,553,010 96,845,683 70,206,368 26,639,315 96,845,683 Financial Investment & Sector Coopera- tion (FISC) Environmental Compliance Project (ECO) 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 3.5 - 5.5 depends on maturity date 3 months T/D or 9% which is more Interest rate % Maturity date Maturing through next year EGP Thousands Balance on Dec. 31, 2014 EGP Thousands Balance on Dec. 31, 2013 EGP Thousands 3-5 years - - 3-5 years 1,315 1,690 556 - 3-5 years 83,811 105,075 31,380 57,222 136,113 100,217 142,348 242,878 132,153 Dec. 31, 2014 EGP Thousands 629,260 515,716 1,171,126 293,350 2,609,452 Dec. 31, 2013 EGP Thousands 564,961 351,866 481,478 78,652 1,476,957 Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 14,045 29,048 31,000 362,721 17,885 454,699 8,210 13,143 - 261,689 3,682 286,724 - 18 - (3,863) (12) (3,857) (110) (1,318) - - (5,370) (6,798) - (456) - - - (456) Beginning balance Charged amounts Exchange revaluation difference Utilized amounts Reversed amounts 14,962 28,620 - 257,901 14,006 315,489 3,625 1,322 31,000 88,074 8,936 132,957 - 2 - 16,746 31 16,779 (4,542) (754) - - (5,088) (10,384) - (142) - - - (142) Ending balance EGP Thousands 22,145 40,435 31,000 620,547 16,185 730,312 Ending balance EGP Thousands 14,045 29,048 31,000 362,721 17,885 454,699 * Provision for other claim formed on December 31, 2014 amounted to EGP 3,682 thousand to face the potential risk of banking operations against amount EGP 8,936 thousand on December 31, 2013 . 30. Other liabilities Accrued interest payable Accrued expenses Accounts payable Other credit balances Total 31. Other provisions Dec. 31, 2014 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent * Provision for other claim Total Dec. 31, 2013 Provision for income tax claims Provision for legal claims Provision for Stamp Duty Provision for contingent Provision for other claim Total 194 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 195 decision on December 22,2011 by issuance of third tranch for E.S.O.P program. Details of the outstanding tranches are as follows: Financial Statements: Consolidated 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 9,081,734 thousand to be divided on 908,173 thousand shares with EGP 10 par value for each share based on: • Increase issued and Paid in Capital by amount EGP 33,119 thousand 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 thousand on April 9, 2012 in according to Board of Directors • Increase issued and Paid in Capital by amount EGP 29,348 thousand On April 7,2013 to reach EGP 6,001,624 thousand ac- cording 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 3,000,812 thousand on December 5, 2013 according to Board of Di- rectors decision on May 15 ,2013 by distribution of a one share for every two outstanding shares by capitalizing on the General Reserve. • Increase issued and Paid in Capital by amount EGP 79,299 thousand On March 23,2014 to reach EGP 9,081,734 thousand according to Board of Directors decision on December 10, 2013 by issuance of fourth tranch for E.S.O.P program. • The Extraordinary General Assembly approved in the meeting of June 26, 2006 to activate a motivating and rewarding program for the Bank’s employees and managers through Employee Share Ownership Plans (ESOP) by issuing a 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. 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 Assets (Liabilities) Dec. 31, 2014 EGP Thousands (28,456) Assets (Liabilities) Dec. 31, 2013 EGP Thousands (25,569) 17,970 82,888 49,335 121,737 12,531 49,219 47,376 83,557 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 year 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 Maturity date 2015 2016 2017 Total Dec. 31, 2014 No. of shares in thousand 23,918 7,038 (1,154) (7,930) 21,872 EGP Exercise price 10.00 10.00 10.00 EGP Fair value * 6.65 16.84 22.84 The fair value of granted shares is calculated using Black-Scholes pricing model with the following: 8th tranche 10 32.58 3 12.4% 3.07% 35% Exercise price Current share price Expected life (years) Risk free rate % Dividend yield% Volatility% Volatility is calculated based on the daily standard deviation of returns for the last three years. Dec. 31, 2013 No. of shares in thousand 15,440 12,245 (832) (2,935) 23,918 No. of shares in thousand 9,475 5,636 6,761 21,872 7th tranche 10 34.57 3 14% 2.89% 40% 35. Reserves and retained earnings (losses) 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 Transferred from previous year profits Ending balance Dec. 31, 2014 EGP Thousands 621,084 1,850,496 (155,160) 28,108 (593,236) 2,513 1,753,805 Dec. 31, 2013 EGP Thousands 490,365 406,090 (546,531) 27,367 (720,479) 1,991 (341,197) Dec. 31, 2014 EGP Thousands 1,991 522 2,513 Dec. 31, 2013 EGP Thousands 103,717 (101,726) 1,991 Dec. 31, 2014 EGP Thousands 490,365 130,719 621,084 Dec. 31, 2013 EGP Thousands 380,349 110,016 490,365 196 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 197 Financial Statements: Consolidated 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 in owner ship percentage 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, 2014 EGP Thousands (720,479) 127,243 (593,236) Dec. 31, 2013 EGP Thousands 153,365 (873,844) (720,479) Dec. 31, 2014 EGP Thousands (546,531) - 9 391,362 (155,160) Dec. 31, 2013 EGP Thousands (568,853) (1,002) (146) 23,470 (546,531) Dec. 31, 2014 EGP Thousands 7,502,256 9,521,999 30,548,890 (3,497,164) (5,007,462) (22,110,185) 16,958,334 Dec. 31, 2013 EGP Thousands 4,804,974 9,003,951 23,665,429 (3,224,659) (5,148,331) (17,212,738) 11,888,626 37. Contingent liabilities and commitments 37.1. Legal claims There are a number of existing cases filed against the bank on December 31,2014 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 26,991 thousand as follows: EGP Thousands Available for sale financial investments Investments value 88,658 Remaining 26,991 Paid 61,666 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 21,801 thousand. 37.3. Letters of credit, guarantees and other commitments Letters of guarantee Letters of credit (import and export) Customers acceptances Total Loans commitments (Customers limit authorized not utilized) Dec. 31, 2014 EGP Thousands 23,262,617 1,289,834 757,509 25,309,960 Dec. 31, 2013 EGP Thousands 14,959,323 750,766 472,351 16,182,440 Dec. 31, 2014 EGP Thousands 18,061,344 Dec. 31, 2013 EGP Thousands 17,335,889 38. Mutual funds Osoul fund • The Bank established an accumulated return mutual fund under license no.331 issued from capital market authority on February 22, 2005 CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 21,767,210 with redeemed value EGP 5,075,460 thousands. • The market value per certificate reached EGP 233.17 on December 31, 2014. • The Bank portion got 601,064 certificates with redeemed value EGP 140,150 thousands. Istethmar fund • CIB bank established the second accumulated return mutual fund under license no.344 issued from capital market au- thority on February 26, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 2,165,060 with redeemed value EGP 210,790 thousands. • The market value per certificate reached EGP 97.36 on December 31, 2014. • The Bank portion got 194,744 certificates with redeemed value EGP 18,960 thousands. Aman fund ( CIB and Faisal Islamic Bank Mutual Fund) • The Bank and Faisal Islamic Bank established an accumulated return mutual fund under license no.365 issued from capi- tal market authority on July 30, 2006. CI Assets Management Co.- Egyptian joint stock co - manages the fund. • The number of certificates issued reached 792,639 with redeemed value EGP 46,219 thousands. • The market value per certificate reached EGP 58.31 on December 31, 2014. • The Bank portion got 71,943 certificates with redeemed value EGP 4,195 thousands. 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 170,505 with redeemed value EGP 25,893 thousands. • The market value per certificate reached EGP 151.86 on December 31, 2014. • The Bank portion got 50,000 certificates with redeemed value EGP 7,593 thousands. 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 1,128,851 with redeemed value EGP 163,604 thousands. • The market value per certificate reached EGP 144.93 on December 31, 2014. • The Bank portion got 52,404 certificates with redeemed value EGP 7,595 thousands. 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 Thousands 930,665 461,488 118,289 39.2. Other transactions with related parties International Co. for Security & Services Corplease Co. Commercial International Life Insurance Co. Income EGP Thousands 911 41,715 5,028 Expenses EGP Thousands 49,296 31,338 3,300 198 AnnuAl RepoRt 2014 AnnuAl RepoRt 2014 199 Financial Statements: Consolidated 40. Main currencies positions Egyptian pound US dollar Sterling pound Japanese yen Swiss franc Euro 41. Tax status Dec. 31, 2014 EGP Thousands (141,124) 63,391 (279) 20 (442) 2,348 Dec. 31, 2013 EGP Thousands (34,719) 6,897 21,249 242 (297) 2,247 Corporate income tax The Bank’s corporate income tax position has been examined, paid and settled with the tax authority from the start up of operations up to the end of year 1984. Corporate income tax for the years from 1985 up to 2000 has been examined, paid and settled 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, paid and settled with the tax authority from Year 2001 up to Year 2006. The Bank’s corporate income tax position has been examined and paid with the tax authority from Year 2007-2012. Salary tax The Bank’s salary tax has been examined, paid and settled from the beginning of the activity until the end of 2010. The Bank’s salary tax has been examined and paid for the period 2011-2012. The Bank’s salary tax under examination for the year 2013. Stamp duty tax The Bank stamp duty tax has been examined and paid from the beginning of the activity until 31/7/2006 and the disputes are under discussion in the court of law and the tax appeal committee. The Bank stamp duty tax were examined stamp tax for the period from 1/8/2006 until 31/12/2010 according to law No. 143 for the year 2006 points of disagreement were converted into internal committee. The Bank’s stamp duty tax position under examination for the period from 2011 until the first quarter of 2013. 200 AnnuAl RepoRt 2014 Financial Statements: Consolidated 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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